DBRS Confirms Cominar REIT at BBB (low), Trend Stable

DBRS Limited (DBRS) has today confirmed the rating of Cominar Real Estate Investment Trust’s (Cominar or the Trust) Senior Unsecured Debentures at BBB (low) with a Stable trend. The confirmation acknowledges the expected pressure on Cominar financial metrics as a result of its $1.63 billion real estate portfolio acquisition from Ivanhoe Cambridge Inc. in Q4 2014 (the Transaction). DBRS, however, expects Cominar will de-lever its balance sheet and bring key financial metrics back to levels commensurate with its existing rating category in the near term.

DBRS expects Cominar will continue to deliver steady growth in net rental income and cash flow in 2015, based primarily on earnings contributions from the Transaction, recent property investments and, to a lesser extent the re-leasing of properties at higher rents. Same-property NOI is expected to come in at around 1.5% in 2015, based on contractual rent step-ups and higher average rental rates on lease renewals. DBRS expects Cominar will focus on upgrades and expansions to its existing properties in 2015, as well as asset dispositions and integrating recent acquisitions. Cominar’s recently enhanced portfolio quality, size and scale, along with its reasonable lease maturity profile, should contribute to cash flow stability while partially mitigating the Trust’s geographic concentration risks. Subsequent to YE2014, Cominar issued new equity with total net proceeds of $148.8 million, which was primarily used to pay down debt outstanding under its unsecured revolving credit facility. As a result of the completed equity issuance, DBRS estimates pro forma total debt-to-capital and debt-to-EBITDA to be at 55.6% and 9.1 times (x), down from 57.5% as at YE2014 and 9.5x (annualized EBITDA Q4 2014). DBRS expects Cominar will continue to delever its balance sheet and bring key financial metrics back to levels commensurate with its existing rating category in the near term through asset dispositions and the potential conversion of $186 million of convertible unsecured debentures.

Although DBRS does not anticipate a rating change in the near to medium term, a material increase in the size of the portfolio with an associated improvement in geographic diversification, and/or decrease in financial leverage that results in an improvement in EBITDA interest coverage (including capitalized interest) to above 3.00x could result in a positive rating action. On the other hand, a negative rating action would likely reflect weaker operating performance and/or Cominar’s failure to bring debt-to-capital and debt-to-EBITDA back to pre-transaction levels.

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 and DBRS Criteria: Preferred Share and Hybrid Criteria for Corporate Issuers, which can be found on our website under Methodologies.