Morningstar DBRS Confirms Credit Ratings on All Classes of Hudson's Bay Simon JV Trust 2015-HBS

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-HBS issued by Hudson's Bay Simon JV Trust 2015-HBS as follows:

-- Class X-A-7 at AAA (sf)
-- Class A-7 at AA (high) (sf)
-- Class X-B-7 at A (sf)
-- Class B-7 at A (low) (sf)
-- Class C-7 at BB (sf)
-- Class D-7 at B (low) (sf)
-- Class E-7 at CCC (sf)

-- Class X-A-10 at AAA (sf)
-- Class A-10 at AA (high) (sf)
-- Class X-B-10 at A (sf)
-- Class B-10 at A (low) (sf)
-- Class C-10 at BB (sf)
-- Class D-10 at B (low) (sf)
-- Class E-10 at CCC (sf)

All trends are Stable with the exception of Classes E-7 and E-10, which have credit ratings that do not typically carry trends in Commercial Mortgage Backed Securities (CMBS) credit ratings.

The credit rating confirmations reflect Morningstar DBRS' outlook on the transaction, which remains relatively unchanged since the previous credit rating action in January 2024. While the trust continues to pay down as a result of loan amortization and property releases, and exhibits healthy performance metrics, Morningstar DBRS maintains its conservative view on the transaction given the increased propensity for adverse selection and the portfolio's sustained high exposure to vacant properties. Morningstar DBRS maintained its use of a stressed value analysis for its review, which supported the credit rating confirmations.

At issuance, the transaction consisted of an $846.2 million first-mortgage loan secured by 34 cross-collateralized properties previously leased to 24 Lord & Taylor stores and nine Saks Fifth Avenue stores in 15 states. The collateral properties represented 19 fee-simple ownership interests (64.1% of the pool balance) and 15 leasehold interests (35.9% of the pool balance), totaling 4.5 million square feet. Individual tenant storefronts are located in various malls and freestanding locations with concentrations in New Jersey and New York. The loan is sponsored by a joint venture between Hudson's Bay Company (HBC) and Simon Property Group (SPG). The loan included a $149.9 million floating-rate Component A, which was paid off as of the November 2023 payment period, as well as a $371.2 million fixed-rate Component B and a $324.9 million fixed-rate Component C. Principal proceeds are now being used to pay down Component B.

Property releases are subject to release premiums of 115.0% of the allocated loan amount (ALA). Since Morningstar DBRS' last review, two additional properties, Natick Mall and Freehold Raceway Mall (formerly 3.9% of the issuance ALA in aggregate), were released from the portfolio at a combined premium of approximately $22.4 million, lower than each property's go-dark value derived in 2019. In total, four properties have been released since issuance and, along with loan amortization, the outstanding loan balance has been reduced to $598.5 million per the December 2024 reporting, representing a collateral reduction of 29.3%.

The portfolio was formerly 100% leased to Lord & Taylor and Saks Fifth Avenue on two master leases with 20-year initial terms and six five-year extension options for each store. The operating leases are fully guaranteed by HBC. Following Lord & Taylor's bankruptcy filing in 2020, all Lord & Taylor stores were closed, resulting in 25 of the 34 collateral properties, representing 54.7% of the ALA, becoming fully vacant. The borrower continues to abide by the terms of the October 2021 loan modification that mandated the borrower to pay the full difference between total monthly rent and debt service as well as to use all excess cash flow to amortize the principal balance. Various reserves have also been funded to help reposition the dark collateral properties. As of December 2024, the loan reported a total of $8.6 million across all reserves.

According to the most recent financials, the portfolio reported an annualized consolidated net cash flow (NCF) of $94.6 million for the trailing three months ended March 31, 2024, which excludes the released properties and reflects a debt service coverage ratio of 2.05 times. In comparison, the YE2023 and YE2022 NCFs were $90.1 million and $87.8 million, respectively, while Morningstar DBRS' NCF derived in 2020 was approximately $53.6 million (excluding released properties). The year-over-year improvement is driven by an increase in base rents. Despite the improvement, given the prolonged vacant status for majority of the Lord & Taylor properties, as well as the dated appraisals (which were finalized in 2019), Morningstar DBRS maintained a stressed scenario in its analysis for this review. For this review, Morningstar DBRS updated its value to exclude the released properties and applied a conservative haircut to the 2019 appraisal values, resulting in a value of $525.1 million, which represents a -52.7% variance from the 2019 as-is appraised value of $1.1 billion for the unreleased properties and reflects an as-is loan-to-value ratio of 114.0%.

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 at (August 13, 2024) https://dbrs.morningstar.com/research/437781.

Classes X-A-7, X-B-7, X-A-10, and X-B-10 are interest-only (IO) certificates 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 principal methodology is North American CMBS Surveillance Methodology (December 13, 2024), https://dbrs.morningstar.com/research/444617/north-american-cmbs-surveillance-methodology.

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 info-DBRS@morningstar.com.

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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

DBRS Limited
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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 (December 13, 2024), https://dbrs.morningstar.com/research/444612

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064

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

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.