Morningstar DBRS Confirms George Weston Limited at BBB With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and the credit rating on the Notes & Debentures of George Weston Limited (George Weston or the Company) both at BBB and its Preferred Shares rating at Pfd-3. The trends on all credit ratings remain Stable. 

KEY CREDIT RATING CONSIDERATIONS
As a pure holding company, the confirmations of George Weston's credit ratings continue to reflect (1) the Company's position as the holding company of Choice Properties Real Estate Investment Trust (Choice, rated BBB (high) with a Stable trend and approximately 61.7% owned), (2) the Company's position as the holding company of Loblaw Companies Limited (Loblaw, rated BBB (high) with a Stable trend and approximately 52.6% owned), (3) the structural subordination of the debt at George Weston, and (4) the strength of George Weston's liquidity profile in relation to its relatively modest debt obligations on a deconsolidated basis.

CREDIT RATING DRIVERS
George Weston's credit ratings could be upgraded should there be an upgrade to the credit ratings of Loblaw and Choice. Conversely, George Weston's credit ratings could be downgraded if Morningstar DBRS downgrades Loblaw and Choice, and/or if there is a significant deterioration in George Weston's debt and liquidity profile because of a material decline in dividends and/or distributions from Loblaw and Choice or a substantial increase in George Weston's debt obligations.

EARNINGS OUTLOOK
Morningstar DBRS forecasts dividends and distributions from Loblaw and Choice to continue to grow modestly year-over-year, in line with their respective dividend policies, and increase to a combined approximately $650 million in 2024 from $624 million in 2023. After corporate expenses, interest and taxes, Morningstar DBRS believes that George Weston will generate cash flows (as calculated by Morningstar DBRS) of more than $500 million in 2024, versus $480 million in 2023.

For details on Choice's and Loblaw's earnings outlook, please refer to the respective press releases and rating reports, which can be found on https://dbrs.morningstar.com.

FINANCIAL OUTLOOK
Morningstar DBRS expects that George Weston will continue to grow its common dividends on a per share basis in 2024; however, after accounting for the Company's share buybacks, the total dividend outlay, including for preferred shares, should remain relatively flat at approximately $425 million. Morningstar DBRS anticipates that the Company will continue to use any remaining free cash flows (as calculated by Morningstar DBRS), in combination with proceeds from its participation in Loblaw's share buyback program, as well as cash on hand to buy back approximately $1.0 billion in shares in 2024. As such, after accounting for the Company's repayment of $200 million in debentures, which matured earlier this month, Morningstar DBRS believes that George Weston's debt and liquidity profile will remain very strong for the current credit rating category, with cash flow-to-debt of more than 100%.

For details on Choice's and Loblaw's financial outlook, please reference their respective press releases and rating reports, which can be found on https://dbrs.morningstar.com.

CREDIT RATING RATIONALE
Morningstar DBRS primarily derives George Weston's credit ratings from a weighted-average subsidiary rating (WASR) of BBB (high) based on the respective contributions of Loblaw and Choice to George Weston's cash flows, through dividends and distributions, adjusted for George Weston's ownership interest in each entity. The one-notch credit ratings differential between the WASR and George Weston's Issuer Rating reflects the structural subordination of the debt at George Weston. Morningstar DBRS combines this with an assessment of George Weston's debt and liquidity profile, which Morningstar DBRS views as very strong for the current BBB credit ratings. Morningstar DBRS notes that although George Weston is participating in Loblaw's share buyback program, George Weston will maintain the Company's proportionate majority ownership position in line with the terms of the program.

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

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

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

Morningstar DBRS applied the following principal methodologies:
-- Morningstar DBRS Global Corporate Criteria (April 15, 2024),
https://dbrs.morningstar.com/research/431186
-- Global Methodology for Rating Entities in the Real Estate Industry (April 15, 2024),
https://dbrs.morningstar.com/research/431170
-- Global Methodology for Rating Companies in the Merchandising Industry (April 15, 2024),
https://dbrs.morningstar.com/research/431175

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (15 April 2024) , which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodology has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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