All trends are Stable. The confirmations reflect the resilience of BAM's fundamental operations at its listed affiliates and private funds and their ability to continue to distribute significant cash flow to BAM to service its corporate debt. Except for its Real Estate segment, BAM's financial and operational performance has been resilient in coping with the Coronavirus Disease (COVID-19) pandemic.
DBRS Morningstar notes that the negative impact of the pandemic on the Real Estate segment in 2020 and Q1 2021 was significant. This segment's funds from operations (FFO) were materially reduced in 2020 and remained weak in Q1 2021. This negative impact was a result of mall closings, retail bankruptcies, co-tenant claims, rent rebatements, and low occupancy rates. In 2020, Real Estate's segmented FFO (before realized disposition gains) decreased to approximately
DBRS Morningstar notes that BAM's financial resiliency is supported by its well-diversified businesses, long-term contracts in the
BAM's credit metrics for the LTM
FFO-to-debt remained solid at 36.2% (adjusted for debt treatment of preferred shares), above DBRS Morningstar's expectation of at least 30% on an adjusted basis.
Net cash flow-to-corporate debt was strong at approximately 34.3%, above DBRS Morningstar's expectation of around 25% on an adjusted basis.
Nonconsolidated leverage remained in line with DBRS Morningstar's expectation that corporate debt-to-capital would be in the low 20% range on an adjusted basis.
Cash flow-to-interest coverage was solid at 9.16 times (x), consistent with DBRS Morningstar's expectation of above 5.0x.
DBRS Morningstar expects that the worst of the economic fallout has already occurred and that the Real Estate segment should see a recovery in FFO as the economy gradually normalizes as well as improvement in cash rent collections, a reduction of bad debts, and higher occupancy rates driven by (1) fewer bankruptcies, (2) re-leasing to well-positioned tenants, (3) increasing short-term revenues, and (4) improving travel demand. In addition, FFO and dividends from the Real Estate segment to BAM should increase modestly in 2021 and significantly in 2022 and thereafter. This expected increase reflects the fact that BAM will increase its ownership of BPY to 100% from 62% (57% fully diluted) currently and take this entity private. On
DBRS Morningstar notes that the growth in AUM and FBC supports the quality of the cash flow to BAM through increases in BMFs in the Asset Management segment, which is BAM's largest FFO and cash flow contributor. This segment has no debt and, including financial assets, accounted for approximately 50% of BAM's segment FFO in 2020 (37% in 2017). This unleveraged cash flow, together with BAM's well-diversified operations and large size, significantly mitigates the structural subordination issue for BAM's corporate debt. DBRS Morningstar expects this segment to continue to grow and to remain BAM's largest cash flow contributor.
In the long term, DBRS Morningstar expects all major segments to maintain their solid business profiles. First, DBRS Morningstar expects the Real Estate segment to gradually recover and benefit from high-quality assets and premier locations with long-term leases, improvement in occupancy, and in-place rents and good-quality tenants. Second, the
The Stable trends reflect DBRS Morningstar's expectation that (1) BAM's credit metrics will continue to meet DBRS Morningstar's requirements over the medium term, supported in part by a stronger FFO and cash flow contribution from the Real Estate and Asset Management segments; (2) the Company's business risk profiles will not materially deteriorate because of potential investments or capital recycling from mature assets to higher-return, higher-risk assets; (3) cash distributions to BAM from its subsidiaries will remain strong; and (4) Corporate core liquidity will remain strong. The ratings could be under pressure if the credit quality of BAM's listed affiliates weakens significantly and/or its corporate credit metrics decline to below DBRS Morningstar-expected levels on a sustained basis. A positive rating action may be taken if (1) BAM's business risk profile improves significantly and (2) BAM's nonconsolidated credit metrics and consolidated credit metrics improve materially on a sustained basis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
Notes:
All figures are in
The principal methodologies are Rating Entities in the Real Estate Industry (
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.
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Ratings
Date Issued Debt Rated Action Rating Trend Attributesi
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05-Jul-21 Issuer Rating Confirmed A (low) Stb CA
05-Jul-21 Senior Notes and Debentures Confirmed A (low) Stb CA
05-Jul-21 Commercial Paper Confirmed R-1 (low) Stb CA
05-Jul-21 Preferred Shares Confirmed Pfd-2 (low) Stb CA
Date Issued Debt Rated Action Rating Trend Attributesi
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CA = Lead Analyst based in
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05-Jul-21 Perpetual Subordinated Notes Confirmed BBB Stb CA
Date Issued Debt Rated Action Rating Trend Attributesi
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05-Jul-21 Senior Unsecured Notes (guaranteed byBrookfield Asset Management Inc. ) Confirmed A (low) Stb CA
05-Jul-21 Fixed-Rate Subordinated Notes Confirmed BBB Stb CA
Date Issued Debt Rated Action Rating Trend Attributesi
US = Lead Analyst based in USA
CA = Lead Analyst based in
EU = Lead Analyst based in EU
E = EU endorsed
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05-Jul-21 Senior Unsecured Notes (guaranteed byBrookfield Asset Management Inc. ) Confirmed A (low) Stb CA
Date Issued Debt Rated Action Rating Trend Attributesi
US = Lead Analyst based in USA
CA = Lead Analyst based in
EU = Lead Analyst based in EU
E = EU endorsed
U =
Unsolicited Participating With Access
Unsolicited Participating Without Access
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05-Jul-21 Senior Preferred Shares Confirmed Pfd-2 (low) Stb CA
Date Issued Debt Rated Action Rating Trend Attributesi
US = Lead Analyst based in USA
CA = Lead Analyst based in
EU = Lead Analyst based in EU
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05-Jul-21 Senior Unsecured Notes Confirmed A (low) Stb CA
Date Issued Debt Rated Action Rating Trend Attributesi
US = Lead Analyst based in USA
CA = Lead Analyst based in
EU = Lead Analyst based in EU
E = EU endorsed
U =
Unsolicited Participating With Access
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05-Jul-21 U.S. Commercial Paper (guaranteed byBrookfield Asset Management Inc. ) Confirmed R-1 (low) Stb CA
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