DBRS Morningstar Confirms All Classes of Pietra Nera Uno S.R.L.

DBRS Ratings GmbH (DBRS Morningstar) confirmed the ratings on the following classes of commercial mortgage-backed floating-rate notes due November 2027 (the Notes) issued by Pietra Nera Uno S.R.L.:

-- Class A Notes at AA (low) (sf)
-- Class B Notes at A (low) (sf)
-- Class C Notes at BBB (low) (sf)
-- Class D Notes at BB (sf)
-- Class E Notes at B (high) (sf)

All trends are Stable.

The rating confirmations reflect the transaction’s overall stable performance since issuance.

The Notes are securitised by three senior commercial real estate loans and two pari passu–ranking capital expenditure facilities, which were advanced to four Italian borrowers ultimately owned and managed by The Blackstone Group Inc. (the Sponsor). As of the November 2019 interest payment date (IPD), the aggregate loan balance was EUR 402.5 million, a reduction of approximately 0.3% of the original loan balance of EUR 403.8 million due to the Palermo loan ending its interest-only period and beginning to amortise at 1.0% per annum. All three loans have upcoming maturity dates in May 2020; however, all three loans have three one-year conditional extension options, which, if exercised, means the remaining two loans (i.e., the Fashion District and Valdichiana loans) will also begin to amortise at 1.0% per annum, with the Palermo loan amortising at 2.0% per annum during its third extension option.

The loans are collateralised by four Italian retail properties (with the Fashion District loan being secured by two retail properties). As of the November 2019 IPD, the assets received updated valuations, with the aggregate value of the collateral increasing to EUR 556.8 million (72.3% loan-to-value (LTV)) as of the November 2019 IPD from EUR 541.3 million (74.4% LTV) as of the August 2019 IPD. The Fashion District loan’s and Valdichiana loan’s value increased by 8.7% and 13.1%, respectively, with the Palermo loan asset value decreasing by 7.5%. Although the appraised value for the Palermo loan decreased, the gross rental income (GRI), as of the November 2019 IPD, increased year over year by 5.7% and occupancy remains stable at 99.2%. At issuance, DBRS Morningstar underwrote (UW) the asset using a stressed cash flow and cap rate; therefore, DBRS Morningstar did not adjust its UW assumptions from issuance.

Overall, the underlying collateral has performed in line with expectations at issuance, with the aggregate GRI increasing slightly by 0.9% since issuance and 2.4% between the November 2018 and November 2019 reporting period. GRI has increased by 7.7% and 5.7% for the Fashion District and Palermo loans, respectively, and decreased by 7.5% for the asset securing the Valdichiana loan. The decrease stems from a decline in occupancy to 87.4% as of the November 2019 IPD from 96.4% at issuance due to tenants vacating upon lease expiration. In DBRS Morningstar’s opinion, the tenants that vacated were generally weaker retailer brands, providing the Sponsor with the opportunity to fill the vacant spaces with stronger tenants in the future.

One of the assets securitising the Fashion District loan, the Puglia Outlet Village, was scheduled to have its phase two expansion open by December 2018. However, this did not occur, and phase two remains vacant. The Sponsor has instead focused leasing efforts on increasing performance on the phase one asset by letting up the current vacant units and is now not scheduling to open the phase two asset in H2 2020.

The largest tenant in the portfolio is Ipercoop, a large Italian grocery chain that pays an annual rent of EUR 1.37 million, or approximately 3.6% of GRI generated by the four assets. The tenant had a scheduled break option in November 2019 but did not exercise this break option and has a scheduled lease expiration in November 2039. The second-largest tenant is UCI Sud Srl, which is a cinema at the Puglia asset for the Fashion District loan that pays a gross rent of EUR 746,100, or approximately 2.0% of aggregate gross rent. The tenant has a lease expiration date in July 2025 with no scheduled break options.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the ratings is: “European CMBS Rating and Surveillance Methodology”.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for this rating include Securitisation Services S.p.A.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial rating, DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 22 January 2019, when DBRS Morningstar confirmed all classes with a stable trend.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

Class A Notes Risk Sensitivity:
-- 10% decline in DBRS Morningstar Net Cash Flow (NCF), expected rating of Class A at A (high) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class A at A (low) (sf)

Class B Notes Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class B at BBB (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class B at BB (high) (sf)

Class C Notes Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class C at BB (high) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class C at BB (high) (sf)

Class D Notes Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class D at BB (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class D at BB (low) (sf)

Class E Notes Risk Sensitivity:
-- 10% decline in DBRS Morningstar NCF, expected rating of Class E at B (high) (sf)
-- 20% decline in DBRS Morningstar NCF, expected rating of Class E at below B (low) (sf)

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH are subject to EU and U.S. regulations only.

Lead Analyst: Christopher Horst, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 2 February 2018

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Geschäftsführer: Detlef Scholz
Amtsgericht Frankfurt am Main, HRB 110259

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- European CMBS Rating and Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

This press release was amended on 13 February 2020 to correct a reference to the legal entity in the disclosure from DBRS Morningstar GmbH to DBRS Ratings GmbH.