DBRS Limited (DBRS Morningstar) confirmed BCI QuadReal Realty’s (BQR or the Fund) Issuer Rating and Senior Notes rating at AA (low) and its Commercial Paper (CP) rating at R-1 (low), all with Stable trends. The ratings consider (1) BQR’s stand-alone credit risk profile, with expected mitigants to structural subordination to material prior ranking debts, and (2) DBRS Morningstar’s view of implicit support by British Columbia Investment Management Corporation (BCI). BQR's stand-alone credit risk profile encompasses Parkpool as guarantor of the Senior Notes. (Note that all references in this report to BQR shall mean BQR and Parkpool on a combined basis.) 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.
The Stable trends take into consideration BQR’s (1) stable operational performance being generally consistent with DBRS Morningstar's prior expectations; (2) good liquidity position with $884 million cash and access to $1,100 million in available credit lines, albeit effectively shared with BRC; and (3) ongoing disposition pipeline. The Stable trends also consider DBRS Morningstar's expectation for a modestly improved financial risk assessment for BQR relative to prior expectations, as BQR offloads a material amount of development risk and associated funding into related entities, resulting in DBRS Morningstar's revised expectation for BQR’s total debt-to-EBITDA and EBITDA interest coverage metrics to approach the 7.0 times (x)-range and 6.0x-range, respectively, in the near to medium term from 6.2x and 7.38x for the last 12 months ended December 31, 2021.
BQR's ratings continue to be 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, albeit with some exposure to the oil and gas industry. BQR's ratings are constrained by (1) the execution risks stemming from the Fund's capital recycling initiatives and capital-intensive development pipeline, notwithstanding BQR's intention to offload some of the associated risk; (2) geographic concentration in Alberta; (3) property concentration from its top 10 assets; and (4) BQR's relatively short lease maturity profile.
DBRS Morningstar could take a negative rating action if BQR’s operating results deteriorate such that the total debt-to-EBITDA ratio increases to greater than 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.
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/395563); DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683); and DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 1, 2022; https://www.dbrsmorningstar.com/research/393065), 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).
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 firstname.lastname@example.org.
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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