DBRS Morningstar Confirms All Classes of WFLD 2014-MONT Mortgage Trust; Removes All Classes from Under Review with Negative Implications

DBRS, Inc. (DBRS Morningstar) confirmed all ratings of the Commercial Mortgage Pass-Through Certificates, Series 2014-MONT issued by WFLD 2014-MONT Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)

With this review, DBRS Morningstar removed all classes from Under Review with Negative Implications, where they were placed on October 6, 2020, resulting from the negative impact of the Coronavirus Disease (COVID-19) pandemic on the underlying collateral. Class D has a Negative trend while all remaining classes have Stable trends. The Negative trend reflects the loss of the second largest tenant, Arclight Cinemas, in 2021, and the sponsor’s limited long-term commitment to the collateral, as it has announced it intends to sell the subject in 2022.

The rating confirmations reflect the relatively stable performance of the transaction since the DBRS Morningstar ratings were issued in October 2020. The 10-year interest-only (IO) loan is secured by the fee-simple interest in a 835,597 square foot (sf) portion of the 1.3 million-sf Westfield Montgomery center in Bethesda, Maryland, approximately 15 miles north of Washington, D.C. Loan proceeds of $350.0 million facilitated the recapitalization of the property after being unencumbered. The collateral has been owned and managed by the sponsors, Westfield America, Inc. (Westfield) and The Teachers Insurance and Annuity Association of America (TIAA), since 1994. Westfield was later acquired by Unibail-Rodamco in 2018 and the company announced in Q1 2021 that it plans to sell most of its United States malls in 2022, including the subject, in order to streamline its portfolio.

The two-story, Class A super-regional mall was constructed in 1968 and has undergone several renovations, the most recent of which was a $90 million upgrade completed in 2014. The mall is anchored by Macy’s, Macy’s Home, and Nordstrom. Additionally, there is a vacant Sears box and a vacant 16-screen Arclight Cinemas at the property. Most tenants at the mall have co-tenancy provisions stipulating a minimum number of anchor tenants at the property and/or a minimum occupancy rate for the mall. The mall’s occupancy rate was 90.7% occupied as of April 2021 and it is unlikely co-tenancy clauses were tied to Arclight Cinemas as that space was recently developed in 2014. The Macy’s, Macy’s Home, Nordstrom, and vacant Sears boxes are not part of the loan collateral; however, Nordstrom operates on a ground lease, expiring in October 2030. The sponsor purchased the Sears store in 2017 and intended to complete a comprehensive expansion and renovation plan. There may be limited commitment in the long-term as the sponsor delayed plans for the redevelopment and has publicly stated its intent to sell the collateral in the near term.

The collateral is located within a highly developed commercial corridor with easy access to I-270 and I-495. The location is in a high-household-income market, which was among the highest in Westfield’s portfolio at issuance. Inline tenants reported strong average sales of $532 per sf (psf) at issuance, making the subject a Tier 1 regional mall. In addition, anchor tenants have historically reported sales at the subject that outperformed their national averages. A trailing 12-month sales report ending March 31, 2021, showed the subject was considerably affected by the pandemic with inline sales (excluding Apple) declining to $152 psf. Anchor tenants reporting sales in 2021 included Macy’s at $106 psf ($272 psf at issuance), Macy’s Home at $74 psf, and Nordstrom at $39 psf ($436 psf at issuance). The loan reported a year-end (YE) 2020 net cash flow (NCF) of $29.7 million for a 2.22 times debt service coverage ratio, compared with the YE2019 NCF of $33.6 million and Issuer’s underwritten NCF of $35.7 million derived at issuance.

The April 2021 rent roll showed the collateral portion was 85.8% occupied with an average rent of $21.63 psf, compared to the June 2020 occupancy rate of 91.6% and issuance occupancy rate of 92.6%. The primary driver for the occupancy rate decline was the loss of Arclight Cinemas, which represented 7.5% of net rentable area (NRA). The largest collateral tenants include the ground lease to Nordstrom (24.3% of collateral NRA), Forever 21 (2.4% of collateral NRA; lease expiration of January 2023), and Lucky Strike (1.8% of collateral NRA; lease expiration of January 2026). Upcoming lease rollover consists of 11 tenants, representing 4.2% of collateral NRA, that have lease expirations in 2021 and an additional 28 tenants, totaling 8.5% of collateral NRA, with lease expirations in 2022. The property’s website notes the following tenants will soon be taking occupancy at the subject: It's Sugar, Ya Mon! Island Grill, Tea Mansion, Seoul Spice, Offline by Aerie, Aerie, Fabletics, and Shake Shack.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

The DBRS Morningstar Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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