DBRS, Inc. (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debentures rating of First Capital Real Estate Investment Trust (First Capital or the Trust) at BBB with Stable trends. The rating confirmations take into consideration First Capital's (1) strategic focus on high-quality, grocery-anchored and mixed-use properties in neighbourhoods with strong demographics; (2) resilient tenant base: and (3) continued progress on high grading its portfolio through its ongoing redevelopment/development initiatives and property dispositions.
The Stable trends reflect DBRS Morningstar’s expectation that the Trust will continue to demonstrate modest growth in EBITDA in the near to medium term, largely driven by First Capital's development/redevelopment program, acquisitions, and modest growth in same-property net operating income, notwithstanding the Trust’s dispositions plan to sell $1.0 billion of assets through 2024. As a result, DBRS Morningstar expects First Capital's total debt-to EBITDA to modestly improve to slightly below the 11.0 times (x) range by YE2023 and between 10.5x and 11.0x by YE2024.
The ratings are also supported by First Capital’s (1) largely unencumbered pool of high-quality portfolio of grocery- and pharmacy-anchored retail properties (unencumbered assets with an IFRS value of approximately $6.9 billion); (2) strong market position in its core trade areas through ownership in property assemblies within neighborhoods and resultant low property concentration risk; and (3) highly resilient tenant base. Elevated leverage continues to constrain the ratings as does First Capital’s asset type concentration as the Trust is virtually a pure-play retail real estate investment trust with some diversification by format and category (e.g., necessity based, service oriented, discretionary, etc.).
DBRS Morningstar would consider a positive rating action if First Capital successfully executes its capital recycling initiatives in a credit-accretive way, such that the Trust's total debt-to-EBITDA declines below 9.8x on a sustained basis, all else equal. A negative rating action could occur if the Trust's total debt-to- EBITDA increases above 11.8x and if EBITDA interest coverage declines below 1.83x, or if secured debt-to-total debt is above 40% on a sustained basis, all else equal.
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 (May 17, 2022).
DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Entities in the Real Estate Industry (April 11, 2023; https://www.dbrsmorningstar.com/research/412477)
The following methodologies have also been applied:
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023; https://www.dbrsmorningstar.com/research/411694)
The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.
The rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the rating process for this rating action.
DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This is a solicited credit rating.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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