DBRS Confirms Ratings on GS Mortgage Securities Trust 2013-G1

DBRS Limited (DBRS) has today confirmed the ratings on the Commercial Mortgage Pass-Through Certificates issued by GS Mortgage Securities Trust, Series 2013-G1 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (low) (sf)
-- Class DM at BB (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which remains in line with DBRS expectations. The collateral consists of three fixed-rate loans secured by two outlet malls and one regional mall – Great Lakes Crossing Outlets, Katy Mills and Deptford Mall, respectively, located in established suburban markets outside of Detroit, Houston and Philadelphia, respectively. At issuance, the transaction had a DBRS weighted-average (WA) debt service coverage ratio (DSCR) and a DBRS WA debt yield of 2.36 times (x) and 11.4%, respectively. As of the February 2016 remittance, all loans are reporting 2015 partial-year financials with a WA DSCR and WA debt yield of 2.69x and 12.6%, respectively. All three loans remain in the pool with an aggregate outstanding principal balance of $545.3 million, representing a collateral reduction of 4.2% since issuance because of scheduled loan amortization.

At issuance, DBRS shadow-rated all three loans as investment grade. DBRS has today confirmed that the performance of these loans remains consistent with investment-grade loan characteristics. Overall, all loans demonstrate stable market positions, satisfactory in-line sales performance, high-quality sponsorship and low-leverage financing. There are no loans on the servicer’s watchlist, and the second- and third-largest loans are highlighted below.

Deptford Mall (Prospectus ID#2, 35.4% of the current pool balance) is secured by a regional mall located in Deptford, New Jersey. The property is shadow-anchored by Macy’s, JCPenney, Sears and Boscov’s. According to the September 2015 rent roll, the collateral occupancy was 86.5%, which is a decrease from the YE2014 occupancy of 96.0% and in-place occupancy of 96.8% at issuance. In addition, tenants occupying 12.0% of the net rentable area (NRA) have leases scheduled to expire within the next 12 months, and DBRS has requested leasing updates from the servicer. The decline in collateral occupancy is a result of in-line tenants’ vacating the subject property upon lease expirations in 2015. Also, Express reduced its footprint from 13,626 square feet (sf) to 8,200 sf; however, its rental rate increased to $47.00 psf from its previous rental rate of $30.00 psf. Also, former tenant Deb Shops (Deb) vacated the property ahead of its 2018 lease expiration, and 5,000 sf of its space was rented to Kicks USA at $41.00 psf, which is above Deb’s rental rate of $20.31 psf. The remaining space is vacant but is being marketed to Hallmark. Major tenants at the property include Forever 21 (5.9% of NRA with a lease expiring in January 2021), Victoria’s Secret (3.2% of NRA with a lease expiring in January 2024) and Modell’s Sporting Goods (2.7% of NRA with a lease expiring in January 2024). The estimated average rental rate was $50.39 psf as per the September 2015 rent roll and Q3 2015 OSAR. This figure is above the average rental rate at issuance of $45.75 psf, as well as the Gloucester County submarket triple net rent (NNN) of $11.11 psf for retail properties larger than 150,000 sf as reported by CoStar. CoStar also reported an average vacancy rate and average availability rate of 13.5% and 17.1%, respectively. Although the collateral vacancy rate of 13.5% is similar to the submarket, the subject’s average rental rate is well above the submarket.

The borrower has been continuously making improvements to the property. Between 2013 and 2014, $1.8 million was spent on installing new floors, tables, chairs and escalators. According to the January 2015 servicer site inspection, the roof over the food court was planned to be replaced at a cost of approximately $550,000. The borrower’s website also stated that $13 million of improvements were scheduled in 2015, which included WiFi installation, and based on customers’ reviews, the installation is complete. According to the T12 ending September 2015 tenant sales report, the anchor tenants have been experiencing stagnant sales, with Macy’s and Sears reporting $177 psf and $195 psf, respectively, which are similar to the previous year’s sales. Boscov’s reported 2015 sales of $178 psf, which is a 1.1% decline from 2014 sales of $178 psf. JCPenney reported 2015 sales of $122 psf, a 1.6% increase from 2014 of $120 psf. Victoria’s Secret, a major tenant, reported 2015 sales of $535 psf, which is a 26.1% decrease from 2014 of $723 psf, and a further decrease from 2013 of $885 psf. The decline may be a result of remodeling work that was being done for the tenant’s space at the property. Despite the declining trend in anchor tenant sales, in-line sales have been healthy, with tenants occupying less than 10,000 sf reporting a 4.4% increase from $555 psf in 2014 to $579 at Q3 2015. Tenants occupying more than 10,000 sf experienced a 1.0% decrease in sales from $321 psf in 2014 to $317 psf at Q3 2015. Overall, the mall reported 2015 sales of $260 psf, which is a 1.4% increase from 2014 sales of $256 psf. According to the Q3 2015 financials, the property reported a DSCR of 1.67x, which is a decrease from the YE2014 DSCR of 1.76x but above the DBRS underwritten DSCR of 1.49x.

Katy Mills (Prospectus ID#3, 25.6% of the current pool balance) is secured by a regional mall located in Katy, Texas, and the property benefits from a Walmart shadow anchor. According to the September 2015 rent roll, the property was 96.3% occupied, which is in line with YE2014 occupancy of 96.7% and above the in-place occupancy of 88.9% at issuance. There is minimum tenant rollover risk, as tenants occupying 4.5% of the NRA have leases expiring within the next 12 months. Major tenants at the property include Bass Pro Shops (12.0% of NRA, lease expires in October 2019), Burlington Coat Factory (8.3% of NRA, lease expires January 2020) and AMC (6.4% of NRA, lease expires in October 2019). The average rental rate was $17.33 psf, which is similar to the rental rate at issuance of $17.62 psf. For retail properties larger than 150,000 sf in the Katy South submarket, CoStar reported an average NNN rental rate of $14.53 psf, average vacancy rate of 5.3% and average availability rate of 8.8%. The subject property compares favourably with a higher average rental rate and lower vacancy rate of 3.7%.

According to the T12 ending November 2015 tenant sales report, anchor tenants exhibited a decline in sales from 2014. Bass Pro Shops reported 2015 sales of $224 psf, which is a 9.0% decrease from 2014 sales of $258. Burlington Coat Factory reported 2015 sales of $188 psf, which is a 1.5% decrease from 2014 sales of $191 psf. AMC reported 2015 sales of $330,560 per screen, which is an 11.3% decrease from 2014 sales of $372,975 per screen. The significant decline in sales for AMC is driven by the lowering of its ticket prices in response to its direct competitor, Cinemark 19 and XD (Cinemark), which is located approximately four miles north-east of the subject property. Cinemark operates as a luxury theater with reclining stadium seating, ceiling-to-floor screens, 3D images and a cafe. In comparison, the subject AMC cannot compete on amenities and must maintain lower ticket prices. In-line tenant sales remain healthy, as tenants occupying less than 10,000 sf reported 2015 sales of $455 psf, a 3.0% increase from 2014 of $442 psf. Tenants occupying more than 10,000 sf reported 2015 sales of 458 psf, a 2.1% increase from 2014 sales of $448 psf. Overall, the mall reported 2015 sales of $305 psf, which is a 3.1% decrease from 2014 sales of $313.81 psf. According to the Q3 2015 financials, the amortizing DSCR was 4.95x, an increase from the YE2014 DSCR of 4.74x and the DBRS underwritten DSCR of 4.15x.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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

The applicable methodologies are North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (December 2015), 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.