DBRS Confirms All Classes of UBS-Barclays Commercial Mortgage Trust 2012-C4

DBRS Limited (DBRS) has today confirmed the following classes of UBS-Barclays Commercial Mortgage Trust 2012-C4 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 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)
-- Class E at BB (sf)
-- Class F at B (sf)

All trends are Stable.

The rating confirmations reflect the overall performance of the transaction. As of the October 2016 remittance, the pool has experienced a collateral reduction of 5.2% since issuance with 88 of the original 89 loans remaining. Based on the 92.4% of the pool that reported YE2015 financials, the weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield was 2.00 times (x) and 11.8%, respectively, compared with the DBRS underwritten WA DSCR and debt yield of 1.90x and 10.7%, respectively. The Top 15 loans exhibited a WA net cash flow growth of 8.2% at YE2015 over the DBRS underwritten figures with a WA DSCR of 2.01x. The transaction also benefits from defeasance collateral as five loans, representing 1.9% of the pool, are fully defeased. At issuance, DBRS shadow rated the 1000 Harbor Boulevard loan (Prospectus ID#53; 0.5% of the pool) as investment grade. DBRS has today confirmed that the performance of the loan remains consistent with investment-grade loan characteristics.

As of the October 2016 remittance, there are no loans in special servicing and 16 loans on the servicer’s watchlist, representing 15.6% of the pool balance. Two loans in the Top 15 are watchlisted because of the closure of Sports Authority stores; however, both have replacement tenants in line to assume the spaces. Three loans are on the servicer’s watchlist for non-performance related issues limited to deferred maintenance. Ten other loans are watchlisted for low occupancy or upcoming tenant rollover; however, seven of these loans either (1) had tenants execute lease extensions or (2) have secured a replacement tenant. In August 2016, Macy’s announced that it will be closing stores nationwide because of declining sales. One loan in the Top 15, Visalia Mall (5.35% of the pool balance), is anchored by Macy’s and is discussed below.

The Visalia Mall loan (Prospectus ID#3; 5.35% of the current pool balance) is secured by a 437,954 square foot (sf) regional mall located in Visalia, California, approximately 40 miles south of Fresno and 80 miles north of Bakersfield. It is operated by General Growth Partners, Inc. (GGP). The collateral includes the mall, two out-parcel buildings and two parking structures. Although Visalia Mall was not included in an initial list of Macy’s closures, an August 2016 report suggested that it is included in a group of malls that are at risk of closing because of below-average sales reported by their respective Macy’s. According to the trailing 12 (T-12) month ending June 2016 tenant sales report (TSR) provided to DBRS, Macy’s reported sales of $170.00 per square foot (psf), which declined from $175.00 psf in the previous year.

As of YE2015, the subject reported a DSCR of 3.59x compared with the YE2014 figure of 3.35x. According to the June 2016 rent roll, total in-line occupancy was 90.5% and total property occupancy was 96.4% with tenant rollover limited to six tenants, representing 3.23% of the net rentable area (NRA), expiring in the next six months. DBRS expects many of these tenants to renew their leases as Visalia is very well located and the local demographic has limited retail options. Although the mall is located in a tertiary-based region, it benefits from its superior product and limited nearby competition. According to the June 2016 site inspection, the mall is considered to be the premier and dominant retail center serving Tulare County. In addition, the nearest Macy’s is located 50 miles north in Fresno. The subject’s closest competitor is Sequoia Mall, located two miles south of the subject and anchored by Sears and a Regal Movie Theatre. The mall offers a different tenant base and lacks the national retailers found at Visalia Mall. According to CoStar, the Southwest Visalia submarket of California reports an average triple-net (NNN) rental rate of $13.87 psf with an average vacancy and availability rate of 9.2% and 9.8%, respectively. According to the T-12 ending June 2016 TSR, overall sales at the property have been trending up since last year. Total in-line tenant year-to-date (YTD) sales have increased by 9.8% over the previous year, reporting a running 12-month (R-12) sales psf of $495.00 compared with the previous year’s figure of $474.00 psf. Although the servicer has confirmed that Macy’s at Visalia Mall will not be closing, DBRS modelled this loan more conservatively because of the uncertainty surrounding Macy’s future as it plans to announce additional mall closures by Q1 2017. Based on issuance data, there are no co-tenancy clauses associated with Macy’s specifically if they vacate the subject.

The Newgate Mall loan (Prospectus ID#6; 4.2% of the current pool balance) is secured by a 497,962 sf portion of a 730,781 sf single-level regional mall located in Ogden, Utah, approximately 35 miles from the Salt Lake City central business district. The property is anchored by a Sears, a 14-screen Cinemark Theatre and a non-collateral Dillard’s. In August 2016, a New York-based commercial real estate firm, Time Equities Inc. (TEI), assumed the remaining $58.0 million loan from GGP for a sale price of $69.5 million compared with the issuance appraised value of $83.0 million. TEI is a full-service real estate firm with a portfolio of 22.1 million sf of residential, industrial, office and retail space in 25 states, four Canadian provinces and Germany.

This loan was placed on the servicer’s watchlist after Sports Authority filed Chapter 11 Bankruptcy and declared the closure of all of its stores nationwide. According to the servicer, the borrower has been in active negotiations with DownEast Home and Clothing to assume the Sports Authority space and the tenant is slated to open in Fall 2016. Although the tenant appears to have come to an agreement with property management, finalized rates and terms were not available at the time of DBRS’s review. As of YE2015, the loan reports a strong DSCR of 3.08x compared with 3.03x at YE2014. According to the T-12 ending December 2015 TSR, total in-line tenant YTD sales had decreased by -5.1% compared with the previous year. The R-12 sales figure was $333.00 psf compared with $348.00 psf in the previous year. According to the March 2016 rent roll, in-line occupancy was 83.9% and total property occupancy was 90.5% with tenant rollover limited to six tenants, representing 1.5% of the NRA, set to expire in the next six months. The subject’s largest tenant, Sears (30% of the NRA), had an original lease expiry in July 2016, but had extended to July 2021 at the same rate. According to CoStar, the Davis/Weber submarket of Ogden reported an average NNN rental rate of $12.82 psf with an average vacancy and availability rate of 5.5% and 8.3%, respectively. According to the May 2016 site inspection, the subject benefits from limited competition in the immediate vicinity with its two closest direct competitors, Layton Hills Mall and City Creek Mall, located ten miles and 35 miles away, respectively.

Although loan performance remains strong since issuance, DBRS modelled this loan with a stressed cash flow to account for the uncertainty surrounding the future of the subject mall as it continues to fill vacancies and transitions from one of the largest operators in the country to new, much less experienced management.

The ratings assigned to Class B, C, D, E and F materially deviate from the higher ratings implied by the quantitative model. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative model that is a substantial component of a rating methodology; in this case, the sustainability of loan performance trends were not demonstrated and, as such, was reflected in the ratings.

For more information on this transaction and supporting data, please log into DBRS CMBS IReports, www.ireports.dbrs.com. DBRS continues to monitor this transaction monthly with periodic updates provided in the DBRS CMBS IReports platform.

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 (October 2016), 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.