DBRS Morningstar Confirms Ratings on Ontario Teachers’ Cadillac Fairview Properties Trust at AA, Stable

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

The ratings continue to be supported by OT CFPT’s high-quality real estate portfolio, which has recovered from the Coronavirus Disease (COVID-19) pandemic-related headwinds and is steadily moving toward stability. The portfolio continues to benefit from Cadillac Fairview Corporation Limited’s (a wholly owned subsidiary of OTPPB) strong market position as a leading North American property developer and manager, which currently manages in excess of $35 billion of assets globally. OT CFPT continues to maintain a conservative financial risk profile, as measured by total debt-to-EBITDA and EBITDA interest coverage. However, the ratings continue to be constrained by OT CFPT’s significant property concentration, geographic concentration in the Greater Toronto Area (which is expected to increase further with current development projects), and high degree of net operating income (NOI) exposed to discretionary retail.

The Stable trends reflect DBRS Morningstar’s view that OT CFPT's portfolio has largely recovered from the effects of pandemic-related headwinds and is making decent progress toward achieving a pre-pandemic level of operational performance, which is evident from an improvement in its recent operating metrics and earnings. OT CFPT reported a last 12 months (LTM) ended April 30, 2022, EBITDA of $785.3 million, demonstrating an increase of approximately 19% year over year. The EBITDA recovery is largely attributable to an overall stabilization in OT CFPT's portfolio fundamentals such as occupancy levels and rent collection, with foot traffic trending positively. In the near to medium term, DBRS Morningstar expects that EBITDA will be driven by the same property NOI growth and incremental income from the stabilization of completed developments. DBRS Morningstar’s expectation is that development costs will be funded with equity from OTPPB, as has been the case historically, and that OT CFPT will remain opportunistic when refinancing its $1.5 billion of intercompany debt over the next several years with consideration given to the condition of capital markets and OT CFPT's overall debt strategy. Going ahead, DBRS Morningstar expects that OT CFPT’s total debt-to-EBITDA will improve to the 5 times (x) range and EBITDA-to-interest expense ratios will continue to improve and approach the 6 times (x) range by fiscal YE2024 from 5.4x and 5.15x, respectively, for the LTM period ended April 30, 2022.

DBRS Morningstar would consider a negative rating action should one or more of the following factors occur on a sustained basis: (1) debt-to-EBITDA exceeds 6.0x; (2) secured debt-to-total debt exceeds 40% (1.4% at April 30, 2022); (3) the operating environment deteriorates, leading to material declines in operating cash flow and EBITDA; or (4) DBRS Morningstar’s view on the strength and level of implicit support provided by OTPPB changes. Currently, DBRS Morningstar does not anticipate a positive rating action in the foreseeable future, given OT CFPT’s concentration risks noted above.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

The methodologies are Rating Entities in the Real Estate Industry (April 20, 2022; https://www.dbrsmorningstar.com/research/395563) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

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.

The conditions that lead to the assignment of a Negative or Positive trend are generally 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].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577