Morningstar DBRS Confirms RioCan Real Estate Investment Trust's Credit Ratings at BBB With Stable Trends

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on RioCan Real Estate Investment Trust's (RioCan or the Trust) Issuer Rating, Senior Unsecured Debentures, and Senior Unsecured Debentures, Series I at BBB with Stable trends.

KEY CREDIT RATING CONSIDERATIONS
The Stable trends reflect visibility on RioCan's improvement on its leverage as Morningstar DBRS expects total debt-to-EBITDA will approach the low-9.0 times (x) range by YE2025. As at the last 12 months (LTM) ended September 30, 2024, RioCan's total debt-to-EBITDA was at 10.0x. The trends also consider further improvement to RioCan's secured debt-to-total debt ratio to below 40%. As at September 30, 2024, RioCan's secured debt-to-total debt ratio stood at 45.2%.

The credit ratings reflect RioCan's high-quality, increasingly necessity-based, urban retail assets in Canada's six major markets, a solid market position as one of the largest real estate investment trusts (REITs) in Canada with 32.5 million square feet (sf) of well-located income-producing net leasable area (NLA) at September 30, 2024, and a strong liquidity position supported by a sizable unencumbered asset pool valued at $8.2 billion at September 30, 2024. The credit rating confirmations also consider RioCan does not intend to commence new construction of mixed-use properties into 2025 and is expected to pay down mortgages/construction loans from condominium projects with funds from pre-sold units in the next 12 months.

CREDIT RATING DRIVERS
Morningstar DBRS would consider a positive credit rating action should RioCan's total debt-to-EBITDA continue to improve below 9.2x and secured debt-to-total debt ratio improve below 40% on a sustained basis, all else being equal. Morningstar DBRS would consider a negative credit rating action if total debt-to-EBITDA deteriorates above 10.8x, on a consistent basis, all else being equal.

FINANCIAL OUTLOOK
Morningstar DBRS anticipates RioCan's leverage, as measured by total debt-to-EBITDA, will trend toward the low-9.0x by YE2025 through the Trust's organic growth, income from recently completed and near-term developments, and RioCan's plans to not commence on new construction of mixed-use properties into 2025 and to pay down mortgages/construction loans from condominium projects with funds from pre-sold units in the next 12 months. Morningstar DBRS expects EBITDA interest coverage to remain at the current level of around mid-2x range.

CREDIT RATING RATIONALE
RioCan's credit ratings are strongly supported by (1) high-quality, increasingly necessity-based, urban retail assets in Canada's six major markets, which underpins cash flow stability; (2) a solid market position as one of the largest real estate investment trusts (REITs) in Canada with 32.5 million square feet (sf) of well-located income-producing net leasable area (NLA) at September 30, 2024; (3) strong lease maturity and tenant profile with long-term leases, low counterparty risk, and above-average tenant diversification; and (4) ample access to liquidity of $1,340 million (consisting of credit facility capacity, construction lines and bank loans, and cash and cash equivalents) and an unencumbered asset pool valued at $8.2 billion at September 30, 2024.

The credit ratings continue to be constrained by (1) elevated leverage as measured by RioCan's total debt-to-EBITDA (10.0x as of the last 12 months (LTM) ended September 30, 2024); and (2) retail and geographic concentration risks as a retail-focused REIT in Canada's key urban markets.

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.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of RioCan Real Estate Investment Trust, the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of RioCan Real Estate Investment Trust, 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 RioCan Real Estate Investment 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 Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

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 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 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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