DBRS Confirms All Classes of Goldman Sachs Mortgage Securities Corporation Trust 2012-ALOHA

DBRS Limited (DBRS) has confirmed its ratings on the following classes of GS Mortgage Securities Corporation Trust 2012-ALOHA, Commercial Mortgage Pass-Through Certificates, Series 2012-ALOHA.

-- 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)

All trends are Stable.

The rating confirmations reflect the overall performance of the transaction. This single-borrower transaction is secured by a super-regional mall, two office buildings and a strip retail center located in Honolulu, Hawaii. The super-regional mall is considered to be the premier shopping center in the state and is operated by General Growth Properties, Inc. (GGP), which is considered to be a strong sponsor with extensive experience in the retail industry with the ability to change and expand its properties to meet the needs of tenants.

The largest portion of the loan is the Ala Moana Center, a 2.4 million square foot (sf) super-regional mall, 1.5 million sf of which is included in the collateral for this transaction. Due to its location near Waikiki Beach, a significant portion of the traffic is generated by tourists. The mall offers many national tenants as well as luxury tenants to cater to the range of visitors to the subject. Consistent with GGP’s forward-looking strategy disclosed at issuance, the mall has been undergoing renovations and upgrades over the past several years. In November 2015, the new 660,000 sf Ewa Wing was opened. Although the expansion space is not a part of the collateral for this transaction, the additional tenants are expected to increase traffic throughout the subject. The Ewa Wing is anchored by Bloomingdale’s, its first store in Hawaii. As part of the Ewa Wing construction, existing collateral tenants were or will soon be relocated, potentially reducing the overall appeal of the collateralized portion of the mall. According to the terms of the loan agreement, a tenant(s) can be relocated to the newly constructed wing, provided that it has less than six months remaining on its existing lease or the sponsor executes a master lease that would cover 110% of the relocated tenant’s total income.

According to the December 2015 rent roll, collateral occupancy at the Ala Moana Center has decreased to 93.6%, compared with 98.1% at issuance, with a further drop anticipated due to the ongoing relocation of tenants. Anchor tenant Nordstrom, which was subject to a ground lease, formerly occupied 200,000 sf and has relocated to the new wing. Saks Fifth Avenue has announced that it will be opening a 41,000 sf Saks Off 5th Avenue location in a portion of the space previously occupied by Nordstrom. Other major tenants that have or will soon be relocated to the new wing reportedly include Shirokiya (2.2% of net rentable area (NRA)) and Forever 21 (1.2% of NRA). Both tenants are more than six months out from their respective lease expiry dates, and as such, it appears a master lease will be required for each vacated collateral suite. DBRS has requested confirmation from the servicer that these were executed, with the response pending as of the date of this press release.

As both Shirokiya and Forever 21 occupied larger suites and pulled relatively significant foot traffic to the collateral portion of the mall, the increase in vacancy is a concern, as there has been a trend of tenants recently relocating to the Ewa Wing. According to the servicer, as of December 2015, Tory Burch, Lululemon, True Religion, Diesel, Lego, La Perla and Rimowa/Bags ‘n Baggage have all relocated to the new wing for a combined 18,412 sf of space previously occupied in the collateral portion of the mall. The servicer reports master leases were executed for all seven tenants in accordance with the terms of the loan agreement. In 2015, smaller tenants representing 1.1% of NRA, renewed their respective leases with an average increase in rental rates of 45.0%. Additionally, major tenant Old Navy, representing 2.0% of the NRA, renewed its lease for ten years. There is minimal rollover in the next 12 months, with 2.9% of the NRA expected to expire in 2016 with no single lease representing over 0.4% of the NRA. GGP is an experienced owner/operator with significant tenant relationships and a solid performance history with this property. DBRS believes those factors will contribute to the sponsor’s ability to backfill the space as part of the larger redevelopment plan for the mall. Additionally, the Ala Moana Center is performing above issuance levels, with cash flow growth providing cushion against any temporary revenue declines that may occur over the near term. At YE2015, the debt service coverage ratio (DSCR) was 2.58 times (x), compared with 2.62x at YE2014 and the DBRS underwritten DSCR of 2.12x.

According to the Tenant Sales Report for December 2015, overall sales at the subject have declined compared with the prior year. Tenants occupying less than 10,000 sf reported sales of $1,226 psf as of T-12 ending December 2015, representing a 7.4% decrease year over year, while sales of in-line tenants with more than 10,000 sf decreased by 11.3% to $810 psf over the same period. Anchor tenant Macy’s continues to exhibit strong performance and reported sales above its national average despite a decline in sales to $354 psf, compared with $384 psf at T-12 December 2014. Declining sales at the subject is attributable to a decrease in tourist spending. According to the Hawaii Tourism Authority, while total visitors to the island of Oahu have increased, there has been a decrease of tourist spending of 3.2% on average annually over the past three years. Given that the subject is heavily reliant on tourism, factors such as a strengthened United States dollar, higher accommodation rates and increased airfares have negatively affected the amount of retail spending on the island.

In addition to the Ala Moana Center, the collateral consists of the Ala Moana Building, a 196,000 sf office building; the Ala Moana Pacific Center, a 167,000 sf office building; and the Ala Moana Plaza, a 14,000 sf strip retail center. As of the most recent reporting, the properties are operating at occupancy rates of 88.7%, 86.5% and 100.0%, respectively. The three properties are performing in line with issuance and account for 8.4% of the 2015 net cash flow (NCF), an increase of 2.0% when compared to the DBRS underwritten NCF. Overall, the loan reported a DSCR of 2.72x as of YE2015, increasing from YE2014 when the DSCR was 2.62x and from the DBRS underwritten DSCR of 2.21x.

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 (March 2016) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.