DBRS Morningstar Confirms All Ratings of Cold Storage Trust 2020-ICE5

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2020-ICE5 issued by Cold Storage Trust 2020-ICE5:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (sf)
-- Class D at A (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class HRR at B (sf)
-- Class A-Y at AAA (sf)
-- Class A-Z at AAA (sf)
-- Class A-IO at AAA (sf)

All trends are Stable.

Classes A-Y, A-Z, and A-IO are CAST certificates that can be exchanged for other classes of CAST certificates and vice versa.

The rating confirmations reflect the overall stable performance of the transaction, which generally remains in line with DBRS Morningstar’s expectations. The transaction is collateralized by the borrowers’ fee-simple interest in a portfolio of 46 industrial cold storage facilities in the United States. The portfolio benefits from strong diversity with a Herfindahl score of 30.4 by allocated loan amount. The collateral spans 19 states in multiple regions and favourable markets near major population centres. The portfolio also exemplifies diversity in terms of income and customer granularity perspectives. At issuance, the top 10 customer accounts represented 29.9% of total revenue, with the largest account representing just 5.5%. Property releases are permitted at release premiums ranging from 105.0% and 115.0% of the allocated loan amount, depending on the percentage of the original principal balance and certain debt yield tests, but none have been processed to date. According to the March 2021 remittance, the trust balance was paid down by approximately 1.7% as a result of reserve disbursements.

The $1.3 billion loan is interest only through the five-year fully extended term, with final maturity in November 2025. The borrowers amassed the portfolio in phases across seven acquisitions dating from October 2019 to April 2020 and used whole-loan proceeds to recapitalize the borrowers’ interest in the portfolio, which was unencumbered by secured debt. The borrowers lease the properties (except for the Chicago Cold - Bartlett property) to an operating company, Lineage Logistics, LLC, pursuant to six master leases. The rent from the master leases is the sole source of cash flow to pay debt service for the trust loan. The six master leases (collectively, the Master Leases) are between the borrowers and affiliates of the borrowers. The Master Leases allow the related master tenant (or subtenants of such master tenant) or operators engaged by the master tenant or subtenants to operate such properties.

The transaction benefits from property quality and functionality. The portfolio's properties generally exhibit favourable ceiling heights, loading capacity, and temperature configurations. The portfolio has a weighted-average clear height of more than 30 feet, and it benefits from a very high proportion of freezer space (80.4%, based on the appraisal). Freezer space generally commands higher rents and valuations and is more flexible through down-conversion to refrigeration temperatures when necessary to accommodate customer demand.

According to the most recent financials, the servicer reported a trailing 12 months (T-12) ended March 30, 2022, debt service coverage ratio of 5.46 times, a 100% occupancy rate, and net cash flow (NCF) of $141.0 million, which is above DBRS Morningstar’s NCF of $122.5 million at issuance. The loan was added to the servicer’s watchlist in December 2021 and is being monitored for delinquent taxes. As of July 2022, 13 parcels among nine properties had approximately $1.4 million of delinquent taxes. According to the servicer, as of January 2022, the borrower had paid off delinquent taxes for all properties, except 15 Ridge Road, which suggests the likelihood for the borrower to eventually pay off the $1.4 million in outstanding taxes, as the outstanding amount only accounts for 1.5% of the T-12 ended March 30, 2022, NCF. The loan has remained current and is otherwise performing in line with issuance expectations.

According to CB Richard Ellis (CBRE), investor interest in cold storage increased during the Coronavirus Disease (COVID-19) pandemic and based on CBRE’s 2022 U.S. Investors Intention Survey, 40.0% of the responses are pursuing cold storage assets this year, in comparison to 22.0% in 2021 and 7.0% in 2019. In particular, within the grocery distribution segment, which is the largest demand driver of cold storage, demand is expected to grow along with the rise in e-commerce’s share of total U.S. grocery sales to 21.5% by 2025.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, and Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data. For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com.

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

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), 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.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

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.

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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