AREIT, INC.
Class A at
Class A-S at
Class B at AA (low) (sf)
Class C at A (low) (sf)
Class D at BBB (sf)
Class E at BBB (low) (sf)
Class F at BB (low) (sf)
Class G at B (low) (sf)
All trends are Stable.
The initial collateral consists of 38 short-term, floating-rate mortgage assets with an aggregate cut-off date balance of
Of the 38 loans, 31 are secured by multifamily assets (82.7% of the pool. The remaining loans are secured by two office properties (6.3% of the pool), two industrial properties (4.6% of the pool), one retail property (3.8% of the pool), and two hotel properties (2.7% of the pool).
The loans are mostly secured by cash-flowing assets, most of which are in a period of transition with plans to stabilize and improve the asset value. Six loans, representing 19.8% of the total pool balance, are whole loans, and the other 31 loans (76.4% of the mortgage asset cut-off date balance) are participations with companion participations that have remaining future funding commitments totaling
For the floating-rate loans, DBRS Morningstar used the one-month Libor index, which is based on the lower of a DBRS Morningstar stressed rate that corresponded to the remaining fully extended term of the loans or the strike price of the interest rate cap with the respective contractual loan spread added to determine a stressed interest rate over the loan term. When the debt service payments were measured against the DBRS Morningstar As-Is net cash flow (NCF), 35 loans, comprising 92.5% of the initial pool balance, had a DBRS Morningstar As-Is debt service coverage ratio (DSCR) of 1.00 times (x) or lower, a threshold indicative of default risk. However, the DBRS Morningstar Stabilized DSCR of 25 loans, comprising 65.8.1% of the initial pool balance, was 1.00x or lower, which is indicative of elevated refinance risk. The properties are often transitioning with potential upside in cash flow; however, DBRS Morningstar does not give full credit to the stabilization if there are no holdbacks or if the other loan structural features are insufficient to support such treatment. Furthermore, even if the structure is acceptable, DBRS Morningstar generally does not assume the assets will stabilize above market levels.
The transaction is sponsored by
The majority of the pool comprises primarily multifamily properties (82.7% of the pool balance), which have historically shown lower defaults and losses. Multifamily properties benefit from staggered lease rollover and generally low expense ratios compared with other property types. While revenue is quick to decline in a downturn because of the short-term nature of the leases, it is also quick to respond when the market improves.
Thirty-three loans, or 87.4% of the pool balance, represent acquisition financing. Acquisition financing generally requires the respective sponsor(s) to contribute material cash equity as a source of funding in conjunction with the mortgage loan, resulting in a higher sponsor cost basis in the underlying collateral, and it aligns the financial interests of both the sponsor and the lender.
DBRS Morningstar has analyzed the loans to a stabilized cash flow that is, in some instances, above the in-place cash flow. It is possible that a related loan sponsor will not successfully execute its business plans and that the higher stabilized cash flow will not materialize during the loan term, particularly with the ongoing coronavirus pandemic and its impact on the overall economy. The loan sponsor's failure to execute the business plans could result in a term default or the inability to refinance the fully funded loan balance. DBRS Morningstar made relatively conservative stabilization assumptions and, in each instance, considered the business plans to be rational and the loan structure to be sufficient to substantially implement such plans. In addition, DBRS Morningstar analyzes loss severity given default based on the as-is credit metrics, assuming the loan is fully funded with no NCF or value upside. Future funding companion participations will be held by affiliates of
All 38 loans have floating interest rates, and all loans are interest-only (IO) during their original terms of 24 months to 36 months, creating interest rate risk. Fourteen loans (42.5% of the mortgage asset cut-off date balance) amortize during extension options. All loans are short-term loans and, even with extension options, they have a fully extended maximum loan term of five years. For the floating-rate loans, DBRS Morningstar adjusted the one-month Libor index, based on the lower of a DBRS Morningstar stressed rate that corresponded to the remaining fully extended term of the loans or the strike price of the interest rate cap with the respective contractual loan spread added to determine a stressed interest rate over the loan term. The borrowers of all 38 floating-rate loans have purchased Libor rate caps with strike prices that range from 0.25% to 3.25% to protect against rising interest rates through the duration of the loan term. In addition to the fulfillment of certain minimum performance requirements, exercising any extension options would also require the repurchase of interest rate cap protection through the duration of the respectively exercised option.
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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.
All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.
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
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 the North American CMBS Multi-Borrower Rating Methodology (
The DBRS
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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Ratings
Date Issued Debt Rated Action Rating Trend Attributesi
US = Lead Analyst based in USA
CA = Lead Analyst based in
E =
U =
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-participating
16-Jun-22 Class A Notes Provis.-FinalAAA (sf) Stb US
16-Jun-22 Class A-S Notes Provis.-FinalAAA (sf) Stb US
16-Jun-22 ClassB Notes Provis.-Final AA (low) (sf) Stb US
16-Jun-22 ClassC Notes Provis.-Final A (low) (sf) Stb US
16-Jun-22 ClassD Notes Provis.-Final BBB (sf) Stb US
16-Jun-22 ClassE Notes Provis.-Final BBB (low) (sf) Stb US
16-Jun-22 ClassF Notes Provis.-Final BB (low) (sf) Stb US
16-Jun-22 ClassG Notes Provis.-Final B (low) (sf) Stb US
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