DBRS Downgrades Lime Ridge Mall First Mortgage Bonds to A (high) (sf)

DBRS Limited (DBRS) downgraded the $181 million 5.317% First Mortgage Bonds, due 6/1/2020 (the Bonds) issued by Ontrea Inc. to A (high) (sf) with a Stable trend from AA (sf). The Bonds, which have interest-only payment, are secured by Lime Ridge Mall (the Property). Recourse is limited to the Property only.

The current rating reflects the performance of the Property and potential implications of Sears Canada Inc. (Sears) vacating from the shopping centre. Over the past three years, the Property has demonstrated stable net operating income at $27.1 million, $28.0 million and $28.3 million in YE2014, YE2015 and YE2016, respectively. While commercial retail unit (CRU) occupancy fluctuated during the same period at 96.6%, 97.9%, and 96.0%, respectively, tenant sales remained strong and continued to grow as evidenced by annual CRU sales of $555 per square foot (psf), $624 psf and $697 psf, in YE2014, YE2015 and YE2016, respectively and trailing 12 months CRU sales of $742 psf as of May 31, 2017. However, the Property faces headwind as a result of the bankruptcy protection filed by Sears and its planned closure of 59 Sears stores in Canada. While the Sears store at the Property remains open and continues to pay rent, the continued Sears occupancy at the shopping centre remains uncertain. Nevertheless, the Property benefits from strong sponsorship from Ontrea Inc. and capable property management by The Cadillac Fairview Corporation Ltd. Based on DBRS net cash flow and implied cap rate, the interest-only Bonds represent the same current and maturity Loan-to-Value ratio of 57.3%.

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 principal methodology is North American Single-Asset/Single-Borrower Methodology, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had have access to the accounts and other relevant internal documents of the rated entity or its related entities.