DBRS Morningstar Assigns Provisional Ratings to BX Trust 2021-ACNT Commercial Mortgage Pass-Through Certificates, Series 2021-ACNT

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the classes of Commercial Mortgage Pass-Through Certificates, Series 2021-ACNT to be issued by BX Trust 2021-ACNT as follows:

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

All trends are Stable. Classes H, HRR and ELP are not rated by DBRS Morningstar

The BX Trust 2021-ACNT transaction is collateralized by the borrower’s fee simple and leasehold interests in a portfolio of 89 industrial properties totaling approximately 27.2 million square feet. The portfolio is part of Blackstone’s larger take-private acquisition of WPT Industrial REIT and the collateral properties are located across 19 states and thirty key industrial markets including greater metro areas Atlanta (nine properties, 10.4% of NCF), Minneapolis (eight properties, 8.6% of NCF), and Memphis (seven properties, 6.9% of NCF). The properties themselves are a mix of last-mile e-commerce, light industrial, warehouse and institutional quality logistics assets. Overall, the subject markets have solid fundamentals with positive annual growth in rents while absorbing new supply and compressing vacancies. DBRS Morningstar continues to take a favorable view on the long-term growth and stability of the warehouse and logistics sector, despite the uncertainties and risks that the Coronavirus Disease (COVID-19) pandemic has created across all commercial real estate asset classes. Increased consumer reliance on e-commerce and home delivery during the pandemic has only accelerated pre-pandemic consumer trends, and DBRS Morningstar believes that retail’s loss continues to be industrial’s gain. The portfolio benefits from favorable tenant granularity, strong sponsor strength, favorable asset quality, and strong leasing trends, all of which contribute to potential cash flow stability over time.

The portfolio is leased to 144 unique tenants, with no tenant representing more than 6.5% of NRA. The portfolio is 98.5% leased with investment-grade credit tenants representing more than 20% of the total square footage, including FedEx (Moodys’ Baa2 / S&P: BBB, 6.5% of Total NRA), Amazon (Fitch: AA- / S&P: AA, 3.4% of NRA), Honeywell (Fitch: A / Moody’s: A2 / S&P: A, 2.8% of NRA), and Proctor & Gamble (Moody’s: Aa3 / S&P: AA-, 1.9% of NRA). The top 10 tenants make up approximately 32.5% of NRA and 35.8% of total rental revenue. The portfolio has a weighted-average lease term of 4.1 years, with no more than 18.8% of NRA rolling in any given year over the fully extended loan term. The portfolio’s WA year built of 2004 is significantly newer than the average of industrial portfolios DBRS Morningstar recently analyzed (1991). In addition the portfolio has a WA property size of 306,000 sf, WA clear heights of 30 feet and a minimal 5.5% office buildout.

Leases representing approximately 61.3 of portfolio’s NRA and 64.5% of the base rent are scheduled to roll through the fully extended loan term in 2026. Lease rollover is especially concentrated in years 2022 through 2024, when leases representing 45.4% of the portfolio’s NRA and 45.5% of base rent are scheduled to roll. Historically, the portfolio has exhibited strong leasing spreads with new and renewal leases being signed at an average 8.5% reported premium over previous rents for the same space over the year to date ended August 2021. In addition, the WA base rent is approximately 6.0% below the WA market rent estimate per CBRE..

The transaction benefits from elevated cash flow stability attributable to multiple property pooling. The portfolio has a property Herfindahl score of 56.6 by ALA, which above the average of recent DBRS Morningstar-rated industrial portfolios (30.2) nonetheless favorable diversification of cash flow when compared with a single-asset securitization. No single property accounts for more than 3.4% of the portfolio’s NRA.

The transaction sponsor is BREIT Operating Partnership L.P., an affiliate of the Blackstone Group.
Blackstone is a leading global alternative asset manager. Blackstone’s alternative asset management businesses include the management of private equity funds, real estate funds, hedge fund solutions, credit-oriented funds, and closed-ended mutual funds The Blackstone Real Estate group (NYSE: BX, S&P: A+, Fitch: A+) was established in 1991 and is a global commercial real estate platform with over $230 billion of investor capital under management as of September 30, 2021. Their $411 billion portfolio includes properties in many locations in the U.S., Europe, Asia and Latin America, with a mix of hospitality, office, retail, industrial, and residential investments as of June 30, 2021.

The sponsor is contributing $636 million of cash equity to facilitate the acquisition, representing 23% of the approximately $2.9 billion allocated purchase price. DBRS Morningstar generally views acquisition financings involving significant amounts of cash equity contributions from the transaction sponsors favorably given the stronger alignment of economic incentives when compared with cash-out financings.

The trust collateral was originated by Goldman Sachs Bank USA, Bank of America, N.A. and Bank of Montreal and consists of a mortgage loan in the amount of $2.22 billion. The mortgage loan is evidenced by three promissory notes: Note A-1 with an original principal balance of $1.1 billion, Note A-2 with an original principal balance of $555 million and Note A-3 with an original principal balance of $555 million. All three promissory notes are expected to be contributed to the trust and support payments on the rated certificates.

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.

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 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.

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 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.

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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