Morningstar DBRS Changes Choice Properties Limited Partnership and Choice Properties Real Estate Investment Trust's Trends to Positive From Stable and Confirms Credit Ratings at BBB (high)

DBRS, Inc. (Morningstar DBRS) confirmed the Issuer Rating and Senior Unsecured Debenture rating of Choice Properties Limited Partnership (CPLP) as well as the Senior Unsecured Debenture (guaranteed by CPLP) rating of Choice Properties Real Estate Investment Trust (CPREIT or the Trust; together, Choice Properties or the Company) at BBB (high) and changed the trends to Positive from Stable. Morningstar DBRS assesses the ratings on a consolidated credit basis since CPLP guarantees CPREIT's Senior Unsecured Debentures.

KEY CREDIT RATING CONSIDERATIONS
The Positive trends reflect our upward assessment of Choice Properties business risk assessment (BRA) factors, namely asset quality and market position. The upward assessment was primarily driven by the consistently proven cash flow stability from Choice Properties' grocery-anchored portfolio, despite recent economic disruptions such as the global pandemic, as well as the recent Positive trend change of Choice Properties' main tenant, Loblaw Companies Limited (Loblaw; rated BBB (high) with a Positive trend by Morningstar DBRS), which accounts for 57.3% of total annualized gross rental revenue as of March 31, 2025. Morningstar DBRS believes that the Loblaw Positive trend change has added additional cash flow stability, improving asset quality, as well as enhanced Choice Properties' market position given their existing strategic partnership. Taken together, these BRA revisions are credit positive in nature and provide a higher tolerance for leverage (i.e., total debt-to-EBTIDA) for a given credit rating. The trends also take into consideration the steady execution of Choice Properties' strategy, including its development and intensification program, capital recycling initiatives, and Morningstar DBRS' resultant expectation that Choice Properties will maintain its key financial metrics near current levels, albeit with a modest decline in EBITDA interest coverage, consistent with Morningstar DBRS' prior expectation (i.e., total debt-to-EBITDA in the mid-7.0 times (x) range and EBITDA interest coverage around 3.20x).

CREDIT RATING DRIVERS
Morningstar DBRS would consider a credit rating upgrade should Choice Properties perform consistently with our expectations such that the Company's total debt-to-EBITDA and EBITDA interest coverage continue to remain at or below the mid-7.0x times range and above 3.0x, respectively, throughout the next six to 12 months, all else being equal, and if Loblaw is upgraded by Morningstar DBRS. Conversely, Morningstar DBRS would consider changing the trend to Stable if Choice Properties total debt-to-EBTIDA were to deteriorate to above 8.6x and EBITDA interest coverage were to deteriorate below 3.0x on a sustained basis, all else being equal. Morningstar DBRS would also consider changing the trend to Stable if any of the key business risk assessment factors, such as asset quality or market position, deteriorate beyond current levels or if Loblaw is not upgraded and the Positive trend is restored to Stable by Morningstar DBRS.

FINANCIAL OUTLOOK
In the near to medium term, Morningstar DBRS expects Choice Properties' total debt-to-EBITDA to modestly deteriorate to the mid-7.0x range (7.2x for the last 12 months ending March 31, 2025 (LTM)). Morningstar DBRS expects Choice Properties' EBITDA interest coverage metric will decline from 3.40x LTM to the low 3.0x range in the near to medium term. Morningstar DBRS anticipates that (1) Choice Properties' development and intensification program and acquisitions will be funded with a combination of debt and proceeds from dispositions; (2) EBITDA growth will continue to be supported by development completions and rental rate increases; and (3) interest expense will continue to grow commensurate with growth in outstanding indebtedness and as maturing debts are refinanced at prevailing higher rates.

CREDIT RATING RATIONALE
The credit ratings continue to be supported by Choice Properties' (1) strong market leadership, particularly in necessity-based retail, across Canada's largest urban centres; (2) strategic alliance with Loblaw; (3) long-term lease profile with low counterparty risk, which provides underlying stability to cash flows; (4) large, well-located portfolio of retail, industrial, mixed-use residential, and office properties; and (5) solid financial risk profile with high interest coverage and a high level of unsecured debt in the debt structure supported by a large pool of unencumbered assets. The credit ratings continue to be constrained by (1) concentration risks with a retail-focused portfolio and the majority of revenue derived from Loblaw banners and (2) relatively high leverage for the credit rating as measured by total debt-to-EBITDA.

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) https://dbrs.morningstar.com/research/437781

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of Choice Properties, the BRA factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Choice Properties, the FRA factors are considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of Choice Properties, 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 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 ESG 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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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