Dec 5 - Standard & Poor's Ratings Services said today that its ratings on
RioCan Real Estate Investment Trust, the largest owner of retail real
estate in Canada, are unaffected by the company's agreement to purchase eight
retail properties (primarily enclosed malls) from a KingSett Capital-led
consortium that has proposed a bid to acquire Primaris REIT, the current owner
of the eight retail properties that RioCan plans to purchase. RioCan's purchase
agreement is in support, and subject to completion, of the KingSett Capital-led
consortium's proposed offer to acquire Primaris REIT.
RioCan expects to pay C$1.1 billion for the properties, or roughly C$635
million net of in place financing. The property acquisition as proposed will
increase RioCan's assets (at fair value under IFRS) by roughly 10%. While
RioCan plans to fund the acquisition initially with debt, we expect the
company to ultimately fund the acquisition in a leverage neutral manner
through equity issuance and asset sales during 2013.
Our ratings on Toronto-based RioCan reflect the company's "strong" business
risk profile as characterized by its leading market position in the Canadian
retail real estate sector, demonstrated stability, and rental revenue
predictability. We believe that acquiring these eight retail assets will
strengthen RioCan's market position. Pro forma for the acquisition, however,
we will continue to view the company's financial profile as "significant" due
to our expectation that RioCan will maintain below-average debt coverage
measures and an aggressive trust unit distribution policy.
Our stable outlook continues to reflect the company's well-leased portfolio,
which we expect will gradually generate cash flow improvement as the Canadian
retail market continues to grow, in part because of the expansion of U.S.
retailers into Canada. Pro forma for the pending acquisition and forthcoming
related debt and equity-raising activities, we expect only modest improvement
in debt coverage measures during 2013. Alternatively, and less likely in our
view, we could lower our ratings by one notch if RioCan's fixed-charge
coverage remains below 2.0x or if the company elects to increase trust
distributions such that total coverage remains at less than 1.0x next year.
RELATED CRITERIA AND RESEARCH
-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18,
-- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
-- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
-- Key Credit Factors: Global Criteria For Rating Real Estate Companies,
June 21, 2011