DBRS Morningstar Confirms Credit Ratings on All Classes of BB-UBS Trust 2012-TFT

DBRS Limited (DBRS Morningstar) confirmed its credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2012-TFT issued by BB-UBS Trust 2012-TFT:

-- Class A at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at BBB (high) (sf)
-- Class TE at B (high) (sf)
-- Class C at B (low) (sf)
-- Class D at CCC (sf)
-- Class E at C (sf)

All trends are Stable, excluding Classes D and E, which have credit ratings that generally do not carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

The transaction was originally backed by three separate 7.5-year, fixed-rate, interest-only (IO) first-mortgage loans; however, one loan, Fashion Place, paid off in June 2021. The two remaining loans are secured by Tucson Mall (Prospectus ID#1; 58.8% of the pool) in Tucson, Arizona, and Town East Mall (Prospectus ID#3; 41.1% of the pool) in the Dallas suburb of Mesquite, Texas. Both loans were previously in special servicing because of defaults on the 2020 maturity dates.

During the time in special servicing, updated appraisals were obtained for both collateral malls that showed significant value declines from the respective issuance figures. Given the increased risk of loss implied by those updated values, previous surveillance has resulted in DBRS Morningstar downgrading its credit ratings on certain classes, most recently in December 2022 when it downgraded four classes. For the December 2022 review, DBRS Morningstar derived an updated value for both remaining collateral properties based on in-place net cash flows (NCFs), which suggested that the combined value of the properties was not sufficient to cover the outstanding loan amount, resulting in the downgrade of Classes B through E. With this review, DBRS Morningstar confirmed its credit ratings, reflecting the consistent year-over-year performance for both loans, which remains below pre-pandemic levels and suggests the DBRS Morningstar values derived in 2022 remain stable.

At issuance, the transaction had a balance of $567.8 million and the loans were sponsored by GGP Limited Partnership, which Brookfield Property Partners L.P. acquired in July 2018. As of the November 2023 reporting, the trust reported an outstanding balance of $329.6 million, reflecting a collateral reduction of 41.9% since issuance as a result of the payoff of the Fashion Place loan in June 2021 and the additional principal paydown and loan amortization following loan modifications executed in 2021. The loan modifications provided for maturity extensions for both loans to June 2022, with two additional one-year extension options available that required principal paydown to reduce the trust exposure for both loans. The servicer has also required a full cash flow sweep to remain in effect until the loans are paid in full. As of October 2023, the Tucson Mall and Town East Mall loans reported $8.9 million and $7.4 million, respectively, in excess cash flow reserves. Both loans have met the required debt yield hurdles in order to exercise their final extension option and both loans were extended to the final maturity date in June 2024. Both loans are currently on the servicer’s watchlist.

The Tucson Mall loan is secured by a 667,581-square-foot (sf) portion of a 1.3 million-sf super-regional mall in Tucson. The property is currently anchored by Dillard’s, Macy’s, JCPenney, Dick’s Sporting Goods, and Forever 21, all of which own their own improvements. As of the June 2023 rent roll, the total mall occupancy rate was 93.3%, in line with the December 2022 figure of 94.5%. According to the most recent sales report, in-line sales for the trailing 12-month (T-12) period ended June 30, 2023, were reported to be $474 per square foot (psf), in comparison with the YE2022 sales of $471 psf and the pre-pandemic YE2019 sales of $383 psf. Downward pressure on rents, combined with increasing operating expenses, continues to stress the NCF as of the financials for the year to date (YTD) ended June 30, 2023. The annualized Q2 2023 NCF is reported at $13.0 million (with a debt service coverage ratio (DSCR) of 1.20 times (x)), up slightly from the YE2022 NCF of $12.6 million but down from the YE2021 NCF of $14.6 million and the Issuer’s NCF of $24.1 million. The collateral was most recently appraised in July 2021 at $121.0 million, representing a 70.0% decline from the $400.0 million valuation at issuance. Comparatively, the DBRS Morningstar value derived in December 2022 was $105.5 million, as further described below.

The Town East Mall loan is secured by a 421,206-sf portion of a 1.2 million-sf regional mall in Mesquite, 10 miles east of Dallas. The property is anchored by Dillard’s, JCPenney, and Macy’s, none of which are collateral for the loan. All three anchors have reported ground lease expiration dates of December 31, 2023, and, according to the servicer, the sponsor has recorded letter agreements with all three anchor tenants, suggesting that the ground leases will be extended. Other major retailers at the mall include Dick’s Sporting Goods, Forever 21, and H&M. According to the June 2023 rent roll, mall occupancy was 80.1%, in line with YE2021 and YE2022 figures and representative of the property’s failure to backfill the noncollateral Sears anchor that was closed in April 2021. The annualized Q2 2023 NCF is reported at $14.7 million, down from the YE2022 NCF of $15.7 million and the Issuer’s NCF of $16.8 million. The DSCR for the YTD period ended June 30, 2023, was 1.64x, representing a decline from the YE2022 and Issuer’s DSCR of 2.07x and 2.89x, respectively. In-line sales for the T-12 period ended August 31, 2023, were reported to be $466 psf, in comparison with the YE2022 sales of $496 psf and pre-pandemic YE2019 sales of $539 psf. As of June 2021, the property was revalued by the appraiser at $187.0 million, a 26.4% decline from the issuance value of $254.0 million. Comparatively, the DBRS Morningstar value derived in December 2022 was $181.3 million, as further described below.

DBRS Morningstar’s credit ratings are based on a value analysis completed during the December 2022 review. The values for both malls were derived based on haircuts to the annualized NCF for the YTD ended June 30, 2022, for each property. A steeper haircut was applied in the analysis for the Tucson Mall property given the significant deterioration in the appraised value and sustained low revenues when compared with pre-pandemic levels. DBRS Morningstar applied capitalization rates (cap rates) at the high end of DBRS Morningstar’s cap rate ranges for regional malls for both properties, reflecting secondary market locations and Class B property quality. For the Tucson Mall loan, the concluded DBRS Morningstar value was $105.5 million, representing a 12.8% haircut to the appraiser’s July 2021 value of $121.0 million and a whole-loan loan-to-value ratio (LTV) of 183.8%. DBRS Morningstar maintained a negative qualitative adjustment to the LTV sizing of -0.5% to reflect the cash flow volatility given the steep drop from issuance expectations. For the Town East Mall loan, the concluded DBRS Morningstar value was $181.3 million, representing a 3.0% haircut to the June 2021 value of $187.0 million and a whole-loan LTV of 74.8%. A positive qualitative adjustment of 0.25% for cash flow volatility was applied to the LTV sizing to reflect the generally stable in-place cash flows since issuance and the relatively low delta between the issuance appraised value and the most recent appraisal obtained by the special servicer.

When considering these values in the context of a potential liquidation and recovery scenario, the top two classes (Classes A and B) remain well insulated against loss, while those classes below the top two are most exposed; these factors are reflected in the barbelled credit ratings for this transaction. DBRS Morningstar also notes the significant in-place reserves as a result of the cash flow sweep and the above breakeven DSCR for both loans as factors providing additional cushion against loss for Classes A and B.

The DBRS Morningstar credit rating assigned to Class TE is lower than the results implied by the LTV sizing benchmarks. Class TE is a loan-specific certificate that is only entitled to payments of interest and principal from the Town East Mall loan. This variance is warranted given the sustained lower occupancy since Sears’ departure in 2021 and potential for further value volatility. Also, the loan is scheduled to mature in June 2024 and, given the high interest rate environment, the borrower may face challenges securing takeout financing and may be required to provide additional equity.

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/416784 (July 4, 2023).

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 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

DBRS Limited
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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 (October 19, 2023;
https://www.dbrsmorningstar.com/research/422174)

-- 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 22, 2023; https://www.dbrsmorningstar.com/research/420982)

-- 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 analyses 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].