George Doyle
Low interest rates and strong economic growth in Western Canada should support Canada's real estate investment trusts and operating companies, despite a sluggish and risky outlook for the global economy, credit-rating agency DBRS says.
The rating agency has completed a review of the sector and says that operating performance is stable, credit metrics are reasonable, liquidity is adequate and debt maturities are evenly spread out. With interest rates expected to remain low for an extended period of time, the supply of buildings limited (across the board in retail, industrial, office and multifamily), and Canadian economic growth solid – especially in the west – DBRS said it expects the credit risk profiles of companies in this sector to remain stable going forward.
These conditions, especially low interest rates, are fuelling record amounts of unsecured debt issuance by the real estate firms. About $1.4-billion has already been issued so far this year, topping the previous record level of $1.1-billion that was issued in 2005. Refinancings earlier this year and the new entry of players like Brookfield and Cominar into the unsecured debt market are also behind that trend, DBRS notes. It expects the pace of issuance to slow down for the time being, with all refinancing done for the year. New issuances at this point would likely be to raise funds for acquisitions.
In the second quarter, total public offerings by the REITs and REOCs that DBRS rates were nearly double their levels of a year earlier. "However, capital raises so far in Q3 2012 have tapered off from Q2 2012 levels with only $271-million of debt and equity issued during the quarter," it said.