DBRS Morningstar Downgrades Two Classes of BB-UBS Trust 2012-TFT

DBRS Limited (DBRS Morningstar) downgraded the ratings on two classes of the Commercial Mortgage-Pass Through Certificates, Series 2012-TFT issued by BB-UBS Trust 2012-TFT as follows:

-- Class B to A (high) from AA (low) (sf)
-- Class C to BB (high) from BBB (high) (sf)

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

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class D at B (low) (sf)
-- Class E at CCC (sf)
-- Class TE at B (high) (sf)

With this review, DBRS Morningstar removed Classes A, X-A, B, C, D, and TE from Under Review with Negative Implications where they were placed on October 8, 2020. The trends on Classes C, D, and TE are Negative. The trends on the remaining classes are Stable, with the exception of Class E which does not carry a trend.

The downgrades and Negative trends are reflective of the increased risks to the trust with the updated appraisal figures obtained for both collateral mall properties, which represent variances ranging between -11.6% and -50.0% from the respective values at issuance, as further described below. In addition, both loans are specially serviced after failing to repay at loan maturity in June 2021; however, the servicer has confirmed monthly payments will continue to be paid in the interim as loan modifications and extensions are being negotiated.

The transaction was originally backed by three separate 7.5-year, fixed-rate, interest-only (IO) first-mortgage loans with a combined principal balance of $567.8 million. The three loans were secured by the Tucson Mall located in Tucson, Arizona; the Fashion Place mall located in Murray, Utah; and the Town East Mall in Mesquite, Texas. The loans were sponsored by GGP Limited Partnership, which Brookfield Property Partners, L.P. acquired in July 2018. The first-mortgage loans, along with a combined $65.2 million in mezzanine debt ($40.5 million of which was allocated to Tucson Mall and the remaining $24.7 million was allocated to Fashion Place) were used to refinance $341.0 million of existing debt and return $292.0 million of equity back to the sponsor.

The loans were originally set to mature on June 1, 2020; however, the sponsor was unable to refinance the outstanding debt, primarily because of complications surrounding the Coronavirus Disease (COVID-19) pandemic. The sponsor requested relief and all of the underlying loans were transferred to special servicing in May 2020 for imminent default. In June 2020, a modification agreement was executed, which includes the following for all three loans: (1) a maturity date extension to June 1, 2021, including mezzanine debts; and (2) the borrower’s ability to grant rent deferral without the servicer’s consent, but to a limited degree. Other terms and conditions have been instituted to permit the basic forbearance strategy and the loans were returned to the master servicer in October 2020. The extended maturity date was missed for two of the three loans, with the Tucson Mall and Town East Mall loans transferred to special servicing for the second time; however, with the Fashion Place loan repaid with the June 2021 remittance.

The Tucson Mall loan (Prospectus ID#1, 56.2% of the pool) is secured by a 667,581-square foot (sf) portion of a 1.3 million-sf super regional mall in Tucson, Arizona. The property is anchored by Dillard’s, Macy’s, JCPenney, Dick’s Sporting Goods, and Forever 21, all of which own their own improvements. Dillard’s, Macy’s, and JCPenney sublease the land from the sponsor. In addition to the current anchor set, a Sears was in place at issuance but vacated the property in April 2020. No replacement tenant has been signed to date, but the borrower has previously reported discussions with Harkins Theatre to take over the space, but nothing has materialized to date. JCPenney, which filed for Chapter 11 bankruptcy in 2020 and was ultimately acquired by a joint venture that includes affiliates of the loan sponsor, remains open and no reports of a planned closure of the subject location have been published to date. The occupancy rate of 92.2% as of May 2021 is in line with historical figures. The most recent sales figures for the trailing 12-month (T-12) period ending March 2021, reported in-line tenant sales less than 10,000 sf of $345 per square foot (psf), which represents an 8.5% increase from the T-12 December 2020 sales of $318 psf.

Over the past few years, the property has shown precipitous revenue declines as cash flow dropped from $19.5 million as of YE2018 to $16.8 million as of YE2019. Cash flow declined an additional 17.2% to $13.9 million at YE2020, a figure that is 42.4% below the Issuer’s underwritten cash flow. Based on the whole loan debt service, the loan reported a debt service coverage ratio (DSCR) of 1.86 times (x) as of YE2020. An updated appraisal as of April 2020 valued the property at $200.0 million on an as-is basis and $250.0 million as-stabilized, representing a 50.0% decline from $400.0 million at issuance. The appraiser considered the redevelopment of the former Sears space and the inclusion of the Harkins Theatre tenant for its as-stabilized estimate. Given the performance declines that preceded the coronavirus pandemic that could be exacerbated amid the disruption to brick and mortar retail, particularly mall properties located in secondary markets, DBRS Morningstar applied a conservative haircut to the April 2020 appraisal value for this review, resulting in a DBRS Morningstar Value of $160.0 million, which implies an A-note loan-to-value (LTV) of 128.4% and a whole loan LTV of 153.8%.

The Town East Mall loan (Prospectus ID#2, 43.8% of the pool) is secured by a 421,206-sf portion of a 1.2 million-sf regional mall in Mesquite, Texas, 10 miles east of Dallas. The property is anchored by Dillard’s, JCPenney, and Macy’s, all of which have lease expiries in December 2021 and own their own stores, portions of the land, and parking areas. A noncollateral Sears previously anchored the mall but closed in April 2021. No replacement tenant has been identified. Other major retailers at the mall include Dick’s Sporting Goods, Forever 21, and H&M. In a bit of a contrast to the Tucson Mall’s performance in the last few years, the Town East Mall’s performance has been strong since issuance, with occupancy, including noncollateral anchors, remaining above 95% since 2009. At YE2020, the loan reported a year-over-year cash flow decline of 12.3% from YE2019; however, the YE2020 whole loan DSCR of 3.11x remains 7.7% above the Issuer’s underwritten DSCR of 2.89x. The most recent sales figures for the T-12 period ending December 2020, reported in-line tenant sales less than 10,000 sf of $431 psf, which represents a 20.0% decline from the T-12 December 2019 sales of $539 psf.

The mall experienced a minor valuation decline with the July 2020 appraisal reporting an as-is value of $224.4 million and an as-stabilized value of $249.9 million, compared to the issuance value of $254.0 million. DBRS Morningstar applied a moderate haircut to the July 2020 value resulting in a DBRS Morningstar Value of $202.0 million, implying a whole loan LTV of 79.4%.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Class X-A is an IO certificate that references 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 Morningstar.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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

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

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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 Morningstar 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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