DBRS Confirms Ratings of GS Mortgage Securities Corporation Trust 2012-SHOP, with Stable Trends

DBRS Limited (DBRS) has today confirmed the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2012-SHOP issued by GS Mortgage Securities Corporation Trust 2012-SHOP, 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 (high) (sf)

All trends are Stable.

The rating confirmations reflect the continued stable performance of the transaction, which has a trust balance of $625 million. The subject loan is structured with an interest-only seven-year term and is collateralized by the fee and leasehold interests in two connected super-regional malls, totalling 815,587 square feet (sf) in Las Vegas, Nevada; respectively known as the Grand Canal Shoppes (Grand Canal) and the Palazzo Shoppes (Palazzo). According to YE2015 financial reporting, the loan had a debt service coverage ratio and debt yield of 2.74 times (x) and 11.8%, respectively, compared with the DBRS underwritten figures of 2.43x and 10.5%, respectively.

Both properties are located at the northern end of the Las Vegas Strip, which has emerged as the dominant retail, restaurant and nightlife area in recent years. Located within the Venetian Hotel Resort, Grand Canal features nearly 500,000 sf of retail, restaurant, entertainment and office space. Included in the mall’s Venice motif are cobblestone walkways, painted sky ceilings, a life-sized replica of St. Mark’s Square and a quarter-mile canal offering visitors motorized gondola rides. Palazzo resides within the Palazzo Hotel and features approximately 315,000 sf of luxury retail, restaurant and nightclub space. While both spaces have similar offerings, Grand Canal features more restaurants and entertainment, while Palazzo caters more toward the upper-midscale shopper. During 2013, the sponsor, General Growth Properties (GGP) invested over $2.0 million in capital improvements to adjoin the two malls; rebranding them as The Grand Canal Shoppes and actively marketing the space to more upper-midscale retail tenants. GGP is considered to be a strong sponsor with extensive experience in the retail industry and the ability to change and expand its properties to meet the needs of tenants.

According to the December 2015 rent rolls, the properties were cumulatively 92.3% occupied, down from 92.7% in December 2014, and 95.5% at issuance; however, during the same time periods, rental rates have risen to $90.77 per square foot (psf), from $84.47 psf and $78.86 psf, respectively. Rollover is minimal throughout the next 12 months, as only ten tenants, representing 1.5% of the total net rentable area (NRA), have lease expirations. The largest tenant, Barney’s New York (Barney’s) (10.3% of the NRA) at the Palazzo property, originally had an early termination option in January 2015, prior to its original January 2018 lease expiration; however, Barney’s executed a one-year lease renewal, extending its lease through January 2019 at a reduced rate of $31.86 psf, compared to its former rate of $38.93 psf. At issuance it was the opinion of DBRS that the departure of Barney’s could potentially be a net positive to the centre as it would open additional retail space frontage on the Las Vegas Strip that the sponsor could renovate for additional upscale or luxury retailers and restauranteurs. As Barney’s will remain at the centre through at least January 2019, all future development opportunities for the space are unknown at this time.

Meizhous Dongpo (2.3% of the NRA) recently signed a 15-year lease, which will commence in January 2017, paying $59.51 psf with contractual rental rate increases in 2022 and 2027. The space had historically proven difficult to lease as several leasing agreements have fallen through since 2012 as a result of the space being oddly shaped and the fact that it is tucked away and receives relatively little foot traffic in comparison to the rest of the shopping area. The Meizhou Dongpo restaurant is an upscale Chinese eatery, which is expected to contribute additional foot traffic to the mall.

Both properties’ performance is dependent upon tourism, particularly foreign tourists, as half of the shoppers reside outside the United States. According to the Las Vegas Convention and Visitors Authority, visitor volume in 2015 reached an all-time high of $42.3 million (2.9% growth), up from $41.1 million in 2014 (3.7% growth), and $39.6 million in 2013. The total visitor volume has increased annually since 2009. Sales volumes also saw positive growth, as total sales were approximately $488 million during the T-12 period ending in December 2015, compared with approximately $482 million during the T-12 period ending in December 2014, representative of 1.3% growth from the previous year; however, Barney’s and the Grand Lux Café (2.3% of the NRA, with a lease expiration of December 2029) both reported declines in sales compared to the previous year. According to the YE2015 tenant sales report, Barney’s and the Grand Lux Café reported sales of $236 psf and $993 psf, respectively, compared with the preceding year’s figures of $250 psf and $1,103 psf, respectively. Despite the decrease in sales for Barney’s and the Grande Lux Cafe, both malls continue to report strong sales as in-line stores occupying less than 10,000 sf had sales of $1,059 psf and in-line stores occupying more than 10,000 sf had sales of $801 psf. These figures compare favourably to the previous year’s figures of $1,010 psf and $740 psf, respectively. Both of these figures were improvements from the previous year and are indicative of the subject’s desirability in the market.

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.