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. 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 United States, due to its large size and the 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 March 2014 sales report for the property. Sales for comparable tenants occupying less than 10,000 sf have increased from $1,329 psf as of the T-12 ending January 31, 2012, to $1,378 psf as of the T-12 ending March 31, 2014. The collateral anchor tenant, Macy’s, reported a sales volume increase of 10.35% since issuance.

Per the July 2014 operating statement analysis report (OSAR) from the servicer, the YE2013 rental revenue for the collateral is in line with the rental revenue at issuance. The collateral occupancy rate is 94% as of the March 2014 rent roll, down from 96% at issuance. However, it appears to be intentional vacancy to accommodate tenant expansions following the Sears conversion at Ala Moana Center. YE2013 net cash flow for the subject property has grown 3.23% since issuance and, correspondingly, the YE2013 DSCR has increased to 2.40 times (x), up from 2.29x at YE2012 and 2.33x at issuance.

According to the March 2014 rent roll, there is minimal tenant rollover (approximately 1.75% across 20 separate tenants) throughout the rest of 2014. The heaviest near-term rollover occurs in 2015, when 60 tenants, representing 27.52% of the NRA, roll. The 2015 tenant rollover is concentrated in Macy’s (19.07% of the NRA), with a lease expiring in December 2015. Macy’s has been at the property for a very long time and reported T-12 March 2014 sales psf of $388, 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 was transferred to an affiliate of General Growth Properties, Inc. in 2012 and the store was demolished in favor of redevelopment. Tenant relocations are only 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 total income of the relocated tenant(s). 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. The current plans of the expansion include the addition of Bloomingdale’s to the anchor line-up, the relocation of Nordstrom to a new store in the expansion wing, the addition of several major tenants and numerous new in-line shops, as well as the addition of new parking decks. The completion of the expansion is slated for late 2015.

The two offices at the property, Ala Moana Building and Ala Moana Pacific Center, are operating at lower occupancy rates in comparison to the mall, at 89.15% and 82.44%, 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.

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.