DBRS Confirms All Classes of Citigroup Commercial Mortgage Trust 2014-GC21

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-GC21 issued by Citigroup Commercial Mortgage Trust 2014-GC21 as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class PEZ at A (sf)
-- Class D at BBB (low) (sf)
-- Class X-C at BB (high) (sf)
-- Class E at BB (sf)
-- Class X-D at BB (low) (sf)
-- Class F at B (high) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. At issuance, the collateral consisted of 70 fixed-rate loans secured by 111 commercial properties with a trust balance of $1.0 billion. According to the February 2019 remittance, there are 62 loans remaining in the pool with a current trust balance of $820.0 million, representing a collateral reduction of 21.2% since issuance as a result of scheduled loan amortization and loan repayment. Four loans, representing 22.3% of the pool balance (including the two largest loans), are structured with full-term interest-only (IO) payments. An additional three loans, representing 7.8% of the pool, have partial-IO terms remaining, which are scheduled to convert to amortizing payments by April 2019. Loans representing 94.8% of the pool balance reported year-end (YE) 2017 financials, including a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.64 times (x) and 10.5%, respectively, compared with the DBRS Term DSCR and DBRS Debt Yield of 1.39x and 8.5%, respectively. The largest 15 loans, representing 57.9% of the pool, reported a WA DSCR and WA debt yield of 1.63x and 9.8%, respectively, representing a WA net cash flow (NCF) improvement of 19.5% over the DBRS NCF figures derived at issuance. In addition, 41 loans, representing 76.2% of the pool balance, reported partial-year 2018 financials that resulted in a WA DSCR of 1.64x.

The pool has a relatively high concentration of loans secured by retail properties, which represent 44.0% of the pool balance. The high concentration is a concern, given the volume of recent store closures and chain bankruptcies in the retail sector. The pool has already been affected by these store closings as one loan, Hairston Village (Prospectus ID#13; 2.0% of the pool), transferred to the special servicer and three additional loans, representing 18.7% of the pool balance, were placed on the servicer’s watchlist for this reason. Retail properties reported a WA YE2017 DSCR and WA debt yield of 1.53x and 9.1%, respectively. In addition, most of the retail loans in the pool are secured by anchored-retail or regional mall properties, which are generally more desirable than unanchored-retail property types.

As of the February 2019 remittance, there was one loan in special servicing and ten loans on the servicer’s watchlist, representing 2.0% and 25.9% of the current pool balance, respectively. Of the watchlisted loans, five are being monitored for performance-related issues, two for upcoming loan maturities, two for large upcoming lease expirations and one for deferred maintenance. The largest loan in the pool, Maine Mall (Prospectus ID#1; 15.2% of the pool balance), is being monitored for early departure of anchor tenant, Bon-Ton Holdings Inc. (Bon-Ton; 16.5% of net rentable area (NRA)), which vacated in August 2017. As of February 2019, the anchor store remains vacant and the borrower is continuing to market the subject to national retailers for possible relocation opportunities. Even with the loss of the collateral tenant, cash flows have remained stable as a $5.0 million termination fee was remitted to the servicer since the store closed, prior to Bon-Ton filing bankruptcy in 2018. The loan benefits from a strong sponsorship in Brookfield Property Partners L.P. (rated BBB with a Stable trend by DBRS) and Maine Mall is considered to be the prominent mall in the state, serving as a true destination centre for a relatively large geographic area.

Hairston Village transferred to the special servicer in November 2018 for imminent default resulting from the loss of grocery anchor, the Kroger Co. (Kroger; 30.8% of the NRA) and major tenant, Conway Stores Inc. (14.5% of the NRA), ahead of their respective lease expirations. In addition, Pet Supermarket (5.2% of the NRA through September 2019) exercised its co-tenancy provisions and vacated the subject property in September 2018. With the loss of these tenants, the physical occupancy rate for the property dropped to 41.9%. Immediate risk is mitigated as Kroger will continue to pay rent through its December 2019 lease expiration and, as such, the projected cash flow should result in an in-place DSCR above 1.0x until that time. For this review, DBRS analyzed the loan with a stressed cash flow scenario and an elevated probability of default as the occupancy rate unexpectedly decreased and there is a short time period remaining on the Kroger lease payments.

Classes X-A, X-B, X-C 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 – Maine Mall (15.2% of the pool)
-- Prospectus ID#3 – Greene Town Center (5.4% of the pool)
-- Prospectus ID#9 – Lanes Mill Marketplace (2.7% of the pool) (DBRS Hotlist)
-- Prospectus ID#13 – Hairston Village (2.0% of the pool) (DBRS Hotlist)
-- Prospectus ID#14 – Harbor Square (2.0% of the pool)
-- Prospectus ID#45 – The Collegiate (1.0% of the pool)
-- Prospectus ID#64 – 8000 North Federal Highway (0.4% 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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