DBRS Confirms Southcentre Mall at A (low) with a Stable Trend

Dominion Bond Rating Service (“DBRS”) has today confirmed the rating of Southcentre Mall (“Southcentre” or the “Shopping Centre”) as indicated above at A (low) with a Stable trend.

Southcentre’s credit profile remains stable, despite the potential near-term exposure to strategic changes for the Hudson’s Bay Company and Sears Canada Inc. (rated BB with an “Under Review with Developing Implications” rating action by DBRS), including possible store closures across Canada. Under DBRS’s extreme scenario with the loss of the aforementioned anchor tenants, debt service coverage would drop from 2.01 times and lie in a range to 1.70 times.

DBRS, however, believes the occurrence of such an event would likely be less dramatic and takes comfort in the fact that:

(1) Given that Southcentre has a dominant position within its market, the Shopping Centre would be able to attract replacement tenants in a timely fashion and would likely achieve higher net effective rents than under the current anchor leases.

(2) Bondholders’ obligations are still adequately covered by cash flow if all anchor tenants (excluding Food For Less) were to vacate the Shopping Centre.

(3) The Shopping Centre has a conservative loan-to-value ratio with only Cdn$101.2 million in debt outstanding as at December 31, 2005.

(4) Bondholders have full recourse to Ivanhoe Cambridge I Inc. and Ivanhoe Cambridge II Inc. (together “Ivanhoe Cambridge”), which DBRS views as a solid investment-grade credit.

Notwithstanding the above concerns, the rating continues to be based on the performance of the Shopping Centre and takes into consideration the following:

(1) The Shopping Centre continues to benefit from robust retail conditions in Alberta with increased consumer spending levels supported by a strong oil and gas based economy. As a result, commercial retail unit (CRU) sales per square foot increased significantly (+11.9%) to Cdn$536 from Cdn$479 for the comparable period 2004. DBRS expects this trend will likely continue throughout 2006.

(2) Although interest coverage and debt service coverage ratios modestly declined to 2.93 times and 2.01 times, respectively, mainly due to lower rents realized on lease renewals, these metrics remain strong for the rating category and compare well to its peers.

(3) After years of depressed sales performance subsequent to the re-opening of Chinook Centre, Southcentre’s sales improved significantly in 2005. This, together with the strength of the local economy, should support higher net operating income as higher rents are realized on lease expiries. In addition, cash flow stability is supported by the Shopping Centre’s manageable lease profile with an average of 12.2% of CRU space maturing in each year over the next three years. DBRS notes that Southcentre will undergo a Cdn$15 million renovation project over the next few years. The project is expected to further enhance Southcentre’s competitive position within its market.

Overall, DBRS expects Southcentre’s credit profile and operating metrics to remain stable with support from a favourable economic climate in Alberta expected in 2006.