DBRS Morningstar Confirms Cominar Real Estate Investment Trust’s Issuer Rating and Senior Unsecured Debentures at BB (high), Stable

DBRS Limited (DBRS Morningstar) confirmed Cominar Real Estate Investment Trust’s (Cominar) Issuer Rating and Senior Unsecured Debentures rating at BB (high) with Stable trends. The recovery rating on the Senior Unsecured Debentures is RR3. These rating confirmations reflect the execution of Cominar's strategy, which is generally consistent with DBRS Morningstar's expectations, as well as several further revisions to Cominar's business risk assessment (BRA), financial risk assessment (FRA), and overlay factors.

DBRS Morningstar has revised its expectation for Cominar's total debt-to-EBITDA to the mid-9.0 times (x) range in the near to medium term, from the 9.0x range previously (and 10.4x for the last 12 months ended June 30, 2023 (LTM)), resulting in a modestly lower FRA. The higher expectation for leverage is largely a result of significantly higher-than-expected general and administrative (G&A) expenses weighing on EBITDA. While DBRS Morningstar understands the elevated G&A expense is partly due to transaction and reorganization costs and expects some improvement going forward, DBRS Morningstar expects G&A expense to remain somewhat elevated relative to Cominar's peers (measured as a percentage of revenue). DBRS Morningstar expects Cominar's EBITDA interest coverage to remain in the low 2.0x range (from 2.11x for the LTM). DBRS Morningstar has also revised its assessment of Cominar's portfolio size owing to the aforementioned lower-than-expected EBITDA, resulting in a modestly weaker BRA.

Offsetting Cominar's modestly lower core credit assessment is Cominar's improved access to liquidity. On April 24, 2023, Cominar entered into a credit agreement with a banking syndicate whereby Cominar has access to revolving credit facilities in an aggregate amount of $132.5 million, secured against three properties. The credit agreement presently matures on April 24, 2024, which DBRS Morningstar expects to be extended in due course. Cominar's improved access to liquidity by way of the revolving credit facilities alleviates a previously assessed credit negative. Nevertheless, Cominar has little remaining financial flexibility at the current rating.

The ratings continue to be supported by Cominar’s average-quality assets with several notable properties, tenant diversification, asset type diversification, long-dated lease maturity profile with high-quality tenants, and sufficient EBITDA interest coverage. The ratings continue to be constrained by Cominar’s elevated leverage, geographic concentration, property concentration, and relatively small size with limited market position.

DBRS Morningstar assesses that with Cominar’s improved access to liquidity as noted above, Cominar has modestly more tolerance for leverage at a given rating level. DBRS Morningstar would consider negative rating actions should Cominar’s total debt-to-EBITDA remain above 9.8x or EBITDA interest coverage decline below 2.0x, on a sustained basis, all else equal. Given the challenges noted above such as elevated leverage, DBRS Morningstar views positive rating actions as highly unlikely in the near to medium term.

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/416784 (July 4, 2023).

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

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: Recovery Ratings for Non-Investment-Grade Corporate Issuers (August 30, 2023; https://www.dbrsmorningstar.com/research/420063)

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 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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit 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 credit 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 credit ratings are under regular surveillance.

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577