DBRS Morningstar Confirms Ratings on All Classes of CSMC 2018-SITE

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2018-SITE issued by CSMC 2018-SITE as follows:

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

All trends are Stable.

The rating confirmations and Stable trends reflect the overall stable performance for the transaction, which remains in line with DBRS Morningstar’s expectations at issuance.

The transaction is secured by a portion of first-lien mortgages on a portfolio of 10 cross-collateralized and cross-defaulted retail properties across nine states, encumbering the borrower’s fee-simple interest on each property. The portfolio includes seven power centers and three community centers in 10 distinct markets, totaling 3.4 million square feet (sf). The largest state concentrations are Arizona (representing 20.2% of net rentable area (NRA)), North Carolina (representing 19.8% of NRA), and Connecticut (representing 16.6% of NRA). The transaction is sponsored by a joint venture between China Life Merchants Group Limited, owning an 80.0% interest, and SITE Centers Corp., owning the remaining 20.0% interest and also managing the properties.

The $314.3 million subject transaction consists of two promissory notes: one senior trust note (A-1) and the subordinate B-Note. Additionally, there is a $50.0 million pari passu A-2 Note held outside of the trust in the CSAIL 2019-C15 transaction (rated by DBRS Morningstar). The loan is interest-only (IO) throughout the five-year loan term and is scheduled to mature in April 2024. The loan agreement allows for prepayment in whole without a prepayment fee, any time on or after April 6, 2023.

As of the December 2022 reporting, the portfolio was 92.7% occupied, down from 95.2% the prior year. The portfolio’s largest tenants are Lowe’s (representing 6.3% of NRA), Kohl’s (representing 5.7% of NRA), and AMC Theatres (representing 5.6% of NRA). Several properties benefit from investment-grade tenants, including Lowe’s, Kohl’s, Ross Dress For Less, TJX Companies, and Best Buy. Additionally, several properties have grocery anchors or are shadow-anchored by major non-collateral tenants including Target (three properties) and Sam’s Club (one property). The properties all benefit from prime locations near high-traffic areas, and complementary retail and demand generators including regional malls, universities, or convention centers.

The portfolio reported a consolidated net cash flow (NCF) figure of $42.6 million at YE2022, down from $44.8 million at YE2021, and a debt service coverage ratio of 2.41 times (x), down from 2.53x at YE2021. The decrease is mostly a result of the slight decrease in occupancy, resulting from rollover. Most of the rollover can be attributed to Brookside Marketplace in Tinley Park, Illinois, and Towne Center Prado in Marietta, Georgia, which reported YE2022 occupancy rates of 93.2% and 94.0%, down from 100.0% and 99.3% at YE2021, respectively. Two properties, Ahwatukee Foothills Towne Center in Phoenix and Ashley Crossing in Charleston, South Carolina, have seen a slight increase in occupancy, and reported YE2022 occupancy rates of 98.5%, and 93.9%, up from 92.6%, and 91.9% at YE2021, respectively. The remaining properties experienced slight occupancy decreases, with the exception of Route 22 Retail Center in Union, New Jersey, which remained unchanged from the prior year at 87.5%.

Overall, despite the slight decrease in performance across the portfolio, DBRS Morningstar anticipates performance will remain relatively stable in the near to moderate term given the geographical diversification, prime locations, and granular rent roll across the portfolio. While cash flow has slightly declined at the property, the YE2022 figure of $42.6 million remains above the DBRS Morningstar derived NCF of $35.8 million.

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).

Class X 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.

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 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 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 Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022); https://www.dbrsmorningstar.com/research/402646

North American Commercial Mortgage Servicer Rankings (September 8, 2022); https://www.dbrsmorningstar.com/research/402499

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022); https://www.dbrsmorningstar.com/research/402153

Legal Criteria for U.S. Structured Finance (December 7, 2022); https://www.dbrsmorningstar.com/research/407008

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