DBRS Morningstar Changes Trends on Two Classes, Confirms Ratings on All Classes of DBWF 2015-LCM Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-LCM issued by DBWF 2015-LCM Mortgage Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BB (low) (sf)
-- Class F at BB (low) (sf)

DBRS Morningstar changed the trends on Classes E and F to Stable from Negative. All remaining trends are Stable. The rating confirmations and trend changes reflect the overall improved credit profile for the transaction since last the review, generally driven by the overall improved outlook for regional malls that were previously performing well before the onset of the Coronavirus Disease (COVID-19) pandemic. Although the collateral mall for the subject transaction has recently reported some cash flow declines compared with its pre-pandemic figures, DBRS Morningstar believes the property remains well positioned overall, given its prominence in the market, strong sponsorship, and diverse tenant roster, which includes some non-traditional retailers for regional malls that likely drive significant local traffic.

The collateral for the loan is the fee-simple and leasehold interests in the 2.1 million-square-foot Lakewood Center mall in Lakewood, California. At issuance, the whole loan of $410.0 million consisted of $240.0 million of senior debt and $170.0 million of junior debt. The subject transaction is backed by $120.0 million of the senior debt and the entirety of the junior debt. The remaining $120.0 million of senior debt is secured in the DBRS Morningstar-rated COMM 2015-CCRE24 Mortgage Trust transaction. The whole-loan proceeds refinanced $250.0 million of existing debt and returned $157.8 million of equity to the sponsor. The trust loan has an 11-year term and amortizes over a 30-year schedule, maturing in June 2026. As of the June 2022 remittance, the trust debt had amortized by 10.4% with a current trust balance of $259.8 million. The mall is owned and operated by The Macerich Company, which purchased the remaining 49% ownership interest in the subject in 2014 for a total consideration of approximately $1.8 billion.

The anchor tenants include Macy’s (17.5% of net rentable area (NRA), lease expires in June 2030), Costco Wholesale (8.0% of NRA, lease expires in February 2029), JCPenney (JCP; 7.9% of NRA, lease expires in June 2025), and Target (7.7% of NRA, lease expires in January 2025). Major in-line tenants include Forever 21 (3.9% of the NRA, lease expires in January 2023), 24 Hour Fitness (2.2% of the NRA, lease expires December 2027), Best Buy (2.2% of the NRA, lease expires in January 2024), and Round 1 Bowling & Amusement (2.1% of the NRA, lease expires July 2023).

The June 2022 rent roll reported an occupancy rate of 90.3%, a decline from the prior high rate of 99.0% as of YE2019. The decline in occupancy was primarily driven by the departure of Pacific Theaters (4.4% of the NRA), which was closed in 2021 as part of a chain-wide shut down in operations as a result of the economic distress caused by the pandemic. There is moderate tenant rollover risk as tenants representing 16.5% of the NRA have leases that have recently expired or will be expiring in the next 12 months. According to the YE2021 financials, the loan reported a debt service coverage ratio (DSCR) of 1.23 times (x), compared with the YE2020, YE2019, and DBRS Morningstar DSCRs of 1.34x, 1.65x, and 1.38x, respectively. Although a decrease in revenue was a factor in the net cash flow declines as tenants were provided rental relief amid the pandemic with some tenants permanently converting to percentage rent structure, there was also an increase in operating expenses from pre-pandemic levels, specifically for property insurance, utilities, repairs and maintenance, and payroll. Mitigating factors include the strong sponsorship and favourable location of this property within Los Angeles County in addition to its strong anchors and diverse tenant roster.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

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/396929.

Class X-A is an interest-only (IO) certificate that references 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.

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.

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

The principal methodology is the North American CMBS Surveillance Methodology (March 4, 2022), 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.

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.

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