DBRS Morningstar Confirms Ratings on All Classes of OPG Trust 2021-PORT

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-PORT issued by OPG Trust 2021-PORT as follows:

-- Class A at AAA (sf)
-- Class X-CP at A (high) (sf)
-- Class X-NCP at A (high) (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.

The rating confirmations reflect the transaction’s overall stable performance, which remains in line with DBRS Morningstar’s expectations. At issuance, the underlying loan for this transaction was secured by a portfolio of 109 industrial properties totalling more than 14.4 million square feet (sf). The servicer noted that 32 properties, totalling $445.01 million of the allocated loan amount (ALA) at issuance, had been released from the trust as of August 30, 2022. The prepayment premium for the release of individual assets is 100% of the ALA until the original principal balance has been reduced to 90% of the original loan balance, 105% of the ALA until the original loan amount is reduced to 65% of the original loan amount from 90% of the original loan amount, and 110% of the ALA thereafter. DBRS Morningstar considers the release premium to be weaker than a generally credit-neutral standard of 115% and, as such, a penalty was applied to the transaction’s capital structure to account for the weak property release premiums.

As a result of the property releases, the current pool balance has been reduced to $1.06 billion, which reflects collateral reduction of 25.6% from the original issuance balance of $1.43 billion. Although the risk of adverse selection may be a possibility, DBRS Morningstar continues to have a favourable outlook on the long-term growth and stability of the warehouse and logistics sector. The portfolio is primarily composed of last-mile facilities in urban infill locations, with the remaining 77 properties ranging in size from approximately 24,000 sf to 535,000 sf. Properties in infill locations tend to have smaller footprints because of the high cost of land, compared with larger distribution facilities that can exceed 1 million sf and are often further away from prominent urban centres.

The portfolio is spread across 11 markets spanning seven U.S. states: Texas, California, Illinois, Georgia, Florida, Maryland, and Arizona. The collateral is generally well located in close proximity to dense population centres and industrial gateway markets with high demand for industrial and distribution space. The annualized year-to-date (YTD) March 2022 financial reporting, the most recent on file, indicates that net cash flow (NCF) has contracted approximately 9.6% since issuance (to $75.8 million from $83.9 million) because of an increase in operating expenses. In addition, according to the most recent rent roll on file, dated June 30, 2022, the portfolio was 92.9% leased, unchanged from issuance. However, given that the majority of property releases occurred between July 2022 and August 2022, the YTD March 2022 financials and the June 2022 rent roll are not reflective of the portfolio’s current composition.

DBRS Morningstar’s NCF analysis for the remaining 77 properties yielded a figure of $57.8 million, a -5.2% variance from the Issuer’s NCF of $60.9 million. DBRS Morningstar applied a 7.0% cap rate to the reanalyzed NCF, resulting in a DBRS Morningstar value of $825.6 million, a -45.1% variance from the appraised value at issuance.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929.

Class X-CP and Class 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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loan 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.

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

The principal methodology is the 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].

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