Morningstar DBRS Confirms Credit Ratings on Last Mile Logistics Pan Euro Finance DAC, Changes Trend to Negative From Stable

DBRS Ratings GmbH (Morningstar DBRS) confirmed its credit ratings on the commercial mortgage-backed floating rate notes due August 2033 issued by Last Mile Logistics Pan Euro Finance DAC (the Issuer) as follows:

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

The credit rating on the Class A notes address the timely payment of interest and ultimate payment of principal on or before the legal final maturity date in August 2033. The credit ratings on the Class B, Class C, Class D, Class E, and Class F notes address the ultimate payment of interest and ultimate payment of principal on or before the legal final maturity date.

Morningstar DBRS also changed the trends on all classes of notes to Negative from Stable.

CREDIT RATING RATIONALE
The change in trend is driven by the deterioration in performance over the past twelve months and the absence of visibility regarding the renewal of a substantial number of leases. The credit ratings confirmations result from Morningstar DBRS' assumptions remaining conservative and providing headroom should there be further deterioration.

The transaction is a securitisation of a EUR 510.2 million senior commercial real estate loan backed by a pan-European portfolio of light-industrial and logistics assets managed collectively by Mileway and owned by Blackstone Real Estate Partners. Additionally, there was a EUR 102.0 million mezzanine facility at origination, contractually and structurally subordinated to the securitised senior loan, which was repaid in April 2022 as part of Mileway's recapitalisation.

The senior loan has a term of two years with three one-year extension options. The borrower has submitted the third and final extension notice to extend the loan maturity date to 15 August 2026 from 15 August 2025. As part of the extension requirements at the second extension obtained in 2024, the borrower entered into a cap agreement with BNP Paribas. The cap agreement covers 100% of the outstanding senior loan balance, with a strike rate equal to 2.0%. The agreement commenced on 19 August 2024 and expires on 15 August 2026.

The senior loan is backed by 109 light-industrial or logistics assets located across seven European countries (Germany, France, the Netherlands, Finland, Spain, Denmark, and Ireland). At origination, the loan was backed by 113 properties with the acquisition of the Choisy asset to be completed shortly after the closing date. However, the property's completion was delayed beyond the longstop date and the allocated loan amount was used to prepay the loan at the November 2021 interest payment date. Additionally, three assets were sold in February 2023. As a result, the loan balance decreased by EUR 9.2 million since origination to EUR 501.0 million, with all principal receipts applied pro rata to the notes.

Savills Advisory Services Limited (Savills) conducted a revaluation of the portfolio in October 2024 and appraised the aggregate market value of the 109 properties at EUR 791.3 million, 2.0% up from the 2023 valuation, and 5.9% higher than the value at issuance, both on a like-for-like basis. This translates into a loan-to-value ratio (LTV) of 63.3%, an increase from 61.3% as of May 2024, but still below 63.7% at issuance and in compliance with the transaction's cash trap covenant of 73.7%. The increase in the reported LTV is due to the absence of premium in Savills' valuation. Previous valuers considered a portfolio premium, which was included in the calculation of the LTV. At the same time, Morningstar DBSR notes that several properties in the portfolio, accounting for 5.1% of the market value as of October 2024 or 4.6% of the annual contracted rent as of May 2025, have seen more than 20% decline in their valuation compared with the previous appraisal dated October 2023.

Over the last twelve months, the performance of the portfolio has deteriorated. As of May 2025, the gross rental income and the net rental income decreased to EUR 51.0 million from EUR 52.4 million, a year ago and to EUR 48.6 million from EUR 50.0 million, a year ago, respectively. The decrease in rental income was mostly driven by vacancy increasing to 12.7% in May 2025 from 9.4% a year before, as well as the largest tenant, who accounts for 4.2% of the annual contracted rent, withholding rent due to the ongoing legal disputes relating to the retroactive indexation and the leaking roof issues. Although the leaking roof issue has been now resolved, Morningstar DBRS understands that rent indexation disputes are still ongoing, with the resolution timing difficult to ascertain. Finally, 174 leases, which account for 11.2% of the contracted rent, are expiring in the next 12 months, and Morningstar DBRS lacks visibility regarding the likelihood of their renewal.

As of May 2025, the debt yield decreased to 9.7%, compared to 10.3%, a year ago. The debt yield is well in line with the cash trap covenant of 7.9%.

Morningstar DBRS maintained its net cash flow (NCF) assumption at EUR 35.6 million and its capitalisation rate assumption at 6.5% as at the last annual review. This translates into a Morningstar DBRS value of EUR 547.7 million, representing a 30.8% haircut to Savills' most recent valuation.

Morningstar DBRS noted that the senior facility is denominated in euros (EUR) whereas the Danish assets and income, which amount to approximately 8.6% of the portfolio aggregated market value as per latest valuation, are denominated in Danish kroner (DKK). In the absence of a currency swap, the borrower takes on the foreign-exchange risk between the two currencies. However, the Danish central bank has pegged the DKK exchange rate to EUR and historical data shows little fluctuation in the DKK/EUR exchange rate. To reflect this, Morningstar DBRS applied an exchange rate of DKK 7.6282 per EUR to the GRI generated by the Danish assets, the highest exchange rate allowed by the Danish central bank for all non-AAA (sf)-rated investment-grade stress scenarios and a higher exchange rate of 12.1086 DKK per EUR in the AAA (sf) stress scenario.

There are no financial covenants applicable prior to a permitted change of control (COC), but cash trap covenants are applicable both before and after a permitted COC. The cash trap covenants are set at 73.67% LTV, while the DY covenant is set at 7.55% for the first and second year and steps up to 7.93% on and from the third year. After a permitted COC, the financial default covenants on the LTV and the DY will be applicable. These covenants are set at 10% above the LTV at the time of the permitted COC and the higher of 85% of the DY at the time of the permitted COC and 7.34%, respectively. The loan will also start to amortise at 1% per year after a permitted COC; however, Morningstar DBRS noted that, to be qualified as a permitted COC, the LTV should not exceed 63.67% and the new owner needs to be a qualifying transferee.

The transaction benefits from the liquidity reserve of EUR 11.8 million (EUR 12.0 million at origination), which is funded through the overissuance of Class A notes and through the issuer loan, which funds the issuer loan share of the reserve. The liquidity reserve can be used to cover any potential interest shortfalls on the Class A, Class B, and the relevant portion of the issuer loan. Morningstar DBRS estimated that the commitment amount is equivalent to approximately fifteen months of coverage based on the interest rate cap strike of 2.0% or approximately nine months of coverage based on the 4.0% Euribor cap after loan maturity.

The Class E and Class F notes are subject to an available funds cap where the shortfall is attributable to a reduction in the interest-bearing balance of the senior loan that results from prepayments or by a final recovery determination of the senior loan.

The legal final maturity of the notes in August 2033 falls seven years after the fully extended loan maturity date of August 2026.

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.

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 (16 May 2025) https://dbrs.morningstar.com/research/454196 .

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the credit ratings is European CMBS Rating and Surveillance Methodology (24 June 2025), https://dbrs.morningstar.com/research/456815.

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 surveillance section of the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

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/457952.

The sources of data and information used for these credit ratings include quarterly investor reports and tenancy schedule provided by CBRE Limited and quarterly cash management reports provided by U.S. Bank Trustees Limited, as well as valuation report prepared by Savills Advisory Services Limited with valuation date of 31 October 2024.

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

At the time of the initial credit ratings, Morningstar DBRS was 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.

The last credit rating action on this issuer took place on 11 July 2024, when Morningstar DBRS confirmed its credit ratings on all classes of notes with Stable trends.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on 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 of Class A at AAA (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating of Class A at AA (high) (sf)

Class B Risk Sensitivity:
-- 10% decline in Morningstar DBRS NCF, expected credit rating of Class B at AA (low) (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating of Class B at A (low) (sf)

Class C Risk Sensitivity:
-- 10% decline in Morningstar DBRS NCF, expected credit rating of Class C at A (low) (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating of Class C at BBB (sf)

Class D Risk Sensitivity:
-- 10% decline in Morningstar DBRS NCF, expected credit rating of Class D at BBB (low) (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating of Class D at BB (sf)

Class E Risk Sensitivity:
-- 10% decline in Morningstar DBRS NCF, expected credit rating of Class E at B (high) (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating of Class E at below B (low) (sf)

Class F Risk Sensitivity:
-- 10% decline in Morningstar DBRS NCF, expected credit rating of Class F at B (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating of Class F at below B (low) (sf)

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

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 Limited for use in the United Kingdom.

Lead Analyst: Violetta Volovich, Vice President
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 21 June 2021

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

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 (24 June 2025),
https://dbrs.morningstar.com/research/456815
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024),
https://dbrs.morningstar.com/research/439913
-- Currency Stresses for Global Structured Finance Transactions (19 November 2024),
https://dbrs.morningstar.com/research/443202
-- 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 (16 May 2025),
https://dbrs.morningstar.com/research/454196

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.