DBRS Assigns Provisional Rating of BBB with a Stable Trend to Brookfield Property Finance ULC’s Senior Unsecured Notes

DBRS Limited (DBRS) assigned a provisional rating of BBB with a Stable trend to Brookfield Property Finance ULC’s (BPF) Senior Unsecured Notes. DBRS notes that the rating of BPF’s Senior Unsecured Notes is based on the credit risk profile of Brookfield Property Partners L.P. (BPP LP; Senior Unsecured Debt rated BBB with a Stable trend by DBRS) for the following reasons; (1) DBRS understands that BPF, an indirect and wholly owned subsidiary of BPP LP, was established on April 18, 2018, for the purpose of issuing unsecured debt and has no significant assets or liabilities, no subsidiaries and no ongoing business operations of its own; (2) the Senior Unsecured Notes will be fully and unconditionally guaranteed by BPP LP and certain of its subsidiaries (the Guarantee); (3) the Guarantee and related documents have been reviewed by DBRS and are consistent with “DBRS Criteria: Guarantees and Other Forms of Support” (January 2018). Thus, DBRS is of the view that the rating of BPP LP’s Senior Unsecured Debt flows through to the Senior Unsecured Notes of BPF.

The credit risk profile of BPP LP, in turn, is based on the credit risk profile of the consolidated entity, including BPP LP and its subsidiaries (collectively, BPY). The rating of BPP LP’s Senior Unsecured Debt 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, which DBRS is of the view still applies in the case of BPF’s Senior Unsecured Notes notwithstanding the Guarantee.

On May 2, 2018, DBRS assigned a rating of BBB with a Stable trend to BPP LP’s Senior Unsecured Debt. DBRS notes that the anticipated issuance of Senior Unsecured Notes by BPF and subsequent release of BPY’s Q1 2018 financial results are consistent with DBRS’s expectations at the time of assigning the rating; the last 12 months’ EBITDA of $2.47 billion, total debt-to-EBITDA of 14.7 times (x) and EBITDA interest coverage (including capitalized interest) of 1.49x as at March 31, 2018.

DBRS would consider a negative ration action on the Senior Unsecured Debt of BPP LP, and by extension BPF, 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); or (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, resulting EBITDA interest coverage (including capitalized interest) increases above 1.85x and total debt-to-EBITDA declines below 12x, on a sustained basis (including DBRS adjustments).

Notes:
All figures are in Canadian dollars 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), which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

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.