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

DBRS Limited (DBRS) 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 underlying collateral for the transaction since issuance. 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 other collateral properties in the Ala Moana Building, the Ala Moana Pacific Center and Ala Moana Plaza are all adjacent to the Ala Moana Center. All four properties are owned by the loan sponsor, General Growth Properties, Inc., who was recently announced to have been acquired by Brookfield Property Partners L.P. in late March 2018.

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

As confirmed by the servicer, as part of the arrangement that allowed Nordstrom to terminate its ground lease and move to the new wing, the former Nordstrom space is now a part of the collateral, and the space was divided and re-leased to Planet Fitness, Saks OFF 5th and Target. Saks OFF 5th opened in May 2017 and occupies 41,000 sf of street-level retail space on a ten-year lease with two five-year extension options. Target opened in October 2017 and occupies the second and third floors, totalling approximately 130,000 sf. Planet Fitness opened in December 2017 and occupies the remaining 16,000 sf of the former Nordstrom space.

Per the December 2017 rent rolls, the Ala Moana Center was 95.4% occupied, inclusive of Neiman Marcus (non-collateral). Excluding Neiman Marcus, the subject is 94.8% occupied, representing an improvement from the 83.7% occupancy rate reported a year prior. The decrease in occupancy last year was attributable to the relocation of tenants to the new wing and the 65,000 sf of vacant storage space that was previously 100% occupied. The largest collateral tenants include Macy’s (23.3% of the net rentable area (NRA), expiring December 2025), Old Navy (2.4% of the NRA, expiring January 2026) and Barnes & Noble, Inc. (2.2% of the NRA, expiring January 2021). The Ala Moana Building (196,000 sf office building), Ala Moana Pacific Center (167,000 sf office building) and the Ala Moana Plaza (14,000 sf strip retail centre) reported occupancy rates of 85.1%, 89.8% and 100%, respectively. The three properties continue to perform in line with issuance and accounted for 7.6% of the net cash flow, based on the YE2016 financials.

According to the trailing 12 months (T-12) ending December 2017 tenant sales report, overall mall sales slightly decreased, ending the period at $769 psf, a 2.2% decline from the T-12 ending December 2016 figures. Year-over-year (YOY) sales growth for in-line retailers occupying less than 10,000 sf was 3.3%, with average sales of $1,202 psf. Year-over-year sales for in-line retailers occupying greater than 10,000 sf saw a smaller increase, with sales up by 0.64% to $660 psf. Excluding Apple Store, in-line retailers occupying less than 10,000 sf reported sales of $1,084 psf for the period. Anchor tenants, Macy’s and Neiman Marcus, both experienced YOY sales declines, reporting drops of 6.5% and 9.3% respectively; however, Old Navy and Apple Store both experienced sales growth, posting increases of 14.0% and 0.7%, respectively.

Based on the most recent financials dated September 2017, the loan reported a Q3 2017 debt service coverage ratio (DSCR) of 2.45 times (x), in comparison with the YE2016 DSCR of 2.44x and YE2015 DSCR of 2.58x. DBRS expects that the loan will continue to exhibit strong performance given the stability of tenant sales and the increased traffic expected over the next year as all new tenants are open and the mall’s occupancy rate is back in line with historical figures.

Classes X-A and X-B are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated reference tranche adjusted upward by one notch if senior in the waterfall.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

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Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 under Related Documents or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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