DBRS Confirms Ratings on CT Real Estate Investment Trust and CT REIT Limited Partnership at BBB (high), Stable

DBRS Limited (DBRS) confirmed the Issuer Rating of CT REIT Limited Partnership (CT REIT LP) and the Senior Unsecured Debentures rating of CT Real Estate Investment Trust (the Trust; together with CT REIT LP, CT REIT) at BBB (high), both with Stable trends. The ratings consider DBRS’s view that CT REIT’s credit risk profile and ratings are aligned with those of Canadian Tire Corporation Limited (CTC; rated BBB (high) with a Stable trend by DBRS; last confirmed March 29, 2019) largely because CTC effectively controls CT REIT through its majority ownership and is the dominant tenant, among other reasons. Any adverse changes in CTC’s ratings would likely have a negative effect on CT REIT’s ratings.

While CTC does not provide explicit support to CT REIT, DBRS assesses the level of CTC’s implicit support to CT REIT LP to be strong based on the following considerations:
(1) CT REIT LP is essential to the operation of CTC. CT REIT LP is CTC’s dominant landlord for the foreseeable future.
(2) There are substantial contractual arrangements between CT REIT and CTC, including long-term lease agreements, services and property management agreements. There is also a provision in CT REIT LP’s credit facility that cross defaults to CTC under certain conditions.
(3) CTC’s effective ownership of CT REIT was approximately 76.2% of CT REIT’s equity as at December 31, 2018.
(4) The reputational risk implications of CT REIT to CTC are high, given their strong interconnections.
(5) Integration between CTC and CT REIT is strong through strategies, operations and oversight.

The Trust’s Senior Unsecured Debentures rating reflects (1) a low level of prior-ranking debt (i.e., the sum of secured debt, such as mortgages, and the limit on the unsecured credit facility, including any uncommitted accordion provision, if applicable) in CT REIT’s debt structure (i.e., <40% of total debt); (2) DBRS’s expectation that no additional unsecured debt will be issued at CT REIT LP, excluding its existing credit facility, going forward; (3) DBRS’s expectation that future unsecured debentures will only be issued at the Trust level; and (4) the Trust’s Senior Unsecured Debentures ranking pari passu with the Class C LP units of CT REIT LP in terms of distributions and claims.

CTC’s stated intention is to remain majority unitholder of CT REIT over the long term. If CTC’s ownership or control in CT REIT diminish materially over time or if CT REIT no longer represents a material proportion of CTC’s portfolio, by size or by rent paid, CT REIT’s credit risk profile could be assessed on a stand-alone basis using DBRS’s “Rating Entities in the Real Estate Industry” methodology. In the event that CT REIT’s credit risk profile is assessed on a stand-alone basis, DBRS notes that CT REIT LP’s Issuer Rating and the Trust’s Senior Unsecured Debentures rating would be constrained by CTC’s rating.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Entities in the Real Estate Industry, Rating Companies in the Merchandising Industry, DBRS Criteria: Guarantees and Other Forms of Support and DBRS Criteria: Rating Corporate Holding Companies and Their Subsidiaries, 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 additional 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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