DBRS Limited (DBRS Morningstar) confirmed AIMCo Realty Investors LP’s (AIMCo Realty or the Company) Issuer Rating and Senior Unsecured Debt rating at AA (low) with Stable trends. The ratings consider (1) AIMCo Realty’s stand-alone risk profile, (2) the low level of secured debt in its capital structure, and (3) DBRS Morningstar’s view of implicit support from Alberta Investment Management Corporation (AIMCo).
The Stable trends consider (1) AIMCo Realty's rising leverage in recent years because of its development pipeline; (2) DBRS Morningstar’s expectation of moderate EBITDA growth from existing properties, supplemented primarily by increasing EBITDA from new and expansion construction projects coming to market in the near and midterm; and (3) the Company's meaningful exposure to indoor shopping centres and energy-centric office markets that has resulted in stress to rental collections, occupancy rates, and cash flows exacerbated by the transitory pandemic headwinds. DBRS Morningstar expects AIMCo Realty's strategy to periodically pursue opportunistic development or other growth initiatives will continue to have a negative impact on the Company's debt-to-EBITDA ratio with a modest deterioration toward the high eight times (x) range in the near term from 8.3x for the last 12 months ended December 31, 2021, before improving thereafter. The result is reduced financial flexibility at the current rating level.
The ratings continue to be supported by (1) the underlying cash flow stability of its high-quality real estate portfolio and strong market position in key Canadian markets, (2) the Company’s modest near-term retail and office lease expiries, (3) DBRS Morningstar’s expectation that the Company’s secured debt-to-total debt ratio (36.2% in F2021) remains below the 40% threshold, and (4) DBRS Morningstar's view of implicit support from AIMCo. The ratings continue to be constrained by AIMCo Realty’s property and geographic concentration and relatively small portfolio size.
A negative rating action could result if one or more of the following factors occur: (1) the operating environment deteriorates, leading to permanently higher vacancy rates, particularly for the Company’s retail and energy-centric office assets, and to declines in operating cash flow such that AIMCo Realty’s debt-to-EBITDA exceeds 9.0x or EBITDA interest coverage falls below 4.00x, on a sustained basis; (2) the secured debt-to-total debt ratio exceeds 40%; or (3) DBRS Morningstar changes its view on the level of implicit support provided by AIMCo. A positive rating action is unlikely in the near to medium term, given the debt-to-EBITDA and secured debt-to-total debt ratios are higher than DBRS Morningstar’s expected levels for the ratings.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
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/396929.
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) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683) 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 (May 17, 2022; https://www.dbrsmorningstar.com/research/396929).
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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