DBRS Confirms Ratings on GSMS 2012-ALOHA

DBRS has today confirmed its ratings on the following classes of GS Mortgage Securities Corporation Trust 2012-ALOHA, Commercial Mortgage Pass-Through Certificates, Series 2012-ALOHA (GSMS 2012-ALOHA). The trends are Stable.

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class B at AA (low) sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)

The collateral for the transaction consists of the fee interest in a super-regional mall, an office building and a small unanchored retail center, as well as the partial fee, partial leasehold interest in another office building. Ala Moana Center, the mall portion of the collateral, was originally built in 1959 and has been expanded and renovated multiple times over the years, with the most recent renovation including the addition of Nordstrom’s first store located in Hawaii. By virtue of its location near Waikiki Beach, approximately 40% of the subject’s visitors are tourists, with a large number of foreign tourists coming from Japan, China and Korea. Ala Moana Center is considered one of the top malls in the U.S. due to its large size and extremely high sales levels achieved by its tenants. Sales performance at the property has been historically very good and continues to improve.
As part of this surveillance review, DBRS obtained a September 2012 sales report for the property. Sales for comparable tenants occupying less 10,000 sf have increased from $969 psf in 2002 to $1,320 sf as of the T-12 ending September 30, 2012, period. Anchor tenant sales are also quite high, with all four department store anchors reporting sales volumes higher than their respective national averages.

DBRS was unable to obtain a complete operating statement analysis report (OSAR) from the servicer as part of this surveillance review, as financials were only spread by the servicer for the Ala Moana Center portion of the collateral. However, DBRS obtained and analyzed the December 2012 rent roll, which reported a combined collateral occupancy rate of 95.5%, which is in line with the occupancy rate that was reported at issuance. DBRS also confirmed that the rental revenue for the collateral, as reported by the rent roll, was in line with the rental revenue at issuance.

According to the December 2012 rent roll, there is minimal tenant rollover (approximately 2.0% across 38 separate tenants) throughout the rest of 2013. In 2014, 7.1% of the NRA have leases that expire; however, this rollover is considered diverse as it is comprised of 78 individual tenants. The heaviest near-term rollover occurs in 2015 when 75 tenants representing 22.6% of the NRA rolls. The 2015 tenant rollover is concentrated in Macy’s (14.8% of the NRA), whose lease expires in December 2015. Macy’s has been at the property for a very long time and reported T-12 September 2012 sales psf of $349, which is substantially higher than the company’s national average.

Sears is one of the four department store anchors at the property, and is included in the collateral for the loan. However, the borrowers can release the Sears parcel without any paydown of the loan. The parcel will be transferred to an affiliate of General Growth Properties, Inc. and the store will be torn down to be replaced with shop space. Tenant relocations will only be allowed if a tenant has less than six months remaining on its lease or the execution, by the loan sponsor, of a master lease for a three-year minimum term that will cover 110% of the relocated tenant (s) total income. DBRS does not consider the release of the Sears parcel and subsequent building of new improvements to have a materially negative impact on the loan. As part of this surveillance review, DBRS inquired with the servicer regarding the status of the Sears space. According to the servicer, the target date to begin the demolition of the Sears structure is July 1, 2013.

The two offices at the property, Ala Moana Building and Ala Moana Pacific Center, are performing somewhat poorly in comparison to the mall, with occupancy rates of 88.9% and 84.2, respectively. These two properties only account for 5.9% of DBRS UW NCF, mitigating the impact of any underperformance.

The loan has minimal default risk during the ten-year loan term, as the DBRS Term DSCR is quite high at 2.21x and no individual tenant contributes more than 3.1% of base rent. DBRS LTV is considered modest at 75.9%.

Notes:
All figures are in U.S. dollars unless otherwise noted.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

All classes are privately placed pursuant to Rule 144a. The Class X-A and Class X-B balances are notional. DBRS ratings on interest-only certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the interest-only certificate’s position within the transaction payment waterfall when determining the appropriate rating.

The applicable methodology is CMBS Rating Methodology, which can be found on our website under Methodologies.