DBRS Morningstar Confirms All Ratings of MTN Commercial Mortgage Trust 2022-LPFL

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of MTN Commercial Mortgage Trust 2022-LPFL, Commercial Mortgage Pass-Through Certificates, Series 2022-LPFL as follows:

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

All trends are Stable.

This transaction closed in March 2022 and these rating actions reflect the lack of material changes in the relatively short time since issuance.

The transaction is secured by the borrower’s fee-simple or leasehold interests in a portfolio of 82 industrial properties (78 fee-simple properties, two payment in lieu of taxes leasehold properties, and two ground leasehold properties) totaling over 15 million square feet across 25 states. The portfolio is primarily represented by warehouse facilities, which represent almost 90% of the total net rentable area (NRA), and manufacturing facilities, which represent the remaining NRA. The relative distribution of the locations is granular, with the largest state concentration in Texas, with 8.6% of the portfolio NRA. Indiana and Ohio follow with 8.5% of the total portfolio square footage each. The properties are located in strong submarkets near major population centers with convenient access to highways, railways, and airports. The portfolio was acquired through Industrial Logistics Properties Trust’s (ILPT) $4 billion acquisition of Monmouth Real Estate Investment Corporation (Monmouth). The loan is sponsored by a joint venture between ILPT, the portfolio owner and controller, and the remaining 39% is owned by an institutional investor connected to the Monmouth acquisition.

The $1.4 billion floating-rate mortgage loan is interest-only throughout its five-year fully extended loan term. The loan has an initial two-year term and three, one-year extension options taking the fully extended maturity out to March 2027.

According to the September 2022 rent roll, the portfolio was 98.8% occupied, flat from issuance. The portfolio benefits from investment-grade tenants including, FedEx Corporation (46.8% of NRA, expiring April 2030); Shaw Industries Group, Inc. (5.2% of NRA, expiring September 2027); The International Paper Company (3.6% of NRA, expiring July 2025); and Amazon.com, Inc. (2.7% of NRA, expiring August 2028). Approximately 56.0% of the portfolio’s NRA is scheduled to roll throughout the fully extended loan term; however, rollover is relatively granular with no more than approximately 17.0% of the NRA scheduled to roll in any given year. In addition, DBRS Morningstar expects demand to remain stable through the extended loan term for warehouse property types in desirable locations such as those in the subject’s portfolio.

The annualized net cash flow (NCF) for the trailing nine months ended September 30, 2022, was $75.9 million, slightly below the DBRS Morningstar NCF of $79.5 million because of straight line rent credits that were given to investment-grade tenants by DBRS Morningstar.

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 (May 17, 2022).

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].

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