DBRS Morningstar Confirms Ratings on All Classes of ILPT Commercial Mortgage Trust 2022-LPFX

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2022-LPFX issued by ILPT Commercial Mortgage Trust 2022-LPFX as follows:

-- Class A at AAA (sf)
-- Class X at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class HRR at BB (high) (sf)

All trends are stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS Morningstar's expectations since issuance. The transaction is collateralized by the borrower's fee-simple interests in a portfolio of 17 industrial properties totaling approximately 9.4 million square feet (sf). The subject portfolio is part of Industrial Logistics Properties Trust’s (ILPT) existing unencumbered warehouse and manufacturing assets. The collateral properties are located across 12 states and 13 different industrial markets with the largest concentration in Philadelphia, followed by Virginia, Tennessee, South Carolina, and Ohio. The loan is sponsored by ILPT, a publicly traded real estate investment trust formed to own and lease industrial and logistics portfolios across the United States.

The $445.0 million mortgage whole loan along with $255.0 million of total mezzanine debt were used to recapitalize the portfolio, return sponsor equity, and fund upfront reserves. The mortgage loan consists of $341.1 million of senior debt and $103.9 million subordinate debt. The subject transaction consists of $175.0 million of senior debt and the entirety of the subordinate debt. The fixed-rate loan is interest-only (IO) throughout its 10-year term.

The portfolio mainly consists of single-tenant properties with triple net leases and is 100% leased to 19 individual tenants. Approximately 63.7% of gross rent is derived from nine investment-grade-rated tenants, including Amazon and UPS. The tenant roster includes a variety of industries, including air freight and logistics, Internet and catalog retail, commercial services and supplies, specialty retail, and food and beverage. According to the trailing-nine-month ended September 30, 2022, financials, the loan reported a debt service coverage ratio (DSCR) of 2.33 times (x), compared with the DBRS Morningstar DSCR at issuance of 2.11x.

Overall, the subject markets have solid fundamentals with positive annual growth in rents. DBRS Morningstar continues to take a favorable view on the long-term growth and stability of the warehouse and logistics sector. The portfolio benefits from favorable tenant granularity, strong sponsor strength, favorable asset quality, and strong leasing trends, thus supporting our rating recommendations.

Environmental, Social, and 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 (May 17, 2022).

Class X is an IO certificate that references 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.

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

The principal methodology is the North American CMBS Surveillance Methodology (October 3, 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