DBRS Limited (DBRS Morningstar) confirmed BCI QuadReal Realty’s (BQR) Issuer Rating and Senior Notes rating at AA (low) and its Commercial Paper (CP) rating at R-1 (low), all with Stable trends.
The rating confirmations take into consideration (1) BQR’s stand-alone credit risk profile, (2) the expected low level of secured debt in its capital structure, (3) expected mitigants to structural subordination to material prior ranking debts, and (4) DBRS Morningstar’s view of BQR’s implicit support by British Columbia Investment Management Corporation (BCI). BQR’s stand-alone credit risk profile encompasses Parkpool as guarantor of the Senior Notes. Parkpool also guarantees the unsecured debt issued by bcIMC Realty Corporation (BRC; rated AA (low) with a Stable trend by DBRS Morningstar), BQR's primary subsidiary.
BQR’s stand-alone credit risk profile is supported by (1) its high-quality real estate portfolio with exposure across multiple asset classes; (2) a strong market position that benefits from the reputation and market leadership of its manager, QuadReal Property Group Limited Partnership; and (3) a diversified tenant base with low counterparty risk. BQR's stand-alone credit risk profile is constrained by (1) the execution risks around the RBC Global Asset Management transaction, the current development pipeline, and elevated risks related to the ongoing Coronavirus Disease (COVID-19) pandemic; (2) geographic concentration in Alberta; and (3) property concentration from its top 10 assets. DBRS Morningstar notes that all references to BQR in this press release shall mean BQR and Parkpool on a combined basis.
The Stable trends take into consideration BQR’s good liquidity position with $227 million in cash; access to $500 million in available credit lines, albeit effectively shared with BRC; and $2.0 billion CP program ($470 million outstanding as at December 31, 2020) along with DBRS Morningstar's expectations of modest weakening of financial metrics over the near to medium term as BQR continues with its growth plans during the coronavirus pandemic. BQR’s leverage (total debt-to-EBITDA) and coverage (EBITDA-to-interest) metrics, as calculated by DBRS Morningstar, were 6.8 times (x) and 7.03x, respectively, for F2020. In the near to medium term, leverage is anticipated to rise to the 7.2x range because of higher levels of debt, and EBITDA interest coverage is anticipated to modestly decline to the 6.7x range.
DBRS Morningstar could take a negative rating action if BQR’s operating results deteriorate such that the total debt-to-EBITDA ratio increases above 7.3x on a sustained basis, all else equal; if the secured debt-to-total debt ratio increases above 40%; or if DBRS Morningstar changes its view on the level and/or strength of implicit support provided by BCI. Given the constraints noted above, a positive rating action is unlikely at this time.
In its calculations of DBRS Morningstar-adjusted metrics such as total debt-to-EBITDA as of this review, DBRS Morningstar now considers total debt at face value (e.g., $4.45 billion at December 31, 2020) instead of fair value ($4.61 billion) on the balance sheet.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Rating Entities in the Real Estate Industry (April 23, 2021; https://www.dbrsmorningstar.com/research/377358), DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 14, 2021; https://www.dbrsmorningstar.com/research/372344), and DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 9, 2021; https://www.dbrsmorningstar.com/research/375001), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).
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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