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

DBRS Limited (DBRS) has today confirmed the Senior Unsecured Notes rating of OMERS Realty Corporation (ORC or the Com¬pany) at AA (low) with a Stable trend. The rating continues to be supported by the strength of ORC’s owner and corporate gover¬nance 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 frame¬work and has put in place a stringent covenant pattern, which should help to ensure that the Company will continue to be finan¬cially 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 as¬sets exceeds 50%; (b) prohibited from incurring indebtedness that would increase the total encumbered assets ratio (encum¬bered 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 as¬sets. DBRS also notes that the legislative framework makes it dif¬ficult for the ownership of ORC to change, as the Company must always be 100% owned by registered pension plans.

The rating’s stable trend reflects DBRS’s expectation that ORC will deliver steady growth in net rental income and EBITDA primarily from recent investments and property acquisitions (targeting best-in-class office and retail assets) as well as rede¬velopment activity in 2015. DBRS believes ORC’s institutional-quality real estate assets and relatively long-term lease profile should continue to provide underlying stability to earnings go¬ing forward. In addition, ORC’s office lease maturities are well balanced, which should help mitigate the impact of any soft¬ness that may arise in office market rents from new supply in the Company’s core Toronto and Calgary markets over the next several years.

DBRS expects ORC to continue to maintain a conservative finan¬cial profile. The current rating factors in the Company’s target¬ed leverage range of 35.0% and 45.0% on a total debt-to-market value of assets basis (41.4% as at December 31, 2014). DBRS ex¬pects the institutional-quality real estate portfolio to continue to generate strong levels of operating cash flow in 2015. DBRS expects that any cash flow (in the form of dividends or a return of capital) that the Company distributes to OMERS will largely be motivated by proceeds from asset dispositions and cash flow from operations. As such, DBRS expects the Company will man¬age 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.

Notes:
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 (May 2015), which can be found on our website under Methodologies.

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