DBRS Assigns Negative Trend to and Confirms Rating on Mortgage Loan Made to Faubourg Boisbriand Shopping Centre Holdings Inc.

DBRS Limited (DBRS) assigned a Negative trend to and confirmed the rating of BBB (low) on the 5.22% Mortgage Loan due May 1, 2021 (the Loan) made to Faubourg Boisbriand Shopping Centre Holdings Inc. The Loan was funded in 2011 and had a ten-year term with a 25-year amortization period. As of April 1, 2019, the outstanding balance of the Loan was approximately $74.8 million; the Loan will have amortized to $68.8 million at maturity.

DBRS’s current rating reflects the credit quality of the loan supported by a DBRS Exit Debt Yield of 9.9% based on DBRS’s net cash flow, which was 13.6% lower than the 2018 reported net operating income. Based on DBRS’s cap rate of 8.75%, the Loan represents current and maturity DBRS loan-to-value ratios of 96.0% and 88.3%, respectively. The DBRS value is 45.3% discount to the 2011 appraised value of $142.5 million. The Negative trend reflects an anticipated decline of occupancy and rental revenue because of the upcoming store closure of Home Outfitters as announced by Hudson’s Bay Company on February 21, 2019. Home Outfitters currently occupies 4.6% of total net rentable area and generates 6.7% of total in-place base rents.

The Loan is secured by a 649,837 square foot (sf) retail property (the Property) that is part of the 1.2 million sf Faubourg Boisbriand shopping centre located at the interchange of Highways 640 and 15 within the City of Boisbriand, Québec. The Property features several big-box tenants including The Brick, Toys “R” Us, Sobeys Inc. (rated BB (high) with a Positive trend by DBRS), HomeSense and Staples, Inc. as well as many ancillary retail space and food outlets. Other major tenants that are not part of the loan collateral include Costco, Marshalls, The Home Depot, Inc. (rated “A” with a Stable trend by DBRS) and Super C. Since the departure of Target in 2015, the Property occupancy has remained relative flat at around 80.0% from 2016 to 2018 and declined to 78.2% as of the March 13, 2019 rent roll, or 73.3% if excluding Home Outfitters. Currently, the former Target space remains vacant. From a revenue perspective, the annual reported net operating income (NOI) declined year over year since 2014, with the exception of 2017 when growth was reported. The 2018 reported NOI, excluding non-recurring lease surrender income from Bombay Home Furnishings, was 11.2% lower than 2011, when the loan was initially funded. DBRS expects the NOI to decline further upon the Home Outfitters store closure later this year. Despite declining occupancy and revenue, the subject Property enjoys its location within a 232-acre on-going redevelopment site that, in addition to the Faubourg Boisbriand shopping centre, houses an industrial park and hundreds of new housing units. Furthermore, the Property benefits from strong sponsorship from Sun Life Assurance Company of Canada (rated AA (low) with a Stable trend by DBRS) and Toronto Transit Commission Pension Fund Society.

All ratings are subject to 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 principal methodology is the North American CMBS Surveillance Methodology, which can be found on www.dbrs.com under Methodologies & Criteria. 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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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 under Related Documents or by contacting us at info@dbrs.com.

This rating was initiated at the request of the lender.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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

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