Morningstar DBRS Changes Cominar Real Estate Investment Trust's Trends to Negative From Stable and Confirms Issuer Rating and Senior Unsecured Debentures at BB (high)

DBRS Limited (Morningstar DBRS) changed Cominar Real Estate Investment Trust's (Cominar or the REIT) trends to Negative from Stable and confirmed the Issuer Rating and Senior Unsecured Debentures rating at BB (high). The Recovery Rating on the Senior Unsecured Debentures remains at RR3.

KEY CREDIT RATING CONSIDERATIONS
The Negative trends reflect Cominar's slower progress toward achieving leverage, as measured by total debt-to EBITDA, relative to Morningstar DBRS' previously stated expectations of 9.2 times (x) for both 2024 and 2025, as per the press release dated September 6, 2024. Morningstar DBRS now expects Cominar's leverage to be in the high 10x range in 2024 and 2025. The deterioration in forecasted leverage is a function of slower-than-anticipated progress on disposition of noncore asset sales in 2024. At the same time, the lack of visibility on the REIT's asset sales and other deleveraging initiatives leaves us less certain of Cominar's ability to achieve our current total debt-to-EBITDA expectations for 2025. The trends further acknowledge a conservative same property net operating income growth outlook in the near term as a result of ongoing headwinds in the REIT's operating environment. The Negative trends also factor in Morningstar DBRS' expectations of Cominar using additional levers to reduce leverage in the near term. Cominar's business risk assessment (BRA) factors remain unchanged from our prior review.

CREDIT RATING DRIVERS
Morningstar DBRS would consider downgrading Cominar's credit ratings should the REIT fail to demonstrate any progress in reducing leverage and stabilizing operating performance in the next few quarters such that the total debt-to-EBITDA remains above 9.3x or EBITDA-interest coverage remains below 1.67x on a sustained basis, all else equal. Conversely, Morningstar DBRS would consider restoring the trend to Stable if Cominar's total debt-to-EBITDA remains comfortably below 9.3x and EBITDA-interest coverage remains comfortably above 1.67x on a sustained basis, all else equal.

FINANCIAL OUTLOOK
Morningstar DBRS has revised its expectation for Cominar's total debt-to-EBITDA to the high 10x range from the low 9.0x range (and 10.8x for nine months ended September 30, 2024) because of a lack of visibility surrounding the REIT's near-term deleveraging plans. Similarly, as a result of higher debt levels than previously anticipated combined with the refinancing risk, Morningstar DBRS now expects Cominar's EBITDA interest coverage to fluctuate in the low 1.7x range in the near to medium term instead of the high 1.7x range as stated in Morningstar DBRS' previous press release dated September 6, 2024.

CREDIT RATING RATIONALE
The credit ratings continue to be supported by Cominar's above-average quality assets with several notable properties and long-dated lease maturity profile with high-quality tenants. The credit ratings are constrained by Cominar's elevated leverage, weak geographic and property diversification, and below-average portfolio size with limited market position.

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 Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

BRA AND FRA
(A) Weighting of BRA Factors
In the analysis of Cominar, the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Cominar, the FRA factors were considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of Cominar, the BRA and the FRA carry approximately equal weight.

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 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/397223.

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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