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

DBRS Limited (Morningstar DBRS) confirmed its credit 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 credit rating confirmations reflect the continued stable performance of the collateral property as evidenced by the robust occupancy rate, strong in-line tenant sales figures, and healthy financial performance. The loan continues to benefit from the ongoing amortization; however, Morningstar DBRS does note that the investor appetite for regional malls does remain somewhat diminished, which could complicate refinancing efforts as the loan is scheduled to mature in February 2025. In addition, there is a moderate tenant rollover risk of approximately 24.0% of the net rentable area (NRA) with leases scheduled to expire in the next 12 months, but it is worthy to note that the leases for collateral anchors at the property were recently renewed.

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 in the northern suburbs of Orlando. The 12-year loan had an original principal balance of $160.0 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 May 2024 remittance, the loan reported a balance of $140.5 million, representing a collateral reduction of 12.2% 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 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 March 2024 rent roll, the property was 94.8% occupied, which remains relatively unchanged since 2020. Noncollateral anchors include Macy's and Dillard's, while collateral anchors include JCPenney (25.1% of the NRA, lease expiry in January 2029) and AMC Theatres (AMC; 11.8% of the NRA, lease expiry in December 2028), both of which signed lease renewals within the last six months. As previously noted, tenants representing 24.0% of the NRA have leases scheduled to expire in the next 12 months.

Although the recent five-year lease renewal for JCPenney is encouraging, the retailer's sales at the property remain generally dismal. As of the trailing 12 months (T-12) ended September 30, 2023, JCPenney reported average sales of $69 per sf (psf), unchanged from the prior year but below the YE2021 figure of $77 psf. In-line tenant sales, however, continue to post strong figures, with the T-12 ended September 30, 2023, sales at $782 psf for tenants occupying less than 10,000 sf, compared with the YE2022 figure of $749 psf. When excluding Apple's sales, those figures decline to approximately $498 psf and $470 psf, respectively. Sales for AMC were $538,611 per screen for the T-12 ended September 30, 2023, which remains in line with the YE2022 figure of $538,588 per screen.

Based on the financials for the trailing nine-month period ended September 30, 2023, the annualized net cash flow (NCF) was $13.8 million (representing a debt service coverage ratio (DSCR) of 1.56 times (x)), compared with the YE2022 and YE2021 figures of $14.3 million (DSCR of 1.61x) and $12.5 million (DSCR of 1.41x), respectively.

Given the relatively stable performance of the collateral, Morningstar DBRS maintained the $168.2 million value derived in 2020 when the credit ratings were assigned; this value was based on the Morningstar DBRS NCF figure of $13.5 million and a capitalization rate of 8.0%. The Morningstar DBRS value implies an as-is loan-to-value ratio (LTV) of 83.5%. Morningstar DBRS maintained positive adjustments totaling 3.0% to the LTV sizing benchmarks to account for the property's quality build and location.

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 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 at (January 23, 2024), https://dbrs.morningstar.com/research/427030.

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 Morningstar DBRS.

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

The principal methodology is 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
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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://dbrs.morningstar.com/about/methodologies.

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

-- Rating North American CMBS Interest-Only Certificates (December 13, 2023) https://dbrs.morningstar.com/research/425261

-- 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 (April 15, 2024), https://dbrs.morningstar.com/research/431205

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.

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