Morningstar DBRS Upgrades Credit Ratings on Crombie Real Estate Investment Trust to BBB, Trend Changed to Stable

DBRS, Inc. (Morningstar DBRS) upgraded the Issuer Rating and Senior Unsecured Debentures rating of Crombie Real Estate Investment Trust (Crombie or the Trust) to BBB from BBB (low). The trend on all ratings returned to Stable from Positive.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings upgrade reflects our expectation that Crombie will maintain a secured debt-to-total debt ratio comfortably below 40% (39.2% as of the last 12 months ended March 31, 2025) while maintaining an investment grade financial risk profile. Crombie's secured debt-to-total-debt ratio is expected to continue improve over the next two years.

The Stable trends reflect Crombie's strong operating results in Crombie's grocery- and pharmacy-anchored properties and its continued momentum in the stabilization of its recently completed developments as well as entering into joint venture partnerships in some of its development projects. Crombie's financial risk metrics remain in line with Morningstar DBRS' expectations as total-debt-to-EBITDA for the last 12 months ended March 31, 2025, was 9.0 times (x), (including Crombie's share of joint-venture debt).

CREDIT RATING DRIVERS
Morningstar DBRS would consider a negative credit rating action should Crombie's secured debt-to-total debt ratio rise above 40% or total debt-to-EBITDA ratio surpass 9.3x on a sustained basis, all else being equal. Morningstar DBRS expects Crombie to maintain an investment-grade financial risk assessment (FRA) profile as the Trust benefits from a one-notch uplift for its secured debt-to-total debt ratio. Conversely, Morningstar DBRS would consider a positive credit rating action should Crombie's total debt-to-EBITDA fall below 8.0x on a sustained basis, all else being equal.

FINANCIAL OUTLOOK
Morningstar DBRS anticipates Crombie's leverage measured by total debt-to-EBITDA to remain around the current levels in the low 9.0x range, given the pace of growth and stability of EBITDA and cash flows. Morningstar DBRS expects EBITDA interest coverage to remain around 2.6x. As mentioned above, Morningstar DBRS expects Crombie's secured debt-to-total debt to continue to improve to in the medium term. With Crombie entering into joint venture partnerships, the Trust will benefit from receiving management and development fees and reducing its construction loans over the medium term.

CREDIT RATING RATIONALE
The credit ratings continue to be supported by (1) Morningstar DBRS' view of Crombie's strategic relationship with Empire/Sobeys; (2) Crombie's stable portfolio of grocery- and pharmacy-anchored retail properties; (3) the Trust's long-term leases with favourable terms and stable cash flows; and (4) Crombie's strong geographic and property diversification. The credit ratings continue to be constrained by the Trust's (1) moderate financial profile; (2) exposure to smaller secondary/tertiary Canadian markets; (3) tenant and asset type concentration; and (4) development and execution risk to its large development pipeline over the next 10-15 years.

While common ownership and the strong connection between Sobeys' and Crombie's operations closely align their interests, Crombie's ratings do not necessarily move in tandem with Sobeys' ratings. Morningstar DBRS would likely leave Crombie's ratings unchanged should there be any rating action with Sobeys' ratings.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or 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 Factors in Credit Ratings (May 16, 2025): https://dbrs.morningstar.com/research/454196.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of the Trust, the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of the Trust, the FRA factors were considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of the Trust, 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 of one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186), 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 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.