DBRS Confirms Rating of Morguard Realty Holdings Inc. & Bay Bloor Equities Inc. (77 Bloor Street West)

DBRS Limited (DBRS) has confirmed the rating of A (high) on the 4.964% Mortgage Loan due September 1, 2020 (the Mortgage Loan), made by a major Canadian financial institution (the Lender) to Morguard Realty Holdings Inc. & Bay Bloor Equities Inc. (the Borrowers). The Mortgage Loan is secured by a freehold interest in approximately 398,066 square feet (sf) of office, high-grade retail and storage space located at 77 Bloor Street West (the Subject Property).

This rating reflects DBRS’s opinion on the first dollar loss that may be experienced by the Lender with respect to the interest and principal payment obligations of the Borrowers in respect of the Mortgage Loan solely based on the cash flows (not necessarily considering the timing of those cash flows) generated by the Subject Property, as well as on the current and/or future value of such property.

The Mortgage Loan was originated by the Lender, subject to a 4.964% interest rate per annum, calculated monthly and compounded semi-annually, not in advance, for a term maturing on September 1, 2020, and a 25-year amortization schedule. The Mortgage Loan has an outstanding balance of $22,222,313 as of July 1, 2015.

DBRS assumes that the Borrowers will need to refinance at the end of the Mortgage Loan in 2020 to pay off the principal remaining on the Mortgage Loan and the rating considers the ability of the Borrowers to refinance.

Based on its own underwriting of the property cash flows, DBRS derived a robust term debt service coverage ratio (DSCR) supportive of the rating level. The refinance DSCR is reflective of an 8.5% constant that DBRS applied to the balloon balance of the Mortgage Loan to account for an increased cost of capital upon maturity. Overall, DBRS views the credit metrics of the Mortgage Loan to be supportive of the A (high) rating.

This rating takes into consideration the in-place rental income of the Subject Property and the principal and interest payment obligations of the Borrowers, with respect to the Mortgage Loan, but does not take into consideration other obligations of the Borrowers or any structural deficiencies that may exist in any organizational or transaction documents.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.