DBRS Upgrades Oakville Place and Southgate Shopping Centre to “A” with a Stable Trend

DBRS has today upgraded the Secured Debentures (the Debentures) of Oakville Place and Southgate Shopping Centre (Oakville and Southgate or the Properties) to “A” with a Stable trend. The rating change reflects Oakville and Southgate’s improved operating performance and solid credit metrics and the ongoing capital spending programs at each of the Properties. The rating upgrade takes into consideration the following:

(1) Southgate continues to benefit from strong consumer spending levels driven by a healthy, oil- and gas-based economy in Edmonton. Southgate achieved commercial retail unit (CRU) sales per sq. ft. of $791 for F2007, representing an increase of 9.4% year-over-year. (DBRS notes that this level of sales per sq. ft. is among the highest of DBRS-rated shopping centres.) Although the pace of sales growth in Alberta will likely moderate over the medium term, DBRS expects Southgate’s sales performance to remain strong throughout 2008 and this should translate into higher average CRU rental rates on the significant amount CRU space set to expire (29.6%) in 2008.

(2) Southgate is undergoing a $114 million expansion program that will create 120,000 sq. ft. of additional CRU space and will have significant uplift on net operating income (NOI) when it is completed in 2009-2010. The program also includes improved public transit accessibility. Oakville has successfully re-leased a portion of the vacant space (21,344 sq. ft.) formerly occupied by IGA to Winners for its new shoes and accessories concept store. Overall, these projects should further enhance the Properties’ competitive position within their respective markets and improve overall customer appeal. These projects will be funded entirely by an equity injection, providing bondholders with additional security.

(3) As a result of the favorable retail leasing environment in Edmonton, improved operating metrics at both the Properties and the capital spending projects, DBRS expects moderate growth in NOI and for the debt service coverage ratio to migrate towards the 3.50 times range over the remaining term of the Debentures.

The rating change also reflects the fact that the Properties have an excellent loan-to-value ratio, with only $69.3 million in debt outstanding as at December 31, 2007. Also, 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 takes into consideration the following challenges: (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) Oakville and Southgate are subject to considerable competition within their respective markets. Oakville competes with numerous shopping centres in the western part of the Greater Toronto Area, including Sherway Gardens and Square One. Southgate must contend with the mega-sized West Edmonton Mall.

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