Morningstar DBRS Upgrades Two Classes of MSJP 2015-HAUL

DBRS Limited (Morningstar DBRS) upgraded two classes of the Commercial Mortgage Pass-Through Certificates issued by MSJP 2015-HAUL Mortgage Trust (the Issuer) as follows:

-- Class D to AAA (sf) from AA (low) (sf)
-- Class E to A (sf) from BBB (high) (sf)

Morningstar DBRS also confirmed the following classes:

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AAA (sf)
-- Class X-B at AAA (sf)
-- Class C at AAA (sf)

All trends are Stable.

The credit rating upgrades at the bottom of the capital structure and the credit rating confirmations across the rest of the structure are generally reflective of the continued deleveraging of the collateral, with the amortization of the senior debt pieces held outside the subject transaction as well as the continued stable to improved performance of the underlying properties since issuance.

The subject transaction consists of a $170.0 million trust loan secured by the fee-simple interest in a portfolio of 105 self-storage properties totaling 32,519 units and about 2.7 million rentable square feet across 35 states, all owned and operated by U-Haul. The top three largest geographic concentrations by allocated loan amount are New York (14%), Texas (12%), and Pennsylvania (8%). In addition to this geographical diversity, the transaction also benefits from a strong sponsor, AMERCO, the parent company of U-Haul.

As of the March 2024 remittance report, the whole loan balance has decreased to $187.7 million from $270 million at issuance. The whole loan comprises six separate pari passu notes, two of which, A-1A and A-1B, are companion loans with issuance balances of $50 million each and were contributed to two Morningstar DBRS rated multi-borrower transactions in JPMBB 2015-C32 and MSBAM 2015-C27. The remainder of the whole loan was contributed to the subject transaction and consists of two senior A-2A and A-2B notes in the amount of $29.5 million each, as well as two subordinate B notes with a balance of $55.0 million each. The whole loan is fully amortizing on a 20-year schedule, wherein the non-trust companion notes will receive payments first and fully amortize over the first 10 years of the loan term, followed by payments to the subject trust notes, which are scheduled to begin paying down in 2025 and will fully amortize by the scheduled September 2035 maturity date.

Per the YE2023 financial reporting, the portfolio was 89.3% occupied, a slight decrease from the YE2022 occupancy rate of 94.3% and issuance occupancy rate of 92.6%. The YE2023 net cash flow (NCF) was $50.5 million with a debt service coverage ratio (DSCR) of 2.39 times (x); although these figures represent declines from the YE2022 figures of $54.3 million and 2.57x, respectively, cash flow remains well above the Morningstar DBRS NCF of $29.2 million when ratings were assigned in 2020. A significant driver of the increase in reported cash flows from the Morningstar DBRS 2020 NCF is the servicer’s inclusion of reported truck and miscellaneous incomes, which were not considered in Morningstar DBRS analysis at issuance.

At last review, Morningstar DBRS derived an updated value of $356.6 million based on an 8.5% cap rate on the Morningstar DBRS NCF of $30.3 million, which was based on real estate operations for YE2022 and reflective of the consistent occupancy rate and rental income over the previous several years. The updated value implies a loan-to-value ratio (LTV) of 52.6% on the outstanding whole loan balance of $187.7 million as of the March 2024 reporting, which is considerably lower than the issuance LTV of 72.9%. Qualitative adjustments, including a 1.5% adjustment for cash flow volatility and a -1.5% adjustment for property quality, were applied to account for the positive trending NCF performance since issuance and the age and small amount of climate controlled units.

The Morningstar DBRS credit rating assigned to Class E is lower than the result implied by the LTV sizing benchmarks by three or more notches. Despite the continued deleveraging of the companion notes since Morningstar DBRS’ last review, this variance is warranted given the subtle decrease in occupancy rate and lower credit enhancement at the bottom of the stack, as well as the interest-only (IO) structure that remains for the transaction’s underlying debt through 2025.

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 (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

Classes X-A and X-B are IO certificates that reference 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 1, 2024); https://dbrs.morningstar.com/research/428798.

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 (March 1, 2024), https://dbrs.morningstar.com/research/428799
Rating North American CMBS Interest-Only Certificates (December 13, 2023) https://dbrs.morningstar.com/research/425261

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
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. (July 17, 2023)

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