Morningstar DBRS Confirms Credit Ratings on All Classes of Cold Storage Trust 2020-ICE5

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2020-ICE5 issued by Cold Storage Trust 2020-ICE5 as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class A-Y at AAA (sf)
-- Class A-Z at AAA (sf)
-- Class A-IO at AAA (sf)
-- Class C at AA (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class HRR at B (sf)

All trends are Stable.

Classes A-Y, A-Z, and A-IO are CAST certificates that can be exchanged for other classes of CAST certificates and vice versa.

The credit rating confirmations are reflective of the portfolio's overall stable performance, which remains in line with Morningstar DBRS' expectations since last review. This is evidenced by the continued year-over-year growth in net cash flow (NCF), with the YE2023 NCF reported approximately 50% higher than the Morningstar DBRS' NCF derived at issuance. The $1.3 billion floating-rate loan is interest only (IO) and had an initial maturity in November 2023, which was extended to the current maturity date in November 2024. As per the servicer, the borrower plans on repaying the loan in full by September 2024.

The transaction is collateralized by the borrowers' fee-simple interest in a portfolio of 46 industrial cold storage facilities in the United States, totaling approximately 10.3 million square feet (sf). The portfolio is well diversified as it spans 19 states in multiple regions in favorable markets near major population centres. The portfolio also exemplifies diversity in terms of income and customer granularity perspectives. At issuance, the top 10 customer accounts represented 29.9% of total revenue, with the largest account representing just 5.5%. Property releases are permitted at release premiums ranging from 105.0% and 115.0% of the allocated loan amount, depending on the percentage of the original principal balance and certain debt yield tests, but none have been processed to date. A minor paydown occurred in March 2021 as a result of reserve disbursements, representing a collateral reduction of 1.7%. The loan was added to the servicer's watchlist in January 2024 due to deferred maintenance at a number of the properties in the portfolio.

The borrowers amassed the portfolio in phases across seven acquisitions dating from October 2019 to April 2020 and used whole-loan proceeds to recapitalize the borrowers' interest in the portfolio, which was unencumbered by secured debt. The borrowers lease the properties (except for the Chicago Cold-Bartlett property) to an operating company, Lineage Logistics, LLC, pursuant to six master leases. The rent from the master leases is the sole source of cash flow to pay debt service for the trust loan. The six master leases (collectively, the Master Leases) are between the borrowers and affiliates of the borrowers. The Master Leases allow the related master tenant (or subtenants of such master tenant), or operators engaged by the master tenant or subtenants to operate such properties.

The transaction benefits from property quality and functionality. The portfolio's properties generally exhibit favorable ceiling heights, loading capacity, and temperature configurations. The portfolio has a weighted-average clear height of more than 30 feet, and it benefits from a very high proportion of freezer space (80.4%, based on the appraisal). Freezer space generally commands higher rents and valuations and is more flexible through down-conversion to refrigeration temperatures when necessary to accommodate customer demand. According to a November 2023 article published by Colliers, cold storage real estate is projected to grow by 13.2% annually through 2030 due to evolving consumer preferences and food manufacturing logistics demand for increasing refrigerated storage space.

According to the trailing 12 month (T-12) ended March 31, 2024, financials, the portfolio is fully occupied with an NCF of $183.0 million, representing a 12.4% increase from the YE2022 NCF of $162.9 million. Despite the improvement in NCF, the debt service coverage ratio (DSCR) has been declining with the T-12 March 31, 2024, figure at 1.94 times (x), compared with YE2022 DSCR of 3.68x, and Morningstar DBRS DSCR of 4.68x. This can be attributed to an increase in debt service payments due to the floating-rate nature of the loan. According to the January 2023 appraisal, the portfolio was valued at $1.75 billion, representing a 5.5% decline from the issuance value of $1.85 billion. At issuance, Morningstar DBRS concluded a value of $1.4 billion based on the Morningstar DBRS NCF of $122.5 million and a capitalization rate of 8.75%, representing a loan-to-value ratio of 94.3%. The Morningstar DBRS value represents a haircut of 20.1% from the January 2023 value and 24.5% from the issuance value. In addition, Morningstar DBRS had applied positive qualitative adjustments totaling 7.5% to the sizing to reflect the property's quality, cash flow volatility, and market fundamentals.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS  
There were no Environmental, Social, or 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/437781.

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 info-DBRS@morningstar.com.

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 (July 11, 2024), https://dbrs.morningstar.com/research/436004
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024), https://dbrs.morningstar.com/research/435293
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

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 info-DBRS@morningstar.com.