DBRS Morningstar confirmed its credit rating of Pfd-3 (high) on the Preferred Shares issued by
The Company invests in a diversified portfolio composed of dividend-paying real estate investment trusts (REIT) issuers, primarily in Canadian space, engaged in e-commerce, data infrastructure, and the multifamily, retail, office, and healthcare sectors. As of
The Portfolio may include securities denominated in currencies other than the Canadian dollar (CAD), exposing the Preferred Shares to foreign currency risk. The Company has not hedged its current USD exposure to currency fluctuations; however, it closely monitors USD/CAD currency movements. The Portfolio is actively managed in accordance with the Company's investment objectives, strategy, and restrictions.
The Preferred shareholders are entitled to a quarterly distribution of
Over the past 12 months, downside protection has been volatile; it peaked at 59.3% in
The Company has a loan facility for working capital purposes, with a maximum amount equivalent to 5% of the total assets of the Company. The Company may pledge the Portfolio securities as collateral for amounts borrowed under the loan facility. As of
DBRS Morningstar notes the following announcements from the Company during the past 12 months:
(1) OnNovember 15, 2022
The company completed an overnight treasury offering of Class A and Preferred Shares, raising approximately
(2) OnFebruary 3, 2023
The Company established its ATM Program that will be effective until
(3) OnMarch 30, 2023
The company completed an overnight treasury offering of Class A and Preferred Shares, raising approximately
(4) OnJune 29, 2023
The company completed an overnight treasury offering of Class A and Preferred Shares, raising approximately
(5) OnSeptember 29, 2023
The company completed an overnight treasury offering of Class A and Preferred Shares, raising approximately
The maturity date for both classes of shares is
Considering the levels of downside protection, grind until maturity, the dividend coverage, and FX exposure, DBRS Morningstar confirmed its credit rating on the Preferred Shares at Pfd-3 (high).
The main constraints to the credit rating are the following:
(1) Market fluctuations resulting from high inflation and interest rate hikes could affect the Company's NAV. Resulting volatility in prices along with changes in the dividend policies of the underlying issuers may result in significant reductions in the Preferred Shares' dividend coverage or downside protection from time to time.
(2) Reliance on the Portfolio Manager to generate additional income, through option writing, to meet distributions and other trust expenses without having to liquidate the Portfolio's securities.
(3) The high concentration of the Portfolio in one industry (real estate).
(4) Potential foreign-exchange risk because the income received on the Portfolio is not hedged all the time.
(5) Stated monthly distributions on the Class A Shares may create a grind on the Portfolio. This risk is mitigated by an asset coverage test of 1.5x that ensures sufficient levels of downside protection to the holders of the Preferred Shares.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
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/416784 (
Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodology applicable to the credit rating is Rating Canadian Split Share Companies and Trusts (
Other methodologies referenced in this transaction are listed at the end of this press release.
The DBRS
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 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.
DBRS Morningstar 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.
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The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
A description of how DBRS Morningstar analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/410863.
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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