Despite DBRS Morningstar's expectation for weaker financial risk metrics than previously anticipated (i.e., total debt to EBITDA at 9.8 times (x)), SmartCentres does have some financial flexibility in the current credit rating category. As such, the trends remain Stable. SmartCentres' solid operational performance over the last 12 months reflects continued strong demand for the Trust's value-oriented retail assets, as demonstrated by occupancy and same-property net operating income growth. However, DBRS Morningstar's downward assessment of the Trust's Financial Risk Assessment (FRA) factors, namely its total debt-to-EBITDA and EBITDA-to-interest coverage ratios, offset the marginal improvement in the Trust's operational performance. Following the last credit rating action on
Nevertheless, the BBB credit ratings continue to be supported by SmartCentres' (1) strong tenant profile with
However, the credit ratings continue to be constrained by (1) elevated leverage as measured by the Trust's total debt-to-EBITDA ratio, which is expected to escalate further; (2) concentration risks, such as asset-type concentration in retail, tenant concentration (most significantly
DBRS Morningstar would consider taking a negative credit rating action if SmartCentres' total debt-to-EBITDA ratio deteriorates above 10.8x and EBITDA-interest coverage deteriorates below 2.3x on a sustained basis. At the same time, DBRS Morningstar does not anticipate any positive credit rating action for SmartCentres over the 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 (
Notes:
All figures are in Canadian dollars unless otherwise noted.
DBRS Morningstar applied the following principal methodologies:
Global Methodology for Rating Entities in the Real Estate Industry (
DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (
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.
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