DBRS Confirms Ratings on Citigroup Commercial Mortgage Trust 2014-GC21

DBRS Limited (DBRS) has today confirmed the ratings on the Commercial Mortgage Pass-Through Certificates issued by Citigroup Commercial Mortgage Trust, Series 2014-GC21 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class PEZ at A (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (high) (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class X-D at AAA (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since closing in May 2014. At issuance, the transaction consisted of 64 fixed-rate loans secured by 99 commercial properties. The pool had a DBRS underwritten weighted-average (WA) debt service coverage ratio (DSCR) and a DBRS WA debt yield of 1.39 times (x) and 8.5%, respectively. As of the February 2016 remittance, loans representing 81.9% of the current pool balance reported YE2014 financials and loans representing 10.5% of the pool reported YE2015 financials, while loans representing 84.2% of the pool reported 2015 partial-year financials. Based on the most recent financials available, the Top 15 loans reported a WA amortizing DSCR of 1.60x, with a WA net cash flow growth over the respective DBRS underwritten figures of 16.0%. All loans remain in the pool, with a collateral reduction of 1.4% since issuance as a result of scheduled loan amortization.

As of the February 2016 remittance, there are no loans in special servicing and six loans are on the servicer’s watchlist, representing 8.2% of the current pool balance. The majority of the watchlisted loans were flagged for non-performance issues relating to deferred maintenance or near-term tenant rollover risk. The loans flagged for upcoming tenant lease expirations have either successfully extended their leases or are in negotiations with the respective tenants, according to the servicer. The largest loan and two watchlisted loans are discussed below.

The Maine Mall loan (Prospectus ID#1, 12.2% of the current pool balance) is secured by a 730,000 square feet (sf) portion of a 1.0 million sf super-regional mall in South Portland, Maine. Non-collateral anchors at the property include Macy’s and Sears, while collateralized anchor tenants include The Bon Ton, JC Penney, Best Buy and Sports Authority. According to the September 2015 rent roll, collateral occupancy was 97.5%, which is consistent with the YE2014 occupancy of 98.2%. Six tenants, representing 5.6% of the net rentable area (NRA), have leases that have expired or will be expiring in 2016, including Gap (2.2% of NRA) and Lane Bryant (0.8% of NRA), both of which vacated the property at their respective January 2016 lease expirations. Eleven tenants, occupying 6.9% of the NRA, have renewed or signed new leases in 2015. According to the September 2015 rent roll, the average rental rate was $26 per square foot (psf) with a vacancy rate of 2.5%, compared with the Southwest Cumberland County submarket average triple net rent of $14 psf with a vacancy rate of 14.2% for retail properties, as reported by CoStar.

The tenant sales reporting for the trailing 12 months period ending September 2015 (T-12) showed consistent in-line sales for the property compared with YE2014 figures, with JC Penney and Sports Authority reporting flat sales of $117 psf and $110 psf, respectively. Apple reported a T-12 sales figure of $6,599 psf, a 3.3% increase from YE2014 sales of $6,388 psf. Forever 21 reported a T-12 sales figure of $195 psf, a 2.5% decrease from the YE2014 sales of $200 psf, and Gap, which is no longer at the property, reported a T-12 sales of $137 psf, a 12.7% decrease from YE2014 sales of $157 psf. Overall, tenants occupying less than 10,000 sf reported T-12 sales of $564 psf, which is a 1.2% increase from YE2014 sales of $558 psf, while tenants occupying more than 10,000 sf reported T-12 sales of $218 psf, which is a 1.4% decrease from YE2014 sales of $221 psf. The property continues to exhibit strong performance with a Q3 2015 amortizing DSCR of 1.98x, an increase from YE2014 DSCR of 1.87x and the DBRS underwritten DSCR of 1.59x. The loan also benefits from sponsorship from General Growth Properties, Inc.

The Independence Realty Portfolio loan (Prospectus ID#16, 1.5% of the current pool balance) is secured by three industrial properties in Tampa, Florida, consisting of 216,000 sf of space. This loan was placed on the watchlist in March 2015 when the DSCR fell to 0.71x as a result of increased operating expenses. According to the YE2015 operating statement analysis report (OSAR), the DSCR was at 1.00x at 81.2% occupancy, which is a decline from the YE2014 DSCR of 1.08x at 85.0% occupancy and the DBRS underwritten DSCR of 1.13x with an in-place occupancy of 87.1% at closing. The decline in net cash flow was attributed to decreases in base rental revenue and expense reimbursements. The base rental revenue of approximately $1.2 million at YE2015 decreased by 9.8% from the YE2014 figure and 11.4% from the DBRS underwritten level. Expense reimbursements of approximately $565,000 decreased by 13.6% from the YE2014 figure and 9.6% from the DBRS underwritten amount. According to the September 2015 rent roll, fourteen tenants, representing 21.4% of the NRA, have leases that have expired or will be expiring in 2016. This includes the former second-largest tenant, Capital Collateral Regional (6.2% of NRA), which vacated the property at the December 2015 lease expiration, as per the servicer’s commentary. CoStar reported approximately 38,000 sf of space (17.4% of NRA) as available at the property, with asking triple net rent ranging between $6 to $8 psf, which included Capital Collateral Regional’s former space. Properties in the East Tampa/St. Petersburg submarket reported an average rental rate of $17 psf with a vacancy rate of 14.6% and availability rate of 16.4%, which is below the subject’s vacancy rate of 18.8% and availability rate of 17.4%. Given the declining trend in occupancy, this loan was modeled based off of the YE2015 net cash flow.

The Newcastle North loan (Prospectus ID#29, 1.0% of the current pool balance) is secured by a 112,000 sf office and R&D building located within the Imperial Center Business Park in Durham, North Carolina. The property is unique as it features a combination of office and high-quality laboratory space. The subject property serves as the global headquarters and technology center for the single tenant, Reichhold Inc., now named Reichhold Liquidation, Inc. (Reichhold). This loan was placed on the watchlist in May 2015 because Reichhold filed for voluntary protection under Chapter 11 of the U.S. Bankruptcy Code to facilitate the restructuring of the debts for the U.S. portion of the Reichhold global organization. In January 2015, Reichhold successfully emerged from bankruptcy after the purchase of Reichhold’s assets was completed. During that time, a debt-to-equity exchange was completed with a group of high-profile investors; as a result, Reichhold is now owned by those investors.

At issuance, the borrower pledged $1.8 million in the form of a letter of credit as additional security for the lease, but it expired in July 2015; however, the borrower replaced the letter of credit with a cash deposit, which has been placed in a reserve. According to the December 2015 rent roll, the property was 100% occupied by Reichhold at an average rental rate of $11 psf with annual rent steps of 3.0% until the January 2025 lease expiration. The tenant has one five-year extension option at free market rent. As per the Q3 2015 financials, the DSCR was at 1.77x, which is an increase from the YE2014 DSCR of 1.56x and the DBRS underwritten DSCR of 1.35x.

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.