DBRS Morningstar Confirms Ratings on First-Mortgage Bonds Issued by West Edmonton Mall Property Inc.

DBRS Limited (DBRS Morningstar) confirmed the ratings on the first-mortgage bonds (collectively, the Bonds) issued by West Edmonton Mall Property Inc. as follows:

-- 4.309% First Mortgage 10-Year Interest Only Series B1 Bonds at A (sf)
-- 4.056% First Mortgage 10-Year Amortizing Series B2 Bonds at A (sf)

All trends remain Negative.

The rating confirmations reflect DBRS Morningstar’s view that the collateral property is generally well positioned to return to pre-Coronavirus Disease (COVID-19) pandemic levels, with performance relatively stable despite a dip in the in-place cash flows for 2020 compared with the prior year’s figures. However, given the uncertainty regarding the timeline for a return to pre-pandemic traffic levels, particularly as new virus strains could bring the need for a return to certain social distancing measures, Negative trends were maintained as a reflection of these moderately increased risks.

The Bonds, which are secured by West Edmonton Mall in Edmonton, were issued on January 20, 2014, with a 10-year term and mature on February 13, 2024. As of February 13, 2021, the total outstanding balance of the Bonds was approximately $776.4 million; the Bonds are scheduled to amortize to $711.9 million at maturity.

West Edmonton Mall is a destination retail entertainment complex comprising three components: a two-level super-regional shopping centre containing 2.6 million square feet (sf) of gross leasable area (GLA); a 355-key Fantasyland Hotel; and 557,000 sf of parks and attractions. The property is situated on a 108.24-acre site located in the western sector of the city approximately 11 kilometres from the downtown core. There are 11,688 parking spaces located in a decked parking structure, a new parkade, and a leased overflow parking lot. The shopping centre, which is anchored by Hudson’s Bay Company (6.1% of GLA with lease expiration in 2031), Simons (4.6% of GLA with lease expiration in 2032), and Starlight Casino (4.2% of GLA with lease expiration in 2037), benefits from a diversified tenancy of more than 800 stores, restaurants, and services. Lease rollover is fairly well balanced during the term of the Bonds, totalling approximately 28.1% of total retail GLA and ranging from 1.9% to 10.4% on an annual basis.

According to the latest accounts receivable report, as at April 9, 2021, the average monthly rental collections for the first four months of 2021 was 76.1%, down from the average of 91.5% for 2020. The collected rents do not include any amounts received under the Canada Emergency Commercial Rent Assistance program. The shopping centre, along with the parks and attractions, is now open for business while the hotel has remained open throughout the pandemic. The retail occupancy as of March 31, 2021, was 87.5% and the average sales for the 12-month period ended March 31, 2021, was $485.00 per sf, a 32.4% decline from a year ago. For the hotel component, as of March 31, 2021, the year-to-date occupancy was 27.4% with an average room rate of $285.60, representing a revenue per available room of $78.30. On the consolidated basis, the YE2020 reported net operating income (NOI) was $107.2 million, a 22.5% decline from a year ago and -11.2% variance from the DBRS Morningstar normalized net cash flow of $121.4 million, with the YE2020 NOI debt service coverage ratio at 2.03 times.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

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

The principal methodology is the North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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