Morningstar DBRS Confirms Credit Ratings on All Classes of ILPT Commercial Mortgage Trust 2022-LPFX

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2022-LPFX issued by ILPT Commercial Mortgage Trust 2022-LPFX as follows:

-- Class A at AAA (sf)
-- Class X at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class HRR at BB (high) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction, as evidenced by the net cash flow (NCF) growth, minimal rollover, and stable occupancy rates since issuance. The underlying loan is backed by a portfolio of industrial properties across several states and consists primarily of single-tenant properties with triple net leases. The transaction benefits from a heavy concentration of investment-grade tenants across several industries and minimal rollover risk through the remainder of 2025.

The transaction is secured by the borrower's fee-simple interest in 17 industrial properties, totaling 9.4 million square feet across 12 states and 13 different industrial markets, with the largest concentrations in Philadelphia; Richmond, Virginia; Nashville, Tennessee; Spartanburg, South Carolina; and Columbus, Ohio. The sponsor, Industrial Logistics Properties Trust, is a publicly traded real estate investment trust that was formed to own and lease industrial and logistics properties throughout the United States.

The $445 million whole loan is composed of senior A note debt totaling $341.1 million and junior B note debt totaling $103.9 million. The subject transaction consists of $176.1 million of senior debt and the entirety of the subordinate debt. The remaining senior debt is held pari passu across several 2022 multiborrower commercial mortgage-backed securities (CMBS) transactions, three of which are rated by Morningstar DBRS. The capital structure also includes two tranches of mezzanine debt, which had an issuance balance of $255 million and are also held outside the trust. The fixed-rate loan is interest only (IO) for the full 10-year term with a maturity date of March 2032. As of the December 2024 remittance, there have been no property releases.

According to the June 2024 rent rolls, the portfolio remains 100% occupied, remaining in line with issuance expectations, and there is only one tenant, FedEx (1.0% of the net rentable area (NRA)), that has a lease expiring in the next 12 months. The largest tenants in the portfolio include Amazon (32.3% of NRA, lease expiry in September 2027), Restoration Hardware, Inc. (12.7% of NRA, lease expiry in February 2028), and Barrett Distribution (6.8% of NRA, lease expiry in April 2027). Morningstar DBRS has a favorable view of the tenant quality, with approximately 63.7% of issuance gross rent being derived from nine investment grade-rated tenants, including Amazon and UPS. The tenant roster includes a variety of industries including air freight and logistics, internet and catalog retail, commercial services and supplies, specialty retail, and food and beverage. According to the trailing six-month financials for the period ended June 30, 2024, the subject reported an annualized NCF of $42.6 million (debt service coverage ratio (DSCR) of 2.44 times (x)), which remains in line with the YE2023 figure of $42.2 million (DSCR of 2.42x).

At issuance, Morningstar DBRS derived a value of $536.8 million based on the Morningstar DBRS NCF of $36.2 million and a capitalization rate of 6.75%, resulting in a Morningstar DBRS loan-to-value (LTV) of 130.4% based on the whole-loan debt of $700 million. Positive qualitative adjustments totaling 8.25% were applied to the LTV Sizing Benchmarks to reflect the elevated percentage of base rent from investment-grade tenants, high property quality on relatively newer vintage facilities, and strategic locations near major transportation hubs.

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) at https://dbrs.morningstar.com/research/437781.

Class X is an IO certificate that references 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 (December 13, 2024), https://dbrs.morningstar.com/research/444617.

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 (December 13, 2024), https://dbrs.morningstar.com/research/444612
-- 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 (December 3, 2024),
https://dbrs.morningstar.com/research/444064
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024),
https://dbrs.morningstar.com/research/438283

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.

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