DBRS Morningstar Confirms Ratings on DBUBS 2017-BRBK Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-BRBK issued by DBUBS 2017-BRBK Mortgage Trust as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. The collateral is a first-lien mortgage on the borrower’s fee-simple interests in four Class A office properties in Burbank, California. The four properties comprising the portfolio include three office towers in Burbank’s Media District known as The Pointe, 3800 Alameda, and Central Park as well as a five-building creative office campus, the Media Studios, four miles north of the Media District adjacent to Hollywood Burbank Airport. In total, the portfolio comprises 2.1 million square feet (sf).

Whole loan proceeds of $660 million along with $378.8 million of sponsor equity were used to acquire the portfolio for a purchase price of $1.03 billion. The trust loan is part of a split loan structure and includes four senior notes with an aggregate balance of $249 million and two junior notes with an aggregate balance of $281 million, resulting in an aggregate trust principal balance of $530 million. The whole loan includes five non trust senior notes that total $130 million, which have been contributed to other commercial mortgage-backed security (CMBS) transactions, including CD 2017-CD6 Mortgage Trust, which is also rated by DBRS Morningstar. The whole loan is structured as an interest-only (IO), fixed-rate loan with a seven-year term that matures in October 2024.

At issuance, DBRS Morningstar noted that the portfolio had high rollover risk, as tenants representing 74.4% of the net rentable area (NRA) had lease expirations during the loan term. This risk is mitigated by the portfolio’s proximity to studio headquarters for the three largest tenants with lease expirations during the loan term. The Walt Disney Company (Disney) in particular occupies the single-tenant building at 3800 Alameda (in addition to spaces at other properties), with lease expirations during the fourth and sixth years of the loan term. However, according to the March 2021 rent roll for the 3800 Alameda property, Disney has renewed its entire 421,835 sf (20.3% of portfolio NRA) at the 3800 Alameda property for 10 years and will be receiving nine months of rent abatement until January 2022. Based on the most recent rent rolls provided (as of December 2020 for the Central Park property and as of March 2021 for the other three properties), tenants representing 11.3% of the total portfolio NRA have leases with upcoming expirations through December 2022. Included in this group of expirations, however, are only two tenants that represent more than 1% of NRA: Outlook Amusements, Inc. (1.8% of NRA, with lease expiration in May 2021) and Rovi Corporation (1.6% of NRA, with lease expiration in December 2021). The most recent rent rolls show that the portfolio was 93.1% occupied, compared with the servicer’s YE2020 reporting that noted occupancy of 94.0%.

The portfolio’s five largest tenants, representing 61.8% of total portfolio NRA, include Disney (31.0% of portfolio NRA); AT&T (12.7% of portfolio NRA, primarily through subsidiaries Warner Bros. Entertainment, Inc. and Turner Broadcasting System, Inc.); Kaiser Foundation Health Plan, Inc. (9.3% of portfolio NRA); Legendary Entertainment (5.1% of portfolio NRA); and Hasbro, Inc. (3.7% of portfolio NRA). Disney, Turner Broadcasting System, Inc., Warner Bros. Entertainment, Inc., and Kaiser Foundation Health Plan, Inc. were all considered investment-grade tenants at issuance, and, as of May 2021, the tenants remain investment grade.

As of the YE2020 financials, the servicer reported a net cash flow (NCF) of $57.3 million and debt service coverage ratio (DSCR) of 2.57 times (x). This compares favorably with the YE2019 NCF and DSCR of $57.0 million and 2.41x, respectively, and is stronger than the DBRS Morningstar-assumed NCF of $48.3 million. The variance from the DBRS Morningstar NCF figure is primarily because of differences in vacancy, step rent assumptions, and concessions. Additionally, with the free rent for the Disney renewal at the 3800 Alameda property, DBRS Morningstar expects the base rent revenues to decline during 2021 but anticipates that NCF should rebound in 2022.

The property continues to benefit from strong sponsorship and experienced management. At issuance, through various affiliates, The Blackstone Group Inc. acquired an 80.0% interest in each property in the portfolio from certain separate joint ventures comprising Worthe Real Estate Group Inc. (Worthe) affiliates and certain third parties. In connection with the acquisition, affiliates of Worthe acquired or retained the remaining 20.0% interest in each property in the portfolio. Worthe operates media and technology campuses in Los Angeles, with an existing portfolio comprising 35 assets totaling approximately 5.4 million sf. Worthe is the largest owner and manager of real estate by square footage in Burbank and manages all four assets in the portfolio.

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 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.

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. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodology is North American CMBS Surveillance Methodology (March 26, 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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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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