DBRS has announced that it:
has today assigned an Issuer Rating of BBB (low) and a Preferred Trust Units rating of Pfd-3 (low) to Artis Real Estate Investment Trust (Artis or the Trust), both with Stable trends. DBRS notes that the Issuer Rating ranks behind Artis’ property-specific secured debt (i.e., mortgages and revolving credit facilities) held at the Trust level. However, the Issuer Rating ranks ahead of the unsecured subordinated convertible debentures held at the Trust level.
The investment-grade rating reflects the following key strengths: (1) reasonable scale with a mid-sized portfolio that continues to improve in quality with new property additions; (2) a well-diversified portfolio by asset type and geography; (3) a diverse tenant roster including a number of government and other investment-grade tenants; and (4) improving financial profile and credit metrics. Artis’ rating is balanced by the following key challenges: (1) concentration of properties in suburban office and smaller retail formats; (2) exposure to small or secondary markets; (3) limited scale within each asset type segment; and (4) risks associated with growth through acquisition.
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In terms of financial profile, Artis has decreased overall leverage to 52.4% (on a DBRS-adjusted debt-to-capital basis) as at December 31, 2012, from 60.7% at the end of 2010 by funding its recent growth with a higher proportion of equity than debt. The Trust has also shown improvement in coverage ratios primarily as a result of earnings growth and lower financing costs. DBRS estimates that Artis’ EBITDA (pro forma recent acquisitions) will increase to above $250 million, which should result in pro forma interest coverage of 2.53 times (x) (versus 2.39x in 2012 and 2.08x in 2011). DBRS believes Artis’ key credit metrics have effectively reached levels that are now consistent with the BBB (low) rating category.
AX.PR.A is a FixedReset, 5.25%+406, listed in August 2012, but has not been tracked by HIMIPref™ as there was no credit rating. Readers are reminded that I want to see a credit rating not because I worship the agencies and not because I can’t do it myself, but because a credit rating is an important public flashpoint (and is also often referenced in bank loans) that serves to help the Board of Directors concentrate when the company starts to experience difficulty.
The issue will now be tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.
An interesting point of speculation is the question of why Artis has decided to get a credit rating at this time. We may well see a new issue in the near future.
[…] issue joins AX.PR.A, a 5.25%+406 FixedReset which was recently added to HIMIPref™ and which closed yesterday at 26.05-15, for a YTW of 4.50%-4.40% to its next Exchange […]
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