DBRS Confirms Market Mall at “A” with a Stable Trend

DBRS has today confirmed the “A” rating for the 6.46% FM Bonds of Market Mall (Cadillac & Cambridge) (Market Mall or the Shopping Centre). The credit profile remains stable with support from strong sales performance, improving credit metrics and favourable economic conditions in Alberta. The current rating is based on the performance of the Shopping Centre and reflects the following factors:

(1) Market Mall continues to benefit from solid consumer spending levels and a healthy, oil-and-gas-based economy in Calgary. The Shopping Mall achieved year-over-year growth in sales performance with a significant uplift in commercial retail unit (CRU) sales per square foot of $731, representing an increase of 15%. This level of sales performance ranks among the top compared with other regional shopping centres rated by DBRS. DBRS expects sales performance to remain strong throughout 2007 and believes the strong demand for retail space in Calgary will continue in the near term. This is evidenced by the low CRU vacancy rates at Market Mall (5% in 2006).

(2) The Shopping Centre continues to garner the benefits of its major redevelopment completed in 2004. Year-over-year net operating income (NOI) increased by 4.5%, driven by higher average CRU rental rates for F2006. This improvement is highlighted by the moderate increase in coverage ratios for the Shopping Centre. For F2006, interest coverage and debt service ratios were 3.51 times and 2.43 times, respectively, and compare favourably with other shopping centres rated by DBRS.

(3) Bondholders have full recourse back to (a) The Cadillac Fairview Corporation Limited (CFCL) for 50%, and (b) Ivanhoe Cambridge I Inc. and Ivanhoe Cambridge II Inc. (together Ivanhoe Cambridge) for 50% (collectively, the Co-Owners) on a several basis, in proportion to their respective interests. DBRS views the Co-Owners as solid investment-grade credits.

(4) The Shopping Centre’s loan-to-value is conservative with $122.7 million in outstanding debt as at October 31, 2006.

The rating is also limited by the following constraints: (1) Market Mall’s anchor tenants (The Bay and Zellers) 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, that any potential disruption would likely be short term in nature, given the overall quality and location of the Shopping Centre. Overall, DBRS views this risk as manageable considering the Shopping Centre’s noted credit strengths and has reflected this in the current rating category.

(2) Market Mall has a moderate amount of space maturing over the 2008 to 2009 period, including Zellers in 2008. While this presents exposure to re-leasing risk, DBRS considers this manageable and does not anticipate any leasing challenges, particularly given the Shopping Mall’s strong performance of late.

Overall, DBRS expects that Market Mall will likely continue to exhibit a strong level of NOI and solid operating metrics in the favourable economic climate of Alberta, providing underlying support to the credit profile in 2007.

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