Morningstar DBRS Confirms Credit Ratings on All Classes of THE 2023-MIC Trust

DBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2023-MIC issued by THE 2023-MIC Trust as follows:

-- Class A at AAA (sf)
-- Class X at AA (low) (sf)
-- Class B at AA (low) (sf)
-- Class HRR at A (high) (sf)

All trends are Stable.

The credit rating confirmations and trends reflect the overall stable performance of the transaction, which has remained in line with Morningstar DBRS' expectations since issuance. The transaction, which closed in November 2023, has experienced minimal seasoning and continues to benefit from experienced sponsorship in Brookfield Property Retail Holding LLC and Nuveen Real Estate, as well as a low all-in Morningstar DBRS loan-to-value ratio (LTV) of 59.5%. Its high quality and position as one of the major super-regional malls in Maryland, coupled with minimal rollover concerns, history of stable occupancy, and strong in-line sales, support the credit rating confirmations with this review.

The transaction is collateralized by the borrower's fee-simple interest in The Mall in Columbia, a 1,468,977-square-foot (sf) Class A super-regional mall approximately 20 miles southwest of Baltimore and 25 miles northeast of Washington, D.C. Anchor tenant JCPenney (165,000 sf) and the vacant former Lord & Taylor anchor store (120,000 sf), which has been vacant since issuance, are not included as collateral. The subject was most recently updated in 2017, which included the redevelopment of the former Sears box and the addition of Barnes & Noble, Main Event Entertainment, Uncle Julio's, and Lidl. The sponsor has invested approximately $83.0 million into the property since 2014. The collateral anchors are Macy's and Nordstrom, which both have lease expiries beyond the loan's final maturity. The fixed-rate, interest-only (IO) loan has five-year term with no extension options. Loan proceeds of $255.0 million were used to refinance the existing debt of $250.0 million and cover closing costs associated with the transaction.

The collateral was 95.8% occupied as of the June 2024 rent roll with minimal tenant rollover in the next 12 months. The property has maintained generally consistent occupancy rates in recent years, with an average annual occupancy rate of 91.6% achieved between 2019 and 2023. Tenant sales have also been stable with the June 2024 tenant sales report indicating in-line sales of $567 per square foot (psf) (excluding Apple), which is in line with $560 psf at issuance. According to the trailing 12-month (T-12) June 2024 financials, the subject reported an annualized net cash flow (NCF) and debt service coverage ratio of $32.7 million and 1.47 times, which remains above the Morningstar DBRS issuance-derived figures. Morningstar DBRS, however, notes that these figures do not represent a full year of servicer reporting given the November 2023 closing date.

At issuance, Morningstar DBRS derived a value of $394.7 million, based on a capitalization rate of 7.75% and a Morningstar DBRS NCF of $30.6 million, resulting in an LTV of 59.5%, compared with the LTV of 50.4% based on the issuance appraised value of $466.0 million. Morningstar DBRS maintained positive qualitative adjustments to the LTV sizing benchmarks, totaling 3.0% to account for the property quality given the historical investment from the sponsor, and market fundamentals for the subject's location in an affluent trade area between Baltimore and Washington, D.C.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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 Factors in Credit Ratings (August 13, 2024; https://dbrs.morningstar.com/research/437781/morningstar-dbrs-criteria-approach-to-environmental-social-and-governance-factors-in-credit-ratings.

Class X 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/north-american-cmbs-surveillance-methodology).

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

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, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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 (September 19, 2024; https://dbrs.morningstar.com/research/439699/north-american-single-assetsingle-borrower-ratings-methodology

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024; https://dbrs.morningstar.com/research/439702/morningstar-dbrs-north-american-commercial-real-estate-property-analysis-criteria

-- Legal Criteria for U.S. Structured Finance (April 15, 2024; https://dbrs.morningstar.com/research/431205/legal-criteria-for-us-structured-finance

-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024; https://dbrs.morningstar.com/research/428623/interest-rate-stresses-for-us-structured-finance-transactions

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024; https://dbrs.morningstar.com/research/438283/north-american-commercial-mortgage-servicer-rankings

-- Rating North American CMBS Interest-Only Certificates (June 28, 2024; https://dbrs.morningstar.com/research/435294/rating-north-american-cmbs-interest-only-certificates

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.