DBRS Morningstar Confirms Ratings on All Classes of BB-UBS Trust 2012-TFT

DBRS Limited (DBRS Morningstar) confirmed the following ratings on the Commercial Mortgage Pass-Through Certificates issued by BB-UBS Trust 2012-TFT:

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

With this review, DBRS Morningstar maintains the Negative trends on Classes C, D, and TE. The trends on all other classes are Stable, with the exception of Class E, which does not carry a trend.

The rating confirmations and Stable trends reflect DBRS Morningstar’s outlook for the performance of the underlying collateral, which remains unchanged since the last review. Two loans remain outstanding, both having recently returned to the master servicer following modifications in 2021. The terms of the modifications included a maturity extension for both to June 2022 with two additional one-year extension options, a small equity infusion to pay down the loan balances, and a full cash flow sweep until the loans are paid in full. For this review, DBRS Morningstar conducted a stress test on the most recent appraised values of the two underlying properties in order to test the durability of the ratings. The Negative trends reflect DBRS Morningstar’s continuing concerns about the deteriorating property value and elevated refinance risk.

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 in Tucson, Arizona; the Fashion Place mall 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 Fashion Place loan was fully repaid in June 2021.

The remaining Tucson Mall and Town East Mall loans have defaulted twice, missing their original scheduled June 1, 2020 maturity date as well as their modified June 1, 2021 maturity date. In July 2021, a second modification agreement was executed, with an initial maturity date of June 1, 2022, and a fully extended maturity date of June 1, 2024. According to the most recent financials, both properties meet the extension requirements, consisting of debt yield hurdle tests and principal prepayments for Town East Mall, and the servicer is expecting the borrower to exercise its extension options.

The Tucson Mall loan (Prospectus ID#1; 58.5% of the pool) is secured by a 667,581-square foot (sf) portion of a 1.3 million-sf super regional mall in Tucson. According to the December 2021 reporting, 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. An anchor pad previously occupied by Sears has remained vacant since April 2020 with no replacement tenant signed to date. An affiliate of Sears, Transform Operating, took over the sublease and is scheduled to pay rent through 2027. As of February 2022, the total mall occupancy rate was 94.0%, an increase from the YE2020 figure of 92.6% and consistent with reporting since issuance. In-line sales for YE2021 were reported to be $464 psf, which is well above the YE2020 sales of $318 psf and the issuance level of $389 psf. The reported net cash flow (NCF) for YE2021 was $14.6 million (with a debt service coverage ratio (DSCR) of 1.99 times (x)), a 5.1% increase from the YE2020 NCF of $13.9 million, but well below the issuer’s NCF of $24.1 million (with a DSCR of 3.29x).

The June 2021 appraisal valued the property at $121.0 million on an as-is basis, representing a 70.0% decline from $400.0 million at issuance. DBRS Morningstar notes that property cash flow had been in decline prior to the onset of the Coronavirus Disease (COVID-19) pandemic, though it has likely exacerbated the decline in the subject property's valuation. However, the mall has maintained a stable occupancy rate and strong sales that dipped slightly in 2020 but have since restabilized. Additionally, DBRS Morningstar considers the subject property to be the superior mall in its market. A competing Brookfield mall, Park Place, 11 miles to the southeast, has an inferior anchor profile and lower occupancy rate, and the loan (securitized in the DBRS Morningstar-rated GSMS 2011-GC5 transaction) is delinquent and in special servicing.

The Town East Mall loan (Prospectus ID#2; 41.5% of the pool) is secured by a 421,206-sf portion of a 1.2 million-sf regional mall in Mesquite, 10 miles east of Dallas. The property is anchored by Dillard’s, JCPenney, and Macy’s, none of which are included as collateral for the loan. At the time of this writing, all three anchor leases had expired, and the servicer has not been able to confirm whether renewals have been finalized although the stores still appear on the mall website. Other major retailers at the mall include Dick’s Sporting Goods, Forever 21, and H&M. According to the December 2021 rent roll, total mall occupancy declined to 80.5%, because of the departure of the non-collateral Sears in April 2021. Despite the 11.8% decline in NCF from YE2020, the YE2021 whole loan DSCR of 2.77x remains in line with the issuer’s DSCR of 2.89x. In-line sales for the trailing 12 months ended September 2021 were reported to be $554 psf, surpassing the YE 2020 sales of $431 psf and pre-pandemic YE 2019 sales of $539 psf.

The June 2021 appraisal valued the property at $187.0 million compared with the issuance value of $254.0 million. Despite the decline in occupancy and appraised value, the property’s performance has remained resistant to the effects of the pandemic. Based on the subject’s self-contained location within the Southeast submarket, it is the primary mall for residents of the Eastern Dallas area and DBRS Morningstar expects the mall to maintain steady foot traffic.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929.

Class X-A is an IO certificate 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 Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

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.

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

The principal methodology is the North American CMBS Surveillance Methodology (March 4, 2022), 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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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