Morningstar DBRS Changes Trends on George Weston Limited to Positive From Stable; Confirms Credit Ratings at BBB

DBRS Limited (Morningstar DBRS) changed the trends on George Weston Limited's (George Weston or the Company) Issuer Rating and the credit rating on its Notes & Debentures to Positive from Stable and confirmed both credit ratings at BBB. Morningstar DBRS also changed the trend on the Company's Preferred Shares to Positive from Stable and confirmed the credit rating at Pfd-3.

KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmations and trend changes are concurrent with Morningstar DBRS' credit rating actions on Loblaw Companies Limited (Loblaw) and Choice Properties Real Estate Investment Trust (Choice). Morningstar DBRS changed the trends on both Loblaw and Choice to Positive from Stable and confirmed their credit ratings at BBB (high). For details on the credit rating actions associated with Choice and Loblaw, please refer to the respective press releases at https://dbrs.morningstar.com.

As a pure holding company, Morningstar DBRS' credit ratings on George Weston reflect (1) the Company's 61.7% ownership in Choice, (2) its 52.6% ownership in Loblaw, (3) the structural subordination of its debt, and (4) the strength of its liquidity and cash flow profiles in relation to its relatively modest debt obligations on a deconsolidated basis.

CREDIT RATING DRIVERS
Morningstar DBRS will consider an upgrade to George Weston's credit ratings if the credit ratings on Loblaw and Choice are upgraded. Conversely, Morningstar DBRS could change the trend on George Weston's credit ratings back to Stable from Positive if (1) the trends on Loblaw and Choice are reversed, or (2) George Weston's debt as well as liquidity and cash flow profiles deteriorate because of a substantial increase in the Company's debt obligations or a material decline in dividends and/or distributions from Loblaw and Choice.

EARNINGS OUTLOOK
Morningstar DBRS expects dividends and distributions from Loblaw and Choice to continue to grow modestly year over year in line with their respective dividend policies and to increase to a combined amount of approximately $700 million in 2025 from $657 million in 2024, when normalizing for dividend timing (Loblaw did not pay $82 million in dividends declared in 2024 until Q1 2025). After corporate expenses, interest, and taxes (including taxes on the proceeds from participation in Loblaw's share buyback program), Morningstar DBRS believes that George Weston will generate normalized cash flows of roughly $500 million in 2025 (approximately $600 million when not normalizing for dividend timings) compared with approximately $480 million in 2024.

For details on Choice's and Loblaw's earnings outlooks, please refer to the respective press releases and credit rating reports at https://dbrs.morningstar.com.

FINANCIAL OUTLOOK
Morningstar DBRS expects George Weston to continue to increase its common dividends on a per-share basis in 2025. Considering the Company's share buybacks and an additional dividend payment, Morningstar DBRS forecasts the total dividend outlay, including for preferred shares, to be approximately $600 million in 2025. Morningstar DBRS anticipates that the Company will continue to use any remaining free cash flows, the proceeds from its participation in Loblaw's share buyback program, and cash on hand to buy back approximately $1.0 billion in shares through 2025. As such, Morningstar DBRS expects George Weston's debt as well as liquidity and cash flow profiles to remain strong for the current credit rating category, with cash flow-to-debt at approximately 70%, when normalizing for dividend timing. During Q1 2025, George Weston paid $247 million to settle the Company's remaining share of the $500 million class action lawsuit related to the bread price-fixing arrangement that occurred between 2001 and 2015 while Loblaw will cover the balance. Morningstar DBRS does not believe that the payment has a materially adverse effect on the Company's overall credit risk profile.

For details on Choice's and Loblaw's financial outlooks, please refer to their respective press releases and credit rating reports at https://dbrs.morningstar.com.

CREDIT RATING RATIONALE
Morningstar DBRS primarily derives George Weston's credit ratings from a weighted-average subsidiary credit rating (WASCR) of BBB (high) based on Loblaw's and Choice's respective contributions to George Weston's cash flows through dividends and distributions, adjusted for the Company's ownership interest in each entity. The one-notch credit ratings differential between the WASCR and George Weston's Issuer Rating reflects the structural subordination of the debt at the Company. Morningstar DBRS' BBB credit ratings are furthermore supported by George Weston's robust debt as well as liquidity and cash flow profiles. Morningstar DBRS notes that although George Weston is participating in Loblaw's share buyback program, the Company will maintain its proportionate majority ownership position in line with the terms of the program.

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) at https://dbrs.morningstar.com/research/437781

Notes:
All figures are in Canadian dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodologies:
-- Morningstar DBRS Global Corporate Criteria (February 3, 2025)
https://dbrs.morningstar.com/research/447186

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

-- Global Methodology for Rating Companies in Services Industries (February 3, 2025),
https://dbrs.morningstar.com/research/447184

The following methodologies have also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024)
https://dbrs.morningstar.com/research/437781

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.

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 https://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