DBRS Confirms All Ratings of MSCCG Trust 2015-ALDR

DBRS Limited (DBRS) confirmed the Commercial Mortgage Pass-Through Certificates, Series 2015-ALDR issued by MSCCG Trust 2015-ALDR (the Trust) as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the underlying collateral. The original $355.0 million whole loan consists of six separate notes, four of which are pari passu notes that compose the Trust. As of the May 2019 remittance, there has been a collateral reduction of 6.0% due to scheduled amortization, resulting in a current Trust balance of $240.1 million. The loan is secured by a super-regional mall with two open-air sections located in Lynnwood, Washington, approximately 18.0 miles north of Seattle. The subject is owned by affiliates of Brookfield Property Partners L.P. (Brookfield), which manages the property and is considered a strong sponsor given its experience in mall ownership, and the New York State Common Retirement Fund, forming the joint venture Brookfield/Homart II LLC.

The collateral portion of the property consists of 575,704 square feet (sf) of the 1.3 million sf Alderwood Mall. Anchor tenants include Macy’s (18.2% of the total net rentable area (NRA)), JCPenney (11.6% of the total NRA), Loews Cineplex (Loews; 6.1% of the total NRA) and Nordstrom (11.2% of the total NRA), of which only Loews serves as collateral for the loan and has a lease extending through December 2025.

Former non-collateral tenant Sears (13.9% of the total NRA) vacated the mall in March 2017 following the parent company’s announcement that they would be closing 26 Sears and 78 Kmart stores nationwide in January 2017. Brookfield has recently been redeveloping the east side of the shopping center for The Cheesecake Factory, which took occupancy of a newly constructed 10,119 sf pad in August 2018, and for Dave & Buster’s. While the details of Dave & Buster’s lease have not yet been received, it has been confirmed that the tenant signed a new lease at the end of 2018 and construction is reportedly ongoing. The March 2019 site inspection performed for the servicer identified over $5.3 million in planned capital expenditures to address exterior skin work, paving and elevator repairs. Various news articles have indicated that DICK’S Sporting Goods was another tenant that had shown interest in the former Sears space; however, the servicer has confirmed that no lease has been signed and there are no plans to move forward at this point in time.

According to the December 2018 rent roll, the mall was 86.2% occupied compared with 98.4% at issuance, while the collateral was 96.5% occupied compared with 96.4% at issuance, respectively. The largest three collateral tenants include the aforementioned Loews (13.8% of the collateral NRA), REI (4.4% of the collateral NRA; expiring January 2020) and Forever 21 (4.2% of the collateral NRA; expiring January 2022). Despite a minor drop in overall sales at the mall of 2.0% year over year, sales figures at Alderwood Mall remained strong according to the trailing 12 months (T-12) ending September 2018 tenant sales report. In-line tenants occupying fewer than 10,000 sf reported T-12 sales figures of $691 per square foot (psf), representing only a 0.9% decline from the prior year’s figure of $697 psf. Excluding Apple, in-line tenants fewer than 10,000 sf reported a sales figure of $555 psf. Loews experienced a sales increase of 11.0% year over year, reporting a T-12 figure of $902,379 per screen compared with the previous year’s figure of $813,133 per screen. Other notable tenants, including Forever 21, H&M and Apple, reported T-12 figures of $153 psf; $410 psf; and $13,721 psf, respectively, which reflected respective declines of 6.7%, 12.2% and 4.6% compared with the previous year’s figures.

As of YE2018 financials, the loan reported an amortizing debt service coverage ratio (DSCR) of 1.66 times (x) compared with 1.72x as at YE2017 and 1.73x as at YE2016 and the DBRS Term DSCR of 1.58x. Although revenue had a slight decline year over year, the effective gross income was still operating above DBRS expectations at issuance. Operating expenses, on the other hand, have experienced an increase of approximately 8.0% over the DBRS expectation, largely driven by increases to the real estate taxes and general and administrative line items. Altogether, the performance of the loan remains healthy and benefits from substantial amortization during the ten-year loan term, resulting in a DBRS Refinance DSCR of 1.26x and exit debt yield of 11.3% based on the loan’s current metrics. Furthermore, the property benefits from a strong sponsor/operator in Brookfield, which has shown continued commitment to the property, with positive leasing action and redevelopment plans for the former Sears space. In addition, the mall benefits from strong in-line sales and is located in a growing metropolitan statistical area that has ambitious plans for development within close proximity of the subject.

DBRS is monitoring the ongoing developments with JCPenney, as its management team has decided to close 27 stores nationwide in 2019 with a possibility of additional store closures in 2020 and beyond. The retailer reported a 5.5% drop in same-store sales in its Q1 2019 earnings report, higher than DBRS’s expectations of 4.2%. A closing of the subject JCPenney store would signify the mall’s second anchor closing, which could potentially trigger co-tenancy clauses.

Class X-A is an interest-only (IO) certificate that references Class A-1, which the IO rating mirrors.

All ratings are subject to 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 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.

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