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European CMBS Monitor Q1 2024

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European CMBS Monitor Q1 2024

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New Issuance

Land Securities Capital Markets PLC's class A18 notes were issued during the first quarter of 2024, the 10th additional issuance from the existing transaction.

Table 1

Closed issuance - Q1 2024
Transaction name Issuance amount (mil. £) Arranger No. of loans No. of properties Sponsor Property type Jurisdiction
Land Securities Capital Markets PLC 300.0 Land Securities PLC 1 123 Land Securities PLC Mixed UK

Table 2

New issuance - Pricing
Transaction name Land Securities Capital Markets PLC
Closing date 18-Mar-24
Deal size (mil. £) 300.0
Index Fixed
AAA N/A
AA 488
A N/A
BBB N/A
BB N/A
B N/A
Weighted-average 475
Loan coupon 475
Excess before senior expenses 0
*Unit is basis points unless stated otherwise. N/A--Not applicable.

Surveillance

Table 3

List of European CMBS surveillance rating actions
Article Publication date
Pembroke Property Finance 2 DAC Class B To E Irish CMBS Ratings Raised; Class A And F Ratings Affirmed March 5, 2024
Land Securities Capital Markets' Class A18 Fixed-Rate CMBS Notes Assigned Rating; Other Ratings Affirmed March 18, 2024
Telereal Securitisation PLC's Class B-3 Fixed-Rate CMBS Notes Assigned Preliminary Rating; Other Ratings Affirmed March 21, 2024
Premiertel PLC Class A U.K. CMBS Notes Upgraded Following Review; Class B Notes Affirmed March 22, 2024

The outstanding S&P Global Ratings-rated European CMBS balance decreased to £22.2 billion from £23.1 billion over the past quarter. The decrease in the note balance is primarily due to the full repayment of two loans in this quarter and substantial prepayment of one loan. The new transaction only partially offsets the repayments.

Table 4

European CMBS: Key statistics
Q1 2024 Q4 2023 Q3 2023 Q2 2023
1.0 loans
Loan balance (bil. £) 12.6 13.2 13.3 13.4
Number of loans outstanding 14 14 14 14
Number of transactions outstanding 13 13 13 13
2.0 loans
Loan balance (bil. £) 9.6 9.9 9.9 10.3
Number of loans outstanding 30 32 32 35
Number of transactions outstanding 28 31 30 31
Total
Loan balance (bil. £) 22.2 23.1 23.2 23.7
Number of loans outstanding 44 46 46 49
Number of transactions outstanding 41 44 43 44

Chart 1

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Chart 2

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Table 5

Loans repaid
Transaction Loan Securitized loan balance last quarter (£) Jurisdiction(s) Asset type Loan maturity date Note final maturity date Comment
Scorpio (European Loan Conduit No. 34) DAC Project Scorpio 272,691,236 U.K. Logistics May 15, 2024 May 17, 2029 The loan and the transaction fully prepaid in February 2024
Pearl Finance 2020 DAC Senior Loan 270,762,599 Multi-Jurisdiction Logistics Nov. 15, 2024 Nov. 17, 2032 The loan and the transaction fully prepaid in February 2024

Table 6

List of next 12 months' maturing loans
Deal name Loan name Securitized loan balance (£) % of loan pool balance Loan maturity Extension option upon maturity? LTV (%) Debt yield (%) Servicer name Specially serviced? No. of properties Asset type Jurisdiction
Taurus 2021-5 U.K. DAC Senior Loan 263,157,895 11.18% May 15, 2024 Y 58.94% 7.9% CBRE Loan Services Ltd. N 43 Student housing U.K.
Bruegel 2021 DAC Senior Loan 181,963,553 100.00% May 15, 2024 Y 57.26% 13.2% CBRE Loan Services Ltd. N 8 Mixed use The Netherlands
Agora Securities U.K. 2021 DAC Vulcan 211,500,000 72.23% July 20, 2024 Y 42.24% 19.5% Mount Street Mortgage Servicing Ltd. N 9 Retail U.K.
Viridis (European Loan Conduit No. 38) DAC Aldgate Tower 150,000,000 100.00% July 20, 2024 N* 73.85% 6.2% Mount Street Mortgage Servicing Ltd. N 1 Office U.K.
Starz Mortgage Securities 2021-1 DAC Sellar 26,194,254 42.80% July 20, 2024 N* 61.63% 7.8% Situs Asset Management Limited N 3 Hotel U.K.
DECO 2019-RAM DAC INTU Derby 45,625,650 100.00% July 31, 2024 N* 21.39% Not Reported Situs Asset Management Limited N 1 Retail U.K.
Oranje (European Loan Conduit No. 32) DAC Phoenix Loan 67,342,274 100.00% Aug. 15, 2024§ N* 47.85% 15.5% Mount Street Mortgage Servicing Ltd. N 11 Office The Netherlands
Taurus 2019-4 FIN DAC Senior Loan 126,609,814 100.00% Aug. 16, 2024 N* 57.97% 14.2% CBRE Loan Services Ltd. N 1 Mixed use Finland
Starz Mortgage Securities 2021-1 DAC Node 10,255,197 16.78% Oct. 15, 2024§ N* 69.92% 6.4% Situs Asset Management Limited N 1 Residential/social housing Ireland
Frost CMBS 2021-1 DAC New Cold 188,162,974 100.00% Nov. 15, 2024 Y 64.00% 10.0% Mount Street Mortgage Servicing Ltd. N 3 Logistics U.K.
Helios (European Loan Conduit No. 37) DAC Project Atlas 309,500,000 100.00% Dec. 12, 2024 N* 63.16% 14.5% Mount Street Mortgage Servicing Ltd. N 49 Hotel U.K.
Highways 2021 PLC Secured Loan 264,500,000 100.00% Dec. 14, 2024 Y 61.65% 13.5% CBRE Loan Services Ltd. N 8 Motorway service stations U.K.
Magenta 2020 PLC Senior Loan 240,979,469 83.39% Dec. 18, 2024 N* 59.86% 10.9% CBRE Loan Services Ltd. N 17 Mixed use U.K.
Taurus 2021-3 DEU DAC The Squaire Loan 454,008,576 100.00% Dec. 20, 2024 N* 64.02% 7.5% Situs Asset Management Limited N 2 Mixed use Germany
Salus (European Loan Conduit No. 33) DAC Senior Loan 367,500,000 80.00% Jan. 22, 2025§ N* 54.85% 7.6% Mount Street Mortgage Servicing Ltd. N 1 Office U.K.
*Either all loan extension options have been exercised or there are no extension options. §New final loan maturity date. LTV--Loan-to-value.
Taurus 2021-5 UK DAC

This loan is a vertical slice of a larger senior loan (11%), and the LTV ratio (58.9%) applies to both the securitized loan and the whole senior loan as the market value is allocated in proportion to the loan amount. In the third quarter of 2023, it was extended for the second time to May 2024, with the same hedging conditions and one more contractual extension option left for one year. A portfolio of student accommodation properties secures this interest-only loan, and its LTV ratio (based on a valuation in October 2022) fluctuates due to the capital expenditure (capex) facility being drawn. The operator has gradually increased occupancy at the properties. We believe the loan maturity will be extended again this year.

Bruegel 2021 DAC

The loan is set to mature in May 2024 and has two one-year extension options. Our S&P Value is 8.7% higher than at closing, underpinned by sustainable rental income generated and relatively low vacancy of the assets (predominantly office buildings) located in the Netherlands. However, we are cautious about the negative effects on office space demand due to the hybrid working trend and economic downturn. The loan benefits from a low interest rate burden based on a 1.5% interest rate cap, which we expect to increase upon loan extension. The transaction's LTV ratio of 57.3% is based on an August 2023 valuation. Its debt yield of 13.2% remains healthy due to the secured commercial properties' overall good location and quality. Therefore, the loan is likely to be extended.

Agora Securities UK 2021 DAC

The retail warehouse loan backing this transaction was extended by one year beyond its initial maturity date in the fourth quarter of 2023. New hedging was also established in the form of a cap, which is now 4.25% compared to previously, when the cap rate was 2.00%. It has two remaining extension options of one year each. The servicer reports a strong debt yield of 19.5%. The LTV ratio is only 42.2%, based on a July 2022 valuation. The weighted-average lease term to break is 5.4 years and occupancy at the properties has steadily increased since closing. The annual contractual rental income covers the interest paid by about 3x (the servicer does not report a net operating income). The loan maturity will likely be extended again.

Viridis (European Loan Conduit No. 38) DAC

The three-year loan is set to mature in July 2024 with no extension options available. A cash trap event continues, given its reported debt yield of 6.2% (threshold 8%), although it benefits from a low interest cap rate of 1.0%. The increased LTV ratio of 73.9% due to a lower valuation figure (-13.3%) reported in October 2023 has triggered another cash trap event (threshold 70%). We believe this loan has a high risk of defaulting, despite the relatively good asset quality.

Starz Mortgage Securities 2021-1 DAC (Sellar loan)

The loan matures in July 2024 and is currently unhedged after the interest rate cap expired in July 2022. It has a current LTV ratio of 61.6%. The servicer amended the loan in June 2023 by waiving LTV and interest coverage ratio (ICR) covenants until its maturity. In addition, the interest reserve became unavailable for debt service, with the sponsor managing any shortfalls. The interest reserve will be used to amortize the loan, which will accelerate its deleveraging. A portfolio of three U.K. hotel properties secures the loan. Because the properties' net operating income has steadily increased since the COVID-19 pandemic, we expect the loan to repay at maturity.

DECO 2019-RAM DAC

The loan has no extension options available and is within its last year of a five-year term. The borrower significantly prepaid the loan and note balance on the May 2023 IPD, which satisfied the LTV ratio and ICR covenants. The securitized loan LTV ratio is 21.4%. We believe the loan is in a very good position to refinance.

Oranje (European Loan Conduit No. 32) DAC (Phoenix loan)

The last remaining loan has been extended for one year beyond its final maturity, subject to several changed conditions. The newly agreed interest rate cap (3.5%) and loan margin were significantly higher, partially offset by the minor prepayment from an equity injection. We believe this will weigh on the loan's ICR, which should reach about 2x based on the projected net rental income according to the most recent investor report. Despite high structural vacancy in the underlying office portfolio in the Netherlands, the annual contractual rent has increased slightly since November 2022. The 47.9% LTV ratio is based on an April 2023 valuation. As the new loan maturity has been extended until August 2024, this now results in a four-year tail period. According to our criteria, this is shorter than our expected minimum tail period of five years for a 'AAA' rating. We therefore lowered our ratings on the class A and B notes to 'AA (sf)'. Overall, we believe this loan has a moderate risk of refinancing.

Taurus 2019-4 FIN DAC

The borrower used its last extension option in third-quarter 2023. The smaller office property was disposed in February this year and the only remaining asset is a shopping center in Finland, whose vacancy has improved to about 7.5% from more than 10% before. The weighted-average lease term to break is short at 3.6 years, but the debt yield exceeds 14% when including trapped cash. The cash trap event has been cured as the debt yield now meets the threshold without trapped cash. Overall, we believe this loan is in a good position to refinance.

Starz Mortgage Securities 2021-1 DAC (Node loan)

The loan matured on Oct. 15, 2023, and is unhedged. The borrower and the loan facility agent, amongst others, amended and restated the loan agreement in October 2023. Subject to satisfying the conditions precedent and meeting milestones, the loan maturity date is extended to latest October 2024. However, a low ICR of about 1.3x means headroom is limited to account for a higher interest burden under a replacement loan. Interest could exceed the income from the property as the debt yield is only 6.4%. Moreover, the LTV ratio of 69.9% is relatively high. The collateral is a multifamily property in Dublin, which is a notoriously competitive market. The scarcity of residential supply may help with the refinancing.

Frost CMBS 2021-1 DAC

The loan (denominated in British pound sterling and euro) is secured on three cold-storage facilities in England, Germany, and France. It is set to mature in December 2024 and is structured with two one-year extension options. The servicer reports a moderate LTV ratio of 64.0% and a debt yield of 10.0x, respectively. We believe that the special tenant needs for such properties will support the loan's extension, although the current interest rate cap of 2% will probably rise at loan extension.

Helios (European Loan Conduit No. 37) DAC

This is one of two rated transactions secured by a U.K. hotel portfolio, whose revenue suffered from COVID-19 lockdowns but has rebounded to pre-pandemic levels since 2023. The maturity of the loan is in December 2024, with no extension options. The robust debt yield of 14.5% should sufficiently cover interest payments, hedged at a cap basis rate of 5.00% since the previous 3.00% rate expired in December 2023. The 63.2% LTV ratio is based on a December 2022 valuation, which could decline when a new valuation is confirmed. We consider the loan's refinancing prospects to be good.

Highways 2021 PLC

This is the first transaction backed by U.K. motorway service stations that we have rated. The loan has been extended on its initial maturity date and can be further extended two times by one year each. As a result of the loan being extended, the hedging has also been extended and the hedging rate has increased to 3.0% compared to 0.9% previously. The properties are all leased to a single tenant, Welcome Break, which has EBITDAR that covers its rent by 1.7x. An interest rate swap renewed with the loan extension in December 2023 protects the current interest due. Given the underlying tenant's stable performance and the EBITDAR, we believe the loan will be extended again. A new valuation of the underlying properties is available which showed a value decrease of 3.5% from the December 2022 valuation.

Magenta 2020 PLC

The loan secured by a portfolio of U.K. hotels has an initial two-year term with three one-year extension options. At original loan maturity in December 2021, the loan did not meet the extension conditions and was restructured. Part of the restructuring was to extend the senior loan maturity date to December 2024. The hotels' operational performance has recovered well post-COVID-19, and the debt yield has improved to 10.9% on the latest IPD. In our view, the loan will be fully repaid at loan maturity.

Taurus 2021-3 DEU DAC

The loan will mature in December 2024 with no extension options exercisable. It is secured by the Squaire building complex adjoining Frankfurt Airport, comprising primarily office space and two hotels. We believe the office component could be subject to a longer vacancy, above the submarket's average and requiring capex to be spent to attract and retain tenants. Nevertheless, the hotels' operational performance and cash flows have stabilized after years of COVID-19 pressures. Also, the loan benefits from interest rate protection at a historically low rate of 0.11% plus a margin. At current rates, our forecasted annual net cash flow would not cover interest. There is less than one year left under the interest rate hedge, but we believe the combination of higher interest rates and a moderate debt yield of 7.5% particularly challenges this loan's refinancing prospects.

Salus (European Loan Conduit No. 33) DAC

The senior loan's initial maturity date was in January 2022, and it has been extended twice (by one year each time) in line with the loan agreement. Based on the most recent valuation, which is from March 2023, the collateralized property value is 14% lower than two years ago, and the LTV ratio is consequently higher, at 54.9%, given changes in the CRE markets. We lowered our rating on the class B notes in this transaction in October 2023, as the notes were unable to withstand the cash flow stress caused by rising interest rates at a higher rating level. The property still struggles with an above-market vacancy rate of 17.6%, although this has improved gradually.

At the same time, we affirmed our ratings on all other classes of notes, given the stable credit quality of the collateral overall. The weighted-average lease term to break for the remaining tenants also extends more than five years past the loan maturity date. The senior borrower requested a 12-month extension to the senior loan maturity date from Jan. 20, 2024, to Jan. 20, 2025, which was granted, alongside amendments to the senior loan. Due to the 12-month extension being granted, the five-year tail period has now been decreased to four years. However, we still believe that the refinancing prospects for this loan are good, as the collateral is a well-located, good-quality office property in Central London.

Specially Serviced Loans

There is one loan in special servicing, the same as in Q4 2024. The loan is 100% secured by U.K. retail assets (see table 7). No loans have been added or removed from special servicing this quarter.

Table 7

Special servicing index
Transaction Loan Securitized loan balance Transaction close date Date added Jurisdiction(s) Asset type Special servicer
Elizabeth Finance 2018 DAC Maroon loan 63,051,870 Nov. 29, 2017 April 15, 2020 UK Retail Mount Street Mortgage Servicing Ltd.

Chart 4

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Chart 5

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Appendix

Notes on our data

All information is as of March 31, 2024, unless stated otherwise.

The figure for the loans in European CMBS transactions that we rate excludes the loans in small-loan transactions Dutch property Finance 2022-CMBS1 B.V., Pembroke Property Finance 2 DAC, Sandwell Commercial Finance No. 1 PLC, Sandwell Commercial Finance No. 2 PLC, and Diversity Funding No. 1 Ltd.

1.0 and 2.0 loans  Loans that were originated from the year 2009 onward are classified as 2.0 loans. All other loans originated before this period are defined as 1.0 loans.

Currency  Starting from Q1 2023, we changed the reporting currency to British pound sterling given U.K. transactions represent a majority share of our rated European CMBS transactions.

Table 8

List of related European CMBS publications (non-rating action)
Article Publication date
S&P Global Ratings Publishes February 2024 Chart Book For EMEA Structured Finance Feb. 26, 2024
S&P Global Ratings Publishes March 2024 Chart Book For EMEA Structured Finance March 28, 2024
European CMBS Can Ride The Refinance Wave April 11, 2024

This report does not constitute a rating action.

Primary Credit Analyst:Yilin Li, Frankfurt + 49 (69) 33999 107;
yilin.li@spglobal.com
Secondary Contact:Mathias Herzog, Frankfurt + 49 693 399 9112;
mathias.herzog@spglobal.com
Research Contributor:Rohit Nair, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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