DBRS Assigns Provisional Ratings to MSJP 2015-HAUL Mortgage Trust

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of MSJP 2015-HAUL Mortgage Trust. The trends are Stable.

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at AA (low) (sf)
-- Class X-B at AA (low) (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)

The loan is secured by the fee simple interest in a portfolio of 105 self-storage properties totaling 32,519 units and 2.7 million rentable square feet. On a weighted-average basis across the portfolio, approximately 40.9% of the units are climate controlled. Owned and branded by U-Haul, the assets were constructed between 1902 and 2003, for an average age of 47.8 years. It is well diversified, situated across 35 states with no one state generating more than 5.8% of the net operating income. As of the June 2015 rent rolls, the portfolio reported an occupancy of 92.5% on a unit basis and 92.7% on a square-foot basis. Portfolio occupancy has been ramping up, from the trough of 78.3% in 2010 to the current 92.5% level, with an average annual increase of 2.6%. The sponsor has owned the subject properties for an average of 34 years across the portfolio. Neither property release nor substitution is allowed throughout the 20-year loan term.

The loan is sponsored by AMERCO, the parent company of U-Haul. Founded in 1945 as the “U-Haul Trailer Rental Company,” the firm has over 17,400 rental locations across 49 U.S. states and ten Canadian provinces with over 135,000 trucks, 107,000 trailers and 38,000 towing devices comprising one of the largest rental fleets in the world. AMERCO has participated in the self-storage industry since 1947 and as of Q1 2015 had a network of over 1,280 self-storage properties totaling over 491,000 storage units and 44.2 million square feet of storage space across the continent. As of Q1 2015, AMERCO reported net worth and liquidity of $1.9 billion and $442.0 million, respectively. There is no limitation on the non-recourse guaranty.

The $270.0 million whole mortgage loan consists of six separate notes: A-1A, A-1B, A-2A, A-2B, A-3A and A-3B. The A-1A and A-1B notes, known as the companion loans, totaling $100 million, will not be contributed to the trust and will be held by the loan sellers for inclusion in future multi-borrower CMBS transactions. The A-3A and A-3B notes are pari passu with each other but subordinate to the other four notes. The other four notes, A-1A, A-1B, A-2A, A-2B, are identified as being pari passu with each other, but see paragraph below regarding principal payments.

The subject loan has a 20-year term and amortizes on a 20-year schedule. Principal will be applied to the non-trust companion loans before being applied to the trust notes. As such, the trust notes are interest only for the first ten years of the loan term, whereas the companion loans are scheduled to amortize to zero throughout the first ten years of the loan term. During the second ten years of the loan term, the trust notes are scheduled to amortize down to zero. Although the amortization is not initially going to pay down the trust-related notes, and thus the trust certificates, the whole loan remains subject to a 20-year amortization schedule throughout the term, and the trust notes and trust certificates benefit from the deleveraging. The DBRS rating is based on the whole loan fully amortizing debt service payment.

As a result of the strong sponsor and brand, diversified portfolio, favorable fully amortizing loan structure and moderate leverage financing, the certificates backed by the $270.0 million of first mortgage debt are provisionally assigned ratings of between AAA and BBB (low). The DBRS Net Cash Flow (NCF) was $29,906,845, a variance of -14.6% to the Issuer’s NCF. Additionally, the DBRS underwritten (UW) NCF represents a -21.5% variance from the trailing 12-month period ending June 30, 2015. DBRS applied a 9.11% cap rate to the DBRS UW NCF, resulting in a DBRS value of $273.3 million. The appraiser, CBRE, determined the value of the portfolio to be $424.7 million if the properties were to be sold on an individual basis, which would likely be the case in a time of stress, and $458.0 million based on a bulk sale assumption. Based on the Issuer UW NCF, the implied cap rate based on the individual sale valuation is 6.87%, decreasing to 6.37% based on the bulk sale valuation. The DBRS value represents a 35.6% discount to the appraiser’s individual sale assumption of $424.7 million and a considerable 40.3% discount to the appraiser’s bulk sale valuation of $458.0 million.

Notes:
All figures are in U.S. dollars unless otherwise noted.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is North American CMBS Rating Methodology, which can be found on our website under Methodologies.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains the description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not require due diligence services outlined in Form-15E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.