DBRS Confirms Ontario Teachers' Cadillac Fairview Properties Trust’s AA Rating, Stable Trend

DBRS Limited (DBRS) confirmed Ontario Teachers’ Cadillac Fairview Properties Trust’s (OT CFPT or the Trust) Senior Unsecured Debentures rating at AA with a Stable trend. The rating takes into consideration OT CFPT’s stand-alone risk profile, low level of secured debt and DBRS’s view of the implicit support provided by the Ontario Teachers’ Pension Plan Board (OTPPB; rated AAA with a Stable trend by DBRS).

The confirmation reflects DBRS’s expectation that OT CFPT’s high-quality assets (specifically interests in super-regional and regional shopping centres and Class A office properties located in key Canadian markets) and strong market position will continue to provide underlying stability to operating metrics and earnings. Additionally, the rating is supported by OT CFPT’s conservative financial profile and low secured debt levels. Notwithstanding, the rating is constrained by OT CFPT’s significant property concentration, considerable geographic concentration in the Greater Toronto Area, tenant concentration within its top ten tenants and a high degree of exposure to discretionary retail.

The Stable rating outlook reflects DBRS’s view that OT CFPT will maintain EBITDA around $975 million compared with $956 million in 2017 (DBRS adjusted) over the next couple of years as incremental income contributions from the completion of the Trust’s multi-year development plan and rent escalations offset the full-year impact of 2017 dispositions. The Stable outlook also incorporates DBRS’ expectation that development and investment projects will be funded with equity from OTPPB and that the $2.8 billion of intercompany debt owed by OT CFPT will be refinanced in the capital markets over the next several years. As such, the current trend incorporates DBRS’s expectation that OT CFPT will maintain the debt-to-EBITDA and EBITDA-to-interest expense ratios at the current levels.

DBRS would consider a negative rating action should one or more of the following occur: (1) Financial metrics decline such that debt-to-EBITDA exceeds 6.7 times, or secured debt-to-total debt exceeds 40% (14% at October 31, 2017) on a sustained basis; (2) Operating conditions deteriorate, leading to declines in operating cash flow and EBITDA; (3) DBRS’s view on the strength and level of implicit support provided by OTPPB changes. Currently, DBRS does not anticipate a positive rating action in the foreseeable future given OT CFPT’s property and geographic concentration risks.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Entities in the Real Estate Industry (April 2018) and DBRS Criteria: Guarantees and Other Forms of Support (January 2018), which can be found on dbrs.com under Methodologies.

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.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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