DBRS Confirms Brookfield Canada Office Properties at BBB, Stable Trend

DBRS has today confirmed the Issuer Rating of Brookfield Canada Office Properties Real Estate Investment Trust (BCOP or the Trust) at BBB, with a Stable trend. DBRS notes that the Issuer Rating reflects the credit quality of debt (i.e., senior unsecured) that ranks below the Trust’s property-specific secured debt. The confirmation incorporates DBRS’s expectation that BCOP will incur incremental debt in order to fund its Bay Adelaide East Tower development project while acknowledging a gradual decline in financial metrics until this project becomes income producing in late 2015. BCOP’s Issuer Rating continues to be based on the following credit strengths: (1) a premier Class A to AAA office portfolio located throughout the downtown markets of Toronto, Calgary, Ottawa and Vancouver; (2) solid occupancy levels and long term lease profile; (3) reasonable coverage ratios; and (4) ownership by Brookfield Property Partners L.P. (BPY). The rating also considers the following challenges: (1) high degree of geographic concentration in downtown Toronto and Calgary; (2) a significant degree of property concentration; (3) above-average tenant concentration, somewhat mitigated by the high credit quality of the largest tenants; and (4) high proportion of secured debt.

Net rental income and EBITDA held relatively steady for H1 2014, from the comparable period 2013 as higher average rental rates on leasing activity and lower operating expenses was offset by slower leasing and large tenant departures during the period. Portfolio occupancy rates declined to 94.5% as at Q2 2014 from 96% at year-end 2013 primarily reflecting the departure of Heenan Blaikie at Bay Adelaide West Tower in Toronto. In Q3 2013, BCOP acquired the Bay Adelaide Centre East Tower project (a 980,000 sf office tower located in the heart of Toronto’s financial district) from Brookfield Office Properties Inc. (rated BBB with a Stable trend by DBRS). As at June 30, 2014, BCOP had invested approximately $249 million into the project, which has mainly been funded with incremental debt and cash on hand. As such, BCOP’s debt-to-capital ratio increased to 42.8% as at June 30, 2014, from 41.3% a year earlier while EBITDA interest coverage remained steady during the period.

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.