Morningstar DBRS Assigns Provisional Credit Ratings to UK Logistics 2025-1 DAC

DBRS Ratings Limited (Morningstar DBRS) assigned provisional credit ratings to the following bonds issued by UK Logistics 2025-1 DAC (the Issuer):

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

All trends are Stable.

CREDIT RATING RATIONALE
The issuance is a securitisation of three senior commercial real estate (CRE) loans originated by Citibank N.A., London Branch (Citibank). Citibank will advance the Nevis Loan of GBP 360.0 million, the Fawr Loan of GBP 300.0 million, and the Pike Loan of GBP 180.0 million to borrowers ultimately owned by funds managed by Blackstone Real Estate Partners (Blackstone or the Sponsor) in connection with refinancing the acquisition of three logistics portfolios comprising 8.8 million square feet (sf) of standing logistics assets and 1.3 million sf of industrial outdoor storage (IOS) in the UK, largely concentrated in the South East and London.

The Nevis Loan

The GBP 360.0 million loan relates to a term loan to be advanced by the Issuer to six borrowers (the Nevis Borrowers), who are ultimately owned by Blackstone. The purpose of the loan is to refinance existing indebtedness of the Nevis Borrowers (and other members of the group) for general corporate purposes and financing or refinancing financing costs. The Borrower group comprises three Jersey limited liability companies and three Luxembourg entities.

The collateral securing the loan comprises 59 logistics assets in the UK with 45% of the portfolio value concentrated in London and the Southeast. Valuations prepared by Jones Lang LaSalle (JLL) in January 2025 concluded an aggregate market value (MV) of the properties at GBP 515.035 million and a portfolio valuation of GBP 580.78 million, based on the final valuation report. Assuming a corporate portfolio sale representing 0% stamp duty land tax (SDLT) and an agreed portfolio premium cap of 5%, the final portfolio value is GBP 567.3 million. The loan-to-value ratio (LTV) based on the values equal 69.9% and 63.5% (including the 5% portfolio premium), respectively. The portfolio income comprises rental payments from typical standing logistics assets. The borrowers indicated a budget of GBP 34 million of refurb capital expenditures (capex), which includes capex for identified environmental, social, and governance (ESG) measures to achieve at least an Energy Performance Certificate (EPC) B rating for all assets, including capex such as window upgrades, LED lighting upgrades, installation of solar photovoltaics (PVs), modernisation of building insulation, and roofing. Most of the units within the portfolio, approximately 70% of total portfolio area, are rated within the C-F rating category. The portfolio has a weighted-average (WA) lease term to break (WALTb) and a WA lease term to expiry (WALTe) of 3.3 years and 5.2 years, respectively. In aggregate, the portfolio tenant base is granular, with the top 10 tenants accounting for 22% of the rental income.

As at the Cut-Off Date, 30 September 2024, the portfolio had an occupancy rate of 88%, and generated GBP 27.0 million of gross rental income GRI and a Net Operating Income (NOI) of GBP 25.2 million which reflects a day-one debt yield (DY) of 7.0%. Morningstar DBRS' long-term sustainable net cash flow (NCF) assumption for the portfolio is GBP 24.3 million, representing a haircut of 3.4% to in-place NOI.The corresponding Morningstar DBRS value of GBP 373.8 million represents a haircut of 27.4% to the JLL property valuation.

There are no loan financial covenants applicable prior to a permitted change of control (PCOC), but cash trap covenants are applicable both prior to and post-PCOC. More precisely, the cash trap levels are set as follows: the LTV is greater than 77.5%, and the DY is less than 6%. After a PCOC, the financial default covenants on the LTV and the DY will be applicable; they are set, respectively, at the LTV being greater than the PCOC LTV +15% and at 85% of the DY as at the PCOC date.

The senior loan is interest-only prior to a PCOC and carries a floating rate, which is referenced to the Sterling Overnight Index Average (Sonia) (floored at 0%) plus a margin that is the WA of the aggregate interest amounts applicable to the Nevis Loan note notional amount outstanding for each relevant class of notes. Morningstar DBRS understands that the borrowers will purchase an interest cap agreement to hedge against increases in the interest payable under the loan. This must be in place by the first interest payment date (IPD). The cap agreement will cover at least 95% of the outstanding loan balance with a strike rate of the higher of 3.5% and the rate that ensures that, as at the date on which the relevant hedging transaction is contracted, the hedged interest coverage ratio (ICR) is not less than 1.25 times (x) until the first hedging renewal date, being the first IPD falling after the second anniversary of the utilisation date. At each subsequent hedging renewal date until loan maturity, the hedge must be the higher of (1) 3.5%, and (2) the rate that ensures that, as at the date on which the relevant hedging transaction is contracted, the hedged ICR is not less than 1.25x, provided that in respect of any hedging transaction in the form of a swap, the maximum hedging rate is the lower of (A) the higher of (1) and (2) and, (B) the market prevailing swap (fixed leg) rate on the date on which the relevant hedging transaction is contracted. The maturity date of the loan is in May 2030.

The Fawr Loan

The GBP 300 million loan relates to a term loan to be advanced by the Issuer to two borrowers (the Fawr Borrowers), who are ultimately owned by Blackstone. The purpose of the loan is to refinance existing indebtedness of the Fawr Borrowers (and other members of the group), refinancing the acquisition of the Fawr property portfolio, for general corporate purposes and financing or refinancing financing costs. The Fawr Borrowers are private limited liability companies incorporated under the laws of Jersey.

The collateral securing the loan comprises 26 UK logistics and IOS assets within densely populated urban areas that have good highway connectivity. Of the portfolio value, 70% is in London and the Southeast, the Northwest accounts for 17%, and the remaining 13% of value is in the Midlands. Valuations prepared for the properties by JLL in January 2025 concluded an aggregate MV of the collateral at GBP 501.45 million and a portfolio valuation of GBP 565.72 million, based on the final valuation report. Assuming a corporate portfolio sale representing 0% SDLT, and an agreed portfolio premium cap of 5%, the final portfolio value is GBP 552.6 million. The LTV based on these values equals 59.8% and 54.3% (including the 5% portfolio premium), respectively.The portfolio income comprises rental payments from typical standing logistics assets and from leased IOS, which forms 19.2% of in-place income.

The borrowers indicated a budget of GBP 16 million of refurb capex, which includes capex for identified ESG measures, such as LED lighting upgrades, installation of solar PVs, modernisation of building insulation, and roofing, to achieve at least an EPC B rating for all assets. Most of the units within the Fawr portfolio, approximately 72% of total portfolio area, are rated within the C-E rating category. The portfolio has a WALTb and a WALTe of 3.7 years and 5.5 years, respectively. In aggregate, the portfolio tenant base is granular with the top 10 tenants accounting for 32% of the rental income and no single tenant accounting for more than 7.0% of the total Fawr portfolio rent.

As at the Cut-Off Date, 30 September 2024, the portfolio occupancy rate was 82.5%, and the portfolio generated GBP 22.4 million of GRI and an in-place NOI of GBP 21.0 million, reflecting a day-one DY of 7.0 %. Morningstar DBRS' long-term sustainable NCF assumption for the portfolio is GBP 21.6 million which is broadly in line with the in-place NOI. The corresponding Morningstar DBRS value is GBP 324.2 million representing a haircut of 35.3% to the JLL property valuation.

There are no loan financial covenants applicable prior to a PCOC, but cash trap covenants are applicable both prior to and post-PCOC. More precisely, the cash trap levels are set as follows: the LTV is greater than 69.3%, and the DY is less than 6%. After a PCOC, the financial default covenants on the LTV and the DY will be applicable; they are set, respectively, at the LTV being greater than the PCOC LTV +15% and at 85% of the DY as at the PCOC date.

The senior loan is interest-only prior to a PCOC and carries a floating rate, which is referenced to the Sonia (floored at 0%) plus a margin that is the WA of the aggregate interest amounts applicable to the Fawr Loan note notional amount outstanding for each relevant class of notes. Morningstar DBRS understands that the borrowers will purchase an interest cap agreement to hedge against increases in the interest payable under the loan by the first IPD. The cap agreement will cover at least 95% of the outstanding loan balance with a strike rate of the higher of 3.5% and the rate that ensures that, as at the date on which the relevant hedging transaction is contracted, the hedged ICR is not less than 1.25x until the first hedging renewal date, being the first IPD falling after the second anniversary of the utilisation date. At each subsequent hedging renewal date until loan maturity, the hedge must be the higher of (1) 3.5%, and (2) the rate that ensures that, as at the date on which the relevant hedging transaction is contracted, the hedged ICR is not less than 1.25x, provided that in respect of any hedging transaction in the form of a swap, the maximum hedging rate is the lower of (A) the higher of (1) and (2) and, (B) the market prevailing swap (fixed leg) rate on the date on which the relevant hedging transaction is contracted. The maturity date of the loan is in May 2030.

THE PIKE LOAN

The GBP 180.0 million loan relates to a term loan to be advanced by the Issuer to a single borrower (the Pike Borrower), who is ultimately owned by Blackstone. The purpose of the loan is to refinance existing indebtedness of the Pike Borrower (and other members of the group) for general corporate purposes and financing or refinancing transaction costs. The Pike Borrower is a private limited liability company incorporated under the laws of United Kingdom. Senior

The collateral securing the loan comprises 23 logistics assets in the UK with 33% of the portfolio value concentrated in the Southeast. Valuations prepared for the properties by JLL in January 2025 concluded an aggregate MV of the collateral at GBP 265.005 million. There are also two land plots included in the portfolio and the valuation including these sites is GBP 265.355 million. Based on the final valuation report, the JLL portfolio valuation based on the special assumption of a corporate portfolio sale representing 0% SDLT and including a portfolio premium of 5% is GBP 292.28 million. The LTV based on these values equals 67.8% (including land plots) and 61.6%, respectively. The portfolio income comprises rental payments from typical standing logistics assets.

The borrowers indicated a budget of GBP 24 million of refurb capex, which includes capex for identified ESG measures to achieve at least an EPC B rating for all assets including capex, such as window upgrades, LED lighting upgrades, installation of solar PVs, modernisation of building insulation, and roofing. Most of the units within the portfolio (approximately 86% of the total portfolio area) fall within the C-F rating category.

The portfolio has a WALTb and a WALTe of 2.7 years and 4.3 years, respectively. In aggregate, the portfolio tenant base is granular with the top 10 tenants accounting for 21% of the rental income.

As at the Cut-Off Date 31 October 2024. The portfolio occupancy rate was 88.5%, and generated GBP 14.6 million of GRI and an in-place NOI of GBP 14.033 million which reflects a day-one DY of 7.8%. Morningstar DBRS' long-term sustainable NCF assumption for the portfolio is GBP 12.9 million, representing a haircut of 8.3% to in-place NOI. The corresponding Morningstar DBRS value of GBP 195.04 million represents a haircut of 26.4% to the JLL property valuation.

There are no loan financial covenants applicable prior to a PCOC, but cash trap covenants are applicable both prior to and post-PCOC. More precisely, the cash trap levels are set as follows: the LTV is greater than 76.6% and the DY is less than 6.9%. After a PCOC, the financial default covenants on the LTV and the DY will be applicable; they are set, respectively, at the LTV being greater than the PCOC LTV +15% and at 85% of the DY as at the PCOC date.

The senior loan is interest-only prior to a PCOC and carries a floating rate, which is referenced to the Sonia (floored at 0%) plus a margin that is the WA of the aggregate interest amounts applicable to the Pike Loan note notional amount outstanding for each relevant class of notes. Morningstar DBRS understands that the borrowers will purchase an interest cap agreement to hedge against increases in the interest payable under the loan. This must be in place by the first IPD. The cap agreement will cover at least 95% of the outstanding loan balance with a strike rate of the higher of 4.0% and the rate that ensures that, as at the date on which the relevant hedging transaction is contracted, the hedged ICR is not less than 1.25x until the first hedging renewal date, being the first IPD falling after the second anniversary of the utilisation date. At each subsequent hedging renewal date until loan maturity, the hedge must be the higher of (1) 4.0%, and (2) the rate that ensures that, as at the date on which the relevant hedging transaction is contracted, the hedged ICR is not less than 1.25x, provided that in respect of any hedging transaction in the form of a swap, the maximum hedging rate is the lower of (A) the higher of (1) and (2) and, (B) the market prevailing swap (fixed leg) rate on the date on which the relevant hedging transaction is contracted. The maturity date of the loan is in May 2030

To satisfy the applicable risk retention requirements, Citibank, in its capacity as retaining sponsor will acquire a vertical interest in the transaction of GBP 42 million, by advancing the Issuer Loan to the Issuer, representing 5% of the total aggregated securitised loan balances of the Nevis loan, the Fawr loan, and the Pike loan as at the closing date.

The transaction is expected to repay in full by May 2030. If the loans are not repaid by then, the transaction will have a five years' tail to allow the special servicer to work out the loan(s) by May 2035, or where the final note maturity date is automatically extended pursuant to an extension of the final loan maturity date, the date falling five years after the final loan maturity date, which in each case is the final note maturity date.

On the closing date, it is indicated by the arranger that Citibank N.A. London Branch will provide a liquidity facility of GBP 40.0 million or 5% of the total outstanding balance of the aggregated notes. Morningstar DBRS understands that the liquidity facility will cover the interest payments to the Class A to Class C notes. No liquidity withdrawal can be made to cover shortfalls in funds available to the Issuer to pay any amounts in respect of the interest due on the Class D, Class E, and Class F notes. The Class E, and Class F notes are subjected to an available funds cap where the shortfall is attributable to an increase in the WA margin of the notes.

Based on a blended cap strike rate of 3.6% and a Sonia cap of 5.0% for the three loans, Morningstar DBRS estimated that the liquidity facility will cover approximately 15 months of interest payments and 12 months of interest payments, respectively, assuming the Issuer does not receive any revenue.

Morningstar DBRS' credit rating on the Class A, Class B, Class C, Class D, Class E, and Class F notes to be issued by the Issuer address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the initial principal amounts and the interest amounts.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Sonia Excess Amounts, Exit Payment Amounts, Pro Rata Default Interest Amounts, and Pro Rata Extension Step-Up Amounts payable to the noteholders.

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.

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 (13 August, 2024) https://dbrs.morningstar.com/research/437781 .

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodology applicable to the credit ratings is:

European CMBS Rating and Surveillance Methodology (4 March 2025) https://dbrs.morningstar.com/research/449278.

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

Morningstar DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to "Appendix C: The Impact of Sovereign Credit Ratings on Other Morningstar DBRS Credit Ratings" of the "Global Methodology for Rating Sovereign Governments" at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for these credit ratings include CitiBank N.A. London Branch and the UK Logistics 2025-1 DAC Offering Circular.

Morningstar DBRS did not rely upon third-party due diligence in order to conduct its analysis.

Morningstar DBRS was not supplied with third-party assessments. However, this did not affect the credit rating analysis.

Morningstar DBRS considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

Morningstar DBRS does not audit or independently verify the data or information it receives in connection with the credit rating process.

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 the final credit ratings on the above-mentioned securities are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalise the credit ratings.

These credit ratings concern expected to be issued new financial instrument. These are the first Morningstar DBRS credit ratings on this financial instrument.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on http://dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):

Class A Risk Sensitivity:
--10% decline in Morningstar DBRS NCF, expected credit rating on the Class A notes of (P) AAA (sf)
--20% decline in Morningstar DBRS NCF, expected credit rating on the Class A notes of (P) AAA (sf)

Class B Risk Sensitivity:
--10% decline in Morningstar DBRS NCF, expected credit rating on the Class B notes of (P) A (high) (sf)
--20% decline in Morningstar DBRS NCF, expected credit rating on the Class B notes of (P) A (low) (sf)

Class C Risk Sensitivity:
--10% decline in Morningstar DBRS NCF, expected credit rating on the Class C notes of (P) BBB (high) (sf)
--20% decline in Morningstar DBRS NCF, expected credit rating on the Class C notes of (P) BBB (sf)

Class D Risk Sensitivity:
--10% decline in Morningstar DBRS NCF, expected credit rating on the Class D notes of (P) BB (high) (sf)
--20% decline in Morningstar DBRS NCF, expected credit rating on the Class D notes of (P) BB (sf)

Class E Risk Sensitivity:
--10% decline in Morningstar DBRS NCF, expected credit rating on the Class E notes of (P) B (high) (sf)
--20% decline in Morningstar DBRS NCF, expected credit rating on the Class E notes of (NR)

Class F Risk Sensitivity:
--10% decline in Morningstar DBRS NCF, expected credit rating on the Class F notes of (NR)
--20% decline in Morningstar DBRS NCF, expected credit rating on the Class F notes of (NR)

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These credit ratings are endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Dinesh Thapar, Vice President,
Rating Committee Chair: David Lautier, Senior Vice President,
Initial Rating Date: 12 March 2025

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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- European CMBS Rating and Surveillance Methodology (4 March, 2025)
https://dbrs.morningstar.com/research/449278
-- Interest Rate Stresses for European Structured Finance Transactions (24 September, 2024)
https://dbrs.morningstar.com/research/439913
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November, 2024)
https://dbrs.morningstar.com/research/443196
-- Morningstar DBRS Criteria: Approach to Environmental, Social and Governance Factors in Credit Ratings (13 August 2024)
https://dbrs.morningstar.com/research/437781

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/439604.

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