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

DBRS Limited (DBRS) has today 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 B at AA (low) sf)
-- Class C at A (high) (sf)
-- Class X-B at A (sf)
-- Class D at A (low) (sf)

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction. The loan is secured by a super-regional mall, two office buildings and a strip retail centre located in Honolulu, Hawaii. The largest portion of the loan is the Ala Moana Center, which is the seventh-largest shopping mall in the United States and the largest open-air mall in the world. The Ala Moana Building, Ala Moana Pacific Center and Ala Moana Plaza are all adjacent to the Ala Moana Center. All four properties are owned and operated by GGP Inc.

The Ala Moana Center is a 2.4 million square foot (sf) super-regional mall, of which approximately 1.5 million sf serve as collateral for the transaction. The mall is tenanted by a mix of high-end, luxury retailers as well as specialty and service-oriented tenants. In November 2015, the 660,000 sf Ewa Wing Expansion opened at the mall. The Ewa Wing is not a part of the collateral for the transaction, however, the additional space is expected to continue to increase traffic throughout the subject. The new wing is anchored by Hawaii’s first Bloomingdale’s location and Nordstrom, Inc. (Nordstrom). The collateral portion of the mall is anchored by Macy’s and Neiman Marcus (non-collateral). Many existing collateral tenants relocated as a result of the expansion, most notably, Shirokiya (40,978 sf), Forever 21 (29,333 sf) and the previously mentioned Nordstrom (200,000 sf), which originally operated on a ground lease.

According to the servicer, as a part of the arrangement that allowed Nordstrom to terminate its ground lease and move to the new wing, the previously occupied space is now a part of the collateral. Tenants that will backfill the former Nordstrom space include Saks OFF 5th and Target Corporation (Target). Saks OFF 5th is expected to open for business in the summer of 2017 and will occupy 41,000 sf of street-level retail space on a ten-year lease with two five-year options. Target is expected to open in the fall of 2017 and will occupy the second and third floors totalling approximately 130,000 sf. According to news articles dated March 2017, Planet Fitness is expected to occupy the remaining 16,000 sf of the former Nordstrom space; however, an opening date is unknown at this time.

As per the December 2016 rent roll, the Ala Moana Center was 83.7% occupied, excluding the non-collateral tenant. The decrease in occupancy is attributable to the relocation of tenants to the new wing, as well as 65,000 sf of vacant storage space that was previously 100.0% occupied. The storage space represents 4.4% of the net rentable area (NRA) and has been listed as 100.0% vacant since the December 2015 rent roll. DBRS has asked the servicer about the borrower’s plan regarding the space and is awaiting a response. The largest tenants include Macy’s (23.3% of NRA, expiring December 2025), Old Navy (2.4% of NRA, expiring January 2026) and Barnes & Noble, Inc. (2.2% of NRA, expiring January 2021). Approximately 4.1% of the total NRA is scheduled to expire in 2017; however, no tenant individually represents over 1.0% of the NRA.

Additionally, nine tenants listed, combining to represent 6.5% of the NRA, were scheduled to open for business in early 2017, which will improve the property’s occupancy rate to 92.0%. The two largest of these tenants include FTW/Lucky Strike Social (2.0% of NRA, expiring June 2027) and Ross Dress for Less (1.9% of NRA, expiring January 2027). According to the servicer, there are only three spaces remaining to be backfilled from the relocation of tenants to the new Ewa Wing, combining for a total of 25,372 sf.

According to the trailing 12 months (T-12) ending December 2016 tenant sales report, overall mall sales increased 7.0% to $796 per square foot (psf) over the T-12 December 2015 figures. Year-over-year sales growth for in-line retailers occupying less than 10,000 sf was 2.8% to $1,260 psf and year-over-year sales growth for in-line retailers occupying greater than 10,000 sf was 8.8% to $881 psf. Old Navy and Louis Vuitton reported improved sales for the year as well with increases of 21.9% and 23.7% to $334 psf and $2,560 psf, respectively. Anchor tenants Macy’s and Neiman Marcus, however, both experienced decreases in sales over the same period, reporting decreases of 5.4% and 10.8% to $335 psf and $357 psf, respectively.

As of the December 2016 rent rolls, the Ala Moana Building, a 196,000 sf office building, reported occupancy of 83.1%, the Ala Moana Pacific Center, a 167,000 sf office building, reported occupancy of 84.7% and the Ala Moana Plaza, a 14,000 sf strip retail center, reported occupancy of 100%. The three properties continue to perform in line with issuance and accounted for 7.6% of the total net cash flow (NCF) in 2016. Based on the most recent financials, the loan reported a YE2016 debt service coverage ratio (DSCR) of 2.55 times (x) compared with the YE2015 DSCR of 2.72x and the YE2014 DSCR of 2.59x. The decline in NCF is attributable to a 3.0% decline in effective gross income combined with an 8.3% increase in total operating expenses. This was related to the Ala Moana Pacific Center’s ground expense that was reset in April 2016 and will be reset every five years thereafter. Given the development in the area and the sponsor’s ability to backfill the relocated tenants’ space, it is expected that the loan will continue to exhibit strong performance.

The ratings assigned to Classes B and C materially deviate from the higher ratings implied by the quantitative results. The deviations are warranted because sustainability of loan trends has not yet been demonstrated.

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.