Morningstar DBRS Confirms Ontario Teachers' Cadillac Fairview Properties Trust's Ratings at AA with Stable Trends

DBRS Limited (Morningstar DBRS) 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 confirmations take into consideration (1) OT CFPT's stand-alone risk profile, (2) the Trust's low level of secured debt, and (3) Morningstar DBRS' view of the implicit support provided by the Ontario Teachers' Pension Plan Board (OTPPB; rated AAA with a Stable trend by Morningstar DBRS).

KEY CREDIT RATING CONSIDERATIONS
The rating confirmations consider OT CFPT's high-quality real estate portfolio, which has now strongly recovered following the Coronavirus Disease (COVID-19) pandemic-related headwinds. Despite a challenging market environment, the Trust demonstrated a robust operating performance during the last 12 months (LTM) ending April 30, 2024, with EBITDA growing by 13.2% year over year (YOY), primarily driven by a strong recovery within its retail segment, which comprises some of Canada's top-performing super-regional malls. As a result, the Company's leverage as measured by Total Debt-to-EBITDA improved to 4.5 times (x) as at April 30, 2024, from 5.0x at the same time last year. The Trust's strategically well-located portfolio continues to benefit from Cadillac Fairview Corporation Limited's (a wholly owned subsidiary of OTPPB) strong market position. Moreover, the stable trends also consider Morningstar DBRS' expectation that (1) OT CFPT's EBITDA, while relatively strong, will modestly temper in the near term driven by normalization in retail income. However, the Trust's EBITDA is expected to grow modestly in 2026, further supplemented by incremental income from the stabilization of newly completed and ongoing developments; (2) development costs will be funded with a mix of capital contributions from OTPPB, and if needed, from third party debt including the newly executed $1 billion Senior Unsecured Credit Revolving facility; (3) the Trust will continue to maintain a large pool of unencumbered assets to support its unsecured debt liabilities; and (4) OT CFPT's financial risk profile will remain relatively stable.

CREDIT RATING DRIVERS
Morningstar DBRS will consider a negative rating action if (1) OT CFPT's debt-to-EBITDA exceeds 5.3x and EBITDA-to-interest coverage ratio deteriorates by less than 5.17x on a sustainable basis, all else equal; or (2) Morningstar DBRS' view on the strength and level of implicit support provided by OTPPB changes. Currently, Morningstar DBRS does not anticipate a positive rating action in the foreseeable future, given OT CFPT's concentration risks.

FINANCIAL OUTLOOK
OT CFPT's Total debt-to-EBITDA is expected to moderately increase and remain at 4.7x over the next 12 to 24 months and then modestly improve to the mid-4x range by the first half of 2027. Similarly, EBITDA-to-interest coverage ratios are projected to remain stable in the mid-to-high 5x range over the next 12 to 24 months.

CREDIT RATING RATIONALE
The ratings continue to be supported by (1) Morningstar DBRS' view of implicit support from OTPPB; (2) the Trust's high-quality real estate portfolio with several marquee assets; (3) strong market position; and (4) a low level of secured debt and large pool of unencumbered assets that could be pledged as security for loans, if needed. However, the ratings are constrained by OT CFPT's significant property and geographic concentration risks.

ENVIRONMENTAL, SOCIAL, AND 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 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 (August 13, 2024) https://dbrs.morningstar.com/research/437781.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of BRA Factors
In the analysis of Ontario Teachers' Cadillac Fairview Properties Trust, the BRA factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Ontario Teachers' Cadillac Fairview Properties Trust, the FRA factors are considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of Ontario Teachers' Cadillac Fairview Properties Trust, the BRA carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Entities in the Real Estate Industry (April 15, 2024)
https://dbrs.morningstar.com/research/431170 .

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024), https://dbrs.morningstar.com/research/431186, which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following criteria has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

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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