DBRS Confirms Ontario Teachers’ Cadillac Fairview Properties Trust’s AA Rating, Stable Trend

DBRS Limited (DBRS) confirmed Ontario Teachers’ Cadillac Fairview Properties Trust’s (OT CFPT or the Trust) Senior Unsecured Debentures rating at AA with a Stable trend. The confirmation takes into consideration OT CFPT’s stand-alone risk profile, the Trust’s low level of secured debt and DBRS’s view of the implicit support provided by the Ontario Teachers’ Pension Plan Board (OTPPB; rated AAA with a Stable trend by DBRS).

The rating continues to be supported by OT CFPT’s high-quality real estate portfolio, specifically interests in super-regional and regional shopping centres and Class A office properties principally situated in major cities across Canada, and benefits from The Cadillac Fairview Corporation Limited’s strong market position as a leading North American property developer and manager, which taken together provide stability to operating metrics and earnings. OT CFPT’s conservative financial risk profile, as measured by leverage and interest coverage, and low level of secured debt-to-total debt also benefit the rating. The rating is constrained by OT CFPT’s significant property concentration, geographic concentration in the Greater Toronto Area (which is expected to increase further with development projects), tenant concentration and a high degree of net operating income (NOI) exposed to discretionary retail.

The Stable trend reflects DBRS’s view that OT CFPT will maintain EBITDA around $1 billion (DBRS adjusted) over the near to medium term ($974 million in LTM Q2 2019) resulting from same-property NOI growth and incremental income from the stabilization of properties completed as part of the Trust’s multi-year development plan. DBRS’s expectation is that development costs will be funded with equity from OTPPB, as has been the case historically, and that the $1.8 billion of intercompany debt owed by OT CFPT will be refinanced in the capital markets over the next several years. As such, the current trend incorporates DBRS’s expectation that OT CFPT’s debt-to-EBITDA and EBITDA-to-interest expense ratios will improve modestly each year from current levels over the next three years until the most significant development projects, 16 York Street and 160 Front Street, reach stabilization in 2023 and contribute meaningfully to EBITDA.

DBRS would consider a negative rating action should one or more of the following factors occur on a sustained basis: (1) debt-to-EBITDA exceeds 6.0 times; (2) secured debt-to-total debt exceeds 40% (12% at April 30, 2019); (3) the operating environment deteriorates, leading to material declines in operating cash flow and EBITDA; or (4) DBRS’s view on the strength and level of implicit support provided by OTPPB changes. Currently, DBRS does not anticipate a positive rating action in the foreseeable future given OT CFPT’s concentration risks noted above.

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

The principal methodologies are Rating Entities in the Real Estate Industry (April 2019) and DBRS Criteria: Guarantees and Other Forms of Support (January 2019), 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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