DBRS Morningstar Confirms Credit Ratings on All Classes of BX Trust 2021-ACNT

DBRS Limited (DBRS Morningstar) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-ACNT issued by BX Trust 2021-ACNT as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (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 credit rating confirmations reflect the overall stable performance of the transaction. Although there has been relatively limited seasoning with minimal updates to the financial reporting since the transaction closed in November 2021, the loan continues to exhibit healthy credit metrics, with the servicer-reported financials for the trailing 12-month (T-12) period ended June 30, 2023, reflecting occupancy, revenue, and net cash flow (NCF) figures that remain consistent with DBRS Morningstar’s expectations.

The collateral consists of the borrower’s fee simple and leasehold interests in a portfolio of 89 industrial properties totalling approximately 27.2 million square feet. The properties are a mix of last-mile e-commerce, light industrial, warehouse, and institutional quality logistics assets, located across 19 states and 30 key industrial markets, including Atlanta (nine properties, 10.4% of DBRS Morningstar NCF), Minneapolis (eight properties, 8.6% of DBRS Morningstar NCF), and Memphis, Tennessee (seven properties, 6.9% of DBRS Morningstar NCF). The loan benefits from experienced sponsorship provided by an affiliate of Blackstone Inc., a global real estate investment platform, which contributed $636.0 million in equity at closing as part of the subject transaction.

Whole-loan proceeds of $2.2 billion along with sponsor equity were used to acquire the portfolio for $2.8 billion and fund upfront reserves of $12.6 million. The floating-rate loan has an initial maturity date of November 9, 2023, with three 12-month extension options and is interest only throughout its five-year fully extended loan term. As a condition to exercising its extension options, the borrower is required to enter into an interest rate cap agreement with a strike rate that results in a debt service coverage ratio (DSCR) of at least 1.10 times (x). DBRS Morningstar inquired about the loan’s upcoming maturity date and, according to the servicer, the borrower has stated its intention to exercise its first extension option.

The transaction features a partial pro rata/sequential-pay structure, which allows for pro rata paydowns for the first 30.0% of the original principal balance, where individual properties may be released from the trust at a price of 105.0% of the allocated loan amount (ALA), with customary debt yield tests. Proceeds are applied sequentially for the remaining 70.0% of the pool balance with the release price increasing to 110.0% of the ALA. DBRS Morningstar applied a penalty to the transaction’s capital structure to account for the pro rata nature of certain prepayments and for the weak deleveraging premiums.

The loan continues to perform in line with DBRS Morningstar’s expectations. As of trailing T-12 ended June 30, 2023, financials, the loan reported a NCF of $126.3 million, surpassing the DBRS Morningstar NCF of $112.1 million. The increase over the DBRS Morningstar NCF is because of higher base rent and lower vacancy. Base rent increased to $133.7 million in the T-12 ended June 30, 2023, period, compared with the DBRS Morningstar base rent of $126.0 million. Additionally, in-place vacancy remains below the DBRS Morningstar vacancy rate of 5.0%. Despite the increase in cash flow, DSCR declined to 0.93x as of June 2023 from 2.22x at issuance because of the loan’s floating rate and an increase in debt service; however, the June 2023 DSCR does not incorporate proceeds received from the loan’s interest rate cap. The increase in interest rate is partially mitigated by the presence of an interest rate cap, which the borrower is required to purchase in order to exercise the loan’s first extension option.

Per the Q2 2023 financials, the portfolio occupancy was 97.7%, down slightly from the issuance occupancy of 98.5%. The portfolio occupancy remains granular, with no tenant representing more than 6.5% of net rentable area (NRA). Investment-grade rated tenants comprise more than 20.0% of the NRA, including FedEx, Amazon, Honeywell, and Procter & Gamble. The top 10 tenants make up approximately 32.5% of NRA and 35.8% of total rental revenue. Given the stable occupancy, geographic diversity, and strong sponsorship, DBRS Morningstar believes the portfolio will continue performing in line with issuance expectations.

DBRS Morningstar’s credit ratings are based on a value analysis completed at issuance, which considered a capitalization rate of 6.75%, resulting in a DBRS Morningstar value of $1.7 billion and a whole-loan loan-to-value ratio (LTV) of 133.7%. The DBRS Morningstar value represents a -43.7% haircut to the appraiser’s value of $2.9 billion. To account for the high leverage, DBRS Morningstar programmatically reduced its LTV benchmark targets for the transaction by 2.5% across the capital structure. Additionally, DBRS Morningstar applied positive qualitative adjustments to its sizing, totalling 7.5%, to reflect the property’s quality, cash flow volatility, and market fundamentals.

ENVIRONMENTAL, SOCIAL, 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 (July 4, 2023) at https://www.dbrsmorningstar.com/research/416784.

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 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 Single-Asset/Single-Borrower Ratings Methodology (October 19, 2023),
https://www.dbrsmorningstar.com/research/422174
-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://www.dbrsmorningstar.com/research/420982
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://www.dbrsmorningstar.com/research/419592
-- 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].