Morningstar DBRS Confirms Credit Ratings on All Classes of SREIT Trust 2021-IND

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates Series 2021-IND issued by SREIT Trust 2021-IND:

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

All trends are Stable.

The credit rating confirmations reflect the transaction's overall stable performance, which has remained in line with Morningstar DBRS' expectations since issuance. The transaction benefits from tenant granularity within the underlying collateral portfolio, institutional sponsorship, favorable asset quality, and strong leasing trends, all of which support the expectation that there will continue to be cash flow stability over the remaining loan term.

The underlying loan is secured by the fee-simple interest in a portfolio of 15 industrial properties totaling nearly 2.5 million square feet, concentrated throughout infill areas of the Phoenix (11 properties representing 85.9% of the portfolio's net rentable area (NRA)) and Las Vegas (four properties representing 14.1% of the portfolio's NRA) metropolitan statistical areas. Both markets are generally high-growth markets with favorable industrial demand trends. Loan proceeds of $341.2 million along with $165.4 million of borrower equity financed the borrower's acquisition of the underlying portfolio for $485.3 million and covered closing costs associated with the transaction. The portfolio benefits from institutional-quality sponsorship from Starwood Capital Group Holdings, L.P., which indirectly controls the sponsor, Starwood Real Estate Income Trust, Inc.

The floating-rate interest-only loan had an initial term of 24 months, with three one-year extension options and a fully extended maturity date in October 2026. The borrower exercised its first extension option, extending the loan maturity to October 2024, and, according to the servicer, is expected to exercise its second extension. Morningstar DBRS confirmed with the servicer that the borrower has an interest rate cap agreement in place through October 2026, with a maximum strike price that would yield a debt service coverage ratio (DSCR) of no less than 1.10 times. The loan also has a partial pro rata/sequential-pay structure that allows for pro rata paydowns associated with property releases for the first 20% of the unpaid principal balance. The borrower can release individual properties with a prepayment premium of just 105% of the allocated loan amount until the original principal balance has been reduced to 85% of the original loan balance, at which point release premiums increase to 110% of the allocated loan amount for individual property releases. Morningstar DBRS applied a penalty to the transaction's capital structure to account for the partial pro rata structure and weak release premiums. As of the August 2024 remittance, no properties had been released.

According to the December 2023 rent rolls, the portfolio was 99.8% occupied, up from 98.0% at issuance. Leases representing 20.0% of the NRA are scheduled to roll over the next 12 months. Although annual rollover concentrations have hovered around this figure each year since issuance, the portfolio's stable occupancy rate suggests strong tenant retention. The tenant roster across the 15-property portfolio is granular, with only two tenants occupying more than 5.0% of the total NRA. As of YE2023, the portfolio reported a net cash flow (NCF) of $21.5 million, up from $17.4 million at YE2022. In comparison, the Morningstar DBRS NCF derived at issuance was $16.4 million. The increase appears to be partially attributable to rent growth. While cash flow has improved, the reported DSCR has declined because of the loan's floating-rate coupon; however, as previously mentioned, the servicer has confirmed that a rate cap remains in place and is currently set to expire in 2026.

At issuance, Morningstar DBRS derived a value of $233.6 million, based on a capitalization rate of 7.0% and a Morningstar DBRS NCF of $16.4 million, resulting in a loan-to-value ratio (LTV) of 146.0%, compared with the LTV of 72.6% based on the appraised value at issuance. Reflective of the tenant granularity and strong leasing trends, as well as favorable asset quality, property type, and market fundamentals, Morningstar DBRS made positive qualitative adjustments to the final LTV sizing benchmarks, totaling 6.0%.

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/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 Factors in Credit Ratings (August 13, 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 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, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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, 2024), https://dbrs.morningstar.com/research/438283
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.