DBRS Confirms Ratings on Citigroup Commercial Mortgage Trust 2013-SMP

DBRS Limited (DBRS) has today confirmed the ratings on the following 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 B at AA (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)

In addition, the trends on Classes B, X-B and C have been changed to Positive from Stable. The remaining have Stable trends.

The rating confirmations and trend changes reflect the overall stable performance of the transaction and improvement in the underlying collateral’s performance. As of the May 2017 remittance, the trust had an aggregate balance of approximately $217.0 million, representing collateral reduction of 9.1% since issuance as a result of scheduled loan amortization.

The transaction consists of a five-year, single mortgage loan, secured by the fee and leasehold interest in Santa Monica Place (SMP), a three-level super regional mall, totalling 522,180 sf, located in downtown Santa Monica, California. The fee interest relates to the department store anchors and all shopping spaces, excluding three small tenants. The leasehold interest relates to the two parking structures containing 1,860 parking spaces. The parking is secured by a long-term revenue sharing agreement with the City of Santa Monica that expires in 2077.

SMP was designed by Frank Gehry in 1980 and underwent renovations in 1991, 1999, 2008-2010, and 2014-2016. The subject is LEED-certified as a gold property and has won numerous design awards including the MAPIC High Street Award. The subject is sponsored by Macerich, an experienced California-based real estate investment trust with significant financial resources and experience in operating regional malls. After acquiring the property in 1999, Macerich has continually invested into the collateral. Most recently, Macerich invested over $34 million in developing spaces for ArcLight Cinemas and The Cheesecake Factory, which joined the property in November and October 2015, respectively.

According to YE2016 financials, the loan had a debt service coverage ratio (DSCR) and debt yield of 1.91 times (x) and 10.6%, respectively, as compared with the DBRS issuance DSCR and debt yield of 1.55x and 8.2%, respectively. According to the YE2016 operating statement analysis report, net cash flow (NCF) has increased by 13.8% from YE2015, 20.2% from YE2014 and 23.5% from the DBRS issuance analyzed figures. The NCF growth over time is largely driven by an increase in revenue, specifically caused by increases in base rent and percentage rent.

As of the December 2016 rent roll, the collateral was 91.0% occupied, as compared with 92.3% at YE2015 and 84.1% at YE2014. There are 18 tenants combining to occupy 8.5% of the NRA with leases scheduled to expire by YE2017; however, no tenant represents more than 1.4% of the NRA. Rollover is minimal until 2020, when tenants combining to occupy approximately 30.0% of the NRA have scheduled lease expirations. According to CoStar, retail properties in the Santa Monica Submarket report an average vacancy rate of 4.4% with a triple net (NNN) average rental rate of $80.99 per square foot (psf). Higher-end properties, rated as four- or five-star properties by CoStar, report an average vacancy rate of 1.0% with a NNN average rental rate of $132.80 psf.

The largest tenants at the property include Nordstrom (23.3% of NRA, lease expires February 2026), Bloomindale’s (19.5% of NRA, lease expires September 2020) and a 12-screen ArcLight Cinemas (9.2% of NRA, lease expires November 2030). According to the trailing 12 months (T-12) December 2016 sales figures, SMP total sales are $813 psf, an increase of 7.6% over the T-12 December 2015 sales figures. Bloomingdale’s and Nordstrom, which combined represent almost 43.0% of the NRA, reported sales declines for the fourth consecutive year, reporting sales at $353 psf and $242 psf, respectively, as compared to the previous year sales of $363 psf and $263 psf, respectively. Although these tenants have experienced a decline in sales, in-line tenants with less than 10,000 square feet have experienced an increase in sales for the fourth consecutive year, reporting sales at $813 psf, an increase of 3.4% from the previous year.

The ratings assigned to the Class B, C and D notes materially deviate from the higher ratings implied by the quantitative results. 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 results that is a substantial component of a rating methodology. The deviations are warranted given the sustainability of loan performance trends not 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.