DBRS Morningstar Changes Trends on All Classes of GS Mortgage Securities Corporation Trust 2012-ALOHA to Stable from Negative

DBRS Limited (DBRS Morningstar) confirmed ratings on the Commercial Mortgage Pass-Through Certificates, Series 2012-ALOHA issued by GS Mortgage Securities Corporation Trust 2012-ALOHA as follows:

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

DBRS Morningstar changed the trends on all classes to Stable from Negative due to the collateral’s strong cash flow in 2020 amid the Coronavirus Disease (COVID-19) global pandemic.

This loan is secured by a mixed-use property that includes a 2.4 million-square-foot (sf) super-regional mall, two office buildings, and a retail strip centre in the Waikiki neighbourhood of Honolulu. The largest portion of the loan (96.4% of the allocated loan balance) is the Ala Moana Center, which is the seventh-largest shopping mall in the United States and the largest open-air mall in the world. The other collateral properties include the Ala Moana Building (196,000 sf) and Ala Moana Pacific Center office buildings (167,000 sf) as well as the Ala Moana Plaza strip retail centre (14,000 sf), all of which are adjacent to the Ala Moana Center. All four properties are owned by the loan sponsor, Brookfield Properties Retail Group (Brookfield). The subject loan is interest-only (IO) for its 10-year term and served to refinance existing debt of $1.3 billion and return $91.7 million of cash equity to the former sponsor, GGP Limited Partnership.

The transaction benefits from the sponsor’s stability and significant equity investments in the underlying collateral, as evidenced by Brookfield’s continuous reinvestments. Although the portfolio’s occupancy dipped slightly during the pandemic, the portfolio is reporting above-average total sales exceeding $450 per square foot (psf) and $789 psf for tenants less than 10,000 sf. The loan benefits from the collateral’s above-average property quality as well as its outstanding location less than two miles to downtown Honolulu, Waikiki beach, and the Hawaii Convention Center. The mall boasts a unique combination of size, location, tenancy, and extracurricular activities such as live entertainment, which all contribute to making it a premier shopping and entertainment destination for local residents and millions of international visitors alike. Historically, the mall has been heavily dependent on tourism, especially international tourism.

The Ala Moana Center is a 2.4-million-sf super-regional mall, of which approximately 1.5 million sf serves as collateral. There are four department store anchors, only one of which, Macy’s (23.2% of collateral net rentable area), is part of the collateral. Macy’s has also committed to its space at the subject by extending its lease through December 2025. Neiman Marcus owns its improvements subject to a ground lease with the mall while both Bloomingdale’s and Nordstrom are part of the 660,000-sf Ewa Wing, which was developed after the sponsor acquired and demolished the Sears store at the mall. The expansion was acquired after the closing of this loan and is not part of the collateral. Following the relocation of Nordstrom to the new wing, the former Nordstrom space, which is part of the collateral, was redeveloped and leased to Target and Saks Off Fifth.

Due to the coronavirus-related travel restrictions and the remaining effects of the pandemic on Hawaii, the mall has experienced a drop in traffic. According to the Hawaii Tourism Authority, tourist numbers were down 60% in 2020 and the mall’s performance was expected to be depressed until restrictions have been lifted and travellers show a willingness to return to the area. According to the annualized March 2021 financials, the annualized net cash flow (NCF) was reported at $124.7 million, representing a 14.5% decline compared to the YE2020 NCF of $146.0 million.

The collateral derives most of its revenue from the Ala Moana Center with its more than 280 first-class stores and restaurants. Historically, the centre has performed extremely well with average occupancies in excess of 97% and average annual sales well above $1,000 psf. It has consistently generated total annual mall sales in excess of $1 billion. Due to disruptions and closures associated with the pandemic, as of June 2021, in-line tenants less than 10,000 sf reported sales fell to $789 psf. The mall occupancy fell 5.7% between June 2021 (88.7%) and June 2020 (94.4%) while the total collateral, inclusive of the office buildings and retail plaza, was 88% occupied as of March 2021. According to the YE2020 financials, the loan reported a debt service coverage ratio of 2.43 times, which represents a 2.8% decline from YE2019. Despite the recent difficulties stemming from the pandemic, the property has not seen a high level of permanent closures. The loan is scheduled to mature in April 2022 and, if travel restrictions persist, it is possible that mall traffic could remain below pre-pandemic levels, which elevates the refinance risk. Despite this, given the mall’s outstanding pre-pandemic performance due to strong brand affiliation among locals and travellers and the irreplaceable location in Honolulu, a recovery is expected as the economy enter the post-pandemic world. Even in a lower occupancy and cash flow scenario, the sponsor holds significant equity in the property, resulting in an increased likeliness of sponsor support.

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.

Classes X-A and X-B are 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 ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

The DBRS 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 the 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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@dbrsmorningstar.com.

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.

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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