Morningstar DBRS Confirms Credit Ratings on Primaris Real Estate Investment Trust at BBB (high) With Stable Trends

DBRS, Inc. (Morningstar DBRS) confirmed the Issuer Rating of Primaris Real Estate Investment Trust (Primaris or the REIT) and the credit rating on the REIT's Senior Unsecured Debentures at BBB (high) with Stable trends.

KEY CREDIT RATING CONSIDERATIONS
The Stable trends consider Morningstar DBRS' expectation that Primaris will continue to manage leverage as measured by total debt-to-EBITDA in the 6.5 times (x) to 7.0x range in the near to medium term compared with the 5.5x to 6.0x range in the prior year. Leverage was at 7.1x in the last 12 months (LTM) ended September 30, 2024. The Stable trends also reflect Primaris' deteriorating leverage metrics because of its recent acquisitions and weakened EBITDA-to-interest coverage ratio of 2.69x in the LTM ended September 30, 2024. These are partially offset by the improvement in Morningstar DBRS' business risk assessment (BRA) of the REIT's asset quality as Primaris continues to improve its portfolio by acquiring market-leading enclosed shopping centres, such as Southgate Centre and Oshawa Centre, in its trade areas. The credit ratings are unchanged, but Morningstar DBRS notes there is less flexibility in the financial risk assessment (FRA) metrics.

CREDIT RATING DRIVERS
Morningstar DBRS would consider a negative rating action should Primaris' key FRA metrics deteriorate such that total debt-to-EBITDA increases above 7.3x and EBITDA-to-interest coverage declines below 2.66x on a sustained basis, all else equal. A positive rating action is unlikely in the near to medium term given the overall BRA.

FINANCIAL OUTLOOK
Morningstar DBRS projects total debt-to-EBITDA to improve in the 6.5x to 7.0x range in the near term, largely driven by EBITDA growth from the acquisitions of Les Galeries de la Capitale in October 2024 and Southgate Centre and Oshawa Centre in February 2025, along with same-store net operating income growth. Morningstar DBRS projects Primaris' EBITDA-to-interest coverage ratio to improve to the high-2.5-low-3.0x range in the near to medium term, from 2.69x in the LTM ended September 30, 2024, as increasing interest expense is more than offset by the aforementioned EBITDA growth.

CREDIT RATING RATIONALE
The ratings are supported by (1) Morningstar DBRS' assessment of the REIT's solid asset quality with a portfolio of well-maintained, well-located, open-air shopping centres and enclosed malls that are often dominant within their respective secondary markets; (2) Primaris' strong balance sheet with low leverage and financial flexibility as reflected in the REIT's strong total debt-to-EBITDA, which is likely to improve to the 6.5x to 7.0x range, and EBITDA-to-interest coverage, which is also likely to remain in the high 2.5x-low-3.0x range in the near to medium term; (3) Primaris' well-laddered lease maturity profile with a diversified tenant roster, with several high-quality investment-grade tenants among its largest leaseholders; and (4) the REIT's robust market position within its well-defined niche as one of the largest owner/operators of enclosed shopping centres nationally.

The ratings are constrained by (1) concentration risks related to Primaris' portfolio as a niche player, including asset type and property concentrations, and (2) Primaris' portfolio size of 13.3 million square feet, which makes it one of the smallest retail real estate entities in Morningstar DBRS' rated universe.

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 (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 the REIT, the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of the REIT, 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 the REIT, 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 of one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025 https://dbrs.morningstar.com/research/447186) 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.

For more information on this credit, visit http://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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