DBRS Morningstar Finalizes Provisional Ratings on CIM Retail Portfolio Trust 2021-RETL

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-RETL issued by CIM Retail Portfolio Trust 2021-RETL (CIM 2021-RETL):

-- Class A at AAA (sf)
-- Class A-1 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class HRR at BB (low) (sf)
-- Class X-CP at BBB (high) (sf)
-- Class X-EXT at BBB (high) (sf)

All trends are Stable.

Classes X-CP and X-EXT are interest-only (IO) classes whose balances are notional.

CIM 2021-RETL is a single-asset/single-borrower transaction collateralized by the borrower’s fee-simple interest in a diversified portfolio of 113 retail properties across 27 U.S. states and 85 metropolitan statistical areas (MSAs). The portfolio consists of 50 anchored shopping centers, 61 single-tenant retail properties, one office property, and an industrial property. DBRS Morningstar generally takes a positive view on the credit profile of the overall transaction based on the portfolio's broad diversification, favorable leverage profile, and strong essential-business anchor tenancy. Despite these strengths, the portfolio continues to experience above-market vacancy levels and there remains secular uncertainty around the retail sector more broadly. The subject transaction also represents the first post-Coronavirus Disease (COVID-19) retail portfolio to be financed in the commercial mortgage-backed securities market.

The cross-collateralized portfolio benefits from granular tenancy and broad diversification. The portfolio has a property Herfindahl (Herf) score of 69.4 by allocated loan amount (ALA), a state Herf score of 22.3 by ALA, and an MSA Herf score of 46.3, which makes the transaction one of the most diversified retail portfolios analyzed by DBRS Morningstar. Furthermore, with the exception of LA Fitness and PetSmart, no other tenants in the portfolio account for more than 5.0% of the DBRS Morningstar In-Place Base Rent.

The portfolio primarily consists of power center retail properties anchored or shadow anchored by national grocery store or home improvement chains including Lowe's, DICK’S Sporting Goods, PetSmart, Stop & Shop, Home Depot, and Walmart, among many others. DBRS Morningstar generally views retail properties occupied by large essential retailers more favorably, and 49.4% of the portfolio's tenants never closed during the coronavirus pandemic despite broad local lockdown orders, underscoring the essential-business concentration of the transaction.

Investment-grade tenants comprise 34.1% of the DBRS Morningstar In-Place Base Rent (37.5% of the net rentable area), which is a favorable proportion. However, none of the tenants qualified for long-term credit tenant cash flow treatment based on their lease expiry dates.

The portfolio's rent collection history (excluding deferrals and abatements) through the coronavirus pandemic has been relatively favorable for a retail portfolio, again underscoring the essential-business nature of the tenancy. Collections dropped to 78.5% in April 2020 during the height of the first wave of the pandemic, but rebounded quickly to 92.4% in July 2020 and have since averaged 95.4%.

The ongoing coronavirus pandemic continues to pose challenges and risks to virtually all major commercial real estate property types and has created significant uncertainty around the long-term viability of a wide array of retail businesses. Mandated closures and the weakened state of the macroeconomy have only accelerated consumer purchasing trends in favor of e-commerce, leaving retail properties, even those more heavily occupied by essential retailers, vulnerable to store closures and tenant bankruptcies over the medium term to long term (particularly nonanchor in-line tenants). While DBRS Morningstar does not view these issues as imminent threats to most of the portfolio's tenancy for reasons previously mentioned, the long-term headwinds in the retail sector will likely persist even after the coronavirus pandemic abates. For DBRS Morningstar's perspective, specifically with respect to LA Fitness (7.6% of base rent), please refer to the Tenant Summary and Lease Terms section of the presale report.

The portfolio is currently 17.7% vacant based on the DBRS Morningstar concluded vacancy figure, which is significantly above the appraiser's concluded WA market vacancy of 5.0% for the portfolio. However, the portfolio has historically performed favorably, with a three-year historical WA vacancy of 5.9% from 2018 through 2020. DBRS Morningstar views the portfolio's current vacancy to be elevated because of rollover and fallout from the ongoing coronavirus pandemic and believes occupancy is likely to improve over time, if only modestly, as the macroeconomy continues to recover.

The sponsor is withdrawing approximately $633.9 million of cash to pay down an existing corporate facility, a term loan, and a secured loan as a part of the subject transaction, which DBRS Morningstar views less favorably from an alignment-of-incentive perspective than cash-in or cash-neutral financings. This leaves the sponsor with significantly less market equity to protect, which could potentially disincentivize investment in the portfolio to the detriment of certificateholders. However, CIM will have approximately $478 million in remaining implied equity in the transaction, which is significant.

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 Class X-EXT are IO certificates that reference 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.

For supporting data and more information on this transaction, please log into www.viewpoint.dbrsmorningstar.com. DBRS Morningstar provides analysis and in-depth commentary in the DBRS Viewpoint platform.

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

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is the North American Single-Asset/Single-Borrower Ratings Methodology (March 2, 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 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

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

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