DBRS Morningstar Assigns Ratings to Citigroup Commercial Mortgage Trust 2019-PRM

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2019-PRM issued by Citigroup Commercial Mortgage Trust 2019-PRM (the Issuer) as follows:

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

All trends are Stable.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about August 19, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, on the DBRS Morningstar website at www.dbrsmorningstar.com.

The subject rating actions are the result of the application of the NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology,” as applicable. Qualitative adjustments were made to the final loan-to-value (LTV) sizing benchmarks used for this rating analysis.

The collateral for the mortgage trust consists of two five-year, interest-only (IO), first-lien mortgage loans secured by self-storage facilities, 11 properties in Portfolio I and 38 properties in Portfolio II, in urban and suburban locations in 18 states in the Eastern United States. The two loans are not cross-collateralized or cross-defaulted; however, the property values and cash flows securing each portfolio are aggregated to support their respective loan. A portion of the principal balance of each loan will be allocated to each property within its respective loan collateral pool.

Portfolio I has a trust mortgage loan of $61.0 million and Portfolio II has a trust mortgage loan of $217.0 million for a total loan balance of $278.0 million in the trust. Each portfolio is funded with additional mezzanine financing secured by the borrowing entities’ ownership interests. The Portfolio I mezzanine debt will have a total commitment of $12.0 million and the Portfolio II mezzanine debt will have a total commitment of $40.0 million. The Portfolio II ownership entities are obligated to repay the total advanced mezzanine debt up to $40.0 million. The mezzanine loans will be subordinate to and held outside the trust. The mortgage loans and mezzanine loans will be co-terminus. The sponsor will use the total financing for each portfolio to pay off existing debt, pay transaction costs, fund upfront reserves, and return equity cash to the borrowers.

Each of the Portfolio I and Portfolio II borrowers is indirectly wholly owned by Prime Storage Fund I, LLC, one of the related guarantors, which is indirectly controlled by the borrower sponsor, Robert Moser. Prime Group is one of the largest private owner-operators of self-storage facilities in the United States. The company operates the properties as Prime Storage Group and, at issuance, managed more than 10.0 million square feet of self-storage properties in 23 states, primarily in the Eastern United States.

The DBRS Morningstar net cash flow (NCF) derived at issuance was reanalyzed for the subject rating action to confirm its consistency with the “DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria.” The resulting NCF figure was $23.9 million and a cap rate of 8.0% was applied, resulting in a DBRS Morningstar Value of $298.7 million, a variance of -27.0% from the appraised value at issuance of $409.4 million. The DBRS Morningstar Value implies an LTV of 93.1% compared with the LTV of 67.9% on the appraised value at issuance. The all-in LTV including mezzanine debt is 110.5%. The NCF figure applied as part of the analysis represents a -5.5% variance from the Issuer’s NCF, primarily driven by vacancy and operating expenses.

The cap rate DBRS Morningstar applied is at the lower end of the DBRS Morningstar Cap Rate Ranges for self-storage properties, reflecting the portfolio’s geographic diversity and strong property fundamentals. In addition, the 8.0% cap rate DBRS Morningstar applied is above the implied cap rate of 6.3% based on the Issuer’s underwritten NCF and appraised value.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totaling 2.5% to account for cash flow volatility, property quality, and market fundamentals. DBRS Morningstar also made other positive adjustments to account for certain diversification.

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.

Class X is an IO certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

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 this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level 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 methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology and North American CMBS Surveillance Methodology, which can be found on www.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 www.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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 [email protected].

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