DBRS Places the Rating on Scotia Plaza Under Review with Developing Implications

DBRS Limited (DBRS) placed the rating of the $650 million 3.21% First Mortgage Bonds (the Bonds) of SP Limited Partnership and SP1 Limited Partnership, KS SP Limited Partnership and KS SP1 Limited Partnership, and ARI SP Limited Partnership and ARI SP1 Limited Partnership (each an Issuer and, collectively, the Issuers) secured by Scotia Plaza (the Complex) Under Review with Developing Implications. This rating action follows the announcement on September 8, 2017, that the agreements to sell Dream Office REIT’s 50% interest in Scotia Plaza (the Transaction) to its existing co-owners, KingSett Canadian Real Estate Income Fund LP and Alberta Investment Management Corporation, closed on August 23, 2017.

DBRS will review documents in connection with the Transaction in effort to evaluate any impact on security of the Bonds that may result from the Transaction.

DBRS aims to resolve the Under Review status shortly. As of July 31, 2017, approximately 88% of Scotia Plaza was leased. The Bank of Nova Scotia represents 62% of the Complex. In addition, DBRS was informed that the vacancy would be substantially reduced with committed tenancies commencing during 2018. Overall, the financial performance of the Property is reflective of a DBRS debt service coverage ratio of 1.55 times and a DBRS loan-to-value ratio of 77.1%.

All DBRS ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

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

The press release dated September 17, 2017, was amended on September 27, 2018, to revise the DBRS debt service coverage ratio to 1.55x from 1.9x and the DBRS loan-to-value ratio to 77.1% from 64%. The amendment reflected the results of the DBRS updated property analysis, which revised the 2017 DBRS net cash flow as follows:

-- Revised vacancy from prior application of a 4.4% vacancy to the actual in-place vacancy of 12.3% as at June 30, 2017.
-- Eliminated over $6.5 million base rental revenue from 100 Yonge Street, which is not part of the collateral property securing the Bonds.
-- Revised tenant improvements/leasing commissions and management fee accordingly.

The principal methodology is North American Single-Asset/Single-Borrower Methodology, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 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.

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