DBRS Morningstar Confirms Rating on First Mortgage Bonds Issued by Fifth Avenue LP & ARI 5AP Investments LP

DBRS Limited (DBRS Morningstar) confirmed the rating on the following first mortgage bonds (the Bonds) issued by Fifth Avenue LP & ARI 5AP Investments LP (collectively, the Issuer):

-- First Mortgage Bonds at A (low) (sf)

The trend is Stable.

The rating confirmation reflects the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. The Bonds are secured by the Issuer’s ownership interest in Fifth Avenue Place (the Property), which is a Class AA office complex in Calgary’s downtown Central Core office submarket. The Bonds have an outstanding balance of $261.1 million (representing $171.2 per square foot (psf)) and will mature on August 5, 2021. Recourse is limited to the Property only.

The average office occupancy at the Property declined slightly to 80.4% during year-end 2020 from 81.6% during the prior year. During the same period, the net operating income (NOI) declined 11.8% because of decreases in base rents as well as parking income. As per the March 31, 2021, rent roll, the retail component (approximately 3.2% of the total net rentable area) was 99.1% leased and the office component was 81.9% leased with an average in-place office rent of $28.79 psf, which is higher than the average market rent of $22.69 psf for Class AA office properties in the Calgary Central Core submarket as reported by CBRE Limited in its “MarketView Calgary Downtown Office, Q1 2021” report. The in-place office vacancy of 18.1% is slightly higher than the average submarket vacancy of 16.5% for the Class AA office properties. Additionally, according to the Issuer, as at April 4, 2021, rent collections from all office tenants were current without any issues while the retail tenants, except for the bank tenants and a couple of retail stores, were on rent relief but remained in occupancy and planned to reopen for business (or had recently done so). Furthermore, despite the decline in property NOI and continued challenging office market conditions in Calgary, the Property continues to benefit from strong sponsorship from Brookfield Canada Office Properties (BCOP) and Alberta Investment Management Corporation as well as capable property management provided by BCOP.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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