DBRS Morningstar Confirms Ratings and Changes All Trends to Stable From Negative on MSBAM Commercial Mortgage Securities Trust 2012-CKSV

DBRS Limited (DBRS Morningstar) confirmed its ratings on Commercial Mortgage Pass-Through Certificates (the Certificates), issued by MSBAM Commercial Mortgage Securities Trust 2012-CKSV as follows:

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

DBRS Morningstar changed the trends on all classes to Stable from Negative with this review. The rating confirmations and trend changes reflect the continued stabilization of the two regional malls that back the underlying loans since DBRS Morningstar’s last review.

All certificates rated by DBRS Morningstar, except for Class CK, are backed by two separate loans secured by two regional malls known as Clackamas Town Center (Clackamas) and Sunvalley Shopping Center (Sunvalley). The Class CK certificate is backed by the Clackamas loan only. The Clackamas loan has a current senior component balance of $190.8 million and subordinate component balance of $25.2 million and is scheduled to mature on October 1, 2022, following a 10-year interest-only (IO) term. The Sunvalley loan has a current senior balance of $154.4 million and is scheduled to mature on September 1, 2022, following a 10-year term that included amortization on a 30-year schedule. The loans are not cross-collateralized or cross-defaulted. The Clackamas loan is sponsored by a joint venture between Brookfield Property Partners L.P. (Brookfield) and Teacher’s Retirement System of the State of Illinois (TRS), while the Sunvalley loan is sponsored by Simon Property Group (Simon) after its acquisition of The Taubman Realty Group Limited Partnership in December 2020.

The Sunvalley loan is secured by a 1.2 million-square-foot (sf) portion of a 1.4 million-sf regional mall in Concord, California. Collateral anchors include JCPenney (17.8% of the net rentable area (NRA), lease expiry in May 2022), Macy’s (16.8% of the NRA, lease expiry in July 2028), and Macy’s Men & Home (14.9% of NRA, lease expiry in August 2029). There is also a non-collateral Sears, which remains open. As of the December 2021 rent roll, the collateral is 93.5% occupied, up from the March 2021 rate of 87.0%, and in line with the May 2020 occupancy rate of 93.6%. Although JCPenney has a lease expiration of May 2022, the tenant appears to have renewed given the store remains open as of the date of this press release.

A December 2021 tenant sales report was provided, showing sales for in-line tenants of $408 per square foot (psf) compared with the year-end (YE) 2020 and YE2019 figures of $292 psf and $393 psf, respectively. Although the collateral has seen improvement year-over-year, sales figures are still below the figure of $453 psf reported at issuance. As of the most recent financial reporting, the annualized Q1 2022 debt service coverage ratio (DSCR) was 1.27 times (x), relative to the YE2021 and YE2020 DSCR figures of 0.96x and 1.19x, respectively. At contribution, the loan reported net cash flow (NCF) of $23.8 million, compared with the pre-Coronavirus Disease (COVID-19) pandemic NCF of $17.8 million at YE2019, the YE2021 NCF of $10.9 million, and the annualized March 2022 figure of $14.6 million. Although recent trends show improving metrics for the property, it is noteworthy that the pre-pandemic figures showed sustained declines from the issuance expectations. As such, DBRS Morningstar considered the in-place cash flow declines for the property when the ratings were assigned in 2020.

The Clackamas loan is secured by a 631,537-sf portion of a 1.4 million sf, two-level, super-regional mall in Happy Valley, Oregon. As of the December 2021 rent roll, the collateral portion of the property was 88.1% occupied with approximately 30% of the NRA scheduled to roll within the next 12 months, including the largest tenant. The largest collateral tenants include Century Theatres (11.2% of the NRA, lease expiry in December 2022), Dave & Buster's (5.8% of the NRA, lease expiry in January 2030), and Forever 21 (2.0% of the NRA, lease expiry in January 2024). The noncollateral anchor tenants include: Macy's, Macy's Home Store, JCPenney, and Dick's Sporting Goods, which back-filled the previously dark Sears space. The noncollateral Nordstrom permanently closed in August 2020; however, according to the December 2021 rent roll, the tenant continues to fulfill its monthly rental obligations.

The Clackamas property is the stronger performer of the two in this transaction, with stronger sales and cash flows. According to the December 2021 tenant sales report, tenants smaller than 10,000 sf noted YE2021 sales of $561 psf compared with the YE2020 sales figure of $351 psf and YE2019 sales figure of $493 psf. Total in-line space reported YE2021, YE2020, and YE2019 and issuance sales figures of $519 psf, $322 psf, $451 psf, and $432 psf, respectively. The largest tenant, Century Theatres, reported YE2021 sales of $69,000 per screen compared with the $120,000 at YE2020, $410,000 at YE2019, and $441,000 at issuance. The annualized Q1 2022 DSCR was 2.73x, compared with the YE2021 and YE2020 DSCR figures of 2.33x and 2.41x, respectively. The YE2021 NCF remained depressed from pre-pandemic levels at $21.3 million, compared with the YE2020 and YE2019 NCF of $22.1 million and $25.6 million, respectively. However, given the sales trends and the subject’s status as a destination shopping center for the region, DBRS Morningstar expects cash flows will continue to stabilize.

The near-term maturities for both loans are noteworthy, particularly in light of the relatively limited opportunity for takeout financing for regional mall loans in the current environment. However, the sponsors of both loans are well-capitalized and appear committed to both properties, which continue to show sales and cash flow improvements in the post-pandemic years. As mentioned, DBRS Morningstar considered the previous cash flow declines for Sunvalley in its analysis when ratings were assigned in 2020 and. as such, the current ratings for the pooled certificates are reflective of that risk. Based on the conservative DBRS Morningstar value, derived in the 2021 review, the DBRS Morningstar loan-to-value ratio is noted at 78% compared with the moderate issuance LTV of 51%, providing an ample cushion.

ESG CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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.

Classes X-A and X-B 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 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 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.

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

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