Morningstar DBRS Confirms Credit Ratings on First Capital Real Estate Investment Trust at BBB With Positive Trends

DBRS, Inc. (Morningstar DBRS) confirmed First Capital Real Estate Investment Trust's (First Capital or the Trust) Issuer Rating and Senior Unsecured Debentures credit rating at BBB with Positive trends.

KEY CREDIT RATING CONSIDERATIONS
The Positive trends reflect First Capital's continued execution on its three-year strategic plan and expected improvement in its financial risk assessment metrics. As of the last 12 months ended March 31, 2025, First Capital's EBITDA interest coverage was at 2.45 times (x) and its total debt-to EBITDA was at 9.9x (net debt-to EBITDA was 9.5x after considering $152.4 million cash on hand), which was outside Morningstar DBRS' expectation in the low 9.0x range for a positive credit rating action. Morningstar DBRS expects the Trust's total debt-to EBITDA to continue to improve in the low 9.0x range in the next 12 months, all else being equal, as First Capital continues its disposition of low-yielding assets and completes its condominium sales. The Positive trends also consider a potential uplift in the Asset Quality business risk assessment factor in the near term as the Trust continues its strategy of high-grading its portfolio.

The credit ratings reflect First Capital's strong operating results from its high-quality grocery-anchored and mixed-use properties in neighbourhoods with strong demographics and its continuing progress in improving its portfolio through ongoing redevelopment/development initiatives.

CREDIT RATING DRIVERS
Morningstar DBRS would consider a credit ratings upgrade should First Capital's total debt-to-EBITDA continue to improve in the low 9.0x range in the next 12 months and remain so, all else being equal. Conversely, Morningstar DBRS would consider changing the trend to Stable if total debt-to-EBITDA were to remain above 9.3x on a sustained basis, all else being equal.

FINANCIAL OUTLOOK
Morningstar DBRS anticipates that First Capital's leverage, as measured by total debt-to-EBITDA, will improve to the low 9.0x range, given the Trust's continued execution of its dispositions plan, completion of its condominium sales, and the pace of growth and stability in its EBITDA and cash flows. Morningstar DBRS expects EBITDA interest coverage to remain at the current level of around 2.4x.

CREDIT RATING RATIONALE
First Capital's credit ratings remain supported by (1) its large, unencumbered asset pool in its portfolio of high-quality grocery- and pharmacy-anchored retail properties (unencumbered assets with an IFRS value of approximately $6.3 billion); (2) its strong market position in its core trade areas through ownership in property assemblies within neighbourhoods and the resultant low property concentration risk; and (3) its highly resilient tenant base.

The credit ratings remain constrained by (1) First Capital's moderate financial profile; (2) its concentration of assets in mostly pure-play retail with some diversification by format and category; and (3) the development and execution risk to the Trust's large development pipeline over the next 10 years.

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 Factors in Credit Ratings (May 16, 2025) at 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 following criteria has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025), https://dbrs.morningstar.com/research/454196

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.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277