DBRS Morningstar Confirms All Ratings on BBCMS Trust 2015-VFM

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2015-VFM issued by BBCMS Trust 2015-VFM:

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

All trends are Stable.

The rating confirmations and Stable trends reflect the overall performance of the underlying collateral. While the property’s cash flow remains below DBRS Morningstar’s expectations, cash flow is expected to continue rising toward pre-Coronavirus Disease (COVID-19) pandemic levels with updated financial reporting based on improved occupancy and tenant sales. During 2022, several new tenants, representing 12% of the total net rentable area (NRA), signed leases at the property boosting the mall’s occupancy rate to 95.6%, while in-line sales for tenants less than 10,000 square feet (sf) (excluding Apple) for the trailing 12 months (T-12) ended September 30, 2022, reported an average sales figure of $643 per square foot (psf), slightly above pre-pandemic levels.

The collateral consists of the fee and leasehold interest in a 692,700-sf portion of Vintage Faire Mall, a super-regional mall in Modesto, California. The property is the only super-regional mall within a 50-mile radius and is the largest enclosed shopping mall between Fresno and Sacramento, California. The $280 million 11-year loan amortizes over 30 years and is scheduled to mature in March 2026. As of the December 2022 reporting, the loan balance had amortized to $234.1 million, representing a collateral reduction of 16.4% from issuance. The loan sponsor is Macerich, a publicly traded real estate investment trust with a market capitalization of more than $2.6 billion as of YE2022 and one of the largest mall owners and operators in the United States.

The mall is anchored by collateral tenants JCPenney (23.6% of the total NRA, lease expiring June 2025) and Macy’s Men’s & Home (12.8% of total NRA, lease expiring December 2026). JCPenney and Macy’s Men’s & Home both recently renewed their leases beyond their former March 2022 and December 2021 lease expiration dates. The mall is also anchored by noncollateral tenants Furniture City, Macy’s Women’s & Children’s, Dick’s Sporting Goods, and Dave & Buster’s. After the noncollateral anchor-tenant Sears vacated the property in 2019, the sponsor was able to backfill the space with Dick’s Sporting Goods and Dave & Buster’s in October 2020 and May 2022, respectively. Similarly, former noncollateral anchor-tenant Forever 21 was backfilled with Furniture City in September 2020.

As of the June 2022 rent roll, the collateral portion of the property was 92.7% occupied, and the mall as a whole was 95.6% occupied, increasing from 83.2% at YE2021. DBRS Morningstar notes the servicer’s reporting for this transaction has historically shown occupancy rates for the mall as a whole and not the collateral portion. Several new tenants have opened within the last 12 months, including collateral tenants JD Sports (1.2% of NRA), Bob’s Furniture Discount (4.8% of NRA), and noncollateral Dave & Buster’s. Within the next 12 months, tenants representing 7.7% of the total NRA, have scheduled lease expirations. As noted above, in-line sales for tenants less than 10,000 sf (excluding Apple) were reported at $643 psf for the T-12 period ended in September 30, 2022. This figure compares favorably to the T-12 reporting ended June 2021 of $468 psf (+37.4%) and the T-12 reporting ended December 2019 of $626 psf (+2.7%).

According to the September 2022 financials, the loan reported an annualized net cash flow of $22.3 million (reflecting a debt service coverage ratio (DSCR) of 1.48 times(x)), comparable with the YE2021 figure of $22.6 million (a DSCR of 1.51x), but well below the YE2019 figure of $26.4 million (a DSCR of 1.75x). While cash flows remain below pre-pandemic levels, occupancy has recently improved significantly with several tenants taking occupancy in 2022, including Dave & Buster’s, which took the lone empty anchor space for the mall as a whole. Based on the September 2022 reporting, the annualized base rent figure was $17.9 million, up approximately $1.0 million from YE2021. Given the lack of local competition and the sponsor’s commitment to the property, DBRS Morningstar expects the property’s in-place cash flows to continue rising toward pre-pandemic levels.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and 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 (May 17, 2022).

Class X is an interest-only (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.

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

The principal methodology is North American CMBS Surveillance Methodology (October 3, 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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