PrefBlog

DBRS has announced that it:

confirmed the Issuer Rating and Senior Unsecured Debt rating of Brookfield Property Partners L.P. (BPP) at BBB (low). Morningstar DBRS also confirmed the ratings on Brookfield Property Finance ULC’s Senior Unsecured Notes and Brookfield Office Properties Inc.’s Senior Unsecured Notes at BBB (low), and Brookfield Office Properties Inc.’s Cumulative Redeemable Preferred Shares, Class AAA at Pfd-3 (low). All trends are Stable. The ratings are based on the credit risk profile of the consolidated entity, including BPP and its subsidiaries (collectively, BPY or the Partnership).

KEY CREDIT RATING CONSIDERATIONS
The Stable trends consider the demonstrated ability of BPY to continue to access alternative sources of capital, including by asset monetization and through support from its parent, Brookfield Corporation (BN; rated “A,” Stable by Morningstar DBRS) by various means, including the downstreaming of capital. Recent examples of parental support include the repayment at maturity of the 4.30% Series 3 Senior Unsecured Notes and the extension of an intercompany revolving credit facility between BN and BPY. In Morningstar DBRS’ view, these examples, among others, continue to demonstrate the willingness and ability of BN to support BPY for the foreseeable future. The Stable trends also consider BPY’s modestly positive operating performance, affirming the stability of cash flow derived from its assets, particularly in its core Office segment, as well as BPY’s high leverage and variable-rate debt exposure and the resultant strain of high interest rates on BPY’s cash flows.

CREDIT RATING DRIVERS
Morningstar DBRS would consider a negative rating action if Morningstar DBRS were to change its views on the level and strength of implicit support provided by BN, or should BPY’s total debt-to-EBITDA not improve as expected such that it remains above 16.0 times (x), or if BPY’s EBITDA interest coverage were to remain below 1.0x on a sustained basis, all else equal. On the other hand, Morningstar DBRS would consider a positive rating action should Morningstar DBRS’ outlook for BPY’s total debt-to-EBITDA improve to 13.0x or better.

FINANCIAL OUTLOOK
Morningstar DBRS has revised its financial risk assessment of BPY modestly lower, based on revised expectations for BPY’s primary credit metrics. In the near to medium term, Morningstar DBRS expects that BPY will continue to demonstrate an improving trend in its total debt-to-EBITDA metric toward the 15x-range (from 16.9x for the last 12 months ended December 31, 2023 (LTM)), and that BPY’s EBITDA interest coverage metric will stabilize near current levels (0.93x for the LTM) and begin improving toward the low 1.0x-range.

CREDIT RATING RATIONALE
The ratings continue to be supported by (1) Morningstar DBRS’ view of implicit support from BN, as detailed above; (2) BPY’s market position as a pre-eminent global real estate company; (3) high-quality assets, particularly BPY’s core Office and Retail segments, with long-term leases to large, recognizable investment-grade-rated tenants; and (4) superior diversification, in particular by property, tenant, and geography. The ratings continue to be constrained by BPY’s weak financial risk assessment as reflected by both its highly leveraged balance sheet; a riskier retail leasing profile in terms of lease maturities and counterparty risk relative to BPY’s Office segment; a higher-risk opportunistic LP Investment segment composed primarily of office, retail, industrial, and multifamily assets, as well as alternatives; and Morningstar DBRS’ assessment of the unmitigated structural subordination of the Senior Unsecured Debt at the BPP level relative to a material amount of debt at its operating subsidiaries.

This follows the downgrade to P-4 by S&P in December, 2023, and the confirmation at Pfd-3(low) by DBRS in May, 2023.

Affected issues are: BPO.PR.A, BPO.PR.C, BPO.PR.E, BPO.PR.G, BPO.PR.I, BPO.PR.N, BPO.PR.P, BPO.PR.R, BPO.PR.T, BPO.PR.W, BPO.PR.X and BPO.PR.Y.

This entry was posted on Wednesday, May 15th, 2024 at 9:21 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.