Morningstar DBRS Assigns Issuer Rating of BBB (low) to Avenue Living (2014) LP and Provisional Rating of (P) BBB (low) to Senior Unsecured Debentures

DBRS Limited (Morningstar DBRS) assigned an Issuer Rating of BBB (low) to Avenue Living (2014) LP (Avenue Living or the Company). Morningstar DBRS also assigned a provisional credit rating of (P) BBB (low) to the Company's Senior Unsecured Debentures. Both trends are Stable. As of April 30, 2025, the Company had no Senior Unsecured Debentures outstanding; if the Company were to issue Senior Unsecured Debentures in the future, Morningstar DBRS expects the issuance to be on terms and conditions consistent with market practice and satisfactory to Morningstar DBRS, including guarantees, if applicable.

KEY CREDIT RATING CONSIDERATIONS
The assigned Issuer Rating reflects Avenue Living's established position as a significant owner/operator of workforce housing in non-rent-controlled Canadian Prairie provinces and select U.S. markets, as well as its consistently strong operational performance achieved through an accretive acquisition-led growth strategy supplemented by same-property net operating income (NOI) growth, high occupancy rates, and value-added capital improvements, partially offset by high leverage on account of a primarily debt-funded growth strategy. The Stable trends reflect Morningstar DBRS' expectation that the Company will continue to execute its accretive acquisition-led growth strategy with prudent financial management, with expectations of modest improvement in leverage and coverage ratios in the near to medium term.

CREDIT RATING DRIVERS
All else equal, Morningstar DBRS would consider a negative credit rating action should the Company's adjusted total debt-to-EBITDA remain above 12.0 times (x) or EBITDA interest coverage remain below 2.0x on a sustained basis. Morningstar DBRS would consider a positive credit rating action should the Company's adjusted total debt-to-EBITDA improve below 8.6x and EBITDA interest coverage remain above 2.66x on a sustained basis, all else equal.

FINANCIAL OUTLOOK
Morningstar DBRS expects the Company's adjusted total debt-to-EBITDA to remain in the mid-12.0x range by YE2025 and modestly improve to the low-11.0x range by YE2026 from 12.3x as of the last 12 months (LTM) ended December 31, 2024, driven by incremental NOI through the Company's recent accretive acquisitions in the U.S. and modest same-property NOI growth. Similarly, Morningstar DBRS expects the Company's EBITDA interest coverage to improve to the low- to mid-2.0x range by YE2026 from 2.1x at the LTM ended December 31, 2024. Morningstar DBRS' expectations are supported by the Company's prudent financial management while balancing its growth strategy with the partial use of unsecured debt financing and modest value-added capital expenditures.

Note: Avenue Living's adjusted total debt includes 25% of the outstanding 'Series 2014' Common and Preferred LP Units.

CREDIT RATING RATIONALE
The credit ratings are supported by the Company's (1) proven track record and consistent growth since its inception in 2006; (2) adequate asset quality catering to a large and stable workforce housing market segment with a track record of cash flow stability; (3) strong property and tenant diversification; and (4) experienced management team with expertise managing the Company through multiple economic cycles. The credit rating is constrained by (1) relatively high leverage; (2) a weak lease maturity profile and weak tenant quality; (3) a relatively small portfolio as measured by EBITDA of $210 million for the year ended December 31, 2024; and (4) asset type concentration with a portfolio focused entirely on multifamily rental housing.

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 Avenue Living, the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Avenue Living, 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 Avenue Living, 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 methodology 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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned security and may change or be different than the final credit ratings assigned or may be discontinued. The assignment of a final credit rating on the above-mentioned security is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit rating.

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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