Morningstar DBRS Confirms Credit Ratings on Primaris Real Estate Investment Trust at BBB (high), Stable

DBRS, Inc. (Morningstar DBRS) confirmed the Issuer Rating and Senior Unsecured Debentures rating on Primaris Real Estate Investment Trust (Primaris or the REIT) at BBB (high) with Stable trends.

KEY CREDIT RATING CONSIDERATIONS
The Stable trends consider Morningstar DBRS’s expectation that Primaris will continue to manage leverage as measured by total debt-to-EBITDA in the mid 5.5 times (x) to 6.0x range at YE2025. Leverage increased modestly to 7.2x in the last 12 months (LTM) ended December 31, 2023, because of the acquisitions of Conestoga Mall and Halifax Shopping Centre during the year. The Stable trends also reflect Primaris' ability to sustain Morningstar DBRS' business risk assessment (BRA) of the REIT's asset quality, market position, lease maturity profile, and tenant quality.

CREDIT RATING DRIVERS
Morningstar DBRS would consider a negative rating action should Primaris’ operating environment deteriorate, causing Morningstar DBRS to reassess both the REIT’s qualitative BRA factors and its key financial risk assessment (FRA) metrics or if the secured debt-to-total debt ratio is no longer comfortably below 40% on a sustained basis. A positive rating action is unlikely in the near to medium term given the overall BRA.

FINANCIAL OUTLOOK
Morningstar DBRS projects total debt-to-EBITDA to improve in the 5.5x to 6.0x range at YE2025, largely driven by EBITDA growth from the recent acquisitions of Conestoga Mall and Halifax Shopping Centre, and same-store net operating income growth. Morningstar DBRS projects EBITDA interest coverage metrics to remain around current levels at 3.4x in the near to medium term.

CREDIT RATING RATIONALE
The ratings are supported by (1) Primaris’ strong balance sheet with low leverage and financial flexibility as reflected in the REIT’s strong total debt-to-EBITDA metric, which is likely to improve from current levels to the 5.5x to 6.0x range, and with the REIT’s EBITDA interest coverage, similarly likely to remain in the low to mid-3x range until the end of 2025; (2) Morningstar DBRS’ assessment of the REIT’s solid asset quality with a portfolio of well-maintained, well-located, open-air centers and enclosed malls that are often dominant within their respective secondary markets; (3) Primaris’ well-laddered lease maturity profile with a diversified tenant roster, with several high-quality investment-grade tenants among its largest; and (4) the REIT’s robust market position within its well-defined niche as one of the largest owner/operators of enclosed shopping centers nationally.

The ratings are constrained by (1) concentration risks related to Primaris' portfolio as a niche player, including asset type and property concentrations, and (2) Primaris’ portfolio size of 12.5 million square feet, which makes it one of the smallest retail real estate entities in Morningstar DBRS’ rated universe.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of BRA Factors
In the analysis of Primaris Real Estate Investment Trust, the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Primaris Real Estate Investment Trust, the FRA factors were considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of Primaris Real Estate Investment Trust, the BRA carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology
-- Global Methodology for Rating Entities in the Real Estate Industry (April 11, 2023), https://dbrs.morningstar.com/research/412477.

The following methodology has also been applied:
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023), https://dbrs.morningstar.com/research/411694.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/397223.

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.

Morningstar DBRS 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. Morningstar DBRS trends and credit ratings are under regular surveillance.

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

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