DBRS Upgrades One Class and Confirms Remaining Classes of MSC Mortgage Securities Trust, 2012-C4

DBRS, Inc. (DBRS) upgraded one class of Commercial Mortgage Pass-Through Certificates, Series 2012-C4 issued by MSC Mortgage Securities Trust, 2012-C4 as follows:

-- Class B upgraded to AAA (sf) from AA (high) (sf)

DBRS also confirmed the ratings on all remaining classes as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class C at A (high) (sf)
-- Class D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class X-B at B (high) (sf)
-- Class G at B (sf)

All trends are Stable.

These rating actions reflect the overall stable performance of the transaction, which has seen a collateral reduction of 32.4% since issuance in 2012 as of the December 2018 remittance, with seven of the original 38 loans fully repaid and one loan liquidated with an $8.6 million loss since issuance. There are 30 loans secured by 67 properties remaining in the pool, with a total trust balance of $743.2 million. In addition, two loans, representing 1.5% of the pool balance, are fully defeased. The pool reported a weighted-average (WA) net cash flow (NCF) growth of 16.1% over the DBRS NCF figures derived at issuance, with a WA debt service coverage ratio (DSCR) and debt yield of 1.73 times (x) and 13.2%, respectively, based on the most recent year-end (YE) financials. These figures compare to the WA DBRS Term DSCR and debt yield for the remaining loans of 1.48x and 10.2%, respectively, which were derived at issuance. Approximately 96.1% of the non-defeased loan balance reported YE2017 financials, and 95.6% reported partial-year 2018 financials.

As of the December 2018 remittance, there were eight loans, representing 33.1% of the current pool balance, on the servicer’s watchlist. The largest loan in the pool, Shoppes at Buckland Hills (Prospectus ID#1; 15.6% of the pool) was placed on the servicer’s watchlist in December 2018 for a low DSCR of 1.09x as of Q3 2018, down from 1.36x at YE2017. However, the cash flow decline is largely due to a likely temporary increase in expenses for the collateral regional mall property, located within the Hartford, Connecticut, metropolitan statistical area. DBRS is monitoring the sales trends at the property, however, with the trailing 12 months (T-12) ending December 2017 sales report on file with DBRS showing in-line sales being down 5.2% year over year, averaging $342 per square foot. In addition, the four largest collateral tenants, DICK’s Sporting Goods, Barnes & Noble, Dave & Buster’s and H&M, all reported drops in sales from the prior year for the T-12 period, ranging from a decline of 0.6% to 10.5%. DBRS requested an updated tenant sales report for the property, and the servicer’s response is pending.

The mall is owned and operated by Brookfield Property Partners L.P., following the company’s acquisition of General Growth Properties last year. All non-collateral anchors – Sears, Macy’s and JCPenney – remain open, and no closures have been announced to date. The property benefits from its location within a primary retail corridor; however, that location also means retailers at the subject are competing with a high concentration of options for shoppers in the area. In addition, the Hartford economy has suffered in recent years due to state tax policies that have driven many businesses out of the area. Given the declining sales trends and the concentration of struggling retailers in the property’s anchor mix, DBRS has placed this loan on the DBRS Hotlist and will closely monitor the loan for developments, providing updates to the loan commentary on the DBRS Viewpoint platform as new information becomes available.

Another top ten loan on the watchlist, GPB Portfolio 2 (Prospectus ID#7; 7.3% of the pool), was placed on the servicer’s watchlist due to deferred maintenance following a site inspection. The six remaining loans were on the watchlist due to a decline in financial performance.

At issuance, DBRS shadow-rated the ELS Portfolio loan (Prospectus ID#5; 7.9% of the current pool balance) investment grade. With this review, DBRS confirms that the performance of that loan remains consistent with investment-grade loan characteristics.

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 applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

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

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – The Shoppes at Buckland Hills (15.6% of the pool balance) (DBRS Hotlist)
-- Prospectus ID#4 – Capital City Mall (7.9% of the Pool Balance)
-- Prospectus ID#5 – ELS Portfolio (7.9% of the Pool Balance)
-- Prospectus ID#11 – Southbrook and Baybrook Village Center (3.8% of the Pool Balance)
-- Prospectus ID#15 – Hilton Springfield (3.0% of the Pool Balance)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS rated), as well as loan level and transaction level commentary for most DBRS-rated and monitored transactions.

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

The principal methodology is the North American CMBS Surveillance Methodology, which can be found on dbrs.com under Methodologies & Criteria. 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 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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

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