Research: Rating Action: Moody’s Confirms Granite REIT’s Senior Unsecured Debt Rating at Baa2; stable outlook

0



New York, June 24, 2022 — Moody’s Investors Service (“Moody’s”) has affirmed the Baa2 senior unsecured debt rating of Granite REIT Holdings Limited Partnership (“Granite”). The rating outlook is stable.

The stable outlook reflects Granite’s commitment to a high quality global industrial platform and a conservative capital structure. However, the REIT’s elevated leverage metrics as it executes on its strategic growth plan and portfolio transformation leave it with minimal cushion on the stable outlook.

Statement:

..Issuer: Granite Real Estate Investment Trust

….Senior Unsecured Shelf, Confirmed (P)Baa2

..Issuer: Granite REIT Holdings Limited Partnership

…. Back-to-Back Unsecured Senior Notes, Confirmed Baa2

…. Unsecured senior shelf, confirmed (P) Baa2

….Attached subordinate shelf, assertive (P)Baa3

….Main subordinate shelf supported, confirmed (P)Baa3

Outlook Actions:

..Issuer: Granite Real Estate Investment Trust

….Outlook remains stable

..Issuer: Granite REIT Holdings Limited Partnership

….Outlook remains stable

RATINGS RATIONALE

Granite’s senior unsecured Baa2 rating reflects the company’s consistent track record in the global industrial warehouse and logistics space and its proven business model with stable cash flow from its long-term net leases. Moody’s ratings also reflect Granite’s strong operating performance, with consistently high occupancy levels and positive reletting spreads across all regions, supported by strong industrial real estate fundamentals. We also underscore Granite’s commitment to maintaining a prudent capital structure and fully unleashed asset base as the REIT executes its strategic growth plan and portfolio transformation.

The REIT has successfully transformed its portfolio and the quality of its assets through an aggressive growth strategy with approximately C$2.3 billion of strategic acquisitions and C$100 million of non-core asset disposals over the past Last 24 months to March 31, 2022 and including subsequent events. As a result, leverage on a net debt to EBITDA basis increased to 6.5x (including Moody’s global standard adjustments) for the latest twelve month period ending March 31, 2022 We expect Granite’s leverage to increase above 8.0x to support its additional growth plans, which will weaken its cushion at the current rating level.

Separately, other credit issues include the company’s heavy concentration in Magna International Inc. (A3/Stable), albeit in decline, and subsequent exposure to automotive industry health as well as a pipeline development that lends itself to speculative rental risk. At the end of the first quarter, the REIT had C$409 million in total future commitments to ten projects under development, construction or expansion, and other real estate commitments. We note that Granite’s access to debt and equity financing to fund growth will be highly dependent on near-term market conditions.

Finally, the REIT maintains an adequate liquidity profile despite its aggressive growth pipeline, supported by the full availability of its modified C$1.0 billion unsecured revolving credit facility as of March 31, 2022, limited debt maturities short-term with C$400 million maturing in 2023 and US$185 million maturing in 2024 and predictable internally generated cash flows given the net lease structure of the portfolio. Granite’s financial flexibility is also supported by a portfolio that is almost entirely unencumbered, credit positive.

The stable outlook reflects Granite’s commitment to a high quality global industrial platform and a conservative capital structure. However, the REIT’s elevated leverage metrics as it executes on its strategic growth plan and portfolio transformation leave it with minimal cushion on the stable outlook.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

A ratings upgrade would require net debt/EBITDA closer to 5.0x, fixed charge coverage above 5.5x, secured debt to gross assets below 5%, and no single tenant concentration above 10% of income, on a sustainable basis.

A ratings downgrade would result from any operating challenges or difficulties in leasing its development pipeline, net debt/EBITDA greater than 8.0x, fixed charge coverage less than 4.0x and a level of guaranteed indebtedness above 10%, on a sustainable basis.

Granite Real Estate Investment Trust [TSX: GRT.UN.TO]headquartered in Toronto, Canada, is an industrial REIT engaged in the ownership and management of primarily warehouse and logistics net-lease properties in North America and Europe.

The primary methodology used in these ratings was the Methodology for REITs and Other Commercial Real Estate Companies published in July 2021 and available at https://ratings.moodys.com/api/rmc-documents/74168. You can also visit the Scoring Methodologies page at https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Rating symbols and definitions from Moody’s are available at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.


Reed Values
Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Philippe Kibel
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Share.

Comments are closed.