DBRS Limited (DBRS Morningstar) confirmed its rating on Ivanhoé Cambridge II Inc.’s (IC II or the Company) Senior Unsecured Debentures at AA (low) with a Stable trend. The confirmation takes into consideration the heightened level of uncertainty in IC II's operating environment because of the ongoing Coronavirus Disease (COVID-19) pandemic and related economic slowdown, as well as recent asset dispositions (Carrefour de L'Estrie in May 2019 and Centre de Commerce Mondial de Montréal in January 2020).
The Stable trend considers (1) IC II's strong balance sheet with total debt-to-EBITDA of 2.3 times (x) at December 31, 2019, with no maturities of senior unsecured debt until June 2023 when the $500 million Series 1 Senior Unsecured Debentures come due; (2) IC II's robust access to liquidity of $324 million at December 31, 2019, composed of cash and availability on its undrawn senior unsecured revolving credit facility of $300 million that matures December 22, 2022 (not to mention $13.8 billion in unencumbered assets); (3) DBRS Morningstar's conservative estimates with respect to the coronavirus pandemic’s material impact on 2020E/2021E EBITDA; (4) DBRS Morningstar's expectation for continued incremental debt issuance in the near to medium term, and anticipation that net proceeds of said debt issuance will be distributed to IC II's parent, Ivanhoé Cambridge Inc. (Ivanhoé Cambridge); and (5) IC II's increasing concentration risks as it disposes of non-core assets, thus shrinking its portfolio. The combined effect of the aforementioned considerations results in DBRS Morningstar's expectation that total debt-to-EBITDA will deteriorate to the 5.0x-range through 2021, a level that is incorporated into the current rating. The rating has always taken into consideration DBRS Morningstar's expectation that IC II's financial risk metrics would deteriorate materially, albeit from very strong levels.
The rating takes into account IC II’s stand-alone credit risk profile and DBRS Morningstar’s view of implicit support by IC II’s ultimate parent, Caisse de dépôt et placement du Québec (CDPQ; rated AAA with a Stable trend by DBRS Morningstar). The rating continues to be supported by the Company’s high-quality real estate portfolio, strong market position through Ivanhoé Cambridge, CDPQ’s leading global real estate management platform, and low proportion of secured debt in the capital structure. The rating continues to be constrained by significant property concentration as measured by the composition and contribution of IC II’s 10-largest net operating income contributors, geographic concentration most significantly in Montréal and Calgary, as well as a relatively small portfolio as measured by EBITDA compared with IC II’s rated pension fund real estate entity peers.
DBRS Morningstar would consider a negative rating action if one or more of the following factors occurs on a sustained basis: (1) DBRS Morningstar changes its views on the level of implicit support provided by CDPQ; (2) the secured debt-to-total debt ratio exceeds 40%; or (3) the Company’s key financial metrics deteriorate, resulting in total debt-to-EBITDA greater than 7.3x. A positive rating action is not contemplated at this time.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Rating Entities in the Real Estate Industry (April 2019), DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2019), and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
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 email@example.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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