DBRS Limited (DBRS Morningstar) confirmed bcIMC Realty Corporation’s (bcIMC Realty or the Company) Issuer Rating and Medium-Term Notes (MTNs) rating at AA (low) with Stable trends. The ratings consider (1) the stand alone credit assessment of bcIMC Realty; (2) the implicit support of the British Columbia Investment Management Corporation (BCI) as sole trustee of bcIMC Realty's parent, BCI QuadReal Realty (BQR; rated AA (low) with a Stable trend by DBRS Morningstar); and (3) additional credit enhancement provided by Parkpool, owner of Parkbridge Lifestyle Communities Inc. (Parkbridge), as a guarantor of the MTNs under the Trust Indenture (the Guarantee).
The Stable trends consider bcIMC Realty's (1) stable operational performance being generally consistent with DBRS Morningstar's prior expectations; (2) continued ample access to liquidity; (3) stable credit enhancement provided by the Parkpool Guarantee; and (4) ongoing disposition pipeline, largely by way of the strategic partnership between RBC Global Asset Management (RBC GAM) and QuadReal Property Group Limited Partnership (QuadReal) whereby non-managing, partial interests in stabilized income producing properties (IPP) are vended into Canadian Core Real Estate LP (rated A (low) with a Stable trend by DBRS Morningstar) (the RBC GAM Transaction). The Stable trends also consider DBRS Morningstar's expectation that, in contrast with DBRS Morningstar's prior expectations for improvement, bcIMC Realty's financial risk profile will remain relatively stable in the near to medium term as total debt-to-EBITDA remains in the high 8 times (x) range and EBITDA interest coverage in the high 4x range as the Company continues its capital recycling initiatives (i.e., dispositions providing a source of funds for acquisitions and developments) and manages its capital flows with BCI accordingly in the context of a growing balance sheet and earnings profile. Nevertheless, in DBRS Morningstar's view this level of leverage may serve to limit financial flexibility for the current rating.
The ratings continue to be supported by (1) DBRS Morningstar’s view of implicit support from BCI as sole trustee of bcIMC Realty's parent, BQR; (2) the Company’s high-quality real estate portfolio with exposure to all four core real estate subsectors; (3) strong market position through BCI’s leading global real estate management platform, QuadReal; (4) a well-diversified tenant base with low counterparty risk; and (5) a low level of secured debt (secured debt-to-total debt ratio of 27.9% at December 31, 2021) and a large pool of unencumbered assets with an estimated value of approximately $10.4 billion at December 31, 2021, that could be pledged as security for loans, if needed. The ratings continue to be constrained by (1) bcIMC Realty's elevated leverage and execution risks stemming from the Company's capital recycling initiatives and capital-intensive development pipeline that will require ample funding and continued support from BCI and BQR; (2) concentration risks by several measures including property and geography; and (3) relatively elevated re-leasing risk.
DBRS Morningstar would consider a negative rating action if (1) bcIMC Realty's total debt-to-EBITDA ratio increases above 9.2x on a sustained basis, all else equal, or if DBRS Morningstar views downward revisions to bcIMC Realty's business risk assessment as warranted; or (2) bcIMC Realty’s secured debt-to-total debt ratio increases above 40%; or (3) DBRS Morningstar changes its views on the level of implicit support from BCI or the credit enhancement provided by the Parkpool Guarantee. Given the constraints noted above, such as elevated leverage, a positive rating action is unlikely at this time.
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 20, 2022; https://www.dbrsmorningstar.com/research/395565), and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394684), 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).
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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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