DBRS Morningstar Confirms H&R REIT’s Ratings Following the Spin-Off of Primaris REIT

DBRS Limited (DBRS Morningstar) confirmed H&R Real Estate Investment Trust’s (H&R or the Trust) Issuer Rating and the rating of H&R’s Senior Unsecured Debentures at BBB (high) with Negative trends. The confirmation follows the completion of the previously announced spin-off of Primaris Real Estate Investment Trust (REIT) from H&R (the Spin-off).

The Spin-off, in conjunction with the use of proceeds from the previous $1.47 billion sale of the Bow and Bell office campus (the Bow Disposition) to reduce debt, collectively had a modest effect on the credit risk profile, although the overall Business Risk Assessment and Financial Risk Assessment (FRA) were relatively unchanged.

H&R’s FRA factors remain relatively unchanged despite the reduction in debt (from use of proceeds from the Bow Disposition) because the improvement helped to offset the negative effects of the Spin-off, whereby Primaris REIT ends up having a better overall FRA score than H&R. The Trust’s total debt-to-EBITDA is expected to be approximately 9.4 times (x) and 9.3x in 2022 and 2023, respectively. DBRS Morningstar notes that H&R’s strategic repositioning plan has other options, including additional dispositions, that could be used to assist in the Trust’s deleveraging efforts.

In order for DBRS Morningstar to change the trends to Stable from Negative, the total debt-to-EBITDA metric would need to improve and remain comfortably below 9.2x on a sustained basis, all else being equal. The trigger for a downgrade is total debt-to-EBITDA exceeding current expectations of 9.4x in 2022 and 9.3x in 2023, respectively, all else being equal. As a reminder, DBRS Morningstar changed the trends to Negative from Stable on June 15, 2021, and typically tries to resolve the trend within a 12-month period.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating Entities in the Real Estate Industry (April 23, 2021) which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262/).

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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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