DBRS Confirms all Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2016-C28

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-C28 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2016-C28 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class E-1 at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class E-2 at BBB (low) (sf)
-- Class EF at BB (sf)
-- Class F at BB (sf)
-- Class F-1 at BB (sf)
-- Class F-2 at BB (sf)
-- Class G-1 at B (high) (sf)
-- Class EFG at B (low) (sf)
-- Class G at B (low) (sf)
-- Class G-2 at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS’s expectations since issuance. As of the January 2019 remittance, all 42 loans remain in the pool with an outstanding principal balance of approximately $941.5 million, which represents minimal collateral reduction of 1.5% since issuance as a result of scheduled amortization. Pool-wide, six loans (27.2% of the pool) are structured with full interest-only (IO) terms, while an additional nine loans (28.8% of the pool) have partial IO periods remaining, ranging from 14 months to 23 months. The pool benefits from two loans being shadow rated investment grade, both in the top 15, in Penn Square Mall (Prospectus ID#1, 9.6% of the pool) and Le Meridien Cambridge MIT (Prospectus ID#12, 3.1% of the pool).

The DBRS Term debt service coverage ratio (DSCR) and DBRS Debt Yield at issuance were 1.57 times (x) and 8.6%, respectively. Thirty-nine loans (98.3% of the pool) are reporting year-end (YE) 2017 figures with a weighted-average (WA) DSCR and WA debt yield of 1.74x and 9.6%, respectively. DBRS notes that the YE2017 reporting for Ellenton Premium Outlets (Prospectus ID#2, 7.6% of the pool) is not showing in the servicer’s reporting for this transaction and was pulled from the reporting for another CMBS transaction with a pari passu portion of the loan. DBRS has asked the servicer for this transaction to resolve these inconsistencies in the reporting. The 15 largest loans in the pool collectively represent 72.4% of the transaction balance, and based on the YE2017 financials, these loans are reporting a healthy WA net cash flow (NCF) growth of 8.6% over the DBRS NCF figures, with a WA DSCR and debt yield of 1.78x and 9.3%, respectively.

The pool has a high concentration of retail properties, which collectively represent 36.0% of the pool, with three of those loans (24.8% of the pool balance) within the top 15. Although this concentration is noteworthy given the spike in retail bankruptcies and closures over the past few years, the retail loans in this pool are performing well overall, reporting a WA YE2017 DSCR of 2.05x, representing an 11.4% improvement in cash flows over the DBRS Term NCF figures derived at issuance. Occupancy is healthy, as well, with the collateral properties showing a strong WA occupancy rate of 96.3%. In addition, the largest loan in the pool, Penn Square Mall, is secured by a regional mall in Oklahoma City and is shadow rated investment grade, reflective of strong credit metrics, historically high sales and a strong owner/operator in Simon Property Group, Inc.

As of the January 2019 remittance, four loans, representing 16.3% of the pool, including two loans in the top 15, are on the servicer’s watchlist. The loans on the watchlist are being monitored for a variety of reasons, including a low DSCR, a recent casualty event or servicing trigger events. Penn Square Mall was added to the servicer’s watchlist in September 2017 due to a flooding incident that occurred in July 2017, resulting in water damage throughout the mall’s first floor. However, as the repairs were all complete by early 2018, with all tenants reopened, with the exception of Gap (1.2% of the collateral net rentable area), which is closed due to suite renovations being completed by the tenant, DBRS believes the loan should be removed from the watchlist. The loan reported a YE2017 DSCR of 2.61x and a Q2 2018 DSCR of 2.75x, up from the DBRS Term DSCR at issuance of 2.56x, suggesting the impact of the flooding event was minimal.

The second-largest loan on the watchlist, Le Meridien Cambridge MIT, is being monitored for a delinquent tax issue that appears to have been resolved and the third-largest loan on the watchlist, DoubleTree by Hilton – Cleveland, OH (Prospectus ID#13, 3.0% of the pool), is being monitored for cash flow declines. The DoubleTree property is located in downtown Cleveland and, according to the sponsor, property cash flows have been negatively impacted by increased supply since the loan’s closing. Recent financials show some improvement, with a T-12 ending September 2018 DSCR of 1.06x, up from 0.98x at YE2017, and a RevPAR of $74.75, slightly up from the previous year. For additional information on this loan, please see the DBRS loan commentary on the DBRS Viewpoint platform, for which information has been provided, below.

At issuance, DBRS assigned an investment-grade shadow rating to two loans, Penn Square Mall and GLP Industrial Portfolio A (Prospectus ID#3, 7.2% of the pool balance). With this review, DBRS confirmed that the performance of these loans remain consistent with investment-grade loan characteristics.

Classes X-A, X-B and X-D are 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 – Penn Square Mall (9.6% of the pool)
-- Prospectus ID#2 – Ellenton Premium Outlets (7.6% of the pool)
-- Prospectus ID#3 – GLP Industrial Portfolio A (7.6% of the pool)
-- Prospectus ID#7 – Greenville Mall (4.6% of the pool)
-- Prospectus ID#12 – Le Meridien Cambridge MIT (3.1% of the pool)
-- Prospectus ID#13 – DoubleTree by Hilton – Cleveland, OH (3.0% of the pool)

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 North American CMBS Surveillance Methodology, which can be found on www.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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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.

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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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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