DBRS Morningstar Confirms Ratings on AREIT 2022-CRE6 Ltd.

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of notes issued by AREIT 2022-CRE6 Ltd. as follows:

-- Class A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (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 overall performance of the transaction, which remains in line with DBRS Morningstar expectations as individual borrowers are generally progressing through their stated business plans. The pool composition remains relatively similar to issuance with multifamily representing majority of the pool. In conjunction with this press release, DBRS Morningstar has published a Surveillance Performance Update report with in-depth analysis and credit metrics for the transaction as well as business plan updates on select loans. For access to this report, please click on the link under Related Documents below or contact us at [email protected].

As of the July 2023 remittance, the trust reported an outstanding balance of $859.9 million with 29 loans remaining in the trust. The transaction is a static vehicle, with no delayed-close assets or reinvestment period (with no right to acquire unidentified assets other than the funded future funding companion participations). All future loan repayments will pay down the notes sequentially. Since the previous DBRS Morningstar rating action in November 2022, five loans successfully repaid from the trust. The remaining loans in the transaction are heavily concentrated, with 20 loans secured by multifamily properties (74.0% of the current trust balance) and only two loans (6.1% of the current trust balance) secured by office properties and two loans (5.8% of the current trust balance) secured by lodging properties.

The remaining loans are secured primarily by properties located in suburban markets. Twenty-three loans, representing 83.1% of the pool, are secured by properties in suburban markets, as defined by DBRS Morningstar, with a DBRS Morningstar Market Rank of 3, 4, or 5. Four loans, representing 10.4% of the pool, are secured by properties with a DBRS Morningstar Market Rank of 6, 7, or 8, denoting an urban market. In comparison with the pool composition at issuance, properties in suburban markets represented 88.0% of the collateral and properties in urban markets represented 8.9% of the collateral.

Leverage across the pool has remained relatively unchanged since issuance as the current weighted-average (WA) as-is appraised value loan-to-value (LTV) ratio is 72.0% with a current WA stabilized LTV ratio of 64.3%. In comparison, these figures were 71.7% and 64.5%, respectively, at issuance. DBRS Morningstar recognizes these values may be inflated as the individual property appraisals were completed in 2021 and do not reflect the current rising interest rate or widening capitalization rate environments.

Through June 2023, the lender had advanced $46.2 million in loan future funding to 21 of the individual borrowers to aid in property stabilization efforts. The largest loan advances included $3.7 million toward the Eagles Landing loan and $3.6 million toward the Alexander at the District loan. The future funding for both of these loans will be used for capital improvement plans to improve the properties’ position in the submarket and increase revenues. An additional $61.9 million of loan future funding allocated to 16 individual borrowers remains available. The largest individual allocation, $31.6 million, is allocated to the borrower of the Balboa Retail Portfolio loan for capital improvements and leasing costs.

As of the July 2023 reporting, no loans are delinquent or in special servicing but seven loans, representing 22.8% of the current trust balance, are on the servicer’s watchlist. These loans were flagged primarily for performance issues with low occupancy rates and below breakeven debt service coverage ratios (DSCRs); however, this was anticipated as borrowers progress through its business plans. The largest watchlisted loan is the Alexander at the District (Prospectus ID#2; 7.2% of the pool), which was added in April 2023 for a DSCR below 1.0 times. Six loans, representing 19.7% of the current pool balance, have upcoming loan maturity dates in 2023. Each loan has at least one remaining 12-month extension option, and DBRS Morningstar expects the majority of loans to be extended. No loans to date have been modified or have had forbearances granted.

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/416784 (July 4, 2023).

All credit ratings are subject to surveillance, which could result in credit 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, (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 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 credit rating was initiated at the request of the rated entity.

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

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit 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)/North American CMBS Insight Model v 1.1.0.0 (https://www.dbrsmorningstar.com/research/410913)

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)

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

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