DBRS Morningstar Confirms the Ratings on RLGH Trust 2021-TROT

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-TROT issued by RLGH Trust 2021-TROT as follows:

-- Class A at AAA (sf)
-- Class A-Y at AAA (sf)
-- Class A-Z at AAA (sf)
-- Class A-IO at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (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 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 and leasehold interests in 53 properties, including 48 flex industrial properties, three industrial properties, one parcel of land, and one unanchored retail strip center, totaling approximately 2.6 million square feet across six business parks in the Raleigh-Durham region of North Carolina. The Raleigh-Durham metropolitan area is known as the Research Triangle, which is an attractive region for research and development, advanced technology, and biotechnology. The portfolio has a weighted-average (WA) year built of 1995 and comprises primarily older buildings in a smaller and secondary market. The sponsors, a joint venture partnership between Equus Capital Partners, Ltd. (Equus) and Corebridge Real Estate Investors (formerly AIG Global Real Estate Investment Corp.), contributed $132.9 million in cash equity as a part of the transaction to acquire the portfolio for a purchase price of $422.3 million. Equus is a private real estate investment firm focused on commercial real estate investments. Corebridge Real Estate Investors is a real estate investment arm of AIG Inc. and focuses on real estate investments globally.

The two-year floating-rate loan is interest only (IO) for the full term with an initial maturity in April 2023. The loan has three one-year extension options available. According to the servicer, the borrower intends to exercise its first option, and the extension is currently in process. The borrower also entered into an interest rate cap agreement with SMBC Capital Markets, Inc., with a strike rate of 3.5% for the two-year initial term. To get an extension, the borrower must obtain a replacement interest rate cap agreement. Given the current environment, DBRS Morningstar has inquired about whether the borrower has purchased a replacement interest rate cap or if it has negotiated alternative hedging.

The collateral portfolio benefits from a diversified tenant roster, with only six of the portfolio's 53 properties currently leased to single-tenant users. At issuance, the portfolio was leased to 306 distinct tenants across multiple industries with a WA occupancy rate of 95.3%. Performance metrics have remained stable since issuance. According to the September 2022 rent roll, occupancy was 96.5%, in line with the servicer-reported YE2021 rate of 96.0%. More than 70 leases representing 20.7% of the net rentable area are scheduled to roll in 2023, highlighting the tenant granularity. The portfolio’s historical occupancy has been stable, with a WA occupancy rate of at least 95.0% since 2007. According to Reis, availability in Raleigh-Durham’s industrial market is tight, reporting an average vacancy of 4.5% as of Q4 2022. The servicer reported net cash flow (NCF) of $22.3 million for the trailing 12-month period ended June 2022, compared with NCF of $22.2 million as of YE2021. This reflects generally stable performance since issuance and remains above the DBRS Morningstar NCF figure of $21.7 million.

The Class A, A-Y, A-Z, and A-IO certificates (the CAST Certificates) can be exchanged for other classes of CAST Certificates and vice versa, as described in the offering memorandum.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 A-IO is an interest-only (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 North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.
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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

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, Inc.
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Tel. +1 312 332-3429

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023;
https://www.dbrsmorningstar.com/research/410191/north-american-single-assetsingle-borrower-ratings-methodology)

Legal Criteria for U.S. Structured Finance (December 7, 2022;
https://www.dbrsmorningstar.com/research/407008/legal-criteria-for-us-structured-finance)

Rating North American CMBS Interest-Only Certificates (December 19, 2022;
https://www.dbrsmorningstar.com/research/407577/rating-north-american-cmbs-interest-only-certificates)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022;
https://www.dbrsmorningstar.com/research/402646/dbrs-morningstar-north-american-commercial-real-estate-property-analysis-criteria)

North American Commercial Mortgage Servicer Rankings (September 8, 2022;
https://www.dbrsmorningstar.com/research/402499/north-american-commercial-mortgage-servicer-rankings)

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022;
https://www.dbrsmorningstar.com/research/402153/interest-rate-stresses-for-us-structured-finance-transactions)

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].