DBRS Confirms Ratings of Citigroup Commercial Mortgage Trust 2013-SMP

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2013-SMP (the Certificates), issued by Citigroup Commercial Mortgage Trust 2013-SMP, as follows.

-- 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 continued stable performance of the transaction since closing in May 2013, with an original trust balance of $239 million, collateralized by the fee and leasehold interest in a super-regional mall (522,965 square feet (sf)) located in downtown Santa Monica, California. The fee interest relates to the department store anchors and all shop space (excluding three small tenants), while the leasehold interest relates to the two parking structures and 1,805 sf of exterior store space located on the property’s perimeter at the base of one of the garages. According to YE2015 reporting, the loan had a debt service coverage ratio (DSCR) and debt yield of 1.56 times (x) and 8.4%, respectively, compared to the DBRS underwritten figures of 1.55x and 8.2%, respectively. As of the May 2016 remittance, the loan had an aggregate balance of approximately $223 million, representing collateral reduction of 6.8% since issuance as a result of scheduled loan amortization.

The mall benefits from a diverse and high-profile tenant roster, and is well-positioned on 9.9 acres, two blocks from the Pacific Ocean. The subject is sponsored by the Macerich Company (Macerich), an experienced California-based REIT with significant financial resources and experience in operating regional malls. After acquiring the property in 1999, Macerich undertook various renovations, most notably a $416 million re-development and revitalization project between 2008 and 2010. Macerich continues to improve the subject, with approximately $34.3 million invested over the past two years, most of which funded the addition of the 21-screen ArcLight Cinemas (9.5% of the net rentable area (NRA)). The space was constructed on the third floor above Bloomingdale’s in a space that had been vacant since issuance, and the tenant opened for business as of December 1, 2015, with a 15-year triple net (NNN) lease. The mall also recently added a restaurant tenant in Cheesecake Factory (2.4% of the NRA), which opened in November 2015 in the former Zengo and La Sandia’s spaces, on a 20-year NNN lease. Cheesecake Factory’s rate of $32.71 psf is well below the rate of $48.01 psf paid by the previous tenant, but sales trends show sales are on pace to reach $918 psf on an annual basis, compared with the previous tenants’ combined annual sales of $424 psf. If those trends continue, percentage rent of approximately $200,000 ($15.97 psf) will be due at the lease anniversary.

Sales volumes remain strong for both anchor and in-line tenants; however, volume has decreased from the previous year by approximately -6.5%, primarily as a result of lower weekend sales figures for the larger anchor and junior anchor tenants. According to the YE2015 tenant sales report, Nordstrom, Bloomingdale’s and Nike achieved annual sales figures (during the T-12 period ending in December 2015) of $327 psf, $263 psf and $626 psf, compared to $383 psf, $290 psf and $833 psf for the preceding year (during the T-12 period ending in December 2014), respectively. Although these tenants have seen declines, inline tenant sales performance has grown by 5.6% during the same period, achieving $786 psf, compared to $744 psf from the previous year, the third consecutive year of positive sales growth. Macerich is an experienced operator of regional and super-regional malls that continues to successfully execute long-term re-development strategies. As noted above, ArcLight Cinemas and the Cheesecake Factory have recently taken occupancy, both of which will generate added cash flow and will likely contribute to additional foot traffic to the mall that could lead to improved overall sales volume.

According to the December 2015 rent roll, the property was 92.3% occupied, down from 94.0% in December 2014 and 94.5% at issuance. Rollover is minimal through the remainder of 2016, as only eight tenants, representing 1.3% of the NRA, have lease expirations. In general, tenant rollover prior to the Bloomingdale’s expiration date (19.8% of the NRA, expiring in September 2020) is minimal, as only 11 tenants, representing 3.5% of the NRA, have leases expirations prior to 2020. Nordstrom (23.7% of the NRA) and Nike (3.8% of the NRA) have leases extending through February 2026 and January 2021, respectively. The two largest tenants that have recently vacated their spaces are CB2 (2.7% of the NRA) and Kitson (1.4% of the NRA). According to the servicer, Macerich is considering a new major junior anchor tenant for the CB2 space, but has not finalized a lease with any prospects as of May 2016. Kitson’s space is to be assumed by WithMe, which will be the first opening of its kind in the Macerich portfolio. WithMe is a retail concept that features always-changing, limited runs of traditional and pure-play retail brands.

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.

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