DBRS Confirms the Rating on Ontrea Inc. and OPB (155 Wellington) Inc. (RBC Centre)

DBRS Limited (DBRS) confirmed the rating of AA (sf) on the 4.619% First Mortgage Bonds, due April 9, 2018 (the Bonds) issued by Ontrea Inc. and OPB (155 Wellington) Inc. (the Issuers) and secured by the RBC Centre (the Property).

The Bonds were issued on April 7, 2011, with a seven-year term, maturing on April 9, 2018, subject to a 30-year amortization schedule, with an interest rate of 4.619% per annum, compounded semi-annually. As of April 2017, the Bonds’ outstanding balance was $267.8 million, and they will have amortized to $261.5 at maturity.

The Bonds are secured by a fee interest in the RBC Centre office building located at 155 Wellington Street West in the downtown financial core of Toronto. The total gross leasable area (GLA) is approximately 1.2 million square feet. The Property was completed in 2009 and is a Gold Leadership in Energy and Environmental Design (LEED) property. It is located on the PATH, the underground walkway that provides convenient access to public transit and commuter trains.

The RBC Centre continues to perform extremely well. As of June 30, 2017, the Property was fully leased, with the largest four anchor tenants representing 87.0% of the GLA. The largest two tenants are the Royal Bank of Canada (RBC) (rated AA with a Negative trend by DBRS), representing 45.8% of the GLA with long-term leases expiring between 2022 and 2026, and RBC Investor Services Limited, representing 25.8% of the GLA with long-term leases expiring in 2024. The third- and fourth-largest tenants are Davies Ward Phillips & Vineberg LLP, representing 9.0% of the GLA, and Fairmont Raffles Hotels International Inc., representing 6.4% of the GLA.

The Property benefits from The Cadillac Fairview Corporation Limited (Cadillac Fairview) serving as property manager. DBRS views Cadillac Fairview as a strong and experienced property manager. Cadillac Fairview owns and manages a global portfolio of industry-leading commercial properties with a value estimated at over $28 billion.

DBRS considers the term risk of the Bonds to be highly correlated with the credit of the largest tenants RBC (rated AA) and RBC Investor Services Limited, as the remaining term of the Bonds is short, and those tenants have long-term leases expiring after April 9, 2018, with in-place rents that can cover the debt service obligation.

The rating confirmation at AA (sf) is based on the remaining term risk of the Bonds and the strong refinance metrics supported by the quality of the Property, the stability of the cash flows, the sponsorship strength and the management experience. The AA (sf) rating materially deviates from the lower rating implied by the quantitative results. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative results that is a substantial component of a rating methodology. The deviation is warranted because the structural features of the loan outweigh the quantitative model output of the DBRS direct sizing hurdles, specifically the likelihood of full repayment of the Bonds at maturity.

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 rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities