DBRS Confirms OMERS Realty Corporation at AA (low) with Stable Trends

DBRS has today confirmed the Issuer Rating and Senior Unsecured Notes rating of OMERS Realty Corporation (ORC or the Company) at AA (low), both with Stable trends. The ratings continue to be supported by the strength of ORC’s owner and corporate governance framework, as well as the Company’s institutional quality portfolio and conservative financial profile.

In addition to these rating considerations, ORC operates under a legislative framework and has put in place a stringent covenant pattern, which should help to ensure that the Company will continue to be financially managed in a prudent manner going forward. DBRS notes that ORC is (a) prohibited from issuing additional indebtedness if, post-issuance, the ratio of indebtedness to market value of assets exceeds 50%; (b) prohibited from incurring indebtedness that would increase the total encumbered assets ratio (encumbered assets/aggregate assets) to 50% or greater (encumbered assets are deemed to be those that have a loan-to-value ratio of greater than or equal to 15%); and (c) unable to add incremental leverage, unless such leverage is used to invest in real estate assets. DBRS also notes that the legislative framework makes it difficult for the ownership of ORC to change, as the Company must always be 100% owned by registered pension plans.

The ratings’ stable trends reflect DBRS’s expectation that ORC will deliver steady growth in net rental income and EBITDA in the near term, based mainly on higher average rental rates on leasing activity in the portfolio’s retail and office segments. DBRS expects ORC’s earnings profile to also benefit from investments in property acquisitions (targeting best-in-class office and retail assets) as well as redevelopment activity in 2014. DBRS believes ORC’s institutional-quality real estate assets and relatively long-term lease profile should continue to provide underlying stability to earnings going forward. In addition, ORC’s office lease maturities are well balanced, which should help mitigate the impact of any softness that may arise in office market rents from new supply in the Company’s core Toronto and Calgary markets over the next several years.

The Company has the debt capacity and financial flexibility to take advantage of attractive property investment opportunities that may arise over the near to medium term. DBRS expects the Company will manage dividends and/or return of capital to OMERS in a manner that will keep credit metrics and financial flexibility consistent with the current rating category. The Company has a targeted leverage range of 35% to 45% on a total debt-to-market value of assets basis, which is reasonable for the current rating category. Pro forma the $300 million debenture offering on April 3, 2014, DBRS estimates a debt-to-market value of assets ratio of 38.5%.

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

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.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.