DBRS Morningstar Upgrades Three Classes of BX Commercial Mortgage Trust 2018-IND

DBRS Limited (DBRS Morningstar) upgraded its ratings on three classes of the Commercial Mortgage Pass-Through Certificates, Series 2018-IND issued by BX Commercial Mortgage Trust 2018-IND as follows:

-- Class C to AA (high) (sf) from AA (sf)
-- Class D to AA (sf) from A (high) (sf)
-- Class E to A (sf) from A (low) (sf)

In addition, DBRS Morningstar confirmed its ratings on the following classes:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class X-NCP at AAA (sf)
-- Class F at BBB (low) (sf)
-- Class G at BB (low) (sf)
-- Class H at B (low) (sf)

All trends are Stable. As the final interest distribution date for Class X-CP has passed, the rating on that class was discontinued.

The rating upgrades reflect the significant paydown and stable performance of the collateral portfolio since issuance. The collateral for the underlying loan consisted of a portfolio of 171 industrial properties with a loan balance of $2.5 billion at issuance. In addition to the stable performance, the transaction also benefits from strong sponsorship for the underlying loan, which is made up of affiliated entities of Blackstone Real Estate Partners.

As of the May 2021 remittance, 105 properties remained in the transaction with a loan balance of $1.4 billion, representing a collateral reduction of 45.9% since issuance. The subject transaction is structured with a partial pro rata/sequential-pay structure, with principal repayments made on a pro rata basis across the bond stack for the first 30.0% of unpaid principal balance. As the underlying loan has since been repaid below the 30.0% threshold, principal repayments are now distributed on a sequential basis. The underlying release provisions for the release of individual assets require repayment at 105.0% of the allocated principal balance for the first 25.0% of the original full principal balance and 110.0% thereafter. The floating-rate loan is structured with an initial two-year term with three one-year extension options, of which the first extension was exercised, with the loan now due in October 2021. The loan is interest only (IO) for the fully extended term.

The tenants in the portfolio are diversified across a broad spectrum of industries, with the largest concentrations in food and beverage, auto, and distribution. As of YE2020, the servicer reported an occupancy rate for the remaining properties in the portfolio of 97.6% and a net cash flow (NCF) of $116.2 million, compared with the YE2019 NCF of $126.4 million. The DBRS Morningstar NCF derived at issuance was adjusted to reflect the property releases since the last rating action, which resulted in a figure of $102.5 million. The cap rate of 7.25% was maintained, resulting in a DBRS Morningstar value of $1.4 billion, compared with the issuance appraisal value of $2.0 billion for the remaining collateral. DBRS Morningstar maintained its positive qualitative adjustments to the loan-to-value sizing benchmarks used for this rating analysis, totalling 4.5% to account for cash flow volatility, property quality, and market fundamentals.

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.

Class X-NCP 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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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 North American CMBS Surveillance Methodology (March 26, 2021), 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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