DBRS Morningstar Confirms Ratings of CGMS Commercial Mortgage Trust 2017-MDDR, Changes One Trend to Stable

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates issued by CGMS Commercial Mortgage Trust 2017-MDDR as follows:

-- Class A-FX at AAA (sf)
-- Class A-FL-PB at AAA (sf)

All trends are Stable, with DBRS Morningstar changing the trend on Class A-FX to Stable from Negative with this rating action. The Stable trends reflect the continued overall performance of the respective collateral pools, which remain in line with DBRS Morningstar’s expectations from issuance.

The transaction consists of three separate pools of certificates (Pool A certificates, Pool B certificates, and Pool C certificates). Each pool is backed by a separate mortgage loan secured by a portfolio of retail properties. The three pools are not cross-collateralized or cross-defaulted with each other, and DBRS Morningstar analyzed each of the pools independently. DBRS Morningstar only rates certificates from Pool A and Pool B, which at issuance encompassed 34 properties (24 grocery-anchored centres and 10 power centres) across nine states, totaling 5.1 million square feet (sf). The collateral benefits from the high concentration of grocery-anchored properties as grocery stores were deemed essential businesses throughout the Coronavirus Disease (COVID-19) pandemic. Publix anchored seven of the 24 grocery-anchored centres, and other anchors of note are Harris Teeter and Kroger. Other anchors and major tenants at various centres included Ross Dress for Less, Dollar Tree, Michaels, Bed Bath & Beyond, Kohl’s, and the UPS Store. The properties are in secondary or tertiary locations with low barriers to entry and the threat of more competition; however, the individual pools have granular rent rolls with properties in Pool A leased to 338 tenants and properties in Pool B occupied by 340 tenants. According to the servicer, the borrower has not requested any relief related to the coronavirus pandemic in terms of forbearance or loan modification as of July 2021.

The Pool A certificates are backed by a five-year interest-only fixed-rate mortgage loan consisting of two componentized promissory notes with a total mortgage balance of $218.7 million, scheduled to mature in July 2022. The loan is secured by 13 retail properties totaling 2.3 million sf, averaging 176,878 sf per property, across six states (Florida, North Carolina, Georgia, Massachusetts, Virginia, and Ohio). Ten of the 13 retail properties are grocery anchored, and the portfolio has been historically well occupied. All of the properties are in secondary and tertiary markets, with DBRS Morningstar Market Ranks of 2 through 4. Pool A is relatively unchanged from issuance, with all 13 properties remaining in the poll, and has performed above the issuer’s underwritten expectations from issuance through YE2020. Net cash flow (NCF) for the portfolio has increased nearly 7% to $21.7 million as of YE2020 from $20.3 million at issuance. The servicer reported a YE2020 occupancy rate and debt service coverage ratio (DSCR) of 91.9% and 2.51 times (x), respectively, compared with 86.9% and 2.35x according to the issuer’s underwriting at issuance.

The Pool B certificates are backed by an interest-only floating-rate mortgage loan consisting of two componentized promissory notes with a total mortgage balance of $274.8 million at issuance. The Pool B Mortgage Loan had an initial scheduled maturity date in July 2019, but the loan documents included provisions to extend the maturity for three optional one-year terms, fully extending the maturity to July 2022. At issuance, the loan was secured by 21 retail properties totaling 2.8 million sf. All of the properties are in secondary and tertiary markets, with DBRS Morningstar Market Ranks of 1 through 4. According to the June 2021 remittance report, and confirmed by the servicer, 10 collateral properties have been released from the pool since issuance, with release prices ranging from 110% to 120% of the allocated loan amounts (applied sequentially). Three of the collateral properties have been released since September 2020 (Coffer Crossing, Shoppes of Golden Acres, and Hearther Island), resulting in an additional $30.4 million in principal paydowns. Eleven properties remain in the trust with a total trust balance of $148.5 million, representing a collateral reduction of 46.0% since issuance. The remaining pool consists of six grocery-anchored retail centres and five power centres, totaling 1.6 million sf, averaging 147,398 sf per property, across seven states (Ohio, Indiana, Florida, North Carolina, California, New Jersey, and Georgia). Cash flow for the remaining properties in the portfolio has declined slightly to $17.0 million as of the servicer reported YE2020 financials from the issuer’s underwritten NCF of $17.2 million. The YE2020 weighted-average occupancy rate and DSCR for the remaining properties have increased to 91.2% and 3.82x, respectively, when compared with 90.2% and 3.41x calculated from the issuer’s underwriting for those same properties at issuance. The loan is currently on the servicer’s watchlist (as a performing loan) for the upcoming maturity date, scheduled for July 15, 2021, after the second extension option, but servicer commentary notes that the borrower plans to extend the maturity with the third and final extension option to July 2022.

To reflect the increased paydown to the Pool B loan, in its analysis, DBRS Morningstar derived its NCF using the servicer’s reported YE2020 NCF for the 11 remaining collateral properties with a negative adjustment, taking into consideration the ongoing collateral performance including tenant movement and sales performance. The resulting NCF figure was $16.6 million, a variance of -3.5% from the issuer’s NCF for those same 11 properties at issuance. DBRS Morningstar maintained its capitalization rate assumption of 8.25%, which resulted in a DBRS Morningstar value of $201.7 million, a variance of -25.2% from the $269.7 million appraised value of the remaining properties at issuance. The DBRS Morningstar value implies a loan-to-value ratio (LTV) of 73.6%, compared with the LTV of 55.0% based on the issuance appraised value.

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.

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 loan-level 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 the 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.

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

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