Fitch Affirms CFCRE 2011-C2
KEY RATING DRIVERS
The affirmations reflect overall stable pool performance since issuance. Credit enhancement has increased due to paydown and defeasance, although the pool has become more concentrated. All of the remaining loans in the pool are amortizing. As of the August 2016 distribution date, the pool's aggregate principal balance has been reduced by 32.4% to $523.2 million from $774.1 million at issuance. The paydown is primarily the result of five-year loans paying off at maturity in 2016. The pool has experienced minimal realized losses ($1,144) to date as result of an adjustment with respect to a specially serviced loan which paid off in 2014.
There were variances to criteria related to classes B through D whereby the surveillance criteria indicated rating upgrades were possible. Fitch determined that upgrades were not warranted due to the pool's concentration; the top 15 loans represent 72.2% of the pool and several of these loans have major tenant lease expirations prior to the loan maturity date. Additionally, 44.0% of pool is secured by retail properties and 71.2% of the pool matures in 2021. Concentrations are expected to increase in 2017 as maturing loans pay off.
Fitch has designated seven (13.1%) Fitch Loans of Concern due to declining performance or upcoming rollover risk, including two specially serviced loans (2.7%). Four loans (15.5%) are defeased. Interest shortfalls are currently affecting the non-rated class.
The largest loan in the pool (17.7%) is the RiverTown Crossings Mall, a 637,814 square foot (sf) interest in a 1.3 million sf regional mall located in Grandville, MI. Anchors include: Macy's, Younkers, Sears, JC Penney and Kohl's (non-collateral), all of which expire in August 2019. As of March 31, 2016 the collateral was 95.1% occupied, slightly down from 97.5% as of YE 2015. However, occupancy has remained above 90% since issuance when collateral occupancy was 90.6%. Net operating income debt service coverage ratio (NOI DSCR) remained relatively flat at 2.13x as of YE 2015 and YE 2014 compared to 1.99x at YE 2013. Upcoming rollover is as follows: 6.1% for the remainder of 2016, 5.6% in 2017 and 3.6% in 2018. The largest rollover during the loan term was Dick's Sporting Goods in 2016; however, the tenant renewed with a new expiration of 2020. Sales have remained relatively stable the last two years but as of YE 2015 have declined approximately 3% since issuance. This balloon loan matures in 2021.
The largest Fitch Loan of Concern (4.6%) is Hanford Mall, a 331,080 sf interest in a 488,833 sf regional mall located in Hanford, CA. The mall is anchored by JC Penney (expires March 31. 2018), Sears (expires July 31, 2019) and Kohl's (non-collateral). Occupancy has fluctuated over the past several years, but has remained at least 90% since issuance. As of March 31, 2016, collateral occupancy was 94.2% compared to 92.1% at YE 2015, 96.8% at YE 2014 and 89.8% at issuance. NOI DSCR increased to 1.38x as of YE 2015 compared to 1.15x at YE 2014, as income increased 4.3% and operating expenses decreased 4.9%. The non-collateral anchor tenant Forever 21 vacated in April 2016, prior to its 2061 lease expiration. While a cash trap was triggered, the master servicer indicated it was not aware of prospective tenants interested in re-leasing the vacant space, and provided no guidance on possible co-tenancy triggers. The balloon loan, maturing in 2021, continues to perform but is on the master servicer's watch list.
The second largest Fitch Loan of Concern (2%) is a specially serviced 150-key limited service hotel located near Harrah's Louisiana Downs Racetrack/Casino in Bossier, LA. The loan transferred to special servicing in February 2015 due to imminent default as the counterparty for its room guaranty agreement filed for bankruptcy. The property became real estate owned (REO) in September 2015. The hotel is currently in the process of completing renovations required by Marriott. Fitch will continue to monitor the property as renovation updates are received. Per the special servicer, there are no plans to sell the property as this time.
The Rating Outlooks remain Stable. Although credit enhancement has increased, the pool is becoming more concentrated. The collateral has a Fitch stressed weighted average Loan to Value (LTV) of 74.3%. While continuing concentration risk may limit upgrades, they are possible should the pool continue to delever and stable performance continue; all loans are amortizing. Downgrades are possible if there were increased delinquencies or loans transferred to special servicing.
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 action.
Fitch has affirmed the following ratings:
--$142.8 million class A-2 at 'AAAsf', Outlook Stable;
--$34.1 million class A-3 at 'AAAsf', Outlook Stable;
--$114 million class A-4 at 'AAAsf', Outlook Stable;
--$369.4 million class X-A* at 'AAAsf'; Outlook Stable;
--$78.4 million class A-J at 'AAAsf', Outlook Stable;
--$28.1 million class B at 'AAsf', Outlook Stable;
--$31.9 million class C at 'Asf', Outlook Stable;
--$18.4 million class D at 'BBB+sf', Outlook Stable;
--$28.1 million class E at 'BBB-sf', Outlook Stable;
--$10.6 million class F at 'BBsf', Outlook Stable;
--$9.7 million class G at 'Bsf', Outlook Stable.
*Notional amount and interest only.
Fitch does not rate the $27.1 million class NR certificates or the $153.8 million X-B interest-only class. Class A-1 is paid in full.