DBRS Morningstar Confirms Ratings on All Classes of OPG Trust 2021-PORT

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2021-PORT issued by OPG Trust 2021-PORT, as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (sf)
-- Class X-NCP at A (high) (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 rating confirmations reflect the overall stable performance of the underlying loan, which is secured by a portfolio of industrial properties as further described below. Since issuance, there has been significant paydown as a result of property releases processed in accordance with the transaction documents. This deleveraging has reduced the loan-to-value ratio (LTV) implied by the DBRS Morningstar value, but the overall benefit to the capital stack has been limited given the pro rata pay structure for the releases processed to date. The occupancy rate for the remaining properties has generally been higher than the overall occupancy rate at issuance and the portfolio continues to benefit from a very granular tenant roster across the collateral set.

This deal is collateralized by a single mortgage loan evidenced by four componentized promissory notes with an original aggregate principal amount of $1.4 billion. At issuance, the loan was secured by the borrower’s fee-simple interest in a portfolio of 109 industrial properties across 11 markets in seven states. The interest-only (IO) mortgage loan bears interest at a floating rate and had an initial maturity date in October 2023, subject to three successive one-year extension options. As of the July 2023 remittance period, the servicer noted that the borrower has not yet requested to exercise the first extension option to October 2024. The sponsor for the transaction is OMERS Administration Corporation, a benefit pension plan for Ontario, Canada’s municipal employees. The sponsor contributed approximately $812.0 million of cash equity to facilitate the acquisition, representing about 37.0% of the purchase price of almost $2.2 billion.

The transaction is structured with weak release premiums and a pro rata prepayment structure on the first 35.0% of the initial loan balance. The release provisions for individual properties within the portfolio, among other stipulations, are outlined in the offering documents and are subject to no event of default, a debt-yield test, payment of a spread maintenance premium, and release payment that is equal to 100% of the allocated loan amount (ALA) until the original principal balance has been reduced to 90%; 105% of the allocated loan amount until the original loan amount is reduced to 65%; and 110% thereafter. As of the July 2023 remittance, 33 property releases have been processed, with 76 properties remaining. The trust balance of $952.2 million has been reduced by 33.4% since issuance. One property has been released since DBRS Morningstar’s last rating action in Circle K Distribution, which had an issuance ALA of $26.6 million.

The servicer-reported consolidated financial statement for the portfolio showed a YE2022 net cash flow (NCF) of $54.3 million; however, that figure includes revenue and expenses for the properties released during that time frame. The YE2022 NCF represents a decline of 10.9% from the Issuer’s NCF of $61.0 million for the remaining pool at that time and a decline of 6.0% from the DBRS Morningstar’s NCF of $57.8 million for those same properties. The resulting in-place debt service coverage ratio for YE2022 was 1.45 times (x) compared with 3.36x at issuance, partly because of increases in interest rates for the floating-rate debt. According to the servicer, portfolio occupancy as of March 2023 was 97.4% compared with 92.8% at issuance; however, DBRS Morningstar notes that this figure includes the 100% occupancy rate for the released Circle K Distribution property, which represented 2.7% of the ALA.

In the analysis for this review, DBRS Morningstar removed the cash flows for the released properties, resulting in a DBRS Morningstar NCF of $56.4 million. DBRS Morningstar maintained the cap rate of 7.00% applied at issuance, which resulted in a DBRS Morningstar value of $805.5 million, a variance of -44.9% from the issuance appraised value of $1.5 billion for the remaining collateral. The updated DBRS Morningstar value implies an LTV of 118.2%, compared with the LTV of 65.1% on the issuance appraised value for the remaining collateral. The DBRS Morningstar value at issuance implied an LTV of 125.9% on the closing balance.

The portfolio benefits from its position in strong industrial markets, composition of last-mile urban in-fill logistics properties, and elevated cash flow stability attributable to multiple property pooling. As such, DBRS Morningstar applied an aggregate 8.0% qualitative adjustment in the sizing for cash flow volatility, property quality, and market fundamentals. The LTV Sizing results suggested moderate upgrade pressure throughout the stack, generally driven by the paydown over the last two years since the deal closed.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance 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/416784 (July 4, 2023).

Class X-NCP is an IO certificate that references 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.

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

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023), which can be found on https://www.dbrsmorningstar.com/research/410912.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.
This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023; https://www.dbrsmorningstar.com/research/410191)

-- Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)

-- North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023;
https://www.dbrsmorningstar.com/research/415687)

-- Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008)

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