DBRS Confirms RioCan Real Estate Investment Trust at BBB (high), Stable Trend

DBRS has today confirmed the ratings of RioCan Real Estate Investment Trust’s (RioCan or the Trust) Senior Unsecured Debentures and Senior Unsecured Debentures, Series I, at BBB (high) and Preferred Trust Units at Pfd-3 (high), all with Stable trends, following the Trust’s announcement that that it has entered into a purchase and sale agreement (the Agreement) to acquire a $1.1 million portfolio of Canadian retail properties, including five regional malls and three grocery-anchored unenclosed shopping centres.

The properties are currently owned by Primaris Retail REIT (Primaris). Pursuant to the Agreement, RioCan will acquire a 100% interest in six properties and a 50% interest in two properties. The Agreement is in support (and subject to completion) of the proposed offer to acquire Primaris by a KingSett Capital-led consortium (the Offer), which was announced earlier today.

The confirmation is based on the fact that the potential acquisition, totaling $1.1 billion, would represent only approximately 10% of RioCan’s current total assets. In addition, the target properties are considered to be good quality assets that are well located in major Canadian markets.

In terms of financing, the potential acquisition would be funded with $635 million of new fully-underwritten debt financing commitments from The Toronto-Dominion Bank and the assumption of $499 million of debt. While this would temporarily increase leverage to approximately 49% total debt-to-capital, RioCan has stated its intention to repay a meaningful portion of the incremental debt within six to nine months, primarily with proceeds from asset sales. Despite the increase in leverage, DBRS believes RioCan’s EBITDA coverage ratio (including capitalized interest), with the additional operating income generated from the targeted properties, should stay close to 2.5 times (x), a level well within the range acceptable for the current rating category.

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

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

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 to the right under Related Research or by contacting us at info@dbrs.com.