Morningstar DBRS Comments on HAUS (European Loan Conduit No. 39) DAC Restructuring

DBRS Ratings GmbH (Morningstar DBRS) reviewed the recent amendments to the loan and the notes issued by HAUS (European Loan Conduit No. 39) DAC.

With a written resolution duly approved at the adjourned meeting held on 22 April 2025, the noteholders agreed (among other conditions) to extend the final maturity of the loan to July 2029 from July 2026. The amendment documents were executed on 23 April 2025.

The transaction is a securitisation of a EUR 318.75 million loan arranged by Morgan Stanley & Co. International plc in August 2021. The loan facility is secured by a portfolio of 6,284 multifamily residential units across 92 sites (59 properties) in Germany. The loan refinanced the acquisition of the portfolio by eight German borrowers, ultimately controlled by the sponsor Brookfield Partners LLP (Brookfield). As of the April 2025 interest payment date (IPD), the outstanding loan amount remained unchanged at EUR 318.75 million. The loan carries a floating rate of Euribor plus a 1.84% per annum (p.a.) margin until the initial extended maturity date. Following the extended final loan maturity in July 2029, the margin would step up to 3.25% p.a. The loan is fully hedged until July 2025, with a cap strike rate of 2.00% p.a.

The other amendments include:
(1) An increase of the notes' interest margin, excluding Class X, after the extended final loan maturity in July 2029 as follows:

-- Class A1 to 1.1375%, from 0.6500%;
-- Class A2 to 1.4875%, from 0.8500%;
-- Class B to 1.9250%, from 1.1000%;
-- Class C to 2.450%, from 1.4000%;
-- Class D to 3.50%, from 2.0000%;

(2) The accrual of notes' additional interest during the extension period to July 2029 from July 2026 at a note exit rate of 0.4875% for Class A1, 0.6375% for Class A2, 0.8250% for Class B, 1.0500% for Class C, and 1.5000% for Class D, with payment due only upon final repayment of the loan;

(3) Brookfield's commitment to pay for ongoing issuer costs not covered by the Class X interest diversion ledger, up to EUR 350,000 p.a. with the excess being paid either from the available funds or the senior expenses reserve ledger. This might still potentially lead to junior noteholders' missed interest payments;

(4) A limitation to Class X rights to the final principal payment with no further interests due and payable. Funds sitting on the Class X interest diversion ledger were applied towards ongoing issuer costs at the April 2025 note payment date, with EUR 4.4 million remaining. No new funds will be deposited into this ledger going forwards;

(5) A sequential payment trigger event deemed to have occurred: principal receipts will be applied sequentially, except for the additional note exit amounts that become payable only upon final repayment of the loan;

(6) The servicer's ability to conduct a loan auction deferred by three years to January 2030 from January 2027;

(7) A drop of the hedging coverage to a minimum 75%, from the current 100%, on the notional loan amount after July 2025; and

(8) A new equity commitment letter to cover debt service, hedging, operating costs, and approved capital expenditures, with an initial committed amount of EUR 34.27 million, ending on 31 December 2025.

Finally, documents were updated to ensure minimum retention compliance, provide ongoing compliance reporting and loan-level data via European Securities and Markets Authority templates and designate a reporting entity for securitisation repositories in pursuit of EU Securitisation Regulation and prevent the loss of grandfathering.

Morningstar DBRS' review of the loan performance reveals that the collateral's cash flow is still volatile with low level of occupancy at 50.7% (up from 49.1% as of July 2024), although rent per square metre (sqm) has slightly improved to EUR 6.1 from EUR 5.9 since Morningstar DBRS' last credit ratings action occurred in September 2024. The execution of the sponsor's business plan is slowly progressing with a completion of 63% of the original modernisation target, up from 50% from Morningstar DBRS' last review. German multifamily secondary yields have widened in 2024, although they seemed to stabilise in the first part of 2025. The most recent valuation report--dated 30 November 2024 and prepared by Jones Lang LaSalle (JLL) limited -- also reflects a portfolio market value of EUR 475.76 million, slightly lower (4.8%) from the previous valuation of EUR 500.00 million also produced by JLL and dated 31 December 2023.

As of the April 2025 IPD, the portfolio's loan-to-value ratio is 67.0%, down from 67.9% at issuance; while the portfolio's debt yield stood at 3.0% from 4.9% at issuance. The property and tenancy profiles are granular, with the top 10 assets accounting for 40.0% of the portfolio's net cold rent as of April 2025. According to the most recent servicer report, the annual contractual rent and projected net rental income were EUR 16.8 million and EUR 9.6 million as of April 2025, up from EUR 15.8 million and EUR 6.4 million in July 2024, respectively.

Morningstar DBRS maintained its net cash flow assumption at EUR 19.00 million and its capitalisation rate assumption at 5.75%, which translates to a Morningstar DBRS Value of EUR 331.00 million and represents a 30.40% haircut to the most updated market value of EUR 475.76 million.

The transaction benefits from a liquidity reserve facility of EUR 13.2 million available to the Class A1, Class A2, and Class B Notes. Based on the Euribor cap strike rate of 2.0%, Morningstar DBRS estimated that the liquidity reserve would cover 16 months of interest payment shortfalls. However, based on an Euribor cap of 4.0%, Morningstar DBRS estimates that the liquidity reserve would cover only nine months of interest payment shortfalls.

The loan may be extended on an annual basis after the extended final maturity in July 2029 until July 2049, provided certain conditions precedent are met. The final maturity date of the notes was also extended to July 2054 from July 2051. This results in a five-year tail period, unchanged since origination.

In Morningstar DBRS' opinion, the executed amendments do not affect the credit ratings on the transaction, and no further credit rating action was taken as a result of the restructuring. As such, the credit ratings on all other classes of notes in the transaction remain unchanged since the last credit rating action on 26 September 2024. The trends on all classes of notes remain Negative.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
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 at https://dbrs.morningstar.com/research/454196 (16 May 2025).

Notes:
All figures are in euros unless otherwise noted.

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

DBRS Ratings GmbH
Neue Mainzer Straße 75
D-60311 Frankfurt am Main
Tel. +49 (69) 8088 3500
Geschäftsführer: Detlef Scholz, Marta Zurita Bermejo
Amtsgericht Frankfurt am Main, HRB 110259