Morningstar DBRS Confirms Credit Ratings on All Classes of WP Glimcher Mall Trust 2015-WPG

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

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X at A (sf)
-- Class C at A (low) (sf)
-- Class PR-1 at BBB (low) (sf)
-- Class SQ-1 at BBB (low) (sf)
-- Class PR-2 at BB (sf)
-- Class SQ-2 at BB (low) (sf)
-- Class SQ-3 at B (low) (sf)

All trends are Stable.

The credit rating confirmations reflect the overall stable performance of the transaction since Morningstar DBRS' last credit rating action in January 2024, with no changes to the collateral and performance metrics since then remaining in line with expectations. Both loans continue to report net cash flow (NCF) in line with or above issuance levels. Morningstar DBRS updated its values for both loans with this review. While the current credit ratings are lower than the results implied by the loan-to-value ratio (LTV) sizing benchmarks, the borrower may face challenges refinancing the loans at their June 2025 maturity dates due to the current higher-interest-rate environment, supporting the credit rating confirmations with this review.

This transaction is backed by portions of the senior debt and all of the subordinate debt secured by Scottsdale Quarter (Prospectus ID#2, 39.2% of the pool), a 541,386-square-foot (sf) mixed-use retail center in Scottsdale, Arizona, and Pearlridge Center (Prospectus ID#1, 60.8% of the pool), a 1.14 million-sf super-regional mall in Aiea, Hawaii, the state's largest enclosed shopping center. Both properties are managed by Washington Prime Group and are not cross-collateralized or cross-defaulted.

Pearlridge Center is an enclosed center, originally built in 1972 and located just north of Pearl Harbor. The mall is anchored by Macy's (18.4% of net rentable area (NRA)), which has a lease expiration in February 2027. Inclusive of the vacant anchor box, which was previously ground-leased by Sears, the mall's occupancy was reported at 72.8% as of June 2024, in line with the prior year. The sponsor has assumed the Sears lease and continues to evaluate leasing opportunities. The loan reported a Q2 2024 annualized NCF of $21.0 million (whole loan debt service coverage ratio (DSCR) of 2.60 times (x)), which remains in line with the YE2023 NCF of $22.8 million (whole loan DSCR of 2.83x). Morningstar DBRS expects NCF to remain steady as the loan approaches its June 2025 maturity date given the granularity of the mall's tenancy and minimal upcoming lease rollover.

Scottsdale Quarter is a Class A, mixed-use, open-air lifestyle center 17 miles northeast of Phoenix, Arizona, in the affluent Kierland neighborhood of north Scottsdale. The collateral includes an office component representing 32.5% of the NRA. The two largest tenants at the property are both office users, Starwood Hotels & Resorts (14.8% of NRA, lease expiration February 2027) and co-working tenant Spaces (8.7% of NRA, lease expiration December 2033). Major retail tenants include Landmark Theatres, Restoration Hardware, and Pottery Barn. Per the June 2024 rent roll, the property was 84.7% occupied, which is below the YE2023 and YE2022 figures of 94.0% and 93.0%, respectively. NCF has increased approximately 50% since the lows experienced during 2021, with the property reporting a trailing 12-month NCF for the period ended June 30, 2024, of $21.9 million (DSCR of 3.70x), an increase from the YE2023 and YE2022 NCF of $21.7 million (DSCR of 3.67x) and $19.2 million (DSCR of 3.25x), respectively.

In the analysis for this review, Morningstar DBRS derived updated values for both properties, using the YE2023 NCFs for each, with a 2.0% haircut (HC) applied for Pearlridge Center and a 20.0% HC for Scottsdale Quarter. For Pearlridge Center, a capitalization (cap) rate of 7.25% was applied, resulting in an updated Morningstar DBRS value of $307.9 million (whole loan LTV of 73.1%), in line with the previous Morningstar DBRS value derived in 2023. Morningstar DBRS maintained a positive qualitative adjustment to the LTV sizing benchmarks totaling 4.0% to reflect the property's quality and strong market fundamentals, as the property benefits from its location and strong competitive position. For Scottsdale Quarter, Morningstar DBRS maintained its blended cap rate approach from the last review, assuming a 7.25% cap rate for the retail space and a 10.0% cap rate for the office space, resulting in an overall cap rate of 8.25%. The resulting Morningstar DBRS value was $210.0 million (whole loan LTV of 78.6%). Morningstar DBRS maintained a positive qualitative adjustment to the LTV sizing benchmarks totaling 1.0%, which included a -1.0% adjustment for cash flow volatility given the soft office market and a 2.0% adjustment for above-average property quality.

The Morningstar DBRS credit ratings assigned to Classes C, PR-1, PR-2, SQ-1, SQ-2, and SQ-3 are lower than the results implied by the LTV sizing benchmarks. The variances are warranted as both loans are scheduled to mature in June 2025, and given the higher-interest-rate environment, the borrower may face additional challenges securing takeout financing. Furthermore, to evaluate the potential for upgrades, Morningstar DBRS applied a conservative 20.0% upgrade stress to the YE2023 NCFs for both properties. The LTV sizing benchmarks resulting from that stressed analysis indicated that upgrades were not warranted with this review.

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 interest-only (IO) certificate that reference 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 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.

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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 (December 3, 2024; https://dbrs.morningstar.com/research/444064/legal-criteria-for-us-structured-finance)

-- 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.