Morningstar DBRS Confirms Credit Ratings on All Classes of BX Trust 2021-ACNT

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-ACNT issued by BX Trust 2021-ACNT as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (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 overall stable performance of the transaction. While the servicer reported a debt service coverage ratio (DSCR) below breakeven of 0.71 times (x) for the trailing 12 months (T-12) ended June 30, 2024, net cash flow (NCF) remains in line with Morningstar DBRS' expectation as the transaction continues to boast high occupancy rates across the portfolio. Since the previous Morningstar DBRS credit rating action in November 2023, 10 properties have been released, reducing the total to 79 collateralized properties. The whole-loan balance has been paid down by $285.8 million, or 12.9% since closing.

The collateral consists of the borrower's fee-simple and leasehold interests in a portfolio of 79 industrial properties, totaling approximately 24.7 million square feet (sf). The properties are a mix of last-mile e-commerce, light industrial, warehouse, and institutional quality logistics assets, across 18 states, with the largest concentrations being in Georgia, Tennessee, and Texas. The loan benefits from experienced sponsorship provided by an affiliate of Blackstone Inc., a global real estate investment platform, which contributed $636.0 million in equity at closing as part of the transaction.

At closing, loan proceeds of $2.2 billion along with sponsor equity went toward acquiring the portfolio for $2.8 billion and funding upfront reserves of $12.6 million. The floating-rate loan has an upcoming maturity date of November 9, 2024, with two 12-month extension options remaining as the borrower previously exercised the first extension option in November 2023. To exercise each extension option, the borrower must purchase new interest rate cap agreements with a strike rate resulting in a minimum DSCR of 1.10x. According to the most recent servicer commentary, the borrower plans to exercise the second extension option. There will be one final 12-month extension option available to the borrower as the fully extended loan maturity date is November 2026.

The transaction features a partial pro rata/sequential-pay structure, which allows for pro rata paydowns for the first 30.0% of the original principal balance, where individual properties may be released from the trust at a price of 105.0% of the allocated loan amount (ALA), with customary debt yield tests. Proceeds are applied sequentially for the remaining 70.0% of the pool balance with the release price increasing to 110.0% of the ALA. Morningstar DBRS applied a penalty to the transaction's capital structure to account for the pro rata nature of certain prepayments and for the weak deleveraging premiums.

According to the Q2 2024 financial reporting, the portfolio was 94.1% occupied, a decrease from the occupancy rate of 98.5% at issuance. The rent roll remains granular, with no single tenant representing more than 7.0% of the net rentable area (NRA). The largest tenant, FedEx, occupies 7.0% of the NRA across multiple leases in the portfolio. At issuance, investment-grade rated tenants represented more than 20.0% of the NRA, including FedEx, Amazon, Honeywell, and Procter & Gamble. Given the stable occupancy rate, geographic diversity, and strong sponsorship, Morningstar DBRS believes performance will remain in line with issuance expectations. The portfolio's NCF has remained consistent since issuance with a T-12 ended June 30, 2024, NCF of $122.8 million, a slight decline from the YE2023 and YE2022 reported figures of $127.9 million and $133.0 million, respectively. Cash flow continues to remain above the Morningstar DBRS NCF derived at closing of $112.1 million. Despite the stable cash flows, the DSCR at YE2023 fell below breakeven to 0.77x as a result of the floating-rate nature of the loan and an increase in debt service; however, Morningstar DBRS expects the loan to remain current.

Morningstar DBRS' credit ratings are based on a value analysis, which was completed at issuance and updated in the current review of the transaction to omit cash flow from the 10 released properties. The analysis considered a capitalization rate of 6.75%, resulting in a Morningstar DBRS value of $1.47 billion and a whole-loan loan-to-value ratio (LTV) of 131.8% for the remaining 79 properties in the portfolio. The Morningstar DBRS value represents a 37.4% haircut to the implied value of approximately $2.34 billion for the remaining 79 properties. Additionally, Morningstar DBRS applied positive qualitative adjustments to its LTV sizing benchmarks, totaling 7.5%, to reflect the property's quality, cash flow volatility, and market fundamentals, given the consistent performance of the geographically diverse properties.

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 factor(s) 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 (September 19, 2024), https://dbrs.morningstar.com/research/439699

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

-- Legal Criteria for U.S. Structured Finance (October 28, 2024), https://dbrs.morningstar.com/research/441840

-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

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