DBRS Confirms All Classes of BBCMS Trust 2015-VFM

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-VFM issued by BBCMS 2015-VFM as follows:

-- Class A1 at AAA (sf)
-- Class A2 at AAA (sf)
-- Class X at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class D at A (sf)
-- Class E at BBB (sf)

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction since issuance. The loan is secured by the Vintage Faire Mall, a two-level super-regional mall located in Modesto, California. The subject was built in 1977 and comprises 1.1 million square feet (sf), of which 692,693 sf is included as collateral. The mall is occupied by 125 national and regional tenants and features five anchor tenants. Macy’s Women’s & Children’s, Sears and Forever 21 are not included in the collateral, while JCPenney and Macy’s Men’s & Home serve as collateral for the loan. The subject faces minimal true competition as the closest retail development is The Promenade Shops at Orchard Valley, an outlet center located 15.0 miles away, and the closest regional enclosed mall is West Valley Mall, which is located almost 30.0 miles away. Additionally, the subject features a diverse tenant mix, which draws a variety of customers to the mall. The mall has not received many cosmetic updates recently, but a $24.0 million renovation in 2008 added the 60,000 sf lifestyle-center wing known as The Village, which elevated the subject’s tenant roster by adding restaurants as well as traditional retailers. The loan is sponsored by The Macerich Company (Macerich), an experienced California-based real estate investment trust with significant financial resources and experience in operating regional malls.

As at the September 2016 rent roll, the collateral was 96.6% occupied compared with the September 2015 occupancy rate of 98.3% and the issuance occupancy of 96.7%. The largest collateral tenants include JCPenney, representing 23.2% of the collateral net rentable area (NRA); Macy’s Men’s & Home, representing 12.6% of the collateral NRA; and DICK’S Sporting Goods, representing 4.7% of the collateral NRA. All three tenants are on leases expiring in 2022, with JCPenney and Macy’s Men’s & Home both renewing their respective leases, which recently expired in January 2017 and December 2016, respectively, at the same rental rates.

According to the trailing 12 months (T-12) ending September 2016 tenant sales report, overall mall sales were reported at $311 per square foot (psf), which is in line with T-12 ending December 2015 sales of $311 psf. Similarly, sales have remained stable for JCPenney, Forever 21 and Sears, which reported sales of $162 psf, $65 psf and $184 psf, respectively. H&M reported a 3.3% increase in sales to $252 psf as at September 2016 from $244 psf as at December 2015. Over the same period, Macy’s Men’s & Home and Macy’s Women’s & Children’s reported a 4.5% sales increase to $163 psf from $156 psf and a 2.0% sales increase to $310 psf from $304 psf, respectively. DICK’S Sporting Goods reported a decrease in sales of 10.1% to $257 psf from $286 psf. In-line sales for retailers fewer than 10,000 sf remained strong, reporting $696 psf when including Apple Store sales and $629 psf when excluding Apple Store sales. Comparatively, as at December 2015, in-line sales for retailers fewer than 10,000 sf were reported at $681 psf when including Apple Store sales and $618 psf when excluding Apple Store sales.

In April 2015, Sears Holdings Corporation (Sears Holdings) and Macerich formed a joint venture where Sears Holdings sold a 50.0% stake in nine of its stores located in Macerich-operated malls for $150.0 million. As a result, the Sears at the subject operates under a master lease with the joint venture, which is allowed to recapture specified portions of the space that is leased to Sears. If recaptured, the space can be re-leased to other tenants, potentially at higher rental rates. The joint venture benefits Macerich as it is able to reinvest capital into its profitable locations. The malls selected for the joint venture, including the subject, all exhibited strong in-line sales at the time of purchase. As part of its strategy, Sears Holdings has entered into similar joint ventures with other mall operators as well.

Based on the most recent financials, the loan reported an annualized Q3 2016 debt service coverage ratio (DSCR) of 1.62 times (x) compared with the YE2015 DSCR of 1.68x and the YE2014 DSCR of 1.57x.

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 principal methodologies are North American CMBS Rating Methodology (January 2017) and CMBS North American Surveillance (December 2016), which can be found on dbrs.com under Methodologies.

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