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COLGATE-PALMOLIVE COMPANY

(CL)
  Report
Real-time Estimate Cboe BZX  -  11:01:30 2023-01-31 am EST
73.50 USD   +0.85%
07:50aBarclays Adjusts Colgate-Palmolive's Price Target to $77 From $80, Keeps Equalweight Rating
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01/30Deutsche Bank Adjusts Colgate-Palmolive's Price Target to $84 From $87, Maintains Buy Rating
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Fitch Downgrades 4 Classes of COMM 2013-300P; Places 7 Classes on Rating Watch Negative

11/16/2022 | 04:40am EST

Fitch Ratings has downgraded four classes of COMM 2013-300P Mortgage Trust and placed all seven classes on Rating Watch Negative.

RATING ACTIONS

Entity / Debt

Rating

Prior

COMM 2013-300P

A1 12625XAA5

LT

AAAsf

Rating Watch On

AAAsf

A1P 12625XAC1

LT

AAAsf

Rating Watch On

AAAsf

B 12625XAG2

LT

A-sf

Downgrade

AA-sf

C 12625XAJ6

LT

BBB-sf

Downgrade

A-sf

D 12625XAL1

LT

BB-sf

Downgrade

BBB-sf

E 12625XAN7

LT

Bsf

Downgrade

BB+sf

X-A 12625XAE7

LT

AAAsf

Rating Watch On

AAAsf

Page

of 1

VIEW ADDITIONAL RATING DETAILS

KEY RATING DRIVERS

The downgrades of classes B, C, D and E reflect declines in occupancy and net cash flow (NCF) since issuance, largely from the restructuring of the largest tenant Colgate Palmolive's lease in 2020.

The Rating Watch Negative placement on all classes reflects the potential for downgrades absent property performance improvement, lack of positive leasing momentum of vacant space, limited progress on the execution of the borrower's business plans and/or limited information from the servicer or borrower regarding refinancing prospects. The borrower has been incorporating its own coworking concept, Studio, into the rebranding, leasing and marketing of vacancies at the property. For the 'AAAsf' rated classes, downgrades of one to two categories are possible, and for classes rated 'A-sf' and below, downgrades of one category are possible.

Factors that would lead to an affirmation and removal of the Rating Watch Negative include a successful execution of the borrower's business plan, positive leasing momentum that contributes to improved occupancy and cash flow and information from the servicer or borrower regarding securing refinancing.

Fitch expects to resolve the Rating Watch Negative within six months, which provides additional time for Fitch to potentially receive updates on leasing and other performance information at YE 2022 and 1Q23, as well as additional clarity on refinance prospects from the servicer or borrower. The loan matures in August 2023.

Cash Flow Declines; Occupancy Concerns: The servicer-reported annualized June 2022 NCF was $32.3 million with a NCF debt service coverage ratio (DSCR) of 1.50x, up from $26.5 million at YE 2021 and in-line with $32.4 million at YE 2020, but below $50.1 million at YE 2019. Fitch believes the current reported cash flow does not reflect the sustainable long-term performance of the property. Due to the recent volatility of the cash flow and as a consideration of the property's excellent location, Fitch assumed a cash flow where the property is leased up to current market levels at market rental rates.

The downgrades are based on an updated Fitch sustainable NCF of $38 million, which is 31% below Fitch's issuance NCF, and is reflective of newly signed leases grossed up at a market rate of $85 psf and incorporates a market vacancy adjustment of 14.4%.

As of the August 2022 rent roll, the property was 81% occupied, up from 78.5% in June 2021, but remains below 89.7% in June 2020 and 98.9% at June 2019.

In 2020, the largest tenant, Colgate Palmolive, which leased 65.3% of the NRA at issuance, restructured its lease, downsizing to 52.7% of the NRA. Colgate Palmolive extended its lease on 31.4% of the NRA through June 2033 with the remaining 21.3% of the NRA expiring in June 2023. In addition to the space vacated by Colgate Palmolive, multiple other tenants with leases comprising 13.5% of the NRA vacated at YE 2020.

Positive leasing momentum in 2022 included two new tenant leases and two existing tenant expansions, representing a combined 5% of the NRA. Fitch requested additional updates on overall leasing activity, as well as details on the subleased Colgate Palmolive spaces, but was not provided a response.

Refinance Risk; Macroeconomic Headwinds: The loan has an upcoming scheduled maturity in August 2023, two months after the lease expiration of a significant portion of Colgate Palmolive's space (39% of NRA). After Colgate Palmolive's lease restructure for the space rolling in 2033, the tenant's reduced rental rate is 20% lower than the rate it paid at issuance, but still remains in-line with than the submarket average per Costar as of 3Q22. Colgate Palmolive has been a tenant at the property since 1980.

Fitch anticipates mounting macroeconomic headwinds through 2023 with rising interest rates, slowing growth and persistent inflation, which may impact the refinanceability of the loan at maturity.

Low Trust Leverage: The 'AAAsf' debt is $385 psf and the whole loan debt is $629 psf, which are both significantly lower than the average psf price of recent sales comparables in the immediate area over the last 12-18 months, which are generally well in excess of $800 psf.

Collateral Quality; Excellent Location: 300 Park Avenue consists of a 25-story, LEED Gold high-rise office building totaling 771,643 sf. The property's LEED certification was upgraded to Gold in 2017 from Silver at the time of issuance. The asset's location borders the Grand Central and Plaza submarkets. It is situated between 49th and 50th Streets on the west side of Park Avenue. The location is four blocks north of Grand Central Terminal and offers excellent accessibility and proximity to public transportation.

The property underwent substantial renovations between 1998 and 2000, including a new lobby, elevator modernization and upgraded building systems. Additionally, a facade renovation around the same time completely transformed the property's exterior with new windows, aluminum spandrel panels and retail storefronts. Fitch assigns 300 Park Avenue a property quality grade of 'B+'.

Limited Structural Features/Sponsorship: The loan has no reserves, no structure in place to mitigate the Colgate-Palmolive lease expiration or springing cash management, and there is no carve-out guarantor. The loan sponsor is controlled by Prime Plus Investments, Inc. (PPI), a private Maryland REIT. PPI is a partnership of a Tishman Speyer-affiliated entity, the National Pension Service of Korea and the second Swedish National Pension Fund AP2, which owns 51.0% of PPI and is an affiliate of GIC Real Estate Private Ltd. (a sovereign wealth fund established and funded by the Singapore government), which owns the remaining 49%.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Should Fitch's sustainable NCF remain near $38 million or deteriorate, a downgrade to the 'AAAsf' rated classes by one category is likely. Should Fitch's sustainable NCF decline further by 15% (to a level in-line with most recent servicer-reported annualized June 2022 NCF of $32.3 million), a downgrade to the 'AAAsf' rated classes by two categories, and to classes rated 'A-sf' and below by one category, is likely.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Upgrades to any classes are considered unlikely during the remaining loan term due to the declining occupancy and cash flow trends since issuance.

However, if Fitch's sustainable NCF increases by at least 10%, classes may be affirmed and removed from Rating Watch Negative, should additional information be provided on positive leasing activity at or above market rental rates and progress is made by the borrower on securing refinancing and/or executing on its business plans.

Best/Worst Case Rating Scenario

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

COMM 2013-300P has an ESG Relevance Score of '4' [+] for Waste & Hazardous Materials Management; Ecological Impacts due to the collateral's sustainable building practices including Green building certificate credentials, which has a positive impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

Additional information is available on www.fitchratings.com

(C) 2022 Electronic News Publishing, source ENP Newswire

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Financials (USD)
Sales 2022 17 936 M - -
Net income 2022 2 425 M - -
Net Debt 2022 7 179 M - -
P/E ratio 2022 25,4x
Yield 2022 2,57%
Capitalization 60 870 M 60 870 M -
EV / Sales 2022 3,79x
EV / Sales 2023 3,68x
Nbr of Employees 33 800
Free-Float 57,1%
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Number of Analysts 24
Last Close Price 72,88 $
Average target price 80,75 $
Spread / Average Target 10,8%
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Managers and Directors
Noel R. Wallace Chairman, President & Chief Executive Officer
Phillip G. Shotts Senior Vice President-Finance
Stanley J. Sutula Chief Financial Officer
Michael Crowe Chief Information Officer
Patricia D. Verduin Co-Chief Technology Officer
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