SmartCentres Real Estate Investment Trust Announces $300 Million Senior Unsecured Debenture Issue

SmartCentres Real Estate Investment Trust (SmartCentres or the Trust) has announced the issuance of $300 million in Series AB Senior Unsecured Debentures. This issuance is expected to provide the Trust with additional financial flexibility and support its ongoing capital-recycling initiatives and development projects. DBRS Morningstar, a leading credit rating agency, has confirmed the Trust's Issuer Rating and Senior Unsecured Debentures credit rating at BBB with Stable trends.



The issuance of senior unsecured debentures aligns with SmartCentres' capital-recycling initiatives and development projects in the near to medium term. The Trust aims to recycle capital by selling non-core assets and reinvesting the proceeds into higher-yielding properties or development projects. The new debt issuance can provide the necessary funds for these capital-recycling initiatives, as well as finance ongoing development projects. Additionally, the issuance offers SmartCentres with additional financial flexibility, allowing it to pursue its capital-recycling initiatives and development projects more aggressively.

However, the new debt issuance is expected to impact SmartCentres' financial risk metrics, such as total debt-to-EBITDA and EBITDA-interest coverage. DBRS Morningstar now expects SmartCentres' leverage (as measured by total debt to EBITDA) to weaken modestly from the previous expectation of 9.8x to 10.1x by YE2023. This ratio is then expected to increase to the mid-to high-10.0x range through YE2025 as the Trust continues executing its upcoming development projects with incremental debt in the near to medium term. Similarly, DBRS Morningstar expects SmartCentres’ coverage (as calculated by EBITDA interest coverage) to decrease to 2.6x and then to the mid-2.0x range by YE2025 from the high 2.0x range at the last review.

The potential implications of this issuance on SmartCentres' credit rating and future financing costs are significant. Elevated leverage, decreasing EBITDA interest coverage, development execution risks, and concentration risks could negatively impact the Trust's credit rating and increase financing costs. DBRS Morningstar has indicated that a sustained total debt-to-EBITDA ratio above 10.8x and a sustained EBITDA-interest coverage ratio below 2.3x could lead to a negative credit rating action.

In conclusion, SmartCentres Real Estate Investment Trust's issuance of $300 million in Series AB Senior Unsecured Debentures provides the Trust with additional financial flexibility and supports its capital-recycling initiatives and development projects. However, investors should be aware of the potential implications on the Trust's financial risk metrics, credit rating, and future financing costs. As always, it is essential to conduct thorough research and consider all relevant factors before making investment decisions.