DBRS Confirms Ratings of Brookfield Property Partners L.P. and Brookfield Property Finance ULC at BBB and Brookfield Office Properties Inc. at BBB/Pfd-3, All with Stable Trends

DBRS Limited (DBRS) confirmed Brookfield Property Partners L.P.’s (BPP) Senior Unsecured Debt at BBB; Brookfield Property Finance ULC’s (BPF) Senior Unsecured Notes at BBB; and Brookfield Office Properties Inc.’s (BPO) Senior Unsecured Notes at BBB and its Cumulative Redeemable Preferred Shares, Class AAA at Pfd-3. All trends are Stable. DBRS notes that the ratings are based on the credit risk profile of the consolidated entity, including BPP and its subsidiaries (BPF, BPO, among others; collectively, BPY). DBRS’s ratings take 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 assessment of the unmitigated structural subordination of the Senior Unsecured Debt at the BPP level relative to its operating subsidiaries. DBRS will provide more detail as to how it arrives at the ratings specifically for each of BPP, BPF and BPO in a future report. The following discussion principally addresses the stand-alone credit risk profile of BPY and the Senior Unsecured Debt at the BPP level.

The ratings continue to be supported by BPY’s portfolio of institutional-quality, stabilized core office and retail assets; its market position as a preeminent global real estate company; its superior diversification by way of geographic exposure, counterparty (i.e., tenant) risk and property exposure; and its exceptional size and scale. The ratings continue to be constrained by BPY’s highly levered balance sheet; a riskier retail leasing profile in terms of lease maturities and counterparty risk relative to BPY’s core office segment; and a lower-quality opportunistic LP investments segment composed primarily of retail, office, multifamily, industrial and alternatives (hotel, mixed-use, student housing, manufactured housing sites, etc.) that are often in need of additional capital support.

The Stable trends reflect recent transactions, most notably, the acquisition of GGP Inc., which was the second-largest retail property real estate investment trust (REIT) in the United States (closed on August 28, 2018, for total consideration of $14.0 billion). To some extent, this acquisition was dilutive to the asset quality of BPY’s core office portfolio, in DBRS’s view, while also providing BPY with a redevelopment and intensification pipeline of existing income-producing retail assets. Other notable transactions within the LP investments segment include the acquisition of Forest City, a publicly traded REIT with ownership of a portfolio of office, multifamily and mixed-use assets across the United States, and the sale of IDI Logistics, BPY’s leading industrial operating and development platform, both occurring in Q4 2018, as well as the recently announced $500 million share buyback by way of a substantial issuer bid. The Stable outlook also takes into consideration BPY’s intention to recycle capital over the next few years by selling non-core assets and partial interests to partially fund its development and intensification pipeline and additional acquisitions, and DBRS’s expectation of lower leverage levels as measured by total debt-to-EBITDA through 2020 primarily by way of debt reduction.

DBRS would consider a negative rating action should one or more of the following factors occur on a sustained basis: (1) EBITDA interest coverage (including capitalized interest) deteriorates below 1.35 times (x); (2) Total debt-to-EBITDA deteriorates above 14.0x; (3) 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 (4) The operating environment deteriorates leading to higher vacancy and declines in operating cash flow. 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 11.0x on a sustained basis (including DBRS adjustments), all else equal.

Notes:
All figures are in U.S. 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 2019), DBRS Criteria: Rating Corporate Holding Companies and Their Subsidiaries (November 2018) and DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 2018), which can be found on dbrs.com under Methodologies & Criteria.

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.

DBRS will publish a full report shortly that will provide addi¬tional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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