Morningstar DBRS Assigns Credit Rating of A (low) to the Issuer Rating and Provisional Credit Rating of (P) A (low) to the Senior Unsecured Notes of Oxford Properties Group Trust

DBRS, Inc. (Morningstar DBRS) assigned an Issuer Rating of A (low) and a provisional rating of (P) A (low) to the Senior Unsecured notes with Stable trends to Oxford Properties Group Trust (OPGT or the Issuer). Morningstar DBRS notes the credit rating is based on the credit risk profile of the combined entity, including OPGT, its Guarantors (Oxford Properties Group II Trust (OPG II Trust), MTCC Property Limited Partnership, MTCC GP Inc., OPG Investment Holdings GP (US) III, LLC, and OPG Capital Yards (DE) Limited Partnership), OPGT's subsidiaries, and the Guarantors' subsidiaries. Financials are reported on a consolidated basis given the guaranty structure.

KEY CREDIT RATING CONSIDERATIONS
The Stable trends reflect Morningstar DBRS' expectations that (1) interest costs will decline considerably in 2025 following the repayment of various intercompany loans in 2024, (2) the issuance of Senior Unsecured Notes and advances on the unsecured credit facility will be used to refinance maturing ORC Senior Unsecured Debentures and select mortgage debt in 2025 and 2026, and (3) EBITDA growth will continue in 2025 and 2026 by way of improvement in same-property net operating income (NOI), acquisitions, and the stabilization of recently completed assets.

CREDIT RATING DRIVERS
All else equal, Morningstar DBRS would consider a positive credit rating action should Oxford Properties Group Trust sustainably and comfortably maintain a total debt-to-EBITDA of 8.7 times (x) or better and sustainably maintain an EBITDA interest coverage of at least 2.66x. Additionally, all else equal, Morningstar DBRS may consider a positive overlay adjustment to the credit rating if (1) secured debt-to-total debt is comfortably below 40%, and (2) Oxford Properties Group Trust achieves a financial profile commensurate with an investment grade profile. Morningstar DBRS may consider a positive credit rating action should OPGT substantially reduce or mitigate the outstanding OMERS Realty Corporation (ORC) debentures that structurally subordinate OPGT's contemplated senior unsecured notes issuance.

All else equal, Morningstar DBRS would consider a negative credit rating action should the Issuer's total debt-to-EBITDA sustainably remain above 10.0x and EBITDA interest coverage sustainably remain below 1.84x. Additionally, Morningstar DBRS could take a negative credit rating action should it change its view on the level of implicit support provided by OMERS Administration Corporation (OMERS).

FINANCIAL OUTLOOK
Morningstar DBRS projects total debt-to-EBITDA to improve to the mid-9.0x range and 9.0x range by YE2025 and YE2026, respectively, relative to the YE2024 total debt-to-EBITA of 10.3x. We expect EBITDA interest coverage to improve and remain in the low-2.00x range throughout 2025 and 2026, relative to the YE2024 EBITDA interest coverage of 1.42x. Morningstar DBRS attributes improvement to the recent repayment of intercompany debt, upcoming repayment of mortgage debt, and moderate EBITDA growth driven by same-property NOI, acquisitions, and the stabilization of newly developed assets.

CREDIT RATING RATIONALE
The credit ratings are supported by (1) OPGT's high-quality real estate portfolio, particularly its Canadian trophy retail and office assets; (2) Oxford Properties Group's (Oxford; OPGT's affiliated asset manager) strong global market position, particularly in key Canadian markets; (3) OPGT's real estate portfolio geographical, tenant, and asset type diversification. Conversely, the credit ratings are constrained by (1) a high leverage profile, leading to weak total debt-to-EBITDA and EBITDA interest coverage relative to the credit rating category; (2) the portfolio's relatively weak lease maturity profile with a weighted-average lease term (WALT) of 4.9 years (not including hospitality and multifamily assets); and (3) the execution risk of stabilizing recently developed assets and mark-to-market leasing opportunities leading to improved EBITDA.

Morningstar DBRS gave additional consideration to OPGT's standalone credit ratings based on the implicit support of its parent company, OMERS (rated AAA with Stable trend by Morningstar DBRS), resulting in a two-notch uplift. Morningstar DBRS also determined that partial structural subordination affected the cash flows derived from the IDI Logistics portfolio and guarantor support from OPG II Trust, which is the holding company of ORC. The decision to penalize for structural subordination does not constitute judgment on the level of integration or on the level of commitment upon financial stress. Morningstar DBRS applied a half-notch penalty to the credit rating as an ordinal-ranking recovery exercise.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) 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 Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781

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

A) Weighting of BRA Factors
In the analysis of OPGT, the BRA factors are considered in the order of importance contemplated in the methodology.

B) Weighting of FRA Factors
In the analysis of OPGT, the FRA factors are considered in the order of importance contemplated in the methodology.

C) Weighting of the BRA and the FRA
In the analysis of OPGT, the BRA carries greater weight than the FRA.

Notes:
All figures are in Canadian 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 one or more sections of the Morningstar DBRS Global Corporate Criteria (February 03, 2025) https://dbrs.morningstar.com/research/447186 covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:

Morningstar DBRS Criteria: Approach to ESG Factors in Credit Ratings (August 13, 2024)
https://dbrs.morningstar.com/research/437781

Morningstar DBRS Global Corporate Criteria (February 03, 2025)
https://dbrs.morningstar.com/research/447186

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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of the final credit ratings on the above-mentioned securities are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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.

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