DBRS Confirms Burlington Mall at BBB

DBRS has today confirmed the rating on the Series III Debentures (the Debentures), due March 2013, of Burlington Mall at BBB with a Stable trend. The confirmation reflects the recourse covenants of Ivanhoe Cambridge I Inc., Ivanhoe Cambridge II Inc. and Ivanhoe Cambridge Inc. (collectively, Ivanhoe Cambridge), on which the current rating level is based.

In 2007, Burlington Mall (the Mall) experienced higher cash flow levels, improved coverage ratios and stable operating metrics following the successful completion of its multi-year expansion and development project. This project included 19,000 square feet of additional Zellers space and 15,000 square feet of new commercial retail unit (CRU) space. DBRS notes that Winners took possession of a majority of this CRU space. As a result, net operating income (NOI) increased significantly – by approximately 21% – with improving coverage ratios. For the year ended December 31, 2007, debt service and interest coverage ratios improved from 1.46 times and 1.80 times to 1.77 times and 2.44 times, respectively. Despite the considerable improvement, these coverage ratios and CRU sales performance ($380 for the year ended December 31, 2007) continue to remain below other shopping centres rated by DBRS. DBRS notes that the level of coverage ratios partially reflects the impact of the high coupon rate on the Debentures.

In 2008, DBRS expects a modest uplift in NOI and coverage metrics as a result of the capital invested over the past couple of years. In addition, minimal CRU lease maturities averaging 6.2% over the next two years, with no major tenant leases expiring, should provide underlying support to current cash flow levels and operating metrics.

Overall, DBRS believes Burlington Mall’s enhanced tenant profile and draw should continue to put the Mall in a good position to benefit from a growing local population base with nearby residential development. However, Burlington Mall will likely have to contend with an increasingly competitive retail environment that could pressure operating performance and the Mall’s anchor tenants over the medium term.

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