DBRS Morningstar Confirms All Ratings of Morgan Stanley Capital I Trust 2013-ALTM, Changes Trends on Three Classes to Stable from Negative

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2013-ALTM issued by Morgan Stanley Capital I Trust 2013-ALTM as follows:

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

DBRS Morningstar changed the trends on Classes C, D, and E to Stable from Negative. All remaining classes have Stable trends.

The rating confirmations and trend changes reflect the overall improved sales performance and stable occupancy rate of the collateral mall property, as further outlined below.

The $160.0 million first-mortgage loan is secured by the fee-simple interest in the Altamonte Mall in Orlando, Florida. The 12-year, fixed-rate loan is interest only (IO) for the first five years then amortizes on a 30-year schedule for the remainder of the loan term. As of the July 2022 remittance, the current loan balance is $146.8 million, representing a collateral reduction of 8.3% from issuance. The loan is scheduled to mature in February 2025 and is not subject to subordinate debt or mezzanine financing. The loan is sponsored by a joint venture (JV) between the New York State Common Retirement Fund and Brookfield Property Partners L.P. (Brookfield), which assumed the loan following Brookfield’s takeover of General Growth Properties Inc. in July 2018. Brookfield also manages the property.

The property is the dominant mall in north Orlando and caters to local shoppers while its competitors generally serve the tourist market. The anchors include a non-collateral Macy’s and Dillard’s, as well as a collateral JCPenney. There is also a non-collateral anchor box that was formerly occupied by Sears and has been dark since 2018. The borrower has had discussions with potential tenants but no replacement tenants have been identified to date. Since issuance, the servicer has reported occupancy rates that have consistently been in the mid-to-high 90s for the collateral portion of the mall, with the June 2022 occupancy rate of 95.0% in line with the year-end (YE) 2021 and YE2020 occupancy rates and slightly below YE2019 of 98.8%. Although JCPenney has not announced plans to close the subject location, the sales are low as of the most recent reporting, suggesting the store could be at risk if the retailer closes more locations as part of its effort to reorganize and improve its financial position. However, it is also noteworthy that JCPenney is owned by a joint venture that includes a Brookfield affiliate, and as such, the sponsor could be motivated to keep the store open even with relatively lackluster sales.

JCPenney reported a trailing 12 month (T-12) period ended March 2022 sales figure of $69 per square foot (psf), which is down from the already low figure of $77 psf as of the T-12 ended March 2021. The T-12 ended March 2022 tenant sales report showed in-line tenants that occupy less than 10,000 sf averaged sales of $726 psf, compared with the T-12 ended March 2021 figure of $446 psf. These figures fall to $467 psf and an estimated $350 psf, respectively, when removing Apple’s sales.

Based on the most recent financials, the Q1 2022 annualized net cash flow (NCF) was reported at $15.8 million, which is an improvement from the YE2021 figure of $12.5 million as well as the YE2020 figure of $13.0 million but below the YE2019 figure of $16.2 million, suggesting overall performance remains behind pre-pandemic levels. The year-over-year (YOY) NCF change for 2021 was primarily driven by an increase in expenses related to property insurance, management fees, and general and administrative costs. Percentage rent accounted for approximately 10.0% of the YE2021 effective gross income, a higher concentration than has been seen historically, likely due to concessions made for tenants experiencing pandemic-driven traffic declines in the early part of the reporting period. Although in-place cash flows remain depressed from previous levels, DBRS Morningstar believes the overall risk profile is stable considering the strong in-line sales, historically stable occupancy, and reporting for the first three months of 2022 that suggests cash flows are improving back toward historical figures.

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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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.

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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577