DBRS Morningstar Assigns Ratings to BBCMS Trust 2013-TYSN

DBRS Limited (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2013-TYSN issued by BBCMS Trust 2013-TYSN as follows:

-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (sf)
-- Class D at A (high) (sf)
-- Class X-B at A (low) (sf)
-- Class E at BBB (high) (sf)

All trends are Negative because the underlying collateral continues to face performance challenges associated with the Coronavirus Disease (COVID-19) global pandemic.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about October 14, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

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, at www.dbrsmorningstar.com. On April 24, 2020, DBRS Morningstar placed the ratings on its outstanding SASB transactions secured by retail properties Under Review with Negative Implications while MCR placed the ratings on its outstanding SASB transactions secured by retail properties Under Review Negative as the global shelter-in-place and mandatory retail closures related to the coronavirus have contributed to retail bankruptcies and anticipated vacancies in retail centers. For further information on these rating actions, please see the DBRS Morningstar press release dated April 24, 2020, at www.dbrsmorningstar.com and the MCR press release dated April 24, 2020, at www.morningstarcreditratings.com.

To assign ratings to this transaction, DBRS Morningstar considered both the impact of the updated NA SASB Methodology and its scenarios attributable to the ongoing coronavirus pandemic on the ratings.

Because of the coronavirus’ significant impact on retail performance, DBRS Morningstar first considered the application of the updated NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology” to arrive at a baseline result, which incorporated qualitative assumptions, capitalization rates, and loan-to-value (LTV) ratio sizing benchmark quality/volatility adjustments and excluded any potential changes in current or future expected asset performance resulting from the coronavirus.

DBRS Morningstar then overlaid scenarios incorporating additional reductions in net cash flow (NCF) to account for exposure to bankrupt or closed tenants. This resulted in stressed collateral value declines consistent with the projections in its “Global Macroeconomic Scenarios: September Update” published on September 10, 2020, on top of the baseline result to determine the impact of coronavirus-related changes in asset performance on the subject transaction on a tranche-by-tranche basis. For more information on these stress scenarios, please refer to the Coronavirus Impact Analysis section of this document. The global macroeconomic scenarios include a moderate decline of 15% for all commercial real estate (CRE), which acts as an average for all CRE property types. However, DBRS Morningstar expects a greater range of value decline for retail properties, ranging from 10% to 45% based on the type of tenant composition, exposure to bankrupt or challenged retailers, asset sponsorship, and asset location. DBRS Morningstar expects that lower-tier regional malls with in-line sales generally less than $300 per square foot (psf) will be the most affected.

LOAN/PROPERTY OVERVIEW
The transaction is backed by a $325.0 million, seven-year, fixed-rate acquisition mortgage secured by the fee-simple and leasehold interests in the Tysons Galleria Mall, located in McLean, Virginia. The loan was sponsored by GGP Limited Partnership, which Brookfield Property Partners, L.P. (rated BBB with a Negative trend by DBRS Morningstar) acquired in July 2018. Loan proceeds were used to refinance existing debt and return $83.0 million of equity to the sponsor. The seven-year loan amortizes on a 30-year schedule and was originally set to mature in September 2020; however, the sponsor was unable to refinance the outstanding debt because of complications surrounding the coronavirus pandemic. A loan extension was agreed upon to extend the loan’s term through September 2021. As of the September 2020 remittance, the loan balance has amortized down to $281.5 million.

The loan collateral is a 308,805-square-foot (sf) portion of the 820,738-sf Tysons Galleria Mall, a three-level, upscale enclosed regional mall. Components of the mall include retail, restaurant, and entertainment tenants. The property is located one mile from the I-495 Capital Beltway circling Washington, D.C., in Tysons Corner which is Virginia’s largest office market and one of the largest suburban office markets in the country. The mall is currently shadow anchored by Neiman Marcus and Saks Fifth Avenue, with Macy’s closed as of March 2019. Neiman Marcus remains off store closure lists and will reportedly remain in place going forward. The Macy’s space remains vacant; however, there has been some discussion to replace the former anchor with several smaller tenants. The five largest collateral tenant spaces are occupied by restaurants with the largest tenant comprising only 6.3% of the net rentable area (NRA). As of the June 2020 rent roll, the collateral was 93.0% occupied with an average gross rental rate of $133 psf. Total in-line store sales in 2019 were $1,005 psf, compared with $987 psf in 2018.

In mid-March 2020, malls and small shops were closed in response to the coronavirus pandemic. The mall closed in March 2020 and reopened in May with restricted hours and safety precautions in place. Rent collections dropped significantly at the onset of the pandemic but have slowly increased since. In August 2020, the sponsor collected 56% of rent.

The loan has remained current throughout the pandemic period and mall performance has been stable since loan origination. According to YE2019 financials, the loan reported an NCF of $31.5 million, which represents a debt service coverage ratio (DSCR) of 1.68 times (x). The loan also reported annualized Q1 2020 financials that showed a DSCR of 1.75x. All debt service payments have been made in a timely fashion as the property continues to be supported by the sponsor.

DBRS Morningstar derived the NCF using the latest reported servicer NCF with an adjustment, considering ongoing collateral performance including tenant movement and sales performance. The resulting NCF figure was $30.9 million and DBRS Morningstar applied a cap rate of 6.5%, which resulted in a pre-coronavirus DBRS Morningstar Value of $475.0 million, a variance of 23.0% from the appraised value of $617.0 million at issuance. The pre-coronavirus DBRS Morningstar Value implies an LTV of 59.3% compared with the LTV of 45.6% on the appraised value at issuance.

The cap rate DBRS Morningstar applied is at the lower end of the range of DBRS Morningstar Cap Rate Ranges for regional mall properties, reflecting the property’s above-average quality and location in a dominant retail pocket in the submarket.

DBRS Morningstar made positive qualitative adjustments to the final LTV sizing benchmarks used for this rating analysis, totalling 5.5% to account for cash flow volatility, property quality, and market fundamentals.

CORONAVIRUS IMPACT ANALYSIS
DBRS Morningstar overlaid various scenarios incorporating higher NCF declines, resulting in stressed collateral value declines consistent with the projections in the “Global Macroeconomic Scenarios: September Update” (https://www.dbrsmorningstar.com/research/366542) to estimate the impact of coronavirus-related changes in asset performance on a tranche-by-tranche basis for the subject transaction. The scenarios included deducting cash flow for bankrupt retailers and/or increased vacancy expected at the asset to arrive at a coronavirus DBRS Morningstar Value under the moderate scenario, a 10% reduction from the pre-coronavirus DBRS Morningstar Value. Because of the more permanent value impairment resulting from the lost tenancy revenue stream, DBRS Morningstar’s analysis considered this value when assigning ratings.

Under the moderate scenario, the cumulative rated debt was insulated from loss.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Classes X-A and X-B 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 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.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level 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 methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2020) and North American CMBS Surveillance Methodology (March 6, 2020), which can be found on www.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 www.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 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. 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.

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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577