Fitch Downgrades 2 Classes of MSCI 2015-XLF2.
KEY RATING DRIVERS
Sustained Property Cash Flow Decline: Portfolio performance has declined since issuance due to lower revenues and increased expenses. Per the servicer year-end 2017 OSAR, total revenues declined to $52.2 million as of year-end 2017 from $55.1 million at issuance. Revenue declines are primarily attributed to lower reimbursements. Fitch has requested further clarification and/or additional information from the loan's servicer, borrower and loan originator over the last 12 months regarding the reported decline in revenues in addition to certain expense line items reported in the servicer-reported statement.
Overall servicer-reported NCF as of YE 2017 has declined to $16.2 million down from $16.9 million YE 2016, $17.5 million YE 2015 and $23.8 million at issuance; Fitch NCF at issuance was $21.5 million. Fitch increased the cap rate in its analysis given the current retail environment, but given the portfolio's declining net cash flow the increased cap rate was not the leading factor in the rating actions. The Negative Outlooks on all classes reflect the decline in cash flow and refinance risk concerns.
Upcoming Loan Maturity: The loan had an initial maturity date of Nov. 8, 2017 with two 12-month extension options subject to debt yield (DY) requirements. Prior to the loan's maturity in November 2017, the sponsor exercised its first one-year extension requirement and in order to meet the debt yield was required to pay down the balance of the SNMA class by $19.8 million and reduce the non-trust subordinate debt by $9.5 million. The sponsor recently exercised their final extension option on Nov. 8, 2018, and the SNMA class was paid down by an additional $5.5 million and the non-trust subordinate debt by $2.6 million. The final maturity date is Nov. 8, 2019.
Starwood Malls Redevelopment/Renovation: The Shops at Willow Bend underwent an interior refresh completed in May 2018 and signed several new leases in 2017 including the Crayola Experience (opened in April 2018), The District (four restaurants opened in October 2018), Equinox Health Club (opening in Spring 2019), and Cinepolis (opening 2Q 2020). At Stony Point Park a common area refresh was completed in Fall 2017 and newly signed leases include H&M, which opened in December 2017. While Starwood has reported that additional renovations are planned, per the servicer, no renovations are underway.
Inline Occupancy and Sales: As of the June 2018 rent roll, in-line occupancy at Fairlane Town Center is 78.4% compared to 86.2% prior year and Stony Point Park occupancy as of September 2018 is 77.7% up from 64.1% prior year. As of the June 2018 rent roll, The Shops at Willow Bend reported in-line occupancy of 80.6% compared to 79.2% the prior year. Reported in-line sales have been relatively stable at two of the properties since issuance. Fairlane Town Center reported year-end (YE 2017) in-line sales at $362 psf compared to $375 at issuance; Stony Point Park at $311 psf down from $418 at issuance; Shops at Willow Bend Mall at $326 psf (excluding Apple) compared to $364 psf at issuance (excluding Apple). Fitch did not receive YE 2017 anchor sales for any of the properties. Fitch expects that cash flow could increase, as the renovations may lead to continued leasing momentum.
Anchor Tenants: Fairlane Town Center has exposure to Macy's and JC Penney, while Sears closed in September 2018. None of these anchors are part of the collateral. The vacant former Lord & Taylor has been re-leased to Ford Motor Company for use as office space. The Shops at Willow Bend has exposure to Macy's, Dillard's, and Neiman Marcus, which are not part of the collateral. The vacant former anchor Saks Fifth Avenue is part of the collateral. Stony Point Fashion Park anchors are Saks Fifth Avenue and Dillards, and neither are collateral. Major tenant Dick's Sporting Goods vacated in September 2018.
Fitch Leverage: The $135.7 million loan has a Fitch DSCR and LTV of 1.11x and 81.2%, respectively, totaling $41 psf. Starwood contributed approximately $105.5 million of cash equity to acquire the assets.
Sponsorship: The loan is sponsored by Starwood, which was started in 1991 and has approximately $36 billion in assets under management. Starwood owns and operates 31 retail properties totaling 27 million sf.
Floating-Rate Debt: The LIBOR-based floating-rate loan has an interest rate cap in place and must maintain a cap for any extension options exercised.
At issuance, the transaction certificates represented the beneficial interests in two floating-rate first lien mortgage loans, representing 51.3% and 48.7% of the transaction, respectively. The loans were originated by Morgan Stanley Bank, N.A. The SNM classes represent the Starwood National Mall Portfolio loan, which is secured by three regional malls totalling 3.3 million (1.6 million collateral) located in Plano, TX, Dearborn, MI and Richmond, VA. The malls were purchased by Starwood from Taubman in 2014. The AFS certificates were secured by seven hotel properties across the U.S and were paid in full in June 2018. The certificates follow a sequential-pay structure.
The Negative Outlooks on all classes reflect Fitch's concern with the portfolio's declining cash flow and refinance risk as the final maturity approaches in November 2019. Downgrades are possible if property performance does not improve and if the loan appears to be unable to refinance at maturity. If the loan defaults, a protracted workout is possible given the overall outlook on retail.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third-party due diligence was provided or reviewed in relation to this rating.
Fitch has downgraded the following ratings:
--$15.0 million class SNMC to 'BBB-sf' from 'A-sf'; Outlook Negative;
--$22.0 million class SNMD to 'BB-sf' from 'BBB-sf'; Outlook Negative.
Fitch has affirmed the following ratings and revised Outlooks:
--$77.7 million class SNMA at 'AAAsf' Outlook to Negative from Stable;
--$21.0 million class SNMB at 'AA-sf'; Outlook to Negative from Stable.
The class AFSA, AFSB, AFSC, and AFSD certificates have been paid in full.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Jan 21, 2019|
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