DBRS Morningstar Confirms CT Real Estate Investment Trust and CT REIT Limited Partnership at BBB, Stable

DBRS Limited (DBRS Morningstar) confirmed the Senior Unsecured Debentures rating of CT Real Estate Investment Trust (the Trust) and the Issuer Rating of CT REIT Limited Partnership (CT REIT LP; collectively with the Trust, CT REIT) at BBB. Both trends remain Stable.

These rating actions reflected DBRS Morningstar’s view that CT REIT’s credit risk profile and ratings are aligned with those of Canadian Tire Corporation, Limited (CTC; rated BBB with a Stable trend by DBRS Morningstar), largely because CTC effectively controls CT REIT through its majority ownership and is the most significant tenant of CT REIT, among other reasons. Any change in CTC’s rating would have a direct effect on CT REIT’s ratings.

While CTC does not provide explicit support to CT REIT LP, DBRS Morningstar assesses the level of CTC’s implicit support to CT REIT LP to be strong based on the following considerations:

1. CT REIT LP is essential to the operation of CTC. CT REIT LP is CTC’s most significant landlord for the foreseeable
   future.
2. There are substantial contractual arrangements between CT REIT and CTC, including long-term lease agreements,
   services, and property management agreements.
3. CTC’s effective ownership of CT REIT was approximately 69.2% of CT REIT’s equity as at December 31, 2020.
4. The reputational risk implications of CT REIT to CTC are high, given their strong interconnections.
5. Integration between CTC and CT REIT is strong through strategies, operations, and oversight.

The Trust’s Senior Unsecured Debentures rating reflects (1) DBRS Morningstar’s expectation that no additional unsecured debt will be issued at CT REIT LP, excluding its existing credit facilities, going forward; (2) DBRS Morningstar’s expectation that future unsecured debentures will only be issued at the Trust level; (3) the Trust’s Senior Unsecured Debentures ranking pari passu with the Class C LP units of CT REIT LP in terms of distributions and claims that result in a low level of prior-ranking debt (i.e., the sum of secured debt, such as mortgages, and the limit on the unsecured credit facilities at CT REIT LP) in CT REIT’s debt structure (i.e., <40% of total debt); and (4) a provision in CT REIT LP’s credit facility that cross defaults to CTC under certain conditions.

CTC’s stated intention is to remain the majority unitholder of CT REIT over the long term. If CTC’s ownership or control in CT REIT diminishes materially over time or if CTC no longer represents a material proportion of CT REIT’s portfolio, by size or by rent received, CT REIT’s credit risk profile could be assessed on a stand-alone basis using DBRS Morningstar’s “Rating Entities in the Real Estate Industry” methodology.

In the event that CT REIT’s credit risk profile is assessed on a stand-alone basis, DBRS Morningstar notes that CT REIT LP’s Issuer Rating and the Trust’s Senior Unsecured Debentures rating would be limited to CTC’s rating on account of a provision in CT REIT LP's credit facility that cross defaults to CTC under certain conditions and the Senior Unsecured Debentures rank pari passu with the Class C LP units of CT REIT LP.

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.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Merchandising Industry (July 30, 2020; https://www.dbrsmorningstar.com/research/364692), Rating Entities in the Real Estate Industry (January 29, 2021; https://www.dbrsmorningstar.com/research/362015), DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2, 2020; https://www.dbrsmorningstar.com/research/369167), and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 14, 2021; https://www.dbrsmorningstar.com/research/369167), 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 info@dbrsmorningstar.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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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