DBRS Morningstar Confirms Ratings on All Classes of CSMC 2020-TMIC

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2020-TMIC issued by CSMC 2020-TMIC as follows:

-- Class A at AAA (sf)
-- Class X-NCP at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (sf)
-- Class D at A (low) (sf)
-- Class HRR at BBB (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, as evidenced by the strong cash flow and occupancy growth as a result of the property’s location and dedicated sponsorship. The interest-only (IO), floating-rate loan is secured by The Mall in Columbia, a 1.4 million-square-foot (sf) regional mall in Columbia, Maryland. The $250.0 million loan is scheduled to mature December 2023 with no extension options remaining. DBRS Morningstar requested an update, and a response from the servicer is currently pending.

The loan has extremely rigorous cash management provisions with all excess cash flow being trapped in a lender-controlled account in effect for the life of the loan. Additionally, a debt service shortfall guaranty remains in place through the loan’s fully extended term. The mall is within an affluent area between Baltimore and Washington, D.C. and anchored by Macy’s (18.5% of the net rentable area (NRA), expiring August 2030), Nordstrom (14.3% of NRA, expiring February 2030), and JCPenney (noncollateral, 12.8%, expiring August 2051). A noncollateral Lord & Taylor previously anchored the property but vacated in Q4 2020 after its parent company filed for bankruptcy. No replacement tenant has yet been signed. In addition, the most recent servicer commentary confirmed that AMC Theatres (AMC) (6.8% of total NRA) extended its lease to December 2028 from December 2023.

The mall reported an occupancy of 96.8% as of the May 2023 rent roll, a significant uptick from the YE2021 figure of 94.4%. Collateral space at the property reported an occupancy of 95.9% for the same period. With AMC having renewed its lease, rollover risk is moderate over the next 12 months, with 6.8% of total NRA scheduled to roll. Overall, tenant sales exhibited a strong recovery from the Coronavirus Disease (COVID-19) pandemic, with trailing 12-months (T-12) ended May 2023 in-line sales at $557 per square foot (psf) (excluding Apple), an improvement from the T-12 ended June 2021 figure of $434 psf and above the pre-pandemic levels with the 2019 figure at $523 psf.

According to the trailing three-month period ended March 31, 2023, financials, the property reported an annualized net cash flow (NCF) figure of $31.2 million (reflecting a debt service coverage ratio (DSCR) of 1.32 times (x)), a slight decrease from the YE2022 figure of $33.2 million (a DSCR of 2.17x), but it remains above the DBRS Morningstar issuance NCF of $28.1 million. The decrease in NCF was primarily driven by a decrease in expense reimbursement, while the decrease in DSCR is due to an $8.3 million increase in the annualized debt service from the YE2022 figure considering the floating-rate nature of the loan.

At issuance, DBRS Morningstar concluded a value of $363.0 million based on the DBRS Morningstar NCF of $28.1 million and a 7.75% capitalization rate, which represents a 38.9% haircut from the appraisal value of $594.0 million. In addition, DBRS Morningstar applied positive qualitative adjustments totaling 3.0% to the sizing, to reflect the property’s quality and market fundamentals.

Given the collateral’s strong sales, generally stable performance throughout the pandemic, exposure to an affluent demographic, and lack of nearby competition, the loan is in a good position to refinance but considering the current interest rate environment, it wouldn’t be surprising if an extension is required. DBRS Morningstar will continue to monitor this loan for developments.

ENVIRONMENTAL, SOCIAL, AND 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/416784 (July 4, 2023).

Class X-NCP 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 credit ratings are subject to surveillance, which could result in credit 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 credit rating was initiated at the request of the rated entity.

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

This is a solicited credit rating.

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

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

The credit 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)

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 (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

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

A description of how DBRS Morningstar analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

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