DBRS Morningstar Confirms Ratings on DROP Mortgage Trust 2021-FILE

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates (the Certificates), issued by DROP Mortgage Trust 2021-FILE:

-- Class A at AAA (sf)
-- Class A-IO at AAA (sf)
-- Class A-Y at AAA (sf)
-- Class A-Z at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-CP at BBB (sf)
-- Class X-NCP at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class HRR at BB (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 transaction is collateralized by the borrower’s fee-simple interest in The Exchange, a 750,370-sf office building with retail components in the Mission Bay submarket of San Francisco. Built in 2018, the subject is in excellent condition and is Leadership in Energy and Environmental Design Platinum certified. The office property consists of 12 stories with ground-floor retail space and boasts design elements, including building systems and floorplates, that can accommodate life sciences tenants. The property benefits from its dense urban location near many of the area demand drivers, such as the University of California San Francisco’s Mission Bay campus, the Golden State Warriors’ Chase Center, the Kaiser Permanente hub, and new residential units. The property also benefits from the experienced institutional sponsorship of KKR.

According to the December 2021 rent roll, the property is 99.6% leased to two tenants: Dropbox (98.4% of net rentable area (NRA)) and Kings & Convicts BP, LLC, doing business as Ballast Point (1.2% of the NRA). Dropbox is privately rated by DBRS Morningstar and exhibits characteristics consistent with a high below investment-grade credit rating. At issuance, it was noted that Dropbox subleased approximately 25.3% of its space at the building to two life sciences tenants: 133,896 sf (17.8% of the collateral’s NRA) to VIR Biotechnology, Inc. and 52,604 sf (7.0% of the collateral’s NRA) to BridgeBio Pharma, Inc. Dropbox occupies the subject on a long-term lease through November 2033 and is responsible for all lease obligations, including subleased space, with no termination options during its lease term. Additionally, Dropbox’s performance under its lease is backed by a letter of credit of approximately $34 million. According to the Reis Q4 2021 South of Market office submarket report, the average vacancy rate for the submarket was 8.7%, and the average asking rental rate was $64.18 psf compared with the subject’s average rental rate of $69.05 psf.

The transaction is structured with an anticipated repayment date (ARD) beginning in April 2026 and a final maturity date in October 2033, one month before Dropbox’s lease expiration. In addition to penalty interest due on the mortgage after the ARD, all property cash flow after the current debt service will be diverted away from the sponsor and toward amortizing the mortgage loan. This feature strongly incentivizes the sponsor to arrange takeout financing before the ARD and therefore reduces maturity risk for the certificateholders.

As of the year-end 2021 financials, the servicer reported a debt service coverage ratio (DSCR) of 5.81 times (x) and an occupancy rate of 99.6%, which compares with the Issuer’s Trust Loan DSCR of 5.75x and the DBRS Morningstar’s DSCR of 4.99x. Given the property is predominantly leased to a single tenant, Dropbox, on a long-term lease, DBRS Morningstar expects the loan’s performance to remain in line with expectations.

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 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 4, 2022), 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.

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].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577