DBRS Morningstar Confirms All Ratings on GS Mortgage Securities Corporation Trust 2012-ALOHA, Removes UR-Dev. Status

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2012-ALOHA issued by GS Mortgage Securities Corporation Trust 2012-ALOHA:

-- 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)

All trends are Stable. The ratings have been removed from Under Review with Developing Implications, where they were placed on November 14, 2019.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, on the DBRS Morningstar website at www.dbrsmorningstar.com.

Prior to the finalization of the NA SASB Methodology, the DBRS Morningstar ratings for the subject transaction and all other DBRS Morningstar-rated transactions subject to the methodology in question were previously placed Under Review with Developing Implications, as the proposed methodology changes were material.

The subject transaction is one of four NA SASB transactions (24 classes of certificates) publicly rated by both Morningstar Credit Ratings, LLC (MCR) and DBRS Morningstar. As noted in the March 1, 2020 press release, as part of the ongoing consolidation of DBRS Morningstar and MCR, MCR previously placed its outstanding ratings on NA SASB transactions Under Review – Analytical Integration Review. Please see MCR’s press release dated November 14, 2019, on MCR’s website at ratingagency.morningstar.com. In conjunction with these rating actions by DBRS Morningstar for the subject transaction, the MCR ratings will be withdrawn.

The subject rating actions are the result of the application of the NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology,” as applicable. Qualitative adjustments were made to the final loan-to-value (LTV) Sizing Benchmarks used for this rating analysis.

This loan is secured by a super-regional mall, two office buildings, and a strip retail center in 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 square feet (sf)) and Ala Moana Pacific Center office buildings (167,000 sf) as well as the Ala Moana Plaza strip retail center (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.

The Ala Moana Center is a 2.4 million sf super-regional mall, of which approximately 1.5 million sf serves as collateral. In November 2015, the 660,000 sf Ewa Wing expansion opened at the mall. Ewa Wing is not included in the collateral and is anchored by Hawaii’s first Bloomingdale’s location and Nordstrom. The collateral section of the mall is anchored by Macy’s and Neiman Marcus (noncollateral). Many previously existing collateral tenants relocated after the expansion was complete, including Shirokiya Japan Village Walk (40,978 sf); Forever 21 (29,333 sf); Nordstrom (200,000 sf), which originally operated on a ground lease; and Planet Fitness (15,518 sf). As part of the arrangement that allowed Nordstrom to terminate its ground lease and move to the Ewa Wing, the former Nordstrom space became part of the collateral. That space was divided and is now re-leased to Saks Off Fifth and Target, which both serve as collateral for the loan.

In the analysis for these rating actions, DBRS Mornginstar applied the YE2018 NCF figure reported by the servicer of $154.8 million and applied a 5.0% haircut to recognize the property’s heavy reliance on tourism and the potential for disruption if the ongoing outbreak of the Coronavirus Disease (COVID-19) were to worsen. In-place cash flows over the last several years have been relatively consistent, with the YE2018 NCF figure, which is a 15.4% increase over the DBRS Morningstar NCF figure derived at issuance. The annualized trailing nine-month NCF figure reported by the servicer for September 2019 showed cash flows are projected to remain steady year over year.

DBRS Morningstar applied a 6.5% cap rate to the resulting NCF figure of $247.0 million, resulting in a DBRS Morningstar Value of $2.26 billion, a variance of -17.0% from the appraised value at issuance of $2.73 billion. The DBRS Morningstar Value implies an LTV of 61.9%, as compared with the LTV on the issuance appraised value of 51.4%. The cap rate applied is at the low end of the range of DBRS Morningstar Cap Rates for retail properties, which is reflective of the prime location within a heavily trafficked tourist area, particularly for visitors from Japan, China, and North Korea, and overall desirability of the collateral property, particularly with the significant capital investment since issuance.

The high concentration of tourism from Asian countries for Hawaii is particularly noteworthy given the global travel disruptions currently underway amid the coronavirus outbreak, which has caused travel restrictions for residents in those high-risk areas. If the outbreak and related travel restrictions and cancellation trends observed thus far extend for the moderate to longer term, DBRS Morningstar notes the subject will likely see a significant cash flow drop in the coming months.

According to the latest rent roll dated September 2019, the mall reported an occupancy rate of 96.3% at an average rental rate of $124 per sf (psf). The largest collateral tenant is Macy’s (25.1% of collateral net rentable area), which recently extended it’s lease through December 2025. Other notable collateral tenants include Old Navy, Barnes & Noble, Target, and Saks Off Fifth. As of the trailing 12 months ending September 2019 tenant sales report, in-line tenants occupying less than 10,000 sf reported sales of $1,388 psf, representing a 2.8% increase from the prior year. Key tenants such as Saks Off Fifth, Old Navy, Barnes & Noble, and Apple reported sales psf of $168 (-13.4%), $383 (-3.7%), $446 (flat), and $9,678 (9.8%), respectively.

The Ala Moana Building reported September 2019 occupancy and average rental rate figures of 85.7% and $62 psf, respectively, while the Ala Moana Pacific Center reported figures of 88.0% and $59 psf, respectively. In 2018, the Ala Moana Building received a renovation to the third-floor lobby and the Pacific Center received a similar renovation to the
seventh-floor lobby. The Ala Moana Plaza strip retail property has maintained its 100% occupancy figure based on the September 2019 rent roll at an average rent of $72 psf. According to several recent news article, the $500 million Sky Ala Moana Hotel (300 keys) and Condomimuim (390 units) project, a partnership between JL Capital and Avalon, broke ground ahead of schedule in late October 2019. The site sits just north of the subject mall and in the will be a large traffic driver once construction is complete.

The servicer reported a Q3 2019 debt service coverage ratio of 2.53 times (x), a slight decline from 2.58x at YE2017. While there is potential for disruption in 2020 with many travelers already grounded amid the ongoing coronavirus outbreak, DBRS Morningstar believes this loan will continue to perform above issuance expectations considering the high capital investment since issuance, strong sponsorship, and the property’s outstanding location near Waikiki Beach, an area that should be able to bounce back quickly once the longer-term effects of the coronavirus outbreak subside.

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.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

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

The principal methodology is the North American Single-Asset/Single-Borrower Ratings Methodology, which can be found on www.dbrs.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 www.dbrs.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 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that 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.

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

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