Morningstar DBRS Assigns Provisional Credit Ratings to Pure Industrial Issuer Trust Canada

DBRS Limited (Morningstar DBRS) assigned provisional credit ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2024-PURE (the Certificates) to be issued by Pure Industrial Issuer Trust Canada (the Trust):

-- Class A at (P) AAA (sf)
-- Class B at (P) AA (low) (sf)
-- Class C at (P) A (low) (sf)

All trends are Stable.

The Pure Industrial Issuer Trust Canada transaction is collateralized by the borrower's fee-simple interests in a portfolio of 15 industrial properties totaling 3.2 million sf. The portfolio spans three Canadian provinces, concentrated around the Greater Vancouver Area, Greater Toronto Area, and Greater Montréal Area. The properties themselves are a mix of warehouse/distribution, manufacturing, and flex properties. Overall, the portfolio markets have exhibited positive annual rent growth while maintaining low vacancy. Morningstar DBRS continues to take a favourable view on the warehouse and logistics sector's long-term growth and stability.

The portfolio benefits from a current in-place occupancy of 97.7%. The largest tenant, Maersk Logistics Services Canada, Inc. (Maersk), comprises 17.9% of portfolio sf and 21.5% of Morningstar DBRS base rent across three leases in one asset. The top three tenants in the portfolio, Maersk, Armacell Canada Inc. (Armacell), and Accent-Fairchild Group Inc. (Accent-Fairchild), account for 48.0% of Morningstar DBRS base rent. The overall portfolio is granular with more than 90 unique tenants across e-commerce, air freight and logistics, warehousing, manufacturing, internet and catalog retail and commercial services. Also, approximately 48.2% of the portfolio NRA is occupied by investment-grade tenants.

The sponsors for this transaction are affiliate entities of Blackstone and Ivanhoé Cambridge. Blackstone is one of the world's leading investment firms with approximately USD 1.1 trillion of assets under management as of June 30, 2024. In 2018, Blackstone Property Partners and Ivanhoé Cambridge Inc. took Pure Industrial Real Estate Trust (Pure Industrial) private in an all-cash transaction valued at USD 3.8 billion, acquiring approximately 62% and 38% interest, respectively. Headquartered in Toronto, Pure Industrial is one of Canada's industrial property owners. It offers fully integrated, full-service solutions in critical locations of the Canadian supply chain.

The portfolio exhibits above average diversity with property Herfindahl score of 8.9 by ALA, which provides a favourable diversification of cash flow when compared with a single-property securitization. The portfolio is spread across Toronto (75.3% of NRA), Montreal (21.2%) and Vancouver (3.5%). The largest property in the portfolio accounts for 17.9% of the portfolio's NRA, and no other property accounts for more than 12.7% of the portfolio NRA.

The 15-property portfolio consists of a mix of well-located industrial assets in urban infill areas, with strategic concentrations in Canada's three main markets: Toronto (nine assets totaling 75.3% of portfolio NRA), Montréal (five assets totaling 21.2% of portfolio NRA), and Vancouver (one asset accounting for 3.5% of portfolio NRA). The properties are generally located near major population centres and strong infrastructure, as well as convenient access to local and regional arterials, railways, and airports.

Morningstar DBRS' credit ratings on the Certificates address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Principal Amounts and Interest Distribution Amounts for the rated classes.

Morningstar DBRS' credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations (e.g., Spread Maintenance Premiums).

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

ESG Considerations had a relevant effect on the credit analysis.

Environmental (E) Factors

The following Environmental factor had a relevant effect on the credit analysis: The ESAs identified one REC with estimated total remediation cost of $493,500. The risks associated with the REC is mitigated by the environmental insurance policy, which has a limit of $5,000,000 per each pollution condition and $20,000,000 in aggregate, which is significantly higher than the estimated costs to remediate. Morningstar DBRS considered the environmental remediation expense a relevant environmental ESG factor.

There were no 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 Canadian dollars unless otherwise noted.

The principal methodology is North American Single-Asset/Single-Borrower Ratings Methodology (September 19, 2024), https://dbrs.morningstar.com/research/439699.

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

With regard to due diligence services, Morningstar DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of Morningstar DBRS' methodology, Morningstar DBRS used the data file outlined in the independent accountant's report in its analysis to determine the credit ratings referenced herein.

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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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.

-- Legal and Derivatives Criteria for Canadian Structured Finance (August 12, 2024), https://dbrs.morningstar.com/research/437761
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- Morningstar DBRS Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

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/410863.

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