Spirit Realty is readying a commercial mortgage asset-backed for $912.4 million, according to a presale from Standard & Poor’s.

The transaction is backed by net leases on 647 commercial real estate properties and 82 properties securing 11 mortgage loans that are, in turn, secured by fee titles to commercial properties across various industry sectors.

In a net lease, the lessee agrees to pay a share or all of the common expenses of operating the property apart from paying the lease.

S&P has rated the four tranches that make up the deal ‘A+ (sf).’ The tranches are roughly $94.3 million, $258.3 million, $246.9 million, and $312.9 million. The LTV on all the series is 60%.

Morgan Stanley is the sole structuring advisor and shares the title of dealer manager with Deutsche Bank Securities.

At the time of issuance the deal’s cash flow coverage ratio will be roughly 1.8x. Apart from being spread across 44 states, the real estate in the deal secure leases that have a “triple-net” nature, meaning they require tenants to pay all the properties’ maintenance, taxes, and insurance.  Another strength is that under the structure, the property manager (Spirit Realty) and back-up manager (Midland Loan Services) are required to make interest and property protection advances “to the extent deemed recoverable,” according to S&P.

Among the transaction’s weakness are the tenants’ ability to move out of the underlying properties, the location of some properties in sparsely populated areas, and an overrepresentation of the restaurant sector in the pool backing the deal.

Spirit is the second-largest, publicly traded triple-net lease REIT in the U.S. The firm’s focus is single-tenant, “operationally essential” real estate across the country. These kinds of properties “are generally freestanding, commercial real estate facilities where tenants conduct primarily retail, service or distribution activities that Spirit believes are essential to their sales and profits,” S&P said.  

Spirit has issued in the ABS market before. 

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.