DBRS Confirms CT REIT’s Senior Unsecured Debentures Rating and CT REIT LP’s Issuer Rating at BBB (high)

DBRS Limited (DBRS) confirmed the Issuer Rating of CT Real Estate Investment Trust Limited Partnership (CT REIT LP) and the Senior Unsecured Debentures of CT Real Estate Investment Trust (collectively with CT REIT LP, CT REIT) at BBB (high), both with Stable trends. The ratings take into consideration DBRS’s view that the credit risk profiles and ratings of CT REIT are aligned to that of Canadian Tire Corporation Limited (CTC; rated BBB (high) with a Stable Trend by DBRS; CTC report dated September 19, 2017) because CTC effectively controls CT REIT through its majority ownership and is the dominant tenant.

While CTC does not provide explicit support to CT REIT, DBRS assesses the level of implicit support by CTC to CT REIT to be strong based on the following considerations of essentiality, contractual obligations, ownership, reputation and integration: (1) CT REIT is essential to the operation of CTC. CT REIT is CTC’s dominant landlord for the foreseeable future, representing a substantial amount of CTC’s annualized occupancy expense and a sizable amount of CTC’s retail real estate square footage (sf). (2) There are substantial contractual arrangements between CT REIT and CTC, including CT REIT’s right of first offer on all CTC properties, CTC’s right of first offer on all properties sold by CT REIT, and CTC’s right of first refusal on change of control of CT REIT if a competitor acquires more than 50% of CT REIT. There are also long-term lease agreements, services and property management agreements between CTC and CT REIT. (3) CTC’s ownership of CT REIT was approximately 85.1% of CT REIT’s equity as at December 31, 2016. The reputational risk implications of CT REIT to CTC are high given its strong inter-connections with CT REIT. (4) Integration between CTC and CT REIT is strong through strategies, operations and oversight. CTC has the right to nominate three trustees out of the total seven trustees who serve on CT REIT’s Board. CTC consent is required for material acquisitions, dispositions, developments, financing and refinancing, and replacement of CEO.

CT REIT’s credit risk profile could be assessed on a stand-alone basis should CTC’s ownership or control in CT REIT diminish materially over time or if CTC no longer represents a material proportion of CT REIT’s portfolio by size of tenancy. The CT REIT stand-alone risk profile would be based on the DBRS methodology “Rating Entities in the Real Estate Sector,” which incorporates business and financial risk assessment factors. DBRS believes that CT REIT possesses attributes, on a stand-alone basis, that would be characteristic of an investment-grade credit, but at the lower end of the range.

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 principal methodologies are Rating Companies in the Merchandising Industry (August 2017); Rating Entities in the Real Estate Industry (April 2017) and DBRS Criteria: Guarantees and Other Forms of Support (February 2017), which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

This rating is no longer endorsed by DBRS Ratings Limited for use in the European Union.

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