DBRS Confirms Brookfield Office Properties at BBB, Pfd-3, Trends Stable, and Discontinues Issuer Rating

DBRS Limited (DBRS) has today confirmed the Senior Unsecured Notes of Brookfield Office Properties Inc. (Brookfield or the Company) at BBB and its Cumulative Preferred Shares, Class AAA at Pfd-3, both with Stable trends. The confirmation reflects the successful re-leasing of the Bank of America/Merrill Lynch space at Brookfield Place New York. The confirmation also acknowledges that Brookfield’s coverage ratios will remain under pressure in the near term because of the re-leasing transition period of the aforementioned space. DBRS expects that coverage ratios should recover following this transition period but will remain at weak levels for the current rating category. DBRS notes that a prolonged weakness in operating performance (excluding the lease transition period of Brookfield Place New York) and/or a change in financial policy that results in further deterioration of key credit metrics could result in a Negative trend change.

The current ratings are based on Brookfield’s large, premier office portfolio, its presence in relatively stronger office markets and long-term leases to high quality tenants. DBRS expects these attributes to provide reasonable underlying support to the Company’s earnings profile. In addition, DBRS notes that Brookfield should also benefit from improving office fundamentals in the Company’s major U.S. markets, particularly downtown New York. Lower unemployment levels and a recovering economic environment in the United States should contribute to higher rental rates.

In terms of financial profile, DBRS does not expect Brookfield to take measures that would meaningfully reduce debt to offset softness in operating income and expects the EBITDA coverage ratio to remain under 2.00 times. Brookfield has sufficient liquidity and sources of capital (including proceeds from an issuance of $300 million preferred shares in October 2014 and a further sell-down of non-core assets), and DBRS believes the Company will continue to have strong access to capital, given its established operating track record and high quality portfolio.

Although highly unlikely at this time, a Positive trend change would require Brookfield to demonstrate meaningful improvement in operating income and significant deleveraging of its balance sheet.

DBRS has also today discontinued the Issuer Rating for Brookfield. The Issuer Rating was originally assigned to reflect the Company’s Senior Unsecured Notes ratings; however, Brookfield subsequently issued senior unsecured notes, and therefore the Issuer Rating is being withdrawn.

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.

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

The applicable methodologies are Rating Entities in the Real Estate Industry (October 2013) and Preferred Share and Hybrid Criteria for Corporate Issuers (January 2015), which can be found on our website under Methodologies.