DBRS Ratings GmbH (DBRS) confirmed its ratings of the following classes of Commercial Mortgage-Backed Floating-Rate Notes Due November 2027 (the notes) issued by Pietra Nera Uno S.R.L. (the Issuer):
-- Class A Notes at AA (low) (sf)
-- Class B Notes at A (low) (sf)
-- Class C Notes at BBB (low) (sf)
-- Class D Notes at BB (sf)
-- Class E Notes at B (high) (sf)
All trends are Stable.
The rating confirmations reflect the transaction’s overall stable performance since issuance.
The Issuer is a securitisation of three senior commercial real estate loans and two pari passu-ranking capex facilities advanced to four Italian borrowers that are ultimately owned and managed by Blackstone (the Sponsor). As of the November 2018 interest payment date (IPD), the aggregate loan balance was EUR 403.8 million, the same as issuance. This is because all three loans have a two-year interest only (IO) period, with three one-year extension options, subject to certain conditions.
The collateral consists of four retail properties (with the Fashion district having two retail properties serving as collateral) located throughout Italy totalling EUR 541.25 million, representing a weighted-average (WA) loan-to-value (LTV) ratio of 74.6%, the same as at issuance. The assets are three regional outlets and one regionally dominant shopping centre located in Mantuna (northern Italy), Valdichiana (central Italy), Molfetta and Palermo (southern Italy), respectively.
As of the November 2018 IPD report, the projected annual gross rental income (GRI) was reported at approximately EUR 37.6 million compared to EUR 37.9 million GRI at issuance. These figures do not include turnover rent which was reported at EUR 3.42 million at issuance. Expenses according to the same November 2018 IPD report were reported at EUR 3.3 million over the past 12 months. This is a significant decrease from the irrecoverable expenses of EUR 4.9 million reported at issuance. The decrease in expenses has led to increased net operating income across all three loans with a WA debt yield of 9.4% compared with the day one debt yield at issuance of 9.0%. The loans benefit from a granular income stream with the top ten tenants for each property representing between 21.2% and 43.0% of gross rent at the properties. The largest tenant is UCI Sud S.r.L. (operating as UCI cinemas), which represents 4.0% of the GRI in the transaction (16.5% of gross rent at the Molfetta property and 4.9% of rent at the Palermo property). The tenant has two long-term leases with expirations in July 2025 at the Molfetta property and May 2035 at the Palermo property and has no scheduled break options. The second-largest tenant, Coop Allenza 3.0 Soc. Coop., is an Italian grocery chain (operating as Ipercoop) and represents approximately 3.6% of gross rent for the entire transaction (8.5% of GRI of the Palermo loan), with a lease expiration in November 2039. The tenant does have break options throughout the lease term, with the next break option scheduled in November 2019. Because of these break options, at issuance DBRS applied additional stress in its vacancy assumption to reflect for the possibility of Ipercoop vacating. Additionally, the sponsor noted that if Ipercoop downsized its space it would be considered an opportunity to increase rental income at the property with several tenants interested in the space.
At issuance, DBRS noted the relatively short weighted-average lease terms for the Fashion District, Palermo and Valdichiana loans of 4.45 years, 7.0 years, and 3.7 years, respectively, compared with the November 2018 IPD of 4.0 years, 6.5 years and 3.8 years, respectively. The current occupancy has improved at three of the four properties, with occupancy decreasing only slightly at the Valdichiana property from 96.4% at cut-off to 94.5% as of the November 2018 IPD report. However, the occupancy figures reported in the November 2018 IPD report do not reflect the Phase II section of the Molfetta property. If it were to be included in the occupancy calculation, occupancy would be approximately 74.0% compared with the current occupancy, which was reported at 91.4%. The EUR 6.5 million capex facility was to be used to complete Phase II with a scheduled completion date of year-end 2018; however, according to the November 2018 IPD servicer report, the Phase II is still presumed to be vacant.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: “European CMBS Rating and Surveillance Methodology.”
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 rating action.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: https://www.dbrs.com/research/333487/rating-sovereign-governments.
The sources of data and information used for these ratings include Securitisation Services S.p.A.
DBRS did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating DBRS was supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS considers the data and information available to it for the purposes of providing these ratings to be of satisfactory quality.
DBRS does not audit or independently verify the data or information it receives in connection with the rating process.
This is the first rating action since the Initial Rating Date.
The lead analyst responsibilities for this transaction have been transferred to Christopher Horst.
Information regarding DBRS ratings, including definitions, policies and methodologies, is available on www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):
Class A Notes Risk Sensitivity:
-- 10% decline in DBRS Net Cash Flow (NCF), expected rating of Class A at A (sf)
-- 20% decline in DBRS NCF, expected rating of Class A at A (low) (sf)
Class B Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class B at BBB (sf)
-- 20% decline in DBRS NCF, expected rating of Class B at BB (high) (sf)
Class C Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class C at BB (high) (sf)
-- 20% decline in DBRS NCF, expected rating of Class C at BB (high) (sf)
Class D Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class D at BB (high) (sf)
-- 20% decline in DBRS NCF, expected rating of Class D at B (high) (sf)
Class E Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class E at B (high) (sf)
-- 20% decline in DBRS NCF, expected rating of Class E at CCC (sf)
For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.
Lead Analyst: Christopher Horst, Senior Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 28 February 2018
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies
-- European CMBS Rating and Surveillance Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Interest Rate Stresses for European Structured Finance Transactions
A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375
For more information on this credit or on this industry, visit www.dbrs.com or contact us at email@example.com.