DBRS Confirms the Rating on Bankers Hall LP (Bankers Hall) at A (low) (sf)

DBRS Limited (DBRS) confirmed the rating of A (low) (sf) on the 4.377% Senior Secured Bonds (the Bonds) issued by Bankers Hall LP (the Issuer) with a 50% interest in Bankers Hall (the Property).

The Bonds were issued on November 18, 2013, with a ten-year term maturing on November 20, 2023, subject to a 30-year amortization schedule, with an interest rate of 4.377% per annum, compounded semi-annually. As of May 20, 2017, the outstanding balance on the Bonds was $281.6 million and will have amortized to $239 million at maturity.

The Bonds are secured by a 50% fee interest in the Property which represents an approximately 2.2 million square foot (sf) Class AA office complex located in downtown Calgary. It occupies the key blocks of the city’s central business district that are bounded by 9th Avenue SW, 2nd Street SW, 8th Avenue SW (also known as the Stephen Avenue Walk) and 3rd Street SW. The Property consists of three office towers (Bankers Hall East, Bankers Hall West and Royal Bank Building) and the historic Hollingsworth Building, which are connected by a four-storey office and retail podium. The Property is linked to the +15 network in Calgary, an extensive pedestrian skywalk system.

As of June 30, 2017, approximately 92% of gross leasable area (GLA) was leased. Three major tenants (Repsol Oil & Gas Canada Inc., Canadian Natural Resources Limited (rated BBB (high) with Stable trends by DBRS) and Bennett Jones Services Limited Partnership) represent 50% of the GLA. The three leases expire several years after the Bonds mature. Two of the major occupants operate in the oil and gas industry and make up approximately 42% of the GLA. These tenants’ businesses may be at potential risk should the downturn in the energy sector remain prolonged, which in turn may impact their need for office space. With the inclusion of the major three, the top ten tenants make up 74% of the GLA and include additional long-standing tenants with longer contractual leases such as Royal Bank of Canada (rated AA with a Stable trend by DBRS), CIBC Development Corporation, Blake, Cassels & Graydon LLP and RBC Dominion Securities Inc.

The Property is managed by Brookfield Office Properties Management LP, an experienced property manager with approximately $40 billion and 130 million sf managed worldwide.

DBRS’s analysis took into consideration the volatile Calgary office market which relies heavily on the energy sector, the Property vacancy rates and the lease maturity profile of the Property. Based on the June 2017 tenant roster, over 80% of the leases will expire beyond November 2023, providing a steady income stream to support the Bonds’ contractual payments up to their maturity. Overall, the financial performance of the Property is reflective of a DBRS debt service coverage ration of 1.6 times and DBRS loan-to-value ratio of 75%. The financial performance, combined with its stable rental revenue from long-term leases support the A (low) (sf) rating.

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