DBRS Morningstar Confirms Rating on First-Mortgage Bonds Issued by Bankers Hall LP

DBRS Limited (DBRS Morningstar) confirmed the rating on the following first-mortgage bonds (the Bonds) issued by Bankers Hall LP (the Issuer):

-- 4.377% Senior Secured Bonds at BBB (low) (sf)

The trend remains Negative.

The rating confirmation reflects the overall performance of the transaction, which remains in line with DBRS Morningstar’s expectations. The Negative trend reflects DBRS Morningstar’s negative view of the continued challenging office market condition in Calgary, a factor that could be problematic given the relatively high leverage point of the Bonds.

The Bonds are secured by the Issuer’s 50% interest in Bankers Hall (the Property), which is a Class AA office complex in Calgary’s downtown Central Core office submarket. The Bonds have a current outstanding balance of $256.8 million (representing $236.95 per square foot (psf) based on 100.0% ownership interest) and will mature on November 20, 2023. Recourse to the Issuer is limited to the Property only.

The average office occupancy at the Property improved slightly in YE2020 to 95.4% from 94.9% in YE2019; however, net operating income (NOI) declined 2.3% for the same period, primarily because of decreases in base rents as well as parking income. The March 31, 2021, rent roll showed the retail component (representing approximately 6.8% of the total net rentable area (NRA)) of the Property was 95.2% leased and the office component was 96.3% leased. The in-place office vacancy of 3.7% is significantly lower than the average submarket vacancy of 16.5% for the Class AA office properties in the Calgary Central Core submarket as reported by CBRE Limited in its “MarketView Calgary Downtown Office, Q1 2021.” However, the average in-place office rent of $27.50 psf is higher than the average submarket rent of $22.69 psf for the Class AA office properties, as reported by CBRE Limited. The Property benefits from a diversified tenancy base consisting of more than 70 tenants. Additionally, the presence of many long-term credit tenants, including Canadian Natural Resources Limited (rated BBB (high) with a Negative trend by DBRS Morningstar), Royal Bank of Canada (rated AA (high) with a Stable trend by DBRS Morningstar), and Canadian Imperial Bank of Commerce (rated AA with a Stable trend by DBRS Morningstar), which occupy more than 40.0% of total NRA, reduces tenant rollover risk and increases the stability of the property financial performance.

According to the Issuer, as at April 8, 2021, rent collection from all office tenants were current. One retail tenant, Bankers Hall Club (occupying 1.8% of total NRA) was delinquent on its rent, and one of the two Starbucks stores was closed and the landlord was negotiating a lease buy-out. All other retail tenants, except for bank tenants, health providers such as a dental office, and a Starbucks store, were on rent relief; however, they all remained in occupancy and were open or planning to reopen. Despite the declined property NOI, which could be relatively temporary, and continued challenging office market condition in Calgary, DBRS Morningstar notes that the Property continues to benefit from strong sponsorship and capable property management from Brookfield Canada Office Properties.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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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