DBRS Confirms Lime Ridge Mall First Mortgage Bonds at A (high) (sf)

DBRS Limited (DBRS) confirmed the $181 million 5.317% First Mortgage Bonds, due 6/1/2020 (the Bonds) issued by Ontrea Inc. at A (high) (sf) with a Stable trend. The Bonds, which have interest-only payments, are secured by Lime Ridge Mall (the Property). Recourse is limited to the Property only.

The current rating reflects the credit quality of the Bonds as supported by the results of DBRS’s analytics, which indicate a DBRS Exit Debt Yield of 13.1% based on DBRS’s stressed net cash flow, which was 12.5% lower than the reported YE2018 net operating income (NOI). Based on DBRS’s implied cap rate, the interest-only Bonds represent the same current and maturity DBRS loan-to-value ratio of 59.1%.

Lime Ridge Mall continued to experience strong tenant productivity as evident by continued commercial retail unit (CRU) sales growth since the issuance of the Bonds in 2010. The YE2018 CRU sales increased to $774 per square foot (psf) from $763 psf a year ago. As of April 30, 2019, the trailing 12-month CRU sales were $780 psf. The departure of Sears in 2017 appears to have had an insignificant impact on the Property. The CRU occupancy improved to 90.0% in 2018 from 88.5% a year ago, and property NOI increased by approximately 4.5% during the same period. As the landlord continues to plan redevelopment of the former Sears store, the space is currently occupied by a temporary tenant, Urban Behavior. Additionally, following the Hudson’s Bay Company’s February 2019 announcement to close all Home Outfitters stores by the end of 2019, the store at Lime Ridge Mall (8.3% of total net rentable area and 2.3% of total in-place base rent) will be converted into Bay Home and continue its lease obligation until lease maturity in 2021. Furthermore, the Property benefits from strong sponsorship from Ontrea Inc. and capable property management by The Cadillac Fairview Corporation Limited.

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 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.

The rated entity or its related entities did 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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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