DBRS Confirms Choice Properties Real Estate Investment Trust and Choice Properties Limited Partnership at BBB, Stable

DBRS Limited (DBRS) confirmed the Senior Unsecured Debenture (guaranteed by CPLP) rating of Choice Properties Real Estate Investment Trust (CPREIT) and the Senior Unsecured Debenture rating of Choice Properties Limited Partnership (CPLP; collectively, Choice Properties) at BBB. All trends are Stable. Because CPLP guarantees the debentures of CPREIT, the two ratings are harmonized. DBRS assesses Choice Properties’ credit risk profile on a stand-alone basis since George Weston Limited (GWL; rated BBB with Stable trend by DBRS) completed a reorganization wherein Loblaw Companies Limited’s (Loblaw; rated BBB with Stable trend by DBRS) 61.6% interest in Choice Properties was transferred to GWL. (See DBRS’s press release for Choice Properties dated September 5, 2018.)

The ratings continue to be supported by Choice Properties’ strong market leadership, particularly in necessity-based retail, across Canada’s largest urban centres; strategic alliance with Loblaw; long-term lease profile with low counterparty risk that provides underlying stability to cash flows; large well-located portfolio of retail properties; and solid financial profile with high-interest coverage and a large pool of unencumbered assets. The ratings continue to be constrained by concentration risks with a retail-focused portfolio and a majority of revenue derived from Loblaw banners, a cross-default provision in Choice Properties credit facility between CPREIT and Loblaw as well as relatively high leverage as measured by total debt-to-EBITDA for the rating.

The Stable trends reflect the full-year contribution to EBITDA from the May 4, 2018, acquisition of CREIT (see DBRS’s press release for Choice Properties dated February 15, 2018) and DBRS’s expectation for Choice Properties to maintain key financial metrics approximately at current levels (last 12 months debt-to-EBITDA of 8.2 times (x) and EBITDA interest coverage of 3.25x as at June 30, 2019) and to continue progressing its development and intensification program, especially in the burgeoning residential sector.

In DBRS’s view, Choice Properties’ rating is directly constrained by the cross-default provision between CPREIT and Loblaw in the credit facility that limits Choice Properties’ ratings to that of Loblaw.

A negative rating action could result if Loblaw’s credit rating was downgraded due to the aforementioned cross-default provision. Choice Properties’ rating can also be negatively affected by a broad-based weakening of the operating environment and deteriorating earnings performance that leads to material declines in EBITDA, operating cash flows and higher financial leverage.

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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