Morningstar DBRS Confirms Credit Ratings on All Classes of DBWF 2015-LCM Mortgage Trust

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-LCM issued by DBWF 2015-LCM Mortgage Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (low) (sf)
-- Class F at BB (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the continued stable performance of the collateral mall, which benefits from a nontraditional anchor and major tenant mix that includes Target, Costco Wholesale (Costco), 24 Hour Fitness, and Round1 Bowling & Amusement, as well as Macy's and JCPenney, a mix that fits the mall's location within a well-trafficked commercial corridor and surrounded by other big-box development, including The Home Depot and Albertsons. Occupancy since the last credit rating action has increased to pre-pandemic levels and in-place cash flows remain healthy, aligning with recent historical figures. Overall, tenant sales for the entire mall continue to trend upward, with some declines for in-line tenants and major department stores.

The collateral for the underlying loan consists of the fee-simple and leasehold interests in the 2.1 million-square-foot (sf) Lakewood Center mall in Lakewood, California, located approximately 10 miles north of Long Beach. At issuance, the whole loan of $410.0 million consisted of $240.0 million of senior debt and $170.0 million of junior debt. The subject transaction is backed by $120.0 million of the senior debt and the entirety of the junior debt. The remaining $120.0 million of senior debt is secured in the Morningstar DBRS-rated COMM 2015-CCRE24 Mortgage Trust transaction. The trust loan has an 11-year term and amortizes over a 30-year schedule, maturing in June 2026. As of the May 2024 remittance, the trust debt had amortized by 13.8% with a current trust balance of $250.2 million. The loan sponsor, Macerich Company, which acquired the 49.0% ownership interest in the mall in 2014 for around $1.8 billion, owns and operates the property.

Per the March 2024 rent roll, the property was 95.0% occupied, an increase over the December 2022 figure of 91.2% and trending back toward the issuance figure of 97.8%. The largest tenants include Macy's (17.5% of the net rentable area (NRA), lease expires in June 2030), Costco (8.0% of the NRA, lease expires in February 2029), JCPenney (7.8% of the NRA, lease expires in June 2025), and Target (7.7% of the NRA, lease expires in January 2035). In 2021, Pacific Theatres closed as part of a chain-wide shutdown as a result of the pandemic; however, the space appears to have been backfilled by Starlight Cinema (4.4% of the NRA, lease expires in May 2024). Near-term rollover risk is moderate over the next 12 months, with tenants representing about 21.1% of the NRA scheduled to roll, including JCPenney and Starlight Cinema. A leasing update was requested from the servicer. There has been some leasing momentum as two major tenants, Forever 21 and Best Buy, recently extended their leases in 2024, with Forever 21 extending for one year and Best Buy for four years.

According to the tenant sales report for the trailing 12-month (T-12) period ended March 31, 2024, total mall sales were $433.01 per square foot (psf), an increase from the YE2022 sales of $395.18 psf; however, department store anchors and in-line tenants reported modest declines. Macy's and JCPenney reported sales of $95.60 psf and $100.45 psf, respectively, for the T-12 period ended March 31, 2024, compared with the YE2022 figures of $103.26 psf and $108.76 psf, respectively. In addition, in-line tenants reported sales of $535 psf for the same time period, a decline from the YE2022 figure of $581 psf. Starlight Cinemas reported total sales of approximately $850,000, equating to $53,100 per screen; however, the tenant only took occupancy toward the end of July 2023.

Based on the financials for the trailing nine-month period ended September 30, 2023, the annualized net cash flow (NCF) was $27.9 million, relatively in line with the YE2022 and YE2021 figures of $28.7 million and $26.8 million, respectively. For those same time periods, the loan reported a debt service coverage ratio (DSCR) of 1.24 times (x), 1.31x, and 1.23x, respectively.

Given the continued stable performance of the collateral, Morningstar DBRS maintained the value derived in 2023 in its analysis for this review. The Morningstar DBRS value of $362.9 million is based on the Morningstar DBRS NCF figure of $28.1 million and capitalization rate of 7.8%, which implies an as-is loan-to-value (LTV) ratio of 91.0%. Morningstar DBRS maintained a positive adjustment totaling 2.5% to the LTV sizing benchmarks to give credit to the ongoing amortization and the subject's desirable location within the Los Angeles market.

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

Class X-A is an interest-only (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
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
-- 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/legal-criteria-for-us-structured-finance

A description of how Morningstar DBRS analyses 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].