DBRS Confirms OMERS Realty Corporation (Centennial Place) at AA (low), Stable

DBRS Limited (DBRS) has today confirmed the AA (low) ratings, with Stable trends, on the $210 million Centennial Place 3.666% Senior Series A Secured Bonds due 2022 and the $210 million Centennial Place 3.04% Senior Series B Secured Bonds due 2017 (collectively, the Bonds) of OMERS Realty Corporation (the Issuer or ORC; rated AA (low) with a Stable trend by DBRS), secured by Centennial Place (the Complex). DBRS notes that its ratings reflect the overall credit risk profile of ORC and not the credit risk profile of Centennial Place on a stand-alone basis, notwithstanding the fact the recourse for the Bonds is limited to the Complex. This rationale is based on the Bonds’ being issued by ORC and not by a special-purpose entity that is properly ring-fenced from the bankruptcy risk of ORC. As such, the ratings continue to be supported by the strength of ORC’s high-quality portfolio and conservative financial profile, as well as implicit support from OMERS. In addition to these rating considerations, ORC operates under a legislative framework and has put in place a stringent covenant pattern, both of which should help to ensure the Issuer will continue to be financially managed in a prudent manner going forward. DBRS notes that ORC is (a) prohibited from issuing additional indebtedness if, post-issuance, the ratio of indebtedness to market value of assets exceeds 50%; (b) prohibited from incurring indebtedness that would increase the total encumbered assets ratio (encumbered assets/aggregate assets) to 50% or greater (encumbered assets are deemed to be those that have a loan-to-value ratio of greater than or equal to 15%); and (c) unable to add incremental leverage, unless such leverage is used to invest in real estate assets. DBRS also notes that the legislative framework makes it difficult for the ownership of ORC to change, as the Issuer must always be 100% owned by registered pension plans.

RATING DRIVERS
DBRS would consider a negative rating action should the Issuer increase its debt levels beyond expectations and/or the weak conditions in Alberta persist over the next few years, causing tenant departures and lower rents, resulting in an EBITDA coverage ratio (excluding debt guaranteed by OMERS) falling below 3.50 times.

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 methodologies are Rating Entities in the Real Estate Industry (May 2015) and DBRS Criteria: Guarantees and Other Forms of Support (February 2016), which can be found on our website under Methodologies.

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.