DBRS Morningstar Confirms All Ratings of Morgan Stanley Capital I Trust 2013-ALTM

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)

All trends are Stable.

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

The transaction is secured by the fee-simple interest in a 641,000-square-foot (sf) portion of a 1.16 million sf, two-story, enclosed super-regional mall known as Altamonte Mall, which is situated in the northern suburbs of Orlando. The 12-year loan had an original principal balance of $160 million, with an initial five-year interest-only (IO) period; thereafter, the loan amortizes on a 30-year amortization schedule. The loan began amortizing in 2018 and as of the June 2023 remittance, the loan reported a balance of $143.6 million, representing a collateral reduction of 10.2% since issuance. The loan is sponsored by a joint venture between the New York State Common Retirement Fund and Brookfield Property Partners L.P. (Brookfield). Brookfield acquired an interest in the property as part of its acquisition of General Growth Properties, Inc. in 2018. Brookfield provides property management services, as well.

The subject property is a prominent shopping destination in North Orlando, primarily serving local patrons, in contrast to other nearby malls that mainly cater to tourists. As of the December 2022 rent roll, the property was 95.3% occupied, generally in line with rates reported since 2020. Collateral anchors include JCPenney (25.1% of the net rentable area (NRA), lease expiry in January 2024) and AMC Theatres (AMC; 11.8% of the NRA, lease expiry in December 2023). The noncollateral anchors include Macy’s and Dillard’s. According to the servicer, JCPenney has confirmed intent to extend its lease for an additional five years through January 2029. It is notable that Brookfield, along with Simon Property Group, Inc., owns JCPenney after an acquisition to take the retailer out of bankruptcy in 2020. AMC is reportedly in discussions with Brookfield to sign a renewal as well, but those plans have not been finalized to date. Near-term rollover risk is minimal over the next year, with tenants representing about 9.0% of the NRA scheduled to roll.

Although the upcoming renewal for JCPenney is encouraging, DBRS Morningstar also notes the retailer’s sales at the property remain generally dismal. As of the trailing 12 months (T-12) period ended December 31, 2022, JCPenney reported average sales of $69 per sf (psf), which is down from the prior year figure of $77 psf. However, in-line tenants have reported average sales improvements over the same period, with the T-12 ended December 31, 2022, report showing tenants with less than 10,000 sf averaging sales of $743 psf, up from $670 psf the year prior. These figures fall to $453 psf and an estimated $436 psf, respectively, when removing Apple’s sales. Sales for AMC were reported at $538,558 per screen for the T-12 ended December 31, 2022, up sharply from the prior year’s figure of $158,012 per screen.

Based on the most recent financials, the mall reported a YE2022 net cash flow (NCF) of $14.3 million, compared with YE2021 NCF of $12.5 million and YE2020 NCF of $13.0 million. Cash flow remains below the pre-Coronavirus Disease (COVID-19) pandemic YE2019 NCF of $16.2 million, but the continued growth year-over-year is a positive sign, as is the sales growth as previously outlined. In addition, the YE2022 NCF figure is generally in line with the DBRS Morningstar NCF of $14.8 million, derived in 2020 when ratings were assigned. A debt service coverage ratio (DSCR) for YE2022 was reported at 1.61 times (x), compared with the YE2021 DSCR of 1.41x. Despite depressed cash flow from the pre-pandemic years, the overall risk profile remains stable and consistent with DBRS Morningstar's expectations in 2020.

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-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.

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
DBRS Tower, 181 University Avenue, Suite 700
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

Rating North American CMBS Interest-Only Certificates (December 19, 2022)
https://www.dbrsmorningstar.com/research/407577

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

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 (June 9, 2023) https://www.dbrsmorningstar.com/research/415687

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