DBRS shifts Artis view to negative

DBRS said it changed the trends on Artis Real Estate Investment Trust’s senior unsecured debentures and preferred trust units to negative from stable and confirmed the ratings at BBB (low) and Pfd-3 (low), respectively.

“The negative trends reflect increased debt and, therefore, leverage as Artis used fewer proceeds from property dispositions for debt reduction and more for unit buybacks than DBRS Morningstar expected based on the trust’s strategic initiatives announced on November 1, 2018. In DBRS Morningstar’s view, Artis’s execution of its strategic initiatives to date has heavily favored unitholders, which has resulted in elevated leverage (i.e., total debt-to-EBITDA of 10 times (x) and decreased EBITDA interest coverage of 2.63x in the last 12 months ended September 30, 2019),” said DBRS in a press release.

DBRS said it expects the trust’s key financial risk metrics will likely remain near current levels in the near to medium term, despite Artis’ execution of its strategic initiatives, which is progressing ahead of schedule. Artis’ DBRS Morningstar-adjusted total debt of about C$3billion and DBRS Morningstar’s future expectations for key financial risk metrics contrast with the agency’s last review on Dec. 21, 2018.

DBRS expects the trust’s key financial risk metrics to remain elevated, but stable with a total debt-to-EBITDA ratio of about 9.4x and EBITDA interest coverage of 2.8x through 2020 as Artis planned to use some proceeds from sales to pay down debt, such that total debt stayed near September 30, 2018 levels of about $2.8 billion, the agency said.

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