DBRS Morningstar Confirms Ratings on All Classes of PFP 2019-6, Ltd.

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of notes (the Notes) issued by PFP 2019-6, 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 (high) (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 collateral. The transaction benefits from its pool composition as only one loan, representing 3.4% of the current pool balance, is backed by a hospitality property, and four loans, representing 9.2% of the current pool balance, are backed by retail properties. In addition, 12 loans, representing 54.3% of the current pool balance, are secured by properties in markets with a DBRS Morningstar Market Rank of 5, 6, 7, or 8, which are characterized as core market locations and are more urbanized or densely suburban in nature. These markets have historically benefitted from greater demand drivers and available liquidity.

The initial collateral consisted of 36 floating-rate mortgage loans secured by 37 mostly transitional properties with a cut-off balance totalling $760.1 million, excluding approximately $80.7 million of future funding commitments. Most loans are in a period of transition with plans to stabilize and improve the asset value. During the Permitted Funded Companion Participation Acquisition Period, the Issuer may acquire future funding commitments into the Trust.

As of the September 2021 remittance, the Trust consisted of 24 loans with a current principal balance of $508.0 million, representing a collateral reduction of 33.2% since issuance. To date, the lender has advanced $35.5 million in loan future funding to 15 individual borrower to aid in property stabilization. An additional $28.5 million in loan future funding allocated to 11 individual borrowers remains outstanding. The Permitted Funded Companion Participation Period will end with the January 2022 Payment Date and as of September 2021 reporting the Permitted Funded Companion Participation Acquisition Account had a balance of $2.0 million.

As of the September 2021 remittance, 11 loans, representing 29.0% of the pool, are on the servicer’s watchlist with no loans in special servicing or any delinquencies noted. Three loans on the servicer’s watchlist were flagged for upcoming loan maturities, six loans were flagged for low debt service coverage ratios (DSCRs), and the remaining loan was flagged for an occupancy decrease. In total, there are five loans, representing 23.7% of the pool, that have had loan modifications executed since 2020. The modifications include the use of reserves to pay debt service, the deferral and accrual of interest shortfalls, and the waiver of monthly reserve deposits and replenishment obligations.

The largest loan on the servicer’s watchlist, SOMI Center & Biltmore Building (Prospectus ID#11; 4.7% of the current pool balance), is secured by two mixed-use properties in South Miami and Coral Gables, Florida, totaling 97,218 square feet (sf) situated approximately four miles from one another. The loan was added to the servicer’s watchlist in August 2021 ahead of its pending November 2021 loan maturity date. The servicer has reported that the borrower will be exercising the first of three one-year extension options. The loan at issuance was structured with a future funding component of $2.3 million, $250,000 of which was set aside for minor renovation work, while the remainder was reserved for leasing costs. The sponsor’s business plan was focused on optimizing the two mismanaged properties by leasing up the properties to market occupancy and rental rates. As of the September 2021 reporting, the loan has $2.1 million remaining in its future funding account, $1.8 million for its leasing efforts, and the $250,000 for capital improvements. As of the August 2021 rent roll, the properties reported a combined occupancy rate of 66.5%, a decline from the January 2021 occupancy rate of 79.8% and the January 2020 rate of 74.1%. As of a Q2 2021 Reis report, the Coral Gables submarket is reporting a vacancy rate of 17.1%. While the leasing reserves have remained relatively untouched since issuance, the immediate submarket’s elevated vacancy rate and continued depressed occupancy rate at the subject properties indicate the borrower is struggling to complete its business plan.

The second-largest loan on the servicer’s watchlist, Palihotel Seattle (Prospectus ID#16, 3.4% of the current pool balance), is secured by a 96-key, full-service hotel in Seattle. The loan was placed on the servicer’s watchlist in August 2020 for a low DSCR as the property closed in April 2020 as a result of the Coronavirus Disease (COVID-19) pandemic. The subjet remained closed through June 2021. The loan was granted relief in April 2020 with terms including the waiver of monthly furnite fixture and equipment (FF&E) reserve collections for 2020 (with collections recommencing at a staggered rate over the next four years beginning in 2021). In addition, interest shortfalls from May 2020 to July 2020 can be deferred and can accrue until repaid and cash management debt-yield test are delayed until December 2021. The sponsor’s business plan at issuance was focused on ramping the hotel to stabilization by reducing dependence from online travel agencies and securing corporate contracts, growing its brand awareness across its portfolio of hotels, and optimizing operating expenses at the subject. The loan is structured with a future funding commitment of two separate earnouts of $2.0 million, and, as of the September 2021 collateral report, no funds have been disbursed as the property has been unable to achieve the performance-based debt-yield tests. The property’s July 2021 operating statement reported monthly occupancy, average daily rate, and revenue per available room figures of 19.9%, $178.52, and $35.45, respectively.

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.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the rating assigned to Class G as the quantitative results suggested a higher rating. The material deviation is warranted given the uncertain loan-level event risk with some of the remaining loans in the pool failing to achieve its business plan in a timely manner.

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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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

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