DBRS Limited (Morningstar DBRS) 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.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of BRA Factors

In the analysis of Brookfield Property Partners L.P., the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors

In the analysis of Brookfield Property Partners L.P., the FRA factors were considered in the order of importance contemplated in the methodology.

Weighting of the BRA and the FRA

In the analysis of Brookfield Property Partners L.P., the BRA carries greater weight than the FRA.

Notes:

All figures are in U.S. dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Entities in the Real Estate Industry (April 15, 2024), https://dbrs.morningstar.com/research/431170

Morningstar DBRS credit ratings may use of one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024), https://dbrs.morningstar.com/research/431186, which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at https://dbrs.morningstar.com/research/431153.

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-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

DBRS Limited

DBRS Tower, 181 University Avenue, Suite 700

Toronto, ON M5H 3M7 Canada

Tel. +1 416 593-5577

(C) 2024 Electronic News Publishing, source ENP Newswire