DBRS Assigns a Rating of BBB with a Stable Trend to Brookfield Property Partners L.P.’s Senior Unsecured Debt

DBRS Limited (DBRS) assigned a rating of BBB with a Stable trend to Brookfield Property Partners L.P.’s (BPP LP) Senior Unsecured Debt. As at May 1, 2018, BPP LP had no senior unsecured debt outstanding. If BPP LP were to issue Senior Unsecured Debt in the future, DBRS expects the issuance to be on terms and conditions consistent with market practice and satisfactory to DBRS. DBRS notes that the rating is based on the credit risk profile of the consolidated entity, including BPP LP and its subsidiaries (collectively, BPY). The rating takes into consideration BPY’s stand-alone credit risk profile, DBRS’s view of implicit support from Brookfield Asset Management Inc. (BAM, rated A (low) with a Stable trend by DBRS) and DBRS’s expectation of ongoing unmitigated structural subordination of BPP LP relative to its operating subsidiaries.

The stand-alone credit risk profile is supported by BPY’s institutional-quality core office and retail real estate assets, exceptional size and scale (F2017 EBITDA of $2.4 billion), global footprint with superior leadership in key markets, superior property and tenant diversification and strong ownership and corporate governance. The stand-alone credit risk profile is constrained by BPY’s highly levered balance sheet (total debt-to-EBITDA of 14.9 times (x)), and a core retail segment with a relatively weaker lease maturity profile/tenant credit quality.

The Stable rating outlook takes into consideration DBRS’s current understanding of BPY’s agreement to acquire all of the outstanding common shares in GGP Inc. (GGP) that it does not already own (34% currently to 100% at close; subject to approval of GGP shareholders and expected to close in Q3 2018) and outstanding debt and reflects DBRS’s view that, in the near to medium term, BPY will generate moderate EBITDA growth primarily driven by annualized impacts of recent transactions and supported by the continued stability of income generated from institutional-quality office and retail assets. DBRS also expects that total debt-to-EBITDA will not significantly deteriorate further on a sustained basis and that Q1 2018 financial results will be generally consistent with recent past performance.

DBRS would consider a negative ration action should one or more of the following factors occur on a sustained basis: (1) EBITDA interest coverage (including capitalized interest) deteriorates below 1.35x, (2) DBRS changes its views on the level and strength of implicit support provided by BAM (e.g., if DBRS were to take a negative rating action on BAM) and (3) the operating environment deteriorates, leading to higher vacancy and declines in operating cash flow. Albeit less likely, DBRS would consider a positive rating action should BPY reduce outstanding debt and/or increase EBITDA such that taken together, the resulting EBITDA interest coverage (including capitalized interest) increases above 1.85x and total debt-to-EBITDA declines below 12.0x, on a sustained basis (including DBRS adjustments).

Notes:
All figures are in U.S. dollars at BPY’s proportionate interest unless otherwise noted.

The principal methodologies are Rating Entities in the Real Estate Industry (April 2018), DBRS Criteria: Guarantees and Other Forms of Support (January 2018), DBRS Criteria: Rating Corporate Holding Companies and Their Subsidiaries (December 2017) and DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (December 2017), which can be found on dbrs.com under Methodologies.

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

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