DBRS Morningstar Confirms Rating on the Series A Bonds of OMERS Realty Corporation, 9856889 Canada Inc. and CPP Investment Board Real Estate Holdings Inc. (Centennial Place)

DBRS Limited (DBRS Morningstar) confirmed the rating on the following first mortgage bonds (the Bonds) issued by OMERS Realty Corporation, 9856889 Canada Inc., and CPP Investment Board Real Estate Holdings Inc. (Centennial Place) (collectively, the Issuer):

-- Centennial Place 3.666% Senior Series A Secured Bonds due 2022 at AA (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 $210 million Series A first mortgage bonds (10-year term over 30-year amortization) were issued in December 2012. The Bonds are secured by the Issuer’s ownership interest in Centennial Place (the Property), a Class AA office complex in Calgary’s downtown Central Core submarket. Recourse is limited to the property only. The Bonds have a current outstanding balance of $168.9 million (representing $135.86 per square foot) and are scheduled to mature on December 5, 2022.

According to the March 2022 rent roll, the office component of the Property was approximately 95.2% leased, which is above the average market occupancy rate of 88.1% for Class AA office properties in the Calgary Central Core submarket, as reported by CBRE Limited in its “MarketView Calgary Downtown Office, Q2 2022” report. The report also added that, while the overall Calgary office market vacancy rate is at a historic high, the disparity in product class continues to increase. In addition, it was noted that Class AA landlords have benefitted from flight-to-quality as headlease vacancy is currently 9.1%, allowing AA landlords to hold rates constant and, in some cases, raise rental rates. Additionally, the retail component of the Property, which represents approximately 1.7% of the total net rentable area, was 96.9% leased as of March 2022.

The Property reported a net operating income (NOI) of $50.7 million for YE2021, which has increased 11.6% from the prior year primarily because of an increase in base rents. Despite the challenging office market conditions in Calgary, the Property benefits from strong sponsorship by OMERS Realty Corporation and CPP Investment Board Real Estate Holdings Inc. as well as experienced property management by Oxford Properties Group Inc., which is the real estate investment arm of Ontario Municipal Employees Retirement System, one of Canada’s largest pension plans.

The DBRS Morningstar rating assigned to the Senior Series A Secured Bonds had a variance higher than that implied by the loan-to-value Sizing Benchmarks from the July 10, 2020, review because of the lack of liquidity in the form of servicer advancing in a first mortgage bond transaction and the weak market conditions in Calgary.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) 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.

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 the 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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