DBRS Confirms Oakville Place and Southgate Shopping Centre at A (low) with a Stable Trend

DBRS has today confirmed the Secured Debentures of Oakville Place and Southgate Shopping Centre (Oakville and Southgate or the Properties) at A (low) with a Stable trend. The confirmation reflects that the Properties’ credit profile remains stable with support from improving credit metrics and solid operating fundamentals.

The current rating is based on the performance of the Properties and reflects the following:

(1) Oakville Place’s recent redevelopment and expansion project (the Project) continued to have a positive impact on Oakville’s performance. For F2006, net operating income for the Properties increased by 3%, mainly due to higher average commercial retail unit (CRU) rental rates at Oakville. Correspondingly, interest coverage and debt service coverage increased to 4.05 times and 3.13 times, respectively. These financial metrics compare well to other DBRS-rated shopping centres and are strong for the current rating category.

(2) CRU sales per square foot were also strong for F2006 ($527 for Oakville and $723 for Southgate). Southgate in particular had a strong year with a 10% year-over-year increase in CRU sales per square foot, benefiting from robust retail conditions in the Edmonton market.

(3) The Properties have an excellent loan-to-value with only $69.3 million in debt outstanding as at December 31, 2006.

(4) Bondholders have full recourse to Ivanhoe Cambridge I Inc. and Ivanhoe Cambridge II Inc. (together Ivanhoe Cambridge). DBRS views Ivanhoe Cambridge as a solid investment-grade credit.

The rating is also limited by the following constraints:

(1) The Properties anchor tenants (The Bay and Sears) continue to face significant competition from discount-type retailers and changing trends in retail formats, including new power centre layouts. DBRS believes that this could potentially result in at least one of the noted tenants undertaking strategic changes, including possible store closures. DBRS notes, however, any potential disruption would likely be short in nature given the overall quality and location of the Properties. Overall, DBRS views this risk as manageable considering the Properties noted credit strengths and has reflected this in the current rating category.

(2) Southgate has significant near-term CRU lease maturities over the 2007 to 2008 period with approximately 47% of space expiring. The improved sales performance of Southgate, however, could mitigate any downside risk on lease rollovers and may provide an opportunity to re-lease or renew leases with higher rental rates. DBRS also notes that the 21,344 square foot space formally occupied by IGA at Oakville continues to remain vacant. DBRS believes this leasing challenge is manageable considering Oakville’s improved competitive strength over the past few years. This could also provide an opportunity to achieve higher rents than under the previous lease or for other leasing endeavours.

Overall, DBRS expects the Properties’ credit profile to remain stable; the Properties should continue to further benefit from the recent capital invested in Oakville and favourable operating conditions for Southgate expected in 2007.

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