S&P Upgrades DCT Industrial Trust (DCT) to 'BBB'; Outlook is Stable

November 22, 2016 11:30 AM EST

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S&P Global Ratings raised its corporate credit rating on DCT Industrial Trust Inc. (NYSE: DCT) and its operating partnership, DCT Industrial Operating Partnership L.P. (collectively, DCT), to 'BBB' from 'BBB-'. The outlook is stable. We also raised the issue-level rating on the company's senior unsecured notes to 'BBB' from 'BBB-'.

"The upgrade acknowledges our favorable view of DCT's defensive portfolio positioning and strong recent operating performance," said credit analyst Sarah Sherman. "We also note the company's progress in improving its key credit metrics, as development projects continue to be funded in a leverage-neutral fashion and underlying fundamentals remain robust."

Our stable outlook assumes mid-single-digit same-store NOI growth over the next 12-24 months, largely driven by rental rate increases as the industry continues to realize positive net absorption. We also expect continued improvement in DCT's financial metrics boosted by favorable market conditions and contribution to EBITDA from stabilized development projects.

We could consider a lower rating in the event DCT engages in outsized development or acquisitions funded largely with debt. Additionally, we would consider a downgrade if DCT experiences operating issues or encounters negative industry trends that cause FCC to weaken below 2.5x or debt to EBITDA approaching the high-6x range on a sustained basis.

While unlikely over the next 12-24 months, we could consider raising the rating if the company significantly increases its scale in a leverage-neutral fashion while maintaining its proportion of medium to high barrier assets. In addition, we would also consider an upgrade if credit metrics improve such that debt to EBITDA declines to the low-5x range with fixed charge coverage improving to the 4x range for a sustained period.



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