CF Hippolyta Issuer LLC (Series 2020-1) · subsidiaries of Amazon.com Inc. pursuant to triple-net...

Presale:

CF Hippolyta Issuer LLC (Series 2020-1)July 6, 2020

Preliminary Ratings

Issue Prelim rtg(i)Prelim amt ($mil.)(ii) ARDs

Legal final maturitydate

LTV ratio(%)(iii)

A-1 & A-2 AA-(sf) 1,698.225 7/15/2025 (class A-1);7/15/2027 (class A-2)

7/15/2060 75.0

B-1 & B-2 A-(sf) 339.645 7/15/2025 (class B-1);7/15/2027 (class B-2)

7/15/2060 90.0

Note: This presale report is based on information as of July 6, 2020. The ratings shown are preliminary. Subsequent information may result inthe assignment of final ratings that differ from the preliminary ratings. Accordingly, the preliminary ratings should not be construed asevidence of final ratings. This report does not constitute a recommendation to buy, hold, or sell securities. (i)The ratings do not addresspost-ARD additional interest. (ii)The class amounts will be sized to investor demand. (iii)LTV ratios calculated using the commercial properties'aggregate appraised value. LTV--Loan-to-value. ARD--Anticipated repayment date.

Profile

Expected closing July 24, 2020.

Collateral Eleven industrial distribution and fulfillment centers in the U.S. leased to one or moresubsidiaries of Amazon.com Inc. pursuant to triple-net lease agreements guaranteed byAmazon.com Inc., including three forward funded properties with respect to which the relatedtenant has agreed to complete construction and/or improvements pursuant to a relatedconstruction agency agreement.

Sponsor, propertymanager, and specialservicer

CF Hippolyta Investor LLC, an indirect subsidiary of various funds managed by affiliates ofFortress Investment Group LLC.

Issuer CF Hippolyta Issuer LLC.

Backup manager Midland Loan Services Inc., a division of PNC Bank N.A.

Indenture trustee andcustodian

UMB Bank N.A.

Sole structuring agent andsole bookrunner

Goldman Sachs & Co. LLC.

Independent financialadviser

Rothschild & Co.

Presale:

CF Hippolyta Issuer LLC (Series 2020-1)July 6, 2020

PRIMARY CREDIT ANALYST

Jesse R Sable, CFA

New York

(1) 212-438-6719

[email protected]

SECONDARY CONTACTS

James Yu, CFA

New York

212-438-0336

[email protected]

Matthew S Gardener

New York

(1) 212-438-7903

[email protected]

Craig J Nelson

New York

+ 1 (212) 438 8124

[email protected]

www.standardandpoors.com July 6, 2020 1

© S&P Global Ratings. All rights reserved. No reprint or dissemination without S&P Global Ratings' permission. See Terms of Use/Disclaimeron the last page.

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mailto: [email protected]








Rationale

The preliminary ratings assigned to CF Hippolyta Issuer LLC's $2.038 billion net lease mortgagenotes series 2020-1 reflect our view of:

- The strength of the initial triple-net (NNN) lease agreements, which are unconditionallyguaranteed by Amazon.com Inc. (Amazon, AA-/Stable/A-1+), the ultimate parent of the lessees,and prohibit optional termination, except in the events of casualty damage to a related propertyduring the last year of a lease term requiring more than sixty days to repair, or condemnation;

- The S&P Global Ratings values of the industrial logistics facilities;

- The construction agency agreements in place with Amazon for the three properties that aren'tyet completed (forward funded properties), whereby Amazon is fully responsible forconstruction completion and funding of any construction expenses in excess of the 110% ofbudgeted cost provided for by the transaction's forward funded account and forward fundedoverage account;

- The date-certain language in the leases that requires the tenants to begin paying rent no laterthan the specified lease start date, even in the case that construction is not yet completed;

- The cashflows that can be generated by the properties from potential replacement tenantsshould the initial tenants not renew their leases at the end of the initial lease terms;

- The credit enhancement available in the form of subordination for the class A-1 and A-2 notes;

- Overcollateralization (the aggregate appraised value minus the aggregate series principalbalance);

- Liquidity support in the form of the cash reserve account (for the period of time before rent hascommenced on all forward funded properties), expected to be funded with an initial amount ofapproximately $5 million, the liquidity reserve account (if any class of notes remainsoutstanding after its anticipated repayment date [ARD]), and the property manager's andbackup manager's obligation to make principal and interest advances to the notes;

- The projected cash flows supporting the notes; and

- The transaction's legal and payment structures.

Strengths, Weaknesses, And Mitigating Factors

The transaction's strengths include:

- The strength of the NNN leases, which are long-term (19.3 year weighted average remaininglease term with 1.5% annual escalators), unconditionally guaranteed by Amazon, and withoutany optional termination provisions (other than condemnation or events of casualty damage toa related property during the last year of a lease term requiring more than 60 days to repair);

- The quality of the properties, which are all new builds or complete renovations located incritical locations for logistics service providers;

- The date-certain structure of the leases for the forward funded properties, which requires thetenants to begin paying at the specified lease start dates regardless of the state ofconstruction completion.

- Amazon's guarantee of construction completion for the three forward funded properties, for



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Presale: CF Hippolyta Issuer LLC (Series 2020-1)

which 79%-90% of the construction budget has been funded pursuant to each constructionagency agreement, and which are expected by the sponsor to be substantially completed byOctober 2020;

- The presence of the forward funding accounts to cover up to 110% of the budgetedconstruction costs and the requirement that Amazon fund any excess costs beyond that;

- The presence of the cash reserve account, expected to be funded with approximately $5 millionto cover any shortfalls between closing and start of monthly lease payments on the forwardfunded properties;

- The NNN nature of the leases requiring the tenants to pay all maintenance, taxes, andinsurance on the properties;

- The geographic diversity of the properties, which are located across 11 states;

- The securitization structure, including the property manager's and backup manager'sobligation to make principal and interest and property protection advances to the extentdeemed recoverable;

- The properties' satisfactory environmental findings based on Environmental Phase 1, and, ifnecessary, Phase 2 results;

- The performance-based triggers, including the rapid amortization trigger, triggered if any classof notes is still outstanding after its ARD or if the 1.10x three-month average class A debtservice coverage ratio (DSCR) trigger is breached; and

- The liquidity reserve account, which, if any notes remain outstanding past their ARD, will befunded through the waterfall (capped each month at 5.0% of available amounts remaining afterallocating to collateral pool expenses and note interest) until it reaches 3.0% of the outstandingprincipal balance of the notes.

The transaction's weaknesses include:

- The high obligor and property concentration, with only one initial obligor, Amazon, and 11 initialproperties;

- The under-construction status of the three forward funded properties, which account forapproximately 46% of the portfolio's appraised value;

- The tenant's ability to optionally terminate the leases in the event of condemnation or due toevents of casualty damage to a related property during the last year of a lease term requiringmore than 60 days to repair;

- The tenant's ability to relocate at the end of the initial lease term, which may decrease theoccupancy rate and lease income, and the uncertain time needed for the property manager tofind a replacement tenant, especially if such lease maturities coincide with periods of weakproperty demand or oversupply;

- The large size of the warehouses backing the deal, with footprints ranging from approximately66,800 sq. ft. to 858,000 sq. ft., which may challenge the property manager's ability to find asingle replacement tenant to take over each lease, although subdivision of the warehouses ispossible;

- The uncertain credit quality of potential replacement tenants that could lease the properties ifAmazon elects not to renew, and the uncertain lease terms that could be extended to them;

- The forward funded properties' non-cashflowing period between the closing date and their rentcommencement dates in November and December 2020, which may cause negative carry for



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the notes;

- The notes' 40-year legal final maturity date, which may expose them to elevated tail risk if theyremain outstanding until that date; and

- The properties' exposure to laws and regulations relating to human health and theenvironment.

The following factors partially mitigate the transaction's weaknesses in our view:

- Amazon's strong credit quality, with an S&P Global Ratings issuer credit rating of 'AA-',reflecting its strong business risk profile and minimal financial risk profile;

- The construction agency agreements relating to the three forward funded properties, whichalign Amazon's interests with those of noteholders by requiring Amazon to completeconstruction on warehouses for which they have already signed leases and fund anyconstruction expenses that exceed 110% of the budgeted amounts;

- The date-certain lease language for the forward funded properties, which requires the tenantto begin paying rent no later than the specified lease start dates, regardless of the status ofconstruction completion;

- The advanced stage of construction completion for the three forward funded properties, with79%-90% of the construction budgets funded pursuant to each construction agencyagreement and the sponsor's expectation of substantial completion by October 2020;

- The tenant's requirement to maintain comprehensive insurance coverage, including at least 12months of business interruption insurance, which could temporarily cover lost cashflow ifAmazon optionally terminates a lease due to an event of casualty damage to a related propertyduring the last year of a lease term requiring more than sixty days to repair;

- S&P Global Ratings supplemental cashflow sensitivity tests, which assumed Amazon wouldoptionally terminate each lease 12 months prior to the initial maturity;

- The remoteness of condemnation, given the extensive coordination with local municipalauthorities, including planning and permitting, conducted as part of each property'sdevelopment process;

- The cash reserve account, which will be funded with approximately $5 million in cash at closing,an amount that should be sufficient to cover any short-term negative carry for the notes causedby the initial non-cashflowing status of the forward funded properties;

- The properties' general design, which is modular and may allow for greater flexibility whensearching for potential replacement tenants;

- The environmental site assessments completed for each property, revealing no materialadverse environmental conditions, as well as typical lease indemnifications by the tenantrelating to various liabilities at the properties, including potential environmental conditions;

- S&P Global Ratings' cashflow stress assumptions, which gave credit to no more than 30 yearsof cashflows, demonstrating timely interest and ultimate principal payments on the notes bylegal final maturity in all scenarios.

S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of thecoronavirus pandemic. The consensus among health experts is that the pandemic may now be at,or near, its peak in some regions but will remain a threat until a vaccine or effective treatment iswidely available, which may not occur until the second half of 2021. We are using this assumptionin assessing the economic and credit implications associated with the pandemic (see our research



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at www.spglobal.com/ratings). As the situation evolves, we will update our assumptions andestimates accordingly.

Environmental, social, and governance (ESG) factors relevant to the rating action:

- Health and safety

Business Description: Fortress Investment Group LLC

The sponsor, an indirect subsidiary of funds and accounts managed by Fortress Investment GroupLLC ("Fortress"), a global investment firm with about $41.7 billion of assets under management, issecuritizing a portfolio of net leases associated with warehouse facilities leased to Amazon.com,Inc. (AA-/Stable/A-1+).

Fortress has partnered with Amazon to build new logistics warehouse properties, all of which willhave Amazon as the sole initial tenant. The current securitization pool is composed of 11properties, eight of which are completed and three of which are under construction/renovation("forward funded properties"), accounting for about 46% of the underlying pool value. The poolcontains seven order fulfillment centers and four last mile delivery (LMD) centers. The fulfillmentcenters have original lease terms of 20 years, and the LMD properties have original terms of 12years. All but one of the properties possess five contractual extension options of five years. Theremaining property has two contractual extension options of five years and one additionalcontractual extension option of four years and eleven months. The leases are NNN leases, underwhich Amazon is required to pay all property-level expenses, including business expenses, realestate taxes, utilities, insurance, and repairs and maintenance. Leases in this transaction containindemnifications by the tenant relating to various liabilities, including environmental conditions.

Underwriting, Collection, And Property Management Process

CF Hippolyta Investor LLC, the sponsor, property manager, and special servicer, is a newly createdindirect subsidiary of various funds managed by affiliates of Fortress tasked with owning,developing, financing, and managing the logistics facilities. CF Hippolyta Investor LLC will provideproperty management services and service the leases and the lease guarantees, in accordancewith their respective terms, on behalf of the issuers and indenture trustee.

Macroeconomic Outlook

S&P Global Ratings economists are currently predicting a full-year U.S. GDP contraction of 5.0%, aslight improvement from the 5.2% predicted in April. This forecast assumes that the U.S. economyhas already reached the bottom of the COVID-19-driven recession. Still, the recovery from thelow-point will be slow, as lingering effects of the COVID-19 pandemic will continue to haveeconomic implications throughout the remainder of the year. The current forecasts predicts amodest economic rebound of 5.2% in 2021. This, however, is a full percentage point lower than theprevious estimate of 6.2% GDP growth next year. Macroeconomic activity is not expected to returnto pre-crisis levels for at least another two years. Unemployment levels for later in the year areestimated to be 8.9% and are not expected to return to pre-crisis levels until the fourth quarter of2023, according to the most recent forecast. Though these assumptions reflect the mostup-to-date information available, we recognize that the projected recovery remains fragile. Thereis still considerable uncertainty regarding when an effective vaccine will be available, whetherthere will be a second wave of COVID-19 requiring another round of business shutdowns, and how



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businesses will navigating re-hiring their employees.

Industry Characteristics: Sector Outlook

S&P Global Ratings expects that the credit quality for rated real estate investment trusts (REITs)will continue to be negatively impacted by the effects of COVID-19. Among different REIT propertytypes, retail REITs have been hit particularly hard, collecting only about 55% of contractual rentobligations in April. Industrial REITs, on the other hand, have fared significantly better and havemaintained upwards of 90% of their expected rent collections throughout the pandemic. It isexpected that industrial REITs will continue to perform favorably, primarily driven by strong, if notincreasing, e-commerce demand, of which Amazon is an obvious benefactor. Additionally, thoughwe expect that the industrial REIT space will experience some pressure on re-leasing spreads andoccupancy rates over the next year or two, these predictions are less relevant to the current deal,as the earliest lease expiration in the pool is not until 2031.

At the start of the pandemic, REIT debt issuance was limited, driven by the uncertainty andvolatility of the capital markets. Debt issuance rebounded again after the Federal Reserve Bankcomplemented programs to inject liquidity and help stabilize the markets in March. For theremainder of the year, we expect that debt issuance will continue to be slow, not only because ofthe continued volatility in the markets, but also because many REITs have little need to raisefunds. Many are pulling back acquisitions and development projects, which limits the need forfinancing. Additionally, the vast majority of REITs have minimal maturities over the next 12months, which limits their refinancing needs. However, those REITs that do access the marketswill benefit from the current low interest rate environment.

Logistics Real Estate

The proliferation of e-commerce and increasing customer demands for rapid delivery service havefundamentally changed the supply chain infrastructure required to support e-commerce deliverynetworks. Amazon itself is a case-in-point, having expanded its warehouse space by an order ofmagnitude in the last decade. This trend has been true for the larger e-commerce supply networkas well. Since 2010, the American warehouse market has absorbed an average of 222 millionsquare feet of space per annum, the highest in history. Current vacancy rates stand at 4.4%, thelowest on record.

In the past, warehouse rental rates were closely related to the strength of the broader economy,increasing until the top of the cycle and falling when the cycle turned. In the last decade, however,this relationship has weakened. Rather than being motivated by short-term economicconsiderations, ecommerce companies are investing in their supply chains to strengthen theirlong-term business strategy. Real estate investment is occurring in all phases of the cycle, andwith considerable urgency. This, when combined with ever-fewer options for ideal warehousebuild sites (i.e., ample space close to major population centers), has increased the averagewarehouse yearly rent escalation to approximately 5.6% today from approximately 3.0% a decadeago. Perhaps even more in demand are LMD centers. Though they have only come into play in thelast few years, LMDs are a key link needed to make any rapid delivery network a reality. As such,these properties continue to command a significant premium and are expected to have annualrent escalations of roughly 7.0%-8.0% over the next decade.

Coupled with the changing demand trends for warehouses has come a shift in how theseproperties are valued. This is particularly true for Amazon, which, given its goal of building out itsdistribution network, has every incentive to not vacate a given property within its network. Still, in



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the event that Amazon were to exit a property, it is reasonable to expect that another e-commerceplayer would capitalize on the opportunity, and quickly. Given these high levels of demand, whichare expected to continue into the long term, warehouse appraisals employing the directcapitalization method have begun assuming a reversion cap rate up to 25 basis points above thetypical reversion cap rate.

Amazon.com Inc.

Amazon continues to lead the field in both its e-commerce division and its web service platform.On the e-commerce front, the company benefits from its diversified worldwide operations and itsinvestments in technology and distribution. Its Prime membership, which entitles the holder tofree two-day and, more recently, one-day shipping on millions of items, has more than 100 millionmembers and is growing. Still, though Amazon continues to enjoy a leading market position, otherretail players (namely Target and Walmart) have recently gained traction, offering services,shipping times, and other amenities that are in line with Amazon's policies and, more broadly,customer's high expectations. In response to its competitors, Amazon introduced free one-dayshipping to Prime members, a move that, although it resulted in a 37% increase in shipping costsin 2019, helped further protect Amazon's leading online market share.

Amazon remains committed to heavy capital spending and acquisitions to meet customer demandand to maintain its leading market position. Though the company is not committed to a particularcorporate credit rating, its current performance and sizeable cash balances are supportive of the'AA-' issuer credit rating (ICR).

Amazon has operated with a strategy of establishing a distribution network that can reach themajority of U.S. consumers within two days (or even one day). Understandably, this goal comes ata high cost and requires significant capital investments to be feasible. As evidenced by the currentportfolio of leased properties, Amazon is in the process of investing heavily in its distributionnetwork and is working to establish the fulfillment and LMD centers necessary to solidify its claimto nationwide two- and same-day delivery. For more information, see "Amazon.com Inc.,"published on Feb. 13, 2020.

Given the concentrated exposure to various subsidiaries of Amazon.com Inc., whose leaseobligations and remaining construction milestones are explicitly and unconditionally guaranteedby Amazon.com, our ratings on the securitization's notes will be constrained to Amazon's ICR. Theratings could, however, fall beneath Amazon's ICR should our view of the property values orexpected lease cashflows following the end of Amazon's initial lease terms change.

Pool And Structural Characteristics

For the noteholders' benefit, the issuers will grant the indenture trustee a mortgage andassignment of leases in each of the properties included in the initial collateral pool (see table 1).Over the life of the transaction, the issuers may also substitute out certain "exchange properties"in exchange for "qualified substitute properties" subject to specific criteria that maintain thepool's characteristics, such as being located in the U.S., being owned directly or indirectly by oneof the asset owning entities or leased under an unencumbered ground lease, satisfyingenvironmental reviews, having an appraisal value no less than the value of the exchanged propertyor properties (when combined with all qualified substitute properties since the most recentissuance date), having a weighted average remaining term no less than the exchanged property,and having the same or greater monthly lease payments as the exchanged property.



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Table 1

Initial Asset Pool

Property type City State

Rentcommencementdate

Leaseexpiration

WAremaining

leaseterm

(years)

Initialbase

monthlyrent ($)

% oftotal

initialmonthly

baserent

Annualrent

increases(%)

Initialappraisedvalue (%)

% of totalappraised

value

Completed properties

FC Bakersfield CA 11/15/2019 11/30/2039 19.50 1,222,345 14.78 1.50 327,400,000 14.46

FC Bessemer AL 11/23/2019 11/30/2039 19.50 852,246 10.31 1.50 220,800,000 9.75

FC Charlotte NC 9/4/2019 9/30/2039 19.33 803,143 9.71 1.50 208,600,000 9.21

FC Spokane WA 10/8/2019 10/31/2039 19.42 1,315,300 15.90 1.50 352,700,000 15.58

LMDC ColoradoSprings

CO 10/8/2019 10/31/2031 11.42 131,551 1.59 1.50 35,100,000 1.55

LMDC DaytonaBeach

FL 9/13/2019 9/30/2031 11.33 130,446 1.58 1.50 33,000,000 1.46

LMDC Elgin IL 10/8/2019 10/31/2031 11.42 105,836 1.28 1.50 26,700,000 1.18

LMDC Providence RI 9/3/2019 9/30/2031 11.33 74,047 0.90 1.50 18,600,000 0.82

Completedpropertiestotal

18.69 4,634,913 56.04 1.50 1,222,900,000 54.01

Forward funded properties

FC Akron OH 11/1/2020 10/31/2040 20.00 1,125,457 13.61 1.50 319,300,000 14.10

FC Nampa ID 12/1/2020 11/30/2040 20.00 1,443,033 17.45 1.50 409,400,000 18.08

FC StoneMountain

GA 11/1/2020 10/31/2040 20.00 1,066,788 12.90 1.50 312,700,000 13.81

Forwardfundedpropertiestotal

20.00 3,635,279 43.96 1.50 1,041,400,000 45.99

Grand total 19.29 8,270,191 100.00 1.50 2,264,300,000 100.00

WA--Weighted average. FC--Fulfillment center. LMDC--Last mile delivery center.

Forward funded properties

The asset portfolio includes three fulfillment centers, the forward funded properties, whosebudgeted construction costs have been 79% to 90% funded pursuant to each construction agencyagreement. An amount sufficient to fund 100% of remaining budgeted construction costs, plus anamount sufficient to fund an additional 10% of total budgeted construction costs, has has beenreserved for in the securitization's forward funded and forward funded overage accounts. Theforward funded properties are expected by the sponsor to reach full completion status by the endof 2020, when their leases commence in November and December. Once the leases commence,the three forward funded properties are expected to account for approximately 44% of rental cashflows from the collateral pool.



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Construction agency agreement

In accordance with the construction agency agreements between Amazon subsidiary Amazon.comServices LLC and the asset entities for the related forward funded properties, Amazon isresponsible for the design and construction of the forward funded properties while the sponsor isresponsible for funding up to 110% of the budgeted construction costs. The sponsor is obligatedto fund the construction according to a fixed funding schedule. Amazon is responsible for the rentonce leases commence, regardless of completion status of the forward funded properties.

Construction completion risk and Amazon's issuer credit rating:

Because construction completion is guaranteed by Amazon in the construction agencyagreements, we view the risk of Amazon defaulting on those agreements to be equivalent to therisk of Amazon defaulting on its lease obligations. Furthermore, given that Amazon is not only theconstruction agent, but also the tenant, obligated to pay rent beginning at the date-certain datesregardless of construction completion status, we believe Amazon has strong incentives tocomplete construction as close to the lease start dates as possible.

The following table shows the pool characteristics relative to those of other single-tenanttriple-net-lease ABS transactions S&P Global Ratings has rated:

Table 2

Comparative Transaction Characteristics(i)

CF HippolytaIssuer LLC

(2020-1)CARS DB 4 L.P.

(2020-1)NADG

(2019-1) STORE (2019-1) AFN (2019-1)

Aggregate collateralvalue (bil. $)

2.26 3.18 0.38 3.1 0.35

Aggregate allocatedloan amount (bil. $)

2.04 2.63 0.26 2.32 0.24

No. of properties 11 195 136 1,111 202

No. of leases 11 172 146 273 121

Unique Tenants 1 54 108 404 30

Avg. collateral value(mil. $)

205.85 16.37 2.62 2.79 1.71

Range of collateralvalue (mil. $)

18.60-409.40 1.47-233.35 0.803-8.4 0.160-31.77 0.490-4.8

Weighted averageoriginal lease term(mos.)

235 209 192 214 225

Weighted averageremaining lease term(mos.)

232 131 120 148 206

Range of initial leaseterm (mos.)

144-240 36-386 60-720 57-600 119-364

Range of remaininglease term (mos.)

136-240 2-267 21-589 1-238 46-238



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Table 2

Comparative Transaction Characteristics(i) (cont.)

CF HippolytaIssuer LLC

(2020-1)CARS DB 4 L.P.

(2020-1)NADG

(2019-1) STORE (2019-1) AFN (2019-1)

Combinedloan-to-value by ratinglevel

75% for the 'AA-(sf)' rated notes,

and 90% for the 'A-(sf)' rated notes.

33.4% for the 'AAA(sf)' rated notes,

70.1% for the 'A+(sf)' rated notes, and

82.7% 'BBB (sf)'rated notes.

70.0% for theA (sf) rated

notes

45.0% for 'AAA (sf)'rated notes; 70.0%

for 'A+ (sf)' ratednotes; 75.0% for the

'BBB+ (sf)' ratednotes

35.0% for 'AAA(sf)' rated

notes; 70.0%for the 'A (sf)'

rated notes

Issuer DSCR (x)(ii) 1.53x(iii) 1.42x 1.84x 1.91x 2.11x

Largest three stateconcentrations(iv)

Idaho (18.08%),Washington

(15.58%), andCalifornia (14.46%)

Texas (13.96%),Florida (10.56%),

and Arizona(10.38%)

Illinois(15.95%),

Texas (8.29%),and Virginia

(8.25%)

Texas (12.75%);Florida (7.76%);

Ohio (6.68%)

Georgia(15.63%);Alabama

(11.12%); Ohio(10.49%)

(i)As of the May 31, 2020, statistical disclosure date for CF Hyppolyta Issuer LLC and closing date for prior transactions. (ii)The projected annualissuer DSCR for the period commencing on the first payment date. (iii)As stabilized. (iv)By appraised value. DSCR--Debt service coverage ratio.

Transaction Structure

The issuer is a special-purpose entity (SPE) that can, at a future date, issue additional series ofnotes secured by the entire collateral pool.

Each month, available funds will first be used to pay property pass through expenses and makedeposits (if any) to the operating expense reserve account, and then to pay expenses on thecollateral pool in the order of priority shown in table 3.

Table 3

Collateral Pool Expense Waterfall

Priority Payment

1 Indenture trustee fee.

2 Property manager fee.

3 Special servicer fee.

4 Backup manager fee.

5 Reimbursement of advances and extraordinary expenses (subject to an annual limit) to the propertymanager, special servicer, and backup manager.

6 Issuer expenses (subject to an annual limit).

7 Reimbursement of extraordinary expenses (subject to an annual limit) to the indenture trustee, theproperty manager and special servicer, and any relevant third party not previously paid above.

Any remaining funds will be distributed to pay each series of notes pro rata, based on the amountsdue in the order of priority shown in table 3. If at a future date the issuer (or any coissuers) issueadditional series, the funds remaining after paying the collateral pool expenses will first bedistributed pro rata among all of the outstanding series and then the amount allocated to eachseries will be distributed in the order of priority shown in table 4.



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Table 4

Series Waterfall

Priority Payment

1 Class A note interest, pro rata.

2 Class B note interest, pro rata.

3 If after the ARD of any class of notes, to fund the liquidity reserve to its target, with up to 5% of availableamounts remaining after priorities 1 and 2 above.

4 If not during an early amortization period, to each series the scheduled class A scheduled principal payment,pro rata, followed by the supplemental principal payment amount due to class A, pro rata, followed by class Aunscheduled principal payment amount and unscheduled proceeds, if any, pro rata. Then to each series thescheduled class B scheduled principal payment, pro rata, followed by the supplemental principal paymentamount due to class B, pro rata, followed by class B unscheduled principal payment amount and unscheduledproceeds, if any, pro rata.

5 If during an early amortization period, to each series, all remaining amounts to the class A notes, followed bythe class B notes.

6 To each series, sequentially, the class A make-whole amounts, followed by the class B make-whole amounts.

7 To each series, sequentially, the sum of aggregate class A post-ARD additional interest, followed by the class Bpost-ARD additional interest.

8 Unpaid issuer expenses and extraordinary expenses, if any.

9 If during a forward funded cash sweep period, to the forward funded cash sweep reserve account.

10 All remaining funds to the issuer.

ARD--Anticipated repayment date.

The structure benefits from a liquidity reserve account, which, if any class of notes remainsoutstanding after its ARD, is funded through the waterfall (capped each month at 5% of availableamounts remaining after allocating to collateral pool expenses and note interest) until it reaches3.0% of the outstanding principal balance of the notes as of the immediately preceding paymentdate. Any amounts in the liquidity reserve account remaining after the notes have been paid will bereleased to the collection account as available amounts.

An early amortization period will take effect if the three-month average Class A DSCR level is lessthan 1.10x, any series of notes has not been fully redeemed by its respective ARD, or an event ofdefault has occurred. An early amortization period brought on by a low DSCR level will cure afterthree consecutive months in which the three-month average Class A DSCR level is greater than orequal to 1.10x. As noted in item 5 in table 4, all available funds (after paying expenses andinterest) will be paid pro rata to classes A-1 and A-2, until their principal balances are reduced tozero, then pro rata to classes B-1 and B-2 until their principal balances are reduced to zero.

The property manager must make interest or principal advances on the notes if they are deemedrecoverable. The advances are meant to cover any shortfalls resulting from missed leasepayments or property vacancies, as well as any interest and principal shortfalls in case the noteswill not be paid in full by their final maturity. Principal payments in the post-ARD period (otherthan on the final maturity date), make-whole amounts, post-ARD additional interest, and deferredpost-ARD additional interest are all excluded from this requirement. If the property manager failsto make an advance, the backup manager must make the advance in its place. Theserequirements for advances are a form of liquidity for the notes.



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Forward funded account and forward funded overage account

The forward funded account will be funded with approximately $73 million at closing, an amountsufficient to fund the remaining budgeted construction costs of the forward funded properties.The funds will be advanced to the construction agent, Amazon, according to the funding schedulesset forth in the construction agency agreements. The property manager expects to have advancedall funds in the forwarded funded account to Amazon by the end of November 2020.

The forwarded funded overage account will be funded with approximately $116 million at closing,an amount sufficient to fund an additional 10% of the budgeted construction costs. Together, theforward funded account and forward funded overage account will reserve sufficient cash to fundup to 110% of budgeted construction costs. Should construction costs of the forward fundedproperties exceed 110% of budget, Amazon will be responsible for any further costs. As eachforward funded property is completed, any corresponding remaining funds in the forward fundedand forward funded overage accounts will be released to the waterfall pursuant to the priority ofpayments.

To the extent that construction is not fully completed 18 months after the outside constructioncompletion date of the forwarded funded properties, all remaining cash flows available to equitywill be diverted to the forward funded cash sweep reserve account. Funds swept into this account,if any, will be released to the issuer upon construction completion or to the waterfall upon earlyamortization.

S&P Global Ratings' Stress Scenario Assumptions

We believe the risk to the cash flow generated from this portfolio of properties and theirassociated leases stems from five major factors:

- A default by the sole initial tenant and guarantor;

- The property manager's ability to re-lease the properties if they are vacated by non-renewing ordefaulted tenants;

- The credit quality of new tenants and their lease terms (rental rate and term of lease);

- The liquidation value of properties that the manager is unable to re-lease and chooses toliquidate; and

- Optional termination provisions if the landlord determines damage sustained by the propertytakes over 60 days to repair in the last year of Amazon's lease.

Initial leases to Amazon's subsidiaries

For rating stress scenarios at and below Amazon's current issuer credit rating (ICR), we assume nohaircuts to the scheduled lease cashflows for the initial leases to Amazon's subsidiaries. Forexample, given an economic environment commensurate with 'AA-' stress, our assumption, givenAmazon's current 'AA-' ICR, is that Amazon will not default on its lease obligations. It is importantto note that this assumption means that our ratings on the notes will be constrained by Amazon'sICR. If Amazon's ICR is lowered, our ratings on the class A notes will most likely be lowered as well.It is also important to note that because our projected cashflows over the life of the transactionconsist both of rent cashflows paid by Amazon, rent paid by subsequent tenants, and propertyliquidation proceeds it is possible that our senior note ratings could migrate beneath Amazon's



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ICR if our expectations for property liquidation value or replacement tenant lease cashflowschange.

Following Amazon's initial lease terms, we have assumed Amazon will not be renewing any leases.While we recognize that the logistics properties are an essential part of Amazon's logisticsnetwork and that Amazon has multiple five-year extension options on each lease, we believe thatthe initial lease terms of 12 and 20 years are quite long and create substantial uncertainty as toAmazon's needs for the properties at the end of that long horizon.

40-year legal final maturity

Though the notes have legal final maturities of 40 years, for the purpose of our stress scenarios,we have assumed only 20 years of lease cashflows in our 'AA-' scenario and 30 years in our 'A+'scenario, each followed by the liquidation of any remaining properties at the S&P Global Ratingsvalue. Although the transaction documents do not mandate such a liquidation at those times, webelieve that such liquidations by the property manager would be consistent with the servicingstandard. For example, it is possible in a severely stressed environment that the property managermay observe significant deterioration in certain property markets and consider property sales tobe the most appropriate way to maximize value for noteholders.

Cash flow analysis

To determine whether the available credit support is sufficient to withstand assumed losses, weexamined various simulated cash flow scenarios. In each scenario, we assumed the application ofthe default rates described below, for the replacement tenant leases, across four default curves intwo default cycles (see table 5). Although the transaction documents require the propertymanager and backup manager to make advances on interest payments (if deemed recoverable),no advances were assumed in the cash flow modeling scenarios. Additionally, we have assumedno receipt of insurance proceeds, such as business interruption insurance payments, giveninsured casualty or condemnation events. In each rating stress scenario, the respective noteswere paid timely interest and full principal by their rated final maturity.

Table 5

Default Curves

Year Curve 1 (%) Curve 2 (%) Curve 3 (%) Curve 4 (%)

1 40 10 10 15

2 10 10 10 15

3 10 10 10 15

4 10 40 10 15

5 10 10 10 15

6 10 10 10 15

7 10 10 40 10

Replacement tenant, renewal, and liquidation stress assumptions

We utilized the Standard & Poor's CDO Evaluator to estimate default rates for potentialreplacement tenants. We assumed that replacement tenants would have average ratings of 'B



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(sf)', that each property would be occupied by a unique tenant, and that replacement lease termswould be 10 years for fulfillment centers and seven years for LMD centers. Under our 'AA-' and'A+' stress scenarios, our default assumptions for the portfolio are 90.0% and 85% respectively.

For the properties on which a replacement tenant defaulted, we assumed that 36.0% and35.0%--based on the 'AA-' and 'A+' stress scenarios, respectively--would be sold at a stressedliquidation value of 18.8% and 21.1% of the appraised value (subject to a 24-month lag for the'AA-' scenario and 12-month lag for the 'A+' scenarios).

We assumed the remaining defaulted properties were re-leased for a second lease cycle (subjectto a 24-month lag under the 'AA-' stress scenario and a 12-month lag under the 'A+' stressscenarios) at a rental rate equal to 66.7% and 68.3% of the prior rental rate under 'AA-' and 'A+'stress scenarios, respectively. At the end of this second lease cycle, we assumed those leaseswould be liquidated at 49.5% of the appraisal value (subject to a 12-month lag for the 'AA-'scenario and six-month lag for the 'A+' scenarios).

Finally, for performing properties, we assumed a re-leased rental rate of 81.7% and 83.3% for the'AA-' and 'A+' stress scenarios. During projected recessionary periods, we assumed no scheduledrental increases. Thereafter, we assumed a 49.5% liquidation value of those properties following a12-month lag in the 'AA-' scenario and six-month lag in the 'A+' scenario.

To determine the various liquidation values assumed above, we estimated the properties' valueusing our commercial real estate methodology under two specific circumstances:

- The property is occupied by a tenant that is making full payments under the lease (the leasedvalue). In determining each property's leased value, we assumed rental income based on thein-place leases, the appraiser's estimate of market rent, and recent leasing data from themarket. We also applied a vacancy deduction to the potential gross income. We estimatedexpenses and expense reimbursements based on information from the appraisals andcomparable properties. These expenses included fixed items such as real estate tax andinsurance, estimated management fees, and variable expenses that were reimbursed in ourincome projections. We determined the net cash flow after deducting estimated leasingcommissions, tenant improvement expenses, and capital reserves/expenditures, based onprojected lease roll assumptions. We selected direct capitalization rates based on factors suchas appraisal and market cap rates, property performance and tenant strength, and propertytype.

- The property is unoccupied, but it is in a viable location that can be used with minor structuralimprovements (the dark value). In determining a dark value, we assumed each property wasunoccupied and unencumbered by any leases. Because we viewed this operating performancedecline as temporary, we stabilized the dark properties with income and expense projections,based on market data and information from the appraisal. We deducted capital items from ournet operating income, including tenant improvements and leasing costs required to lease upthe entire unoccupied space. We then estimated one year of downtime for the lease up. Weused a stressed capitalization rate for this analysis.



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Chart 1

Supplemental sensitivity tests

Given Amazon's ability to optionally terminate the leases in the final year of their initial term in anevent of casualty damage to a related property during the last year of a lease term requiring morethan 60 days to repair, we performed supplemental sensitivity tests assuming that Amazonterminates each lease 12 months prior to the initial maturity. Following each option terminationwe assumed a 12-month release lag in our 'AA-' scenario and a six-month lag in our 'A+' scenario.Though we believe the likelihood of such events occurring for every property in the final year of theinitial lease term is remote, we nevertheless wanted to assess the transaction's ability towithstand such a liquidity stress. We determined that the notes were paid timely interest andultimate principal in these scenarios.

Qualitative adjustment to the cashflow-implied rating for class B notes

Though the class B notes passed our cashflow stresses at the 'A+' level, paying timely interest andultimate principal, we lowered the rating two notches, on a qualitative basis, to arrive at a finalrating of 'A- (sf)'. This adjustment was due to our comparative analysis of the class B notes relativeto other NNN notes S&P Global Ratings has rated in the single-A rating category. Despite theunique strength of the initial lease agreements, the initial tenant credit quality, and the high



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quality of the new-build properties and their locations, we felt the leverage of this transaction'sclass B notes, relative to those other notes, was a significant outlier at a 90% LTV ratio, comparedto the average of 70% for the single-A category.

Additionally, we observed that in our stress scenarios the class B notes de-lever more slowly, withmost of its principal paid down by our assumed property liquidation proceeds at year 20 in our'AA-' scenario and year 30 in our 'A+' scenario. We note that we did not make a similar adjustmentfor the class A notes. Although the class A notes' initial leverage at a 75% LTV ratio is also highcompared to that of other similar NNN notes, we believe the notes' ratings should be more closelyaligned with the ICR of Amazon, given that the majority of the notes' projected principal paydowncomes from Amazon's contractual lease payments. The same is not the case of the class B notes,which are paid down primarily from property liquidation proceeds in our analysis.

Legal Structure

Chart 2

The issuer, CF Hippolyta Issuer LLC, and the closing date asset entities (asset entities), whichinclude CF Hippolyta Bessemer LLC, CF Hippolyta Bakersfield LLC, CF Arapaima ATL LLC, CFHippolyta Nampa LLC, CF Hippolyta Charlotte LLC, Akron Romig Road LLC, CF Hippolyta SpokaneLLC, CF Capybara COS LLC, CF Toucan DAB LLC, CF Otter ORD LLC, and CF Ocelot PVD LLC, arebankruptcy-remote Delaware limited partnerships. The issuer and the asset entities, collectively



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the obligors, were formed for the sole purpose of (i) holding the mortgaged properties (in the caseof the asset entities) or (ii) issuing notes and owning the asset entities (in the case of the issuer).

The issuer will grant a security interest in all of the equity interest in each asset entity to theindenture trustee on behalf of the noteholders as collateral security for the notes. Each assetentity will guarantee the notes and grant a security interest to the indenture trustee for the benefitof the noteholders in all of its personal property and fixtures and mortgage its interests in itsproperties as collateral security for such guarantee.

The obligors' SPE provisions are expected to be consistent with S&P Global Ratings'bankruptcy-remoteness criteria. In rating this transaction, S&P Global Ratings will review thelegal matters it believes are relevant to its analysis, as outlined in its criteria.

Related Criteria

- Criteria | Structured Finance | Legal: U.S. Structured Finance Asset Isolation AndSpecial-Purpose Entity Criteria, May 15, 2019

- Criteria | Structured Finance | ABS: Methodology And Assumptions For Rating North AmericanSingle-Tenant Real Estate Triple-Net Lease-Backed Securitizations, March 31, 2016

- General Criteria: Principles For Rating Debt Issues Based On Imputed Promises, Dec. 19, 2014

- Criteria | Structured Finance | General: Criteria Methodology Applied To Fees, Expenses, AndIndemnifications, July 12, 2012

- General Criteria: Global Investment Criteria For Temporary Investments In TransactionAccounts, May 31, 2012

- Criteria | Structured Finance | General: Methodology For Servicer Risk Assessment, May 28,2009

Related Research

- Credit Conditions North America: Rolling Out the Recovery, June 30, 2020

- The U.S. Faces A Longer And Slower Climb From The Bottom, June 25, 2020

- REITrends: Negative Ratings Bias Rises As North American REITs Confront Effects Of COVID-19,May 28, 2020

- Amazon.com Inc., Feb. 13, 2020

In addition to the criteria specific to this type of security (listed above), the following criteriaarticles, which are generally applicable to all ratings, may have affected this rating action:"Counterparty Risk Framework: Methodology And Assumptions," March 8, 2019; "Post-DefaultRatings Methodology: When Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23,2015; "Global Framework For Assessing Operational Risk In Structured Finance Transactions,"Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D'And 'SD' Ratings," Oct. 24, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings,"Oct. 1, 2012; "Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch AndOutlooks," Sept. 14, 2009.



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