Morningstar DBRS Confirms bcIMC Realty Corporation at AA (low), Stable

DBRS Limited (Morningstar DBRS) confirmed bcIMC Realty Corporation's (bcIMC Realty or the Company) Issuer Rating and the credit rating on the Company's Medium-Term Notes (MTNs) at AA (low) with Stable trends.

The credit ratings consider (1) the stand-alone credit assessment of bcIMC Realty; (2) the implicit support of British Columbia Investment Management Corporation (BCI; rated AAA with a Stable trend by Morningstar DBRS) as sole trustee of bcIMC Realty's parent, BCI QuadReal Realty (BQR; rated AA (low) with a Stable trend by Morningstar DBRS); and (3) additional credit enhancement provided by Parkpool, owner of Parkbridge Lifestyle Communities Inc., as a guarantor of the MTNs under the Trust Indenture (the Parkpool Guarantee).

KEY CREDIT RATING CONSIDERATIONS
The Stable trends consider bcIMC Realty's consistent operating performance during 2024, supplemented through moderately strong same-property net operating income growth and steady occupancy levels. The trends also take into account the Company's prudent strategy for development in light of economic uncertainty, emphasizing pre-leasing and the continuation of capital improvement and development initiatives. Morningstar DBRS expects there to be a modest increase in the Company's EBITDA, which is anticipated to occur alongside an increase in development-related debt as the Company's ongoing projects reach stabilization in the near to medium term. The credit ratings also take into account the Company's robust partnership with RBC Global Asset Management (RBC GAM), as evidenced by the transactions from Tranche 5 last year, where non-managing, partial interests in stabilized income-generating properties were sold to Canadian Core Real Estate LP (rated A (low) with a Positive trend by Morningstar DBRS). Nevertheless, the Company's significant exposure to office properties, particularly in the struggling Calgary office market, is slightly credit dilutive in nature. Morningstar DBRS notes that the sector continues to encounter challenges due to an increasing oversupply driven by new developments, obsolescence, and the shift toward remote work, which is exerting downward pressure on rental rates and occupancy levels.

Credit Rating Drivers
Morningstar DBRS would consider a negative credit rating action if (1) bcIMC Realty's total debt-to-EBITDA ratio increases above 9.3 times (x) or EBITDA interest coverage declines below 4.0x on a sustained basis, all else equal; (2) bcIMC Realty's secured debt-to-total debt ratio increases above 40%; (3) Morningstar DBRS changes its view on the level of implicit support from BCI; or (4) Morningstar DBRS changes its view on the credit enhancement provided by the Parkpool Guarantee and the realized gains from BQR's programmatic dispositions strategy. A positive credit rating action is unlikely at this time, unless there is a significant improvement in the Company's business risk assessment (BRA) or financial risk assessment (FRA) factors in the near to medium term.

Financial Outlook
Morningstar DBRS anticipates that bcIMC Realty's total debt-to-EBITDA ratio will stay within the high 8x to low 9x range in the near to medium term, consistent with the 8.9x recorded for the last 12 months ended December 31, 2024 (LTM). However, Morningstar DBRS expects that bcIMC Realty's EBITDA interest coverage will decline to the low to mid-4x range in the near to medium term, from 5.1x for the LTM, as the Company refinances maturing notes at higher interest rates and rise in development-related debt. Given that the BRA and FRA factors have not changed compared with the previous year, based on Morningstar DBRS' expectations, the company has little further tolerance at the current credit ratings for incremental leverage beyond what has been accounted for in the forecast periods.

Credit Rating Rationale
The credit ratings continue to be supported by (1) Morningstar DBRS' view of implicit support from BCI as sole trustee of bcIMC Realty's parent, BQR; (2) the Company's high-quality real estate portfolio, with exposure to all four core real estate subsectors; (3) the Company's strong market position through BCI's leading global real estate management platform managed by BQR; (4) a well-diversified tenant base with low counterparty risk; and (5) bcIMC Realty's low level of secured debt and large pool of unencumbered assets, which could be pledged as security for loans, if needed.

The credit ratings are constrained by (1) bcIMC Realty's modestly elevated leverage and execution risks stemming from the Company's capital-recycling initiatives and capital-intensive development pipeline that will require ample funding and continued support from BCI and BQR; (2) concentration risks by several measures, including property and geography; and (3) relatively elevated near-term re-leasing risk.

Morningstar DBRS also continues to provide an additional modestly positive overlay factor in consideration of other revenues received through the Company's programmatic disposition strategy, largely by way of the strategic partnership between RBC GAM and BQR.

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 bcIMC Realty, the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors 
In the analysis of bcIMC Realty, 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 bcIMC Realty, 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 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/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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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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