DBRS Morningstar Confirms Ratings on Taubman Centers Commercial Mortgage Trust 2022-DPM

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2022-DPM issued by Taubman Centers Commercial Mortgage Trust 2022-DPM as follows:

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

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations at issuance. The transaction is collaterialized by the borrower’s fee-simple interest in Dolphin Mall Miami, a 1.4 million-square foot (sf) Class A super-regional mall in Sweetwater, Florida, approximately 13 miles west of the Miami central business district. The mall was delivered in 2001 and is one of the highest volume shopping centers in the United States, yielding net rental incomeexceeding $90.0 million annually between 2017 and 2020 and again in 2022. Revenues were down in 2021 due to the Coronavirus Disease (COVID-19) pandemic but quickly returned to historic levels. The collateral benefits from strong, experienced sponsorship in Taubman Realty Property Group and Simon Property Group.

The two-year floating-rate loan is structured with three one-year extension options and pays interest only (IO) through the fully extended maturity date. To account for uncertainty surrounding the potential rise of interest rates through the initial loan term, the loan is structured with an extension strike rate defined as the greater of (1) the initial strike rate and (2) a percentage rate equal to term SOFR, prime rate, or the unadjusted benchmark replacement, as applicable, which would yield a debt service coverage ratio (DSCR) of 1.10 times (x). The issuer-estimated DSCR at issuance was 2.67x, suggesting a reasonably substantial increase in interest rates would need to occur for the collateral’s DSCR to fall to 1.10x (assuming the collateral’s net cash flow (NCF) is held constant). The transaction sponsor can avoid the substantially large rise in interest rates by purchasing interest rate cap protection at each extension period and would likely be financially inclined to do so. At issuance, DBRS Morningstar generally perceived the unique extension strike rate structure to be credit neutral.

The collateral, generally recognized as Miami’s largest outlet center, has a diverse tenancy composed of national outlet brands, big box retailers, restaurants, and entertainment offerings. Several anchor, major, and in-line tenants have been recognized as top performers across their respective national brands with sales well in excess of their respective national chain averages, including the collateral’s Ross Dress for Less, Marshalls HomeGoods, Dave & Buster’s, Cobb Theatres, Forever 21, Polo Ralph Lauren Factory Store, Victoria’s Secret, and Tommy Hilfiger. Strong in-line comparable sales of $955 per square foot (psf), $915 psf, $516 psf, and $847 psf were reported in 2018, 2019, 2020, and 2021, respectively. Approximately 65% to 70% of the collateral’s sales were historically generated from tourist-related activities, with a concentration of international visitors noted to be from South America.

At issuance, it was reported that Taubman Realty Group LLC executed a lease with The Cordish Companies to bring three new experience concepts to Dolphin Mall, including PBR Cowboy Bar, Sport & Social, and Plaza. The company has branded these concepts across 12 other cities where they have appeared centrally located nearby each other and under one marquee, “Live!”. Taubman Realty Group and Live! Hospitality & Entertainment, a division of the Cordish Companies, recently announced these concepts, initially reported in 2021 to be delivered by winter of 2022, will be delivered in the summer of 2023 under the name “Vivo! Dolphin Mall.”

According to the financials for the trailing nine months ended September 30, 2022, the servicer reported annualized NCF of $105.7 million, an increase of 11.4% from the year-end (YE) 2021 NCF of $94.8 million and an increase of 12.2% from the DBRS Morningstar NCF of $94.2 million. The loan is reporting a healthy DSCR of 1.94x, down from the DBRS Morningstar DSCR of 2.86x at issuance because of interest rate volatility. Occupancy at the property remained strong at 96.9% at YE2022 compared with average year-end occupancy of 96.2% between 2017 and 2021.

DBRS Morningstar notes that the loan benefits from the collateral property’s favorable location, consistent occupancy trends, improving in-line sales, and strong sponsorhip. As with most regional malls, the collateral is expected to continue to contend with secular headwinds facing brick-and-mortar retailers in the long run. However, given the subject’s status as a premier shopping destination within a highly trafficked tourist destination, the sponsors are well positioned to continue weathering those storms with an attractive tenant roster and planned additions to the standard offerings with projects like the “Vivo!” package previously outlined.

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 (May 17, 2022).

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 (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023;
https://www.dbrsmorningstar.com/research/410191/north-american-single-assetsingle-borrower-ratings-methodology)

Legal Criteria for U.S. Structured Finance (December 7, 2022;
https://www.dbrsmorningstar.com/research/407008/legal-criteria-for-us-structured-finance)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022;
https://www.dbrsmorningstar.com/research/402646/dbrs-morningstar-north-american-commercial-real-estate-property-analysis-criteria)

North American Commercial Mortgage Servicer Rankings (September 8, 2022;
https://www.dbrsmorningstar.com/research/402499/north-american-commercial-mortgage-servicer-rankings)

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022;
https://www.dbrsmorningstar.com/research/402153/interest-rate-stresses-for-us-structured-finance-transactions)

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