DBRS Confirms Rating on Faubourg Boisbriand Shopping Centre Holdings Inc. – Faubourg Boisbriand Power Centre Mortgage Loan

DBRS Limited (DBRS) has today confirmed the rating of BBB (low) to the 5.22% Mortgage Loan due May 1, 2021 (the Mortgage Loan), by a major Canadian financial institution (the Lender) to Faubourg Boisbriand Shopping Centre Holdings Inc. (the Borrower) in relation to a section of the premises that are part of Faubourg Boisbriand Power Centre (the Subject Property), representing an area of 649.838 square feet (sq. ft.).

This rating reflects DBRS’s opinion on the first dollar loss that may be experienced by the Lender, with respect to the interest and principal payment obligations of the Borrower in respect of the Mortgage Loan, solely based on the cash flows (not necessarily considering the timing of those cash flows) generated by the Subject Property, as well as on the current and/or future value of such property.

The Mortgage Loan was made on April 20, 2011, with an interest rate of 5.22% per annum, calculated monthly and compounded semi-annually, not in advance, for a term maturing on May 1, 2021, with a 25-year amortization period. The Mortgage Loan had an outstanding balance of $82.4 million as of April 1, 2016. The Mortgage Loan is secured by a fee interest in the Subject Property. At maturity, the outstanding balance under the Mortgage Loan will have amortized 17% from the current balance.

The Subject Property is primarily anchored by well-known brands with long-term leases, such as JYSK, Deco Decouverte, Staples, Golf Town, The Brick, HomeSense, Toys “R” Us and IGA. Other major tenants at Faubourg Boisbriand include Costco, Marshalls, Home Depot, Sears and Super C.

Target Canada, which was the main anchor tenant, filed for court protection in 2015 under the Companies’ Creditors Arrangement Act (the CCAA) and vacated its premises. This lease however, had a guarantee from Target Corporation, the parent company. After months of negotiations with stakeholders, on March 4, 2016, Target Canada announced that a settlement had been reached with all of Target Canada’s former landlords whose leases were terminated as part of Target Canada’s wind-down under the CCAA. The settlement provides the framework for a global consensual resolution of the CCAA proceedings and addresses the landlords’ claims against both Target Canada and Target Corporation. Subject to approval by all affected creditors, Target Canada intends to seek Court approval of the recovery plan on June 2, 2016. If the recovery plan is approved, those landlords holding guarantees from Target Corporation are expected to receive payment on account of such guarantees in exchange for a contractual release of their guarantee claims against Target Corporation.

Future Shop, another anchor tenant, vacated the space occupied in the Subject Property, as part of a strategic move to close some stores and re-open the remaining under the Best Buy label in 2015; however, it continues to pay its rent according to the terms of their lease agreement.

Over the last year, the Subject Property continued to perform well. Total vacant space as of the end of January 2016, excluding the space formerly occupied by Target Canada, remained in line with the previous year and was substantially below the allowance deducted in DBRS’s underwriting. Year-end 2015 gross income, real estate taxes, management fees and operating expenditures were in line with DBRS’s initial assumptions.

The derived DSCR exceeds 1.5 times and is expected to exceed 1.6 times at the time of refinancing, as the projected amortization of the principal balance on the Mortgage Loan most likely will more than offset the projected increase in the cost of financing.

The derived term DBRS DSCR and the derived DBRS LTV collectively support the confirmation of the BBB (low) rating.

This rating takes into consideration the in-place rental income of the Subject Property and the principal and interest payment obligations of the Borrower with respect to the Mortgage Loan, but does not take into consideration other obligations of the Borrower or any structural deficiencies that may exist in any organizational or transaction documents.

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 full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.