Morningstar DBRS Confirms Credit Ratings on UK Logistics 2024-1 DAC

DBRS Ratings Limited (Morningstar DBRS) confirmed its credit ratings on the notes issued by UK Logistics 2024-1 DAC (the Issuer) as follows:

-- Class A 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 (sf)

All trends are Stable.

CREDIT RATING RATIONALE
The rationale for the confirmation is supported by the stable performance of the loans securing the transaction over the last year.

The transaction is a securitisation of two senior commercial real estate (CRE) loans originated by Barclays Bank PLC. The St. Modwen Facility (STM) of GBP 328.0 million and the Mileway (MW) Facility of GBP 209.8 million. The loans were advanced by Barclays Bank PLC to borrowers ultimately owned by Blackstone Real Estate Partners (Blackstone) in connection with refinancing the acquisition of two last-mile logistics portfolios comprising 6 million square feet (sf) of standing logistics assets and 3 million sf of industrial outdoor storage in England and largely concentrated in Greater Manchester.

St. Modwen
The STM is the larger of the two loans with respect to the number of properties and market value (MV), representing 63% of the transaction. The loan was granted to the four STM borrowers, with Blackstone as ultimate beneficiary to refinance the existing STM loan. The STM portfolio comprised 49 logistics assets in two prime urban logistics submarkets, Trafford Park and Heywood Distribution Park, in Greater Manchester. As of the February 2025 payment date, the outstanding loan amount stood at GBP 328.0 million and the number of assets in the portfolio remained at 49.

The portfolio comprised a total of 4.4 million sf, as of the February 2025 payment date, and it was 90.8% occupied. The largest five tenants represent 26.9% of the gross rental income (GRI) and the largest tenant, Great Bear Distribution Limited, accounts for 10.2%. As of February 2025, the annualised net rental income (NRI) was GBP 24.6 million, slightly higher than the NRI at closing of GBP 24.3 million. The Debt Yield (DY) remained stable over the period at around 6.9%. There was positive letting activity over the quarter ending February 2025, with nine new tenants signing leases at the properties, generating approximately GBP 0.8 million in new rent annually. The portfolio has a weighted-average, lease-term-to-break (WALTb) and a weighted-average, lease-term-to-expiry (WALTe) of 6.4 years and 7.2 years, respectively.

The valuations for the properties were prepared by CBRE Limited (CBRE) in April 2024 and concluded an aggregate MV of the collateral at GBP 531.6 million. Based on the special assumption of a corporate portfolio sale, representing 0% stamp duty land tax (SDLT), CBRE concluded with a value of GBP 562.4 million. The loan-to-value ratio (LTV) based on these values equals 61.7% and 58.3%, respectively.

Mileway
The MW Facility is the smaller of the two loans, with respect to the number of properties and MV, representing 37% of the transaction. The loan was granted to the three borrowers with Blackstone as ultimate beneficiary to refinance the existing MW loan. The MW portfolio comprised 17 logistics assets located within densely populated urban areas, with good highway connectivity. As of the February 2025 payment date, the outstanding loan amount stood at GBP 209.8 million and the number of assets in the portfolio remained at 17.

The portfolio comprised a total of 4.2 million sf, as of the February 2025 payment date and it was 92.0% occupied. The largest five tenants represent 18.3% of the GRI and the largest tenant, Ridham Sea Terminals Ltd, accounts for 5.2%. As of February 2025, the annualised NRI was GBP 17.4 million, higher than the NRI at closing of GBP 16.9 million. The DY as of February 2025 stood at 8.3%, up from 7.8% at closing. There was positive letting activity over the quarter ending February 2025, with 11 new tenants signing leases at the properties, generating approximately GBP 0.24 million in new rent annually. The portfolio has a WALTb and a WALTe of 10.6 years and 12.0 years, respectively.

The valuations for the properties were prepared by Jones Lang LaSalle (JLL) in March 2024 and concluded an aggregate MV of the collateral at GBP 317.5 million including a portfolio premium of 2.5%. Based on the special assumption of a corporate portfolio sale representing 0% SDLT, JLL concluded with a value of GBP 325.0 million. The LTV based on these values equals 66.2% and 64.3%, respectively.

STM and MW
In aggregate, Morningstar DBRS' NCF and valuation for the STM and MW portfolios are GBP 38.3 million and GBP 661.6 million, respectively, implying a WA capitalisation rate of approximately 6.6%. The transaction is expected to repay in full by 15 May 2029. If the loans are not repaid by then, the transaction will have five years' tail to allow the special servicer to workout the loan(s) by May 2034, or where the final note maturity date is automatically extended pursuant to an extension of the final loan maturity date, the date falling five years after the final loan maturity date, which in each case is the final note maturity date.

The transaction benefits from a GBP 27 million liquidity reserve, which can cover the interest payments to the Class A to Class C notes. The liquidity reserve has a target balance of 5% of the outstanding balance of the total outstanding balance. No liquidity withdrawal can be made to cover shortfalls in funds available to the Issuer to pay any amounts in respect of the interest due on the Class D and Class E notes. The Class D and Class E notes are subject to an available funds cap where the shortfall is attributable to an increase in the WA margin of the notes.

At issuance, the Issuer purchased an interest cap agreement from Barclays Bank PLC, with a cap strike rate of 3.5% for 95% of the outstanding loan balance to hedge against increases in the interest payable under the loan resulting from fluctuations in Sonia. The current hedge arrangement expires in May 2026, at which point it must be renewed.

Based on a cap strike rate of 3.5% and a Sonia cap of 5.0% for the two loans, Morningstar DBRS estimated that the liquidity reserve will cover approximately 15 months of interest payments and 12 months of interest payments, respectively, assuming the Issuer does not receive any revenue.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings at https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in British pound sterling unless otherwise noted.

The principal methodology applicable to the credit ratings is:
-- European CMBS Rating and Surveillance Methodology (4 March 2025), https://dbrs.morningstar.com/research/449278.

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

Morningstar DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the surveillance section of the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent credit rating action.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to Appendix C: The Impact of Sovereign Credit Ratings on Other Morningstar DBRS Credit Ratings of the Global Methodology for Rating Sovereign Governments at: https://dbrs.morningstar.com/research/436000.

The sources of data and information used for these credit ratings include the servicer reports published by Situs Asset Management Limited and the cash management reports published by US Bank Global Corporate Trust.

Morningstar DBRS did not rely upon third-party due diligence in order to conduct its analysis.

At the time of the initial credit rating, Morningstar DBRS was not supplied with third-party assessments. However, this did not affect the credit rating analysis.

Morningstar DBRS considers the data and information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

Morningstar DBRS does not audit or independently verify the data or information it receives in connection with the credit rating process.

The last credit rating action on this issuer took place on 16 May 2024, when Morningstar DBRS finalised its provisional credit ratings on the Class A, Class B, Class C, Class D, and Class E Notes at AAA (sf), AA (low) (sf), A (low) (sf), BBB (low) (sf), and BB (sf), respectively.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com.

Sensitivity Analysis: To assess the impact of changing the transaction parameters on the credit rating, Morningstar DBRS considered the following stress scenarios as compared with the parameters used to determine the credit rating (the base case):

Class A Risk Sensitivity:
-- 10% decline in Morningstar DBRS NCF, expected credit rating on the Class A Notes of AA (high) (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating on the Class A Notes of A (high) (sf)

Class B Risk Sensitivity:
-- 10% decline in Morningstar DBRS NCF, expected credit rating on the Class B Notes of A (low) (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating on the Class B Notes of BBB (sf)

Class C Risk Sensitivity:
-- 10% decline in Morningstar DBRS NCF, expected credit rating on the Class C Notes of BBB (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating on the Class C Notes of BB (high) (sf)

Class D Risk Sensitivity:
-- 10% decline in Morningstar DBRS NCF, expected credit rating on the Class D Notes of BB (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating on the Class D Notes of B (high) (sf)

Class E Risk Sensitivity:
-- 10% decline in Morningstar DBRS NCF, expected credit rating on the Class D Notes of B (high) (sf)
-- 20% decline in Morningstar DBRS NCF, expected credit rating on the Class D Notes of NR

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

These credit ratings are endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Mirco Iacobucci, Senior Vice President, Sector Lead
Rating Committee Chair: David Lautier, Senior Vice President
Initial Rating Date: 26 April 2024

DBRS Ratings Limited
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Tel. +44 (0) 20 7855 6600
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- European CMBS Rating and Surveillance Methodology (4 March 2025),
https://dbrs.morningstar.com/research/449278
-- Interest Rate Stresses for European Structured Finance Transactions (24 September 2024),
https://dbrs.morningstar.com/research/439913
-- Legal and Derivative Criteria for European Structured Finance Transactions (19 November 2024),
https://dbrs.morningstar.com/research/443196
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/439604.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.