DBRS Morningstar Upgrades Ratings on Six Classes of CIM Retail Portfolio Trust 2021-RETL

DBRS Limited (DBRS Morningstar) upgraded its ratings on the following six classes of Commercial Mortgage Pass-Through Certificates, Series 2021-RETL issued by CIM Retail Portfolio Trust 2021-RETL (the Issuer):

-- Class C to AAA (sf) from A (sf)
-- Class X-CP to AA (high) (sf) from BBB (high) (sf)
-- Class X-EXT to AA (high) (sf) from BBB (high) (sf)
-- Class D to AA (sf) from BBB (sf)
-- Class E to A (sf) from BBB (low) (sf)
-- Class F to BBB (low) (sf) from BB (sf)

In addition, DBRS Morningstar confirmed its rating on the following class:

-- Class HRR at BB (low) (sf)

All trends are Stable.

The rating upgrades reflect the increased credit support to the bonds following substantial principal repayments as the borrower continues to release collateralized properties from the trust. In total, 61 properties have been released since issuance, reducing the transaction balance by 77.6%. Property releases began in February 2022, resulting in the full repayment of Classes A, A-1, and B as well as a considerable repayment of Class C.

The deal and loan documents include structural features related to property releases and prepayments. At the deal level, prepayment proceeds on the first 25.0% of the pool balance are distributed pro rata, with proceeds above that threshold to be distributed sequentially. Regarding the repayments as of May 2022, the 25.0% threshold was met and a sequential payment structure is now in effect. At the loan level, individual assets are subject to a prepayment premium of 110% of the allocated loan amount.

At issuance, the trust consisted of a single mortgage loan, secured by the borrower’s fee-simple interests in a portfolio of 113 retail properties across 27 states. The initial collateral pool included 50 anchored shopping centres, 61 single-tenant retail properties, one office property, and one industrial property. As of the May 2022 remittance, 51 single-tenant retail properties and the office property remain within the pool.

The interest-only (IO) loan was structured with a two-year term, with an initial maturity date in July 2024, but is also subject to three one-year extension options. While a lack of diversification with respect to property type is viewed less favourably from a credit risk perspective, the majority of the remaining single-tenant properties are occupied by national grocery stores or home improvement chains including Lowe's, Dick’s Sporting Goods, PetSmart, Stop & Shop, The Home Depot, and Walmart, among many others. DBRS Morningstar generally views retail properties occupied by large essential retailers more favourably.

According to rent rolls dated December 31, 2021, the consolidated portfolio occupancy rate was 100.0% compared with 88.8% at issuance. In addition, the servicer reported a YE2021 net cash flow (NCF) of $88.5 million, above the Issuer’s NCF of $71.0 million and DBRS Morningstar’s NCF of $63.5 million at issuance. The YE2021 weighted-average (WA) debt service coverage ratio (DSCR) was 4.7x times (x), compared with DBRS Morningstar’s DSCR of 3.38x derived at issuance. Although these figures do not reflect the recent property releases, it is noteworthy that portfolio performance has improved from issuance.

For the purposes of this analysis, DBRS Morningstar considered both base-case stress and upgrade stress scenarios in determining the property values for the remaining collateral. The base-case stress was based on the values derived by DBRS Morningstar as part of the rating actions taken in August 2021, when DBRS Morningstar finalized its provisional ratings. The resulting value of $210.6 million is a -33.5% variance from the aggregate appraised value of the remaining properties at issuance. The DBRS Morningstar NCF for the remaining properties of $17.7 million is a -11.1% variance from the Issuer’s NCF, and implies an 8.4% WA cap rate. The upgrade stress assumed a 20.0% haircut to the base-case values given the increased concentration risk for the remaining collateral and the potential of adverse selection as historically, more desirable properties tend to be released first.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Class X-CP and Class X-EXT are IO certificates that reference 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.

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 loan 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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