DBRS Morningstar Confirms All Classes of BX Commercial Mortgage Trust 2019-XL

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2019-XL issued by BX Commercial Mortgage Trust 2019-XL as follows:

-- Class A at AAA (sf)
-- Class X-CP at AA (low) (sf)
-- Class X-NCP at AA (low) (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D as A (high) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at BB (low) (sf)
-- Class J at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations at issuance. The collateral for trust is a $5.6 billion first-lien mortgage loan on 406 industrial properties totaling over 65 million square feet (sf) spread across 18 states. As of the March 2021 remittance, the pool was paid down by $333.1 million (5.9% of the original balance) following several property releases. The proceeds were distributed pro rata through the capital stack, reducing the total pool balance to $5.27 billion.

Original trust loan proceeds of $5.6 billion along with $1.0 billion of mezzanine financing, a $1.9 billion balance sheet loan, $9.4 million of assumed debt, and $2.6 billion of borrower equity were used to facilitate the acquisition of the portfolio for approximately $11.1 billion. The underlying loan for the subject transaction pays interest only (IO) with a two-year initial term and three one-year extension options. The portfolio is a part of Blackstone’s larger $18.7 billion acquisition of over 170 million sf of U.S. industrial assets from Singapore-based GLP. Following the acquisition, Blackstone surpassed Prologis as the world’s largest owner of industrial and distribution assets, with a portfolio of over 356 million sf.

At issuance, the portfolio had a property Herfindahl score of over 200 by allocated loan amount, which is among the highest DBRS Morningstar has seen for single-borrower industrial portfolios. The properties are located across 18 U.S. states in multiple regions and the portfolio also exhibits substantial tenant diversity and granularity. No tenant accounted for more than 2.3% of in-place base rent at issuance and no property accounted for more than 2.1% of trailing 12-month (T-12) net operating income (NOI). As of Q3 2020, the T-12 debt service coverage ratio (DSCR) was reported at 1.63 times (x) with an occupancy rate of 92%, in line with the YE2019 DSCR and occupancy rate of 1.64x and 94%, respectively.

In the analysis for these rating actions, DBRS Morningstar utilized a net cash flow (NCF) figure of $343.3 million ($364.9 million at issuance adjusted for property releases) and a cap rate of 6.75% was applied, resulting in a DBRS Morningstar Value of $5.09 billion ($5.41 billion at issuance), a variance of -36.9% from the paydown-adjusted appraised value of $8.1 billion ($8.5 billion at issuance). The DBRS Morningstar Value implies a loan-to-value (LTV) of 103.6%, as compared with the LTV on the adjusted appraised value of 65.4%. The cap rate applied is at the lower end of the range of DBRS Morningstar Cap Rate Ranges for industrial properties, reflective of the portfolio’s locations in gateway industrial markets with high barriers to entry, asset quality, and investment-grade tenancy. In addition, the 6.75% cap rate applied is substantially above the implied cap rate of 4.3% based on the Issuer’s NCF and appraised value.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis totaling 8.0% to account for cash flow volatility, property quality, and market fundamentals. DBRS Morningstar also made other negative adjustments to account for certain structural aspects: weak release provisions and partial pro rata principal paydown upon a release of any property or properties (up to the free payment amount and subject to certain conditions). For the former, DBRS Morningstar decreased its LTV thresholds at each rating category by 25 basis points; for the latter, DBRS Morningstar decreased its thresholds at the AAA (sf) through A (high) (sf) rating categories. DBRS Morningstar reduced the AAA (sf) category by 1.88% and then tapered the decrease to 1.34% at A (high) (sf).

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Classes X-CP and X-NCP are interest-only (IO) certificates that reference 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 methodology is 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.

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 related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

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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