DBRS Morningstar Confirms Ratings on All Classes of PFP 2019-5, Ltd.

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the following classes of secured floating-rate notes issued by PFP 2019-5, Ltd. (the Issuer):

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. In its analysis of the transaction, DBRS Morningstar applied probability of default (POD) adjustments to loans with confirmed issues partially related to the stressed real estate environment caused by the Coronavirus Disease (COVID-19) pandemic. Given the transitional nature of the underlying collateral, proposed business plans necessary to bring the assets to stabilization may be delayed and, in some cases, borrowers may request relief from the Issuer. DBRS Morningstar has built additional POD stress into its analysis of this transaction and, based on currently available information, DBRS Morningstar expects the rated classes to be insulated from adverse credit implications at this time, warranting the rating confirmations.

At issuance, the collateral consisted of 35 floating-rate mortgages secured by 39 transitional properties totaling $764.2 million, excluding $109.9 million of remaining future funding commitments. Per the May 2020 remittance, three loans have been paid in full with 31 loans secured by 35 properties remaining in the trust. To date, approximately $36.4 million of future funding commitments has been released to individual borrowers since issuance and $71.0 million of future funding commitments remains. The pool is concentrated in multifamily properties (43.6% of the pool balance) and office properties (38.1% of the pool balance). Additionally, the collateral is concentrated in secondary and tertiary markets with approximately 49.5% of the pool balance located in DBRS Morningstar Market Ranks of 2 or 3, which typically have weaker investor demand during times of economic stress. As of May 2020 reporting, 14 loans, representing 39.5% of the pool balance, were on the servicer’s watchlist primarily because of low debt service coverage ratios and occupancy rates, which is expected given the transitional nature of the assets in the pool. Twelve loans, representing 30.8% of the pool balance, have initial maturity dates by YE2020 and all loans are structured with three one-year extension options available to the borrower provided that certain conditions are met.

Through May 2020, 30 of the 32 loans in the pool were current; however, DBRS Morningstar expects that additional borrowers may request debt service relief in the form of loan modifications or forbearances as the pandemic-induced economic slowdown deepens. Property types that are most at risk of cash flow disruption include hotel and retail assets, which account for three loans, representing 6.4% of the pool balance, and one loan, representing 2.8% of the pool balance, respectively. The two loans that became delinquent with May 2020 reporting are secured by hotel properties and include: Ivy Hotel (Prospectus ID#24; 1.9% of the pool balance) and Hampton Inn Vilano Beach (Prospectus ID#27; 1.7% of the pool). DBRS Morningstar has reached out to the servicer regarding the reason for the delinquency; however, it is likely a direct result of property cash flow disruption, stemming from a significant slowdown in the travel and lodging sector.

The lone retail asset in the transaction, Loyal Plaza (Prospectus ID#14; 2.8% of the pool balance), is secured by a grocery-anchored community retail shopping center in Williamsport, Pennsylvania. As of March 2020 reporting, the property was approximately 60.0% occupied and its collateral K-Mart big-box storefront recently closed, which was expected at issuance. DBRS Morningstar also acknowledges the risks to The Icon (Prospectus ID#8; 3.8% of the pool balance), Aspen Heights (Prospectus ID#19; 2.1% of the pool balance), 2340 Telegraph (Prospectus ID#21; 2.1% of the pool balance), and The Quad Apartments (Prospectus ID#35; 1.2% of the pool balance) loans, which are secured by student housing properties and may be affected by campus closures or lower student enrollment for the fall 2020 semester because of the coronavirus pandemic.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – Ross Tower (9.5% of the pool)
-- Prospectus ID#2 – Champions Vue (6.3% of the pool)
-- Prospectus ID#3 – Villa Serena Apartments (5.8% of the pool)
-- Prospectus ID#4 – Soco at Tower Point (5.0% of the pool)
-- Prospectus ID#5 – Riverside Office Portfolio (2.8% of the pool)
-- Prospectus ID#6 – Senator Office Building (4.4% of the pool)
-- Prospectus ID#7 – Plantation Office (4.4% of the pool)
-- Prospectus ID#14 – Loyal Plaza (2.8% of the pool)
-- Prospectus ID#16 – Beach Retreat and Lodge (2.8% of the pool)
-- Prospectus ID#24 – Ivy Hotel (1.9% of the pool)
-- Prospectus ID#27 – Hampton Inn Vilano Beach (1.7% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodology is the North American CMBS Surveillance Methodology (March 6, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 696-6293