OREANDA-NEWS. S&P Global Ratings today said it affirmed its 'BBB+' long-term corporate credit rating on CT Real Estate Investment Trust (CT REIT). The outlook is stable.

The rating on CT REIT is linked to our rating on Canadian Tire Corp. Ltd. (BBB+/Stable/--), the REIT's controlling owner and largest tenant. CT REIT is about 85% owned by Canadian Tire, which is a leading general merchandiser with strong market coverage in Canada. We view CT REIT as a core entity within Canadian Tire, as we define this term under our group rating methodology. Thus, we equalize our long-term corporate credit rating on CT REIT with that on Canadian Tire, resulting in a 'BBB+' corporate credit rating.

"We base the affirmation on our view of the strategic integration between CT REIT and parent Canadian Tire, which is reinforced by the parent's long-standing occupancy of existing real estate and our expectation that management intends to maintain a controlling ownership stake in the REIT," said S&P Global Ratings credit analyst Alessio Di Francesco.

We believe that the real estate sold into CT REIT remains core to Canadian Tire's retail segment, accounting for about 95% of base minimum rents. Canadian Tire holds the overwhelming majority of the REIT's capital structure, including equity and about C$1.5 billion of debt-like class C LP units.

The REIT benefits from a long maturity profile on its retail property leases, with a weighted-average lease term of 13.1 years. Moreover, revenue growth should be enhanced as rents begin rising by about 1.5% annually, along with Canadian Tire's options for lease extensions and property vend-ins. CT REIT ranks among the largest REITs in Canada, supporting its access to capital markets.

The stable outlook on CT REIT reflects S&P Global Ratings' outlook on majority owner Canadian Tire. We expect that our rating on CT REIT will move directly in line with our rating on Canadian Tire, considering our view that the REIT is a core subsidiary of its parent.

We could lower the rating on CT REIT over the next couple of years if we lower our long-term corporate credit rating on Canadian Tire or if we no longer consider CT REIT to be a core subsidiary of the parent. Assuming that the REIT's stand-alone credit profile is below that of the parent, we could lower the rating if any of the key tenets of our core assessment weakens, including strategic integration, ownership and control, and management's intentions.

We are unlikely to raise the rating on CT REIT over the next couple of years because of the limited near-term upside in our ratings on Canadian Tire. However, we could raise our rating on the REIT if we raise our rating on Canadian Tire.