DBRS Morningstar Finalizes Provisional Ratings on OPG Trust 2021-PORT

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-PORT issued by OPG Trust 2021-PORT:

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

All trends are Stable.

The OPG Trust 2021-PORT single-asset/single-borrower transaction is collateralized by the borrower’s fee-simple interest in a portfolio of 109 industrial properties totaling more than 14.4 million square feet (sf) across 11 markets in seven states. DBRS Morningstar continues to take a favorable view on the long-term growth and stability of the warehouse and logistics sector, despite the uncertainties and risks that the Coronavirus Disease (COVID-19) pandemic has created across all commercial real estate asset classes. Increased consumer reliance on e-commerce and home delivery during the pandemic has only accelerated pre-pandemic consumer trends, and DBRS Morningstar believes that retail’s loss continues to be industrial’s gain. The portfolio benefits from both favorable tenant granularity and favorable geographic diversification, both of which contribute to potential cash flow stability over time.

The portfolio is primarily composed of last-mile facilities in urban infill locations with weighted-average (WA) clear heights of 26.5 feet and a WA year built of 1997. The portfolio’s WA year generally exceeds the WA year built of recently analyzed industrial portfolios rated by DBRS Morningstar (1992), generally reflecting the newer vintage of properties of the portfolio composition. The average size of properties in the portfolio is 127,544 sf, though properties range broadly in size from 24,030 sf to 535,385 sf. Approximately 44.4% of the portfolio’s net operating income is derived from properties between 50,000 sf and 150,000 sf, which further illustrates the last-mile, infill nature of the portfolio. Properties in infill locations tend to have smaller footprints because of the high cost of land, compared with larger distribution facilities that can exceed 1 million sf and are often further away from prominent urban centers.

The portfolio is spread across 11 markets spanning seven U.S. states including Texas (26.2% of net rentable area (NRA) and 23.3% of the base rent), California (14.6% of NRA and 19.4% of base rent), Illinois (12.2% of NRA and 13.4% of base rent), Georgia (13.6% of NRA and 12.3% of base rent), Florida (16.9% of NRA and 11.8% of base rent), Maryland (8.2% of portfolio NRA and 11.0% of base rent), and Arizona (8.3% of NRA and 8.7% of base rent). The collateral is generally well located, proximate to dense population centers and industrial gateway markets with high demand for industrial and distribution space. The portfolio’s WA in-place base rent of $6.46 per square foot (psf) is significantly below the major national index of $8.32 psf (reported by Newmark Knight Frank as of Q2 2021). Per the rent roll dated September 1, 2021, the portfolio was 92.8% leased (7.2% vacant). By comparison, the portfolio’s markets exhibited a WA vacancy rate of 5.5% at the close of 2020.

Despite the recent economic slowdown and continued fallout brought on by the ongoing coronavirus pandemic, DBRS Morningstar continues to take a positive view on the strength and growth of the industrial asset class, especially as e-commerce continues its prolific path to dominance and consumer demand for faster shipping times becomes commonplace. While the coronavirus certainly presents challenges, the nationwide industrial vacancy rate of 4.0% (reported by CBRE Research’s Q2 2021 Industrial & Logistics Report) represents the lowest national vacancy rate since Q4 2019. Per CBRE Research’s Q2 2021 Industrial & Logistics Report, U.S. industrial market conditions performed exceptionally well through the first half of 2021, reaching record-high asking rents of $8.66 psf (a 2.9% quarter-over-quarter increase and 9.8% year-over-year increase).

DBRS Morningstar continues to believe that functional bulk warehouse product and last-mile delivery facilities near major population centers will outperform other property subtypes, and maintains a bullish outlook on industrial property based on ever-growing e-commerce demand.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Class X-CP and Class X-NCP are interest-only (IO) certificates that reference 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 ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

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Notes:
All figures are in U.S. dollars unless otherwise noted.

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the ratings referenced herein.

The principal methodology is North American Single-Asset/Single-Borrower Ratings Methodology (March 2, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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