Morningstar DBRS Confirms All Credit Ratings on RLGH Trust 2021-TROT

DBRS Limited (Morningstar DBRS) confirmed its credit 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 credit rating confirmations reflect the stable performance of the collateral, which remains in line with Morningstar DBRS’ 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 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. The floating-rate, interest-only (IO) loan is structured with an initial two-year term with three one-year extension options, resulting in a fully extended maturity of April 2026. According to the servicer, the borrower requested an extension ahead of the upcoming loan maturity in April 2024, and confirmation of the extension is expected to be provided in the near term. The borrower is required to purchase a replacement interest rate cap agreement in order to maintain a minimum debt service coverage ratio (DSCR) of 1.20 times (x).

According to the January 2024 remittance, there have been no property releases to date. The transaction is structured with a partial pro rata/sequential-pay structure, which allows for pro rata paydowns for the first 30.0% of the unpaid principal balance. Property releases are permitted but are subject to several conditions, including a release price of 110.0% of the allocated loan amount (ALA) for the first 10.0% of the original loan balance, 115.0% of the ALA between 10.0% and 20.0% of the original balance, and 125.0% for the remaining 80.0%. In addition, upon the release of a property, debt yield thresholds must be met for the remaining collateral in the trust. If the debt yield for the trailing 12 month (T-12) period prior to the execution of the extension was less than 8.5%, then the remaining collateral must achieve the greater of the closing debt yield of 7.9% or the T-12 debt yield figure. In the event the T-12 debt yield is equal to or greater than 8.5%, the remaining collateral must achieve the T-12 debt yield figure.

According to the T-12 September 30, 2023, financials, the net cash flow (NCF) was reported at $26.2 million (reflecting a DSCR of 1.37x), an increase from the YE2022 NCF of $23.4 million (a DSCR of 2.34x) and the Morningstar DBRS NCF of $21.7 million. Although cash flows have experienced year-over-year growth, debt service has increased given the floating-rate nature of the loan. However, the in-place cash flow remains sufficient to cover debt service and operating costs, and the interest rate cap agreement is also a mitigant. Occupancy is generally in line with issuance at 93.3% with minimal near-term rollover risk, while a moderate number of tenants is scheduled to roll prior to the fully extended maturity date in April 2026.

At issuance, Morningstar DBRS derived a value of $289.3 million, which is based on a Morningstar DBRS NCF of $21.7 million and a capitalization rate of 7.5%. The Morningstar DBRS value represents a variance of 36.0% from the issuance appraised value of $451.7 million and a loan-to-value ratio of 103.4%. Positive qualitative adjustments totaling 6.0% were applied to reflect the low cash flow volatility, good property quality, and strong market fundamentals.

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 factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at (January 23, 2024), https://dbrs.morningstar.com/research/427030.

Class A-IO is an 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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023), https://dbrs.morningstar.com/research/410912

Other methodologies referenced in this transaction are listed at the end of this press release.

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.

Morningstar DBRS 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://dbrs.morningstar.com/about/methodologies.

-- North American Single-Asset/Single-Borrower Ratings Methodology (October 19, 2023),
https://dbrs.morningstar.com/research/422174
-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023),
https://dbrs.morningstar.com/research/419592
-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023),
https://dbrs.morningstar.com/research/415687
-- Legal Criteria for U.S. Structured Finance (December 7, 2023),
https://dbrs.morningstar.com/research/425081

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

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