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) on 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.

This rating reflects DBRS’s opinion on the first-dollar loss that the Lender may experience with respect to the Borrower’s interest and principal payment obligations related to 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 $80.0 million as of April 1, 2017. 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 14% 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 include Costco, Marshalls, Home Depot 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 its former landlords whose leases were terminated as part of Target Canada’s wind-down under the CCAA. The payment received by the Borrower is reflected in the financial statements for 2016. There are no co-tenancy rights that are linked with Target Canada.

Future Shop vacated its space in 2015 and did not convert the space into a Best Buy store; however, it continues to pay rent according to the terms of its lease agreement.

Over the last year, the Subject Property continued to perform well. Total vacant space as of the end of January 2017, 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. YE2016 gross income, real estate taxes, management fees and operating expenditures were in line with DBRS’s initial assumptions.

In the event that most of the space formerly occupied by Target Canada remained vacant during the term of the loan, the derived debt service coverage ratio (DSCR) would still be greater than 1.0 times.

The derived term DBRS DSCR and the derived DBRS loan-to-value (LTV) ratio 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 principal methodology is North American Single-Asset/Single-Borrower Methodology, which can be found on dbrs.com 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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.