DBRS Morningstar Confirms Ratings on West Edmonton Mall Property Inc.

DBRS Limited (DBRS Morningstar) confirmed the ratings on the first-mortgage bonds (collectively, the Bonds) issued by West Edmonton Mall Property Inc. as follows:

-- 4.309% First Mortgage 10-Year Interest Only Series B1 Bonds at A (sf)
-- 4.056% First Mortgage 10-Year Amortizing Series B2 Bonds at A (sf)

Additionally, DBRS Morningstar changed the trends on the B1 and B2 Bonds to Stable from Negative.

The rating confirmations and trend changes reflect the improved outlook and overall stable performance of the collateral property, which has generally been well positioned to return to pre-Coronavirus Disease (COVID-19) pandemic levels. Based on recent reporting, the improvements in operating income, sales, and occupancy metrics are positive developments as social distancing measures and public health restrictions have generally been lifted by the City of Edmonton and the provincial government. As such, the collateral property is expected to continue to rebound in performance as traffic improves to pre-pandemic levels.

According to an article published by Rockland County Business Journal, the sponsor for the subject loan, Triple Five Properties Inc. (Triple Five), was recently facing default on $800 million of bonds tied to the American Dream Mall, which is another super-regional shopping centre within its portfolio, in East Rutherford, New Jersey. The interest payment on the bonds were originally due on June 1st, 2022 and Triple Five was required to make the payment on or before June 16th, 2022. The sponsor deposited the outstanding payment on June 15th, 2022, but the amount fell short of fully curing the default, according to an article published by Market Watch. Although the sponsor’s financial challenges pose an elevated risk, the collateral property for this transaction, West Edmonton Mall, has reported improved operating performance and strong historical performance and the loan has remained current throughout the pandemic, which are mitigating factors.

The Bonds, which are secured by the West Edmonton Mall in Edmonton, were issued on January 20, 2014, with a 10-year term, and they mature on February 13, 2024. As of February 13, 2022, the total outstanding balance of the Bonds was approximately $755.8 million. The Bonds are scheduled to amortize to $711.9 million at maturity.

West Edmonton Mall is a destination retail entertainment complex comprising three components: a two-level super-regional shopping centre containing 2.6 million square feet (sf) of gross leasable area (GLA); a 355-key Fantasyland Hotel; and 557,000 sf of parks and attractions. The property is on a 108.24-acre site in the western sector of the city approximately 11 kilometres from the downtown core. There are 11,688 parking spaces in a decked parking structure, a new parkade, and a leased overflow parking lot. The shopping centre, which is anchored by Hudson’s Bay Company (6.1% of GLA with lease expiration in 2031), Simons (4.6% of GLA with lease expiration in 2032), and Starlight Casino (4.2% of GLA with lease expiration in 2037), benefits from a diverse tenant roster of more than 800 retailers, restaurants, and service providers. Lease rollover is fairly well balanced during the term of the Bonds, totalling approximately 28.1% of total retail GLA and ranging from 1.9% to 10.4% on an annual basis.

The retail occupancy rate as of March 31, 2022, was 95.2% with average tenant sales for the 12-month period ended March 31, 2022, of $724.00 per sf, a 49.3% increase from the 12-month period ended March 31, 2021. Regarding the hotel component, as of March 31, 2022, the year-to-date occupancy was 73.1% with an average room rate of $276.98, representing a revenue per available room of $202.47. On a consolidated basis, the trailing 12 months (T-12) ended March 2022 net operating income (NOI) was $133.1 million, a 24.2% increase from the YE2020 figure and a 9.6% increase from the DBRS Morningstar Normalized Net Cash Flow of $121.4 million. The T-12 March 2022 NOI debt service coverage ratio was reported at 2.52 times.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data. For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com.

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

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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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