April 3, 2018

Morningstar Credit Ratings Mall Monitor Finds 2012 Mall-Backed Loans Are Thriving but May Face Incoming Maturity Headwinds

NEW YORK, April 3, 2018 /PRNewswire/ -- Morningstar Credit Ratings, LLC, a subsidiary of Morningstar, Inc. (NASDAQ: MORN) and a nationally recognized statistical ratings organization (NRSRO), today released its semiannual commercial mortgage-based securities (CMBS) research Mall Monitor, "What's in Store for 2012 Mall Loans."

CMBS issued in 2012 have attracted significant attention given their high exposure to regional malls, totaling $4.05 billion. The performance of these loans is likely to be stable in the near term, although several face heightened refinance risk at maturity.

Even as major retailers such as Sears, Macy's, and JCPenney have announced hundreds of store closures over the past several years, stronger malls are adapting to changes in demographics and shopping habits. Meanwhile, second-tier properties not only have difficulty filling empty spaces, but often vacancies can trigger a domino effect with other anchor and in-line tenants vacating, pushing the properties' performance lower. Consequently, owners may see little value in investing additional cash.

"It may seem surprising that many malls are not only surviving, but thriving," said Steve Jellinek, vice president of CMBS research at Morningstar Credit Ratings. "Our view on regional malls has become nuanced over time. Stronger malls are changing their mix of retailers, offering additional amenities, focusing on dining and experiential offerings, and aggressively retenanting vacated spaces."

Highlights of the report include:

  • The $4.05 billion of 2012 vintage mall-backed CMBS were underwritten before mall defaults began mounting in 2013 with higher leverage than their 2013 and 2014 counterparts.
  • Despite this challenging landscape, most mall-backed securitized commercial mortgages issued in 2012 are benefiting from their strong locations and a healthy economy. They have posted improving cash flow and should continue to perform well.
  • As a result, Morningstar Credit Ratings believes that most of these loans will likely remain stable in the near term.
  • However, some of these loans may face headwinds as they approach maturity because of changing lender and investor appetites.
  • Since the latter half of 2017, four loans, Westside Pavilion in Los Angeles, Fashion Outlets of Las Vegas, Salem Center in Oregon, and Susquehanna Valley Mall in Pennsylvania, have been transferred to special servicers, the companies that handle the debt obligations for troubled or potentially problematic loans in CMBS.

The complete Mall Monitor report, "What's in Store for 2012 Mall Loans," is available here.

Morningstar Credit Ratings' Mall Monitor report has been published semiannually since 2016 and aims to deliver insights on the more than $31 billion on securitized loans backed by regional malls.

About Morningstar Credit Ratings, LLC and Morningstar, Inc. 

Morningstar Credit Ratings, LLC is a nationally recognized statistical rating organization (NRSRO) offering a wide array of services including new-issue ratings and analysis, operational risk assessments, surveillance services, data, and technology solutions. Morningstar Credit Ratings, LLC is a subsidiary of Morningstar, Inc. (NASDAQ: MORN).

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, retirement plan providers and sponsors, and institutional investors in the private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $195 billion in assets under advisement and management as of Dec. 31, 2017. The company has operations in 27 countries.

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SOURCE Morningstar Credit Ratings, LLC

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