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

DBRS Limited (Morningstar DBRS) confirmed its credit 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 credit rating confirmations reflect the stable performance of the underlying collateral, which remains in line with Morningstar DBRS’ expectations as exhibited by the continuous cash flow growth and stable occupancy since issuance.

The loan is secured by the fee-simple interest in Dolphin Mall Miami, a 1.4 million-square-foot (sf) Class A super-regional mall in Sweetwater, Florida. The mall is considered Miami’s largest outlet center with a diverse tenancy composed of national outlet brands, big box retailers, restaurants, and entertainment offerings.

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 in May 2027. The loan is scheduled to mature in May 2024, but the borrower has provided notice to exercise the first extension to May 2025. The borrower is required to purchase a replacement interest rate cap agreement where the strike rate must be greater than the initial strike rate or a percentage rate, which when added to the Component Spread would yield a debt service coverage ratio (DSCR) of 1.10 times (x). The replacement interest rate cap agreement has been purchased and is currently being reviewed by the lender.

According to the trailing nine-month ended September 30, 2023, financials, the annualized net cash flow (NCF) was $120.2 million, compared with the YE2022 figure of $109.3 million and the Morningstar DBRS NCF of $94.2 million. The loan is reporting a DSCR of 1.49x, down from 2.06x at YE2022 because of an increase in debt service related to the floating-rate nature of the loan. Revenues have been trending upward as a result of increases in occupancy and average in-place rents, with the September 2023 rent roll reporting an occupancy rate of 98.6% and generally minimal tenant rollover risk in the near term.

The tenant roster is granular; however, the three largest tenants, Burlington Coat Factory (7.4% of net rentable area (NRA)), Bass Pro Shops (7.0% of NRA), and Cobb Theatres (6.0% of NRA), have lease expirations after the fully extended maturity date. An updated tenant sales report was not provided, but historical in-line comparable sales have been strong at $915 per square foot (psf), $516 psf, and $847 psf, for 2019, 2020, and 2021, respectively.

For this review, Morningstar DBRS maintained the Morningstar DBRS NCF of $94.2 million and a capitalization rate of 7.25% in its analysis, resulting in a Morningstar DBRS value of $1.30 billion, which represents a 22.4% haircut from the issuance appraised value and a whole-loan loan-to-value ratio of approximately 77.0%. Positive qualitative adjustments totaling 3.75% were maintained to reflect the low cash flow volatility, property quality, and strong market fundamentals.

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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the credit rating is the North American CMBS Surveillance Methodology (March 1, 2024; https://dbrs.morningstar.com/research/428798).

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

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.

Morningstar DBRS 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://dbrs.morningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024; https://dbrs.morningstar.com/research/428799)

Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024; https://dbrs.morningstar.com/research/428623)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://dbrs.morningstar.com/research/420982)

North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://dbrs.morningstar.com/research/419592)

Legal Criteria for U.S. Structured Finance (December 7, 2023; https://dbrs.morningstar.com/research/425081)

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279 (July 17, 2023).

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