DBRS Confirms Bow Centre Street Limited Partnership Ratings at “A”, Stable Trend

DBRS has today confirmed the ratings on the Series A, Series B and Series C secured bonds (the Bonds) of Bow Centre Street Limited Partnership (the Issuer) secured by The Bow (the Complex) at “A”, with a Stable trend. The rating confirmations reflect net operating income (NOI) reaching a stabilized level in the Complex’s first full year of receiving rent payments in accordance with DBRS’ expectations.

The ratings continue to be supported by the high quality and attractive location of the Bow, its 25-year lease to an investment grade tenant (Encana, rated BBB by DBRS), and solid debt service coverage. The ratings also consider the exposure to Encana as the Complex’s single tenant, as well as the modest step-ups in rental rates over the term of the lease. DBRS notes that a negative rating action on the Issuer could result from a material deterioration in Encana’s credit risk profile.

In terms of financial leverage, DBRS notes that total secured debt outstanding may not exceed $800 million during the term of Encana’s lease, and $365 million at the end of the lease in 2038. There is currently $790.5 million of secured bonds outstanding. The Bow’s operating performance has stabilized during its first full year of receiving rent payments (commenced on June 1, 2013), with full occupancy and over $90 million of net operating income. During the last twelve months ended June 30, 2014, debt service coverage and interest coverage ratios were 2.71 times (x) and 3.15x, respectively, in line with DBRS’s expectations. Going forward, NOI and coverage ratios are expected to improve modestly based on nominal office and parking stall rental rate increases of 0.75% and 1.50% per year, respectively, over the term of Encana’s lease.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Entities in the Real Estate Industry, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.