DBRS Morningstar Upgrades Six Ratings and Confirms Three Ratings of BX Trust 2019-IMC

DBRS, Inc. (DBRS Morningstar) upgraded the ratings on six classes of the Commercial Mortgage Pass-Through Certificates, Series 2019-IMC issued by BX Trust 2019-IMC as follows:

-- Class C to AAA (sf) from AA (high) (sf)
-- Class D to AAA (sf) from AA (low) (sf)
-- Class E to AA (low) (sf) from A (low) (sf)
-- Class F to A (low) (sf) from BBB (low) (sf)
-- Class G to BB (high) (sf) from BB (low) (sf)
-- Class HRR BB (sf) from B (high) (sf)

DBRS Morningstar also confirmed the following classes:
-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class X-NCP at AAA (sf)

All trends are Stable.

The rating actions reflect the overall improved performance of the collateral, including significant growth in net cash flow (NCF) since issuance. DBRS Morningstar re-evaluated its NCF analysis in light of the sustained performance improvement, as further described below. To further test the durability of the ratings, DBRS Morningstar also performed a stressed scenario, which provides additional support for the rating upgrades.

The collateral for the first-mortgage loan is a portfolio of 16 properties comprising 9.6 million square feet (sf) of premier showroom space situated across two campuses (or markets) in High Point, North Carolina, and Las Vegas. The collateral represents 88.0% and 92.7% of the Class A trade show and showroom space in the High Point and Las Vegas markets, respectively, with the allocated loan balance split between the 13 High Point properties (50.1%) and the three Las Vegas properties (49.9%).

Each market holds biannual home and furnishings trade shows, staggered so that an event occurs once every quarter throughout the year with the spring and fall events held in High Point and the summer and winter events held in Las Vegas. The High Point market is convenient for its proximity to manufacturers, while the Las Vegas market serves as a regional hub for buyers in the western U.S. The quarterly events are positioned as business-to-business trade shows focused on the home furnishings and decor as well as gift industries. The events provide an efficient channel for buyers to access and view products in the highly fragmented industries with thousands of manufacturers and more than 60,000 commercial buyers attending each event.

As of Q1 2023, the weighted average (WA) occupancy rate for the portfolio increased to 75.7% compared with 68.0% at year-end (YE) 2022 and in line with YE2021 occupancy of 75.5%. The tenant roster at the property is granular and due to the quarterly rotation of the trade shows between the two markets, there is a unique need for the same tenants to reshuffle between these two markets. As a result, lease terms are relatively short term but the retention rate for the portfolio has been high as the in-place tenants tend to renew their leases. Attendance at the Las Vegas winter 2023 (January 2023) event surged 25.5% compared with the 2022 winter event and the summer 2023 event pre-registration to date is 70.0% of the July 2022 event’s attendance. Similarly, for High Point Market’s event in April 2023, attendance was up by 5.0% when compared with attendance for the April 2022 event and pre-registration for the October 2023 event will not begin until the end of July. The surge in the attendance indicates continued demand for the in-person trade shows which continues to be the most important demand driver for the collateral.

According to the financials for the trailing 12 months (T-12) ended March 31, 2023, the portfolio reported a NCF and debt service coverage ratio (DSCR) of $186.9 million and 2.41 times (x), respectively, an improvement of 9.7% from the YE2022 figure of $170.3 million, and a significant uptick of 20.6% from the YE2021 figure of $155.0 million and 21.9% from the YE2020 figure of $153.3 million, when the properties suffered from reduced trade show income as a result of the effects of the pandemic. When assigning ratings in 2020, DBRS Morningstar derived a NCF figure of $129.6 million. The DSCR is down from 2.71x at YE2022 and 3.71x at YE2021 given the floating-rate nature of the loan coupon.

In the analysis for this review, DBRS Morningstar derived a NCF of $183.2 million, which is based on a standard stress to the T-12 March 2023 figure, resulting in a DBRS Morningstar value of $1.745 billion. This value implies a loan-to-value (LTV) ratio of 65.9% compared with the LTV of 69.8% based on the issuance appraised value and the LTV of 93.2% based on the DBRS Morningstar value derived in 2020. To evaluate the potential for upgrades given the significant improvement in collateral performance, DBRS Morningstar also considered a stressed scenario by applying a conservative 20% haircut to the T-12 March 2023 NCF, resulting in a stressed DBRS Morningstar value of $1.424 billion and LTV of 80.7%. In both scenarios, DBRS Morningstar utilized a cap rate of 10.5%. Based on the LTV sizing benchmarks from the stressed analysis, the upgrades were warranted.

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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Class X-NCP 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), which can be found on 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.
22 West Washington Street
Chicago, IL 60602 USA
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 CMBS Multi-Borrower Rating Methodology (March 16, 2023) (https://www.dbrsmorningstar.com/research/410913)

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)

North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

Legal Criteria for U.S. Structured Finance (December 7, 2022;
https://www.dbrsmorningstar.com/research/407008)

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