DBRS Maintains H&R Real Estate Investment Trust Under Review with Negative Implications

DBRS has today maintained the BBB Issuer Rating and STA-3 (high) stability rating of H&R Real Estate Investment Trust (H&R or the Trust) Under Review with Negative Implications following the Trust’s announcement on December 23, 2008, that Fairfax Financial Holdings Limited (Fairfax) has agreed to purchase, subject to the satisfaction of certain conditions, $200 million of 11.5% unsecured debentures, on a private placement basis, from H&R. Concurrently, the Trust has also announced a 50% reduction in its cash distribution from an annualized rate of $1.44 to $0.72 per unit.

The ratings were originally placed Under Review with Negative Implications on November 18, 2008, reflecting DBRS’s concern that H&R could face difficulty in securing adequate financing for its development commitments in light of the challenging credit markets. DBRS estimated capital requirements on the Trust’s development projects of $1.1 billion over the next four years, with a majority of this amount associated with The Bow office tower in Calgary (the Bow).

DBRS’s decision to maintain the ratings Under Review with Negative Implications reflects the fact that H&R has yet to secure construction financing for the Bow and that the closing of the private placement is conditional on the Trust accomplishing the following events:

1) H&R obtaining construction financing commitments of no less than $400 million for the development of the Bow
2) A monthly distribution of $0.06 per unit will be maintained until closing of the private placement

DBRS notes that although the capital retained from lower cash distribution (DBRS estimate: over $100 million per year) reduces the amount of financing needed for the Bow, DBRS will maintain the current status of the rating until H&R secures construction financing for the Bow and will assess the implications of this on the Trust’s debt and stability ratings in the next 90 days.

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

The applicable methodology is Rating Real Estate which can be found on our website under Methodologies.

This is a Corporates rating.