Approximately $603 million of structured securities affected
New York, September 15, 2022 — Moody’s Investors Service, (“Moody’s”) has affirmed the ratings on seven classes in UBS Commercial Mortgage Trust 2018-C12, Commercial Mortgage Pass-Through Certificates, Series 2018-C12 as follows:
Cl. A-2, Affirmed Aaa (sf); previously on Oct 19, 2020 Affirmed Aaa (sf)
Cl. A-3, Affirmed Aaa (sf); previously on Oct 19, 2020 Affirmed Aaa (sf)
Cl. A-4, Affirmed Aaa (sf); previously on Oct 19, 2020 Affirmed Aaa (sf)
Cl. A-5, Affirmed Aaa (sf); previously on Oct 19, 2020 Affirmed Aaa (sf)
Cl. A-SB, Affirmed Aaa (sf); previously on Oct 19, 2020 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aa2 (sf); previously on Oct 19, 2020 Affirmed Aa2 (sf)
Cl. X-A*, Affirmed Aaa (sf); previously on Oct 19, 2020 Affirmed Aaa (sf)
* Reflects interest-only classes
RATINGS RATIONALE
The ratings on six principal and interest (P&I) classes were affirmed because the transaction’s key metrics, including Moody’s loan-to-value (LTV) ratio, Moody’s stressed debt service coverage ratio (DSCR) and the transaction’s Herfindahl Index (Herf), are within acceptable ranges.
The rating on the interest-only (IO) class, Cl. X-A, was affirmed based on the credit quality of the referenced classes.
Moody’s rating action reflects a base expected loss of 8.3% of the current pooled balance, compared to 8.2% at Moody’s last review. Moody’s base expected loss plus realized losses is now 8.2% of the original pooled balance, unchanged from the last review. Moody’s provides a current list of base expected losses for conduit and fusion CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody’s forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range can indicate that the collateral’s credit quality is stronger or weaker than Moody’s had previously expected.
Factors that could lead to an upgrade of the ratings include a significant amount of loan paydowns or amortization, an increase in the pool’s share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline in the performance of the pool, loan concentration, an increase in realized and expected losses from specially serviced and troubled loans or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in rating all classes except interest-only classes was “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056. The methodologies used in rating interest-only classes were “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056 and “Moody’s Approach to Rating Structured Finance Interest-Only (IO) Securities” published in February 2019 and available at https://ratings.moodys.com/api/rmc-documents/59126. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *). Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.
DEAL PERFORMANCE
As of the August 17, 2022 distribution date, the transaction’s aggregate certificate balance has decreased by 3.7% to $775 million from $797 million at securitization. The certificates are collateralized by 64 mortgage loans ranging in size from less than 1% to 6.5% of the pool, with the top ten loans (excluding defeasance) constituting 40.7% of the pool. Three loans, constituting 10.8% of the pool, have investment-grade structured credit assessments. Two loans, constituting 2.5% of the pool, have defeased and are secured by US government securities.
Moody’s uses a variation of Herf to measure the diversity of loan sizes, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including the risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 36, compared to 38 at Moody’s last review.
Thirteen loans, constituting 24% of the pool, are on the master servicer’s watchlist. The watchlist includes loans that meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of Moody’s ongoing monitoring of a transaction, the agency reviews the watchlist to assess which loans have material issues that could affect performance.
One loan has been liquidated from the pool; however, the trust has not incurred any losses to date. Five loans, constituting 7.8% of the pool, are currently in special servicing.
The largest specially serviced loan is the Copeland Tower & Stadium Place Loan ($19.3 million 2.5% of the pool), which is secured by two office buildings located in Arlington, TX. The Copeland Tower, built in 1985, features a 12-story design and a total of 126,628 square feet (SF), and the Stadium Place building, built in 1982, features a 5-story design, with a total of 84,327 SF. The loan transferred to special servicing in January 2021 due to payment default. The two largest tenants, Multiplan Inc. and State of Texas, both had lease expirations in 2022 that were extended to 2024 and 2027 respectively. An updated appraisal in May 2022 indicated a value of $24.4 million which is a 16% decline in value since securitization but is still above the outstanding loan amount. There was a receivership hearing on the property that was held in February 2022. As of August remittance, this loan was last paid through May 2022. The loan has amortized by 3.0% since securitization.
The second largest specially serviced loan is the Somerset Financial Center Loan ($18.0 million 2.3% of the pool), which represents a pari passu portion of a $42 million A-note. The loan is secured by the borrower’s fee simple interest in a 230,000 SF office property located in Bedminster, NJ. At securitization, 83% of the property net rentable area (NRA) was occupied by Mallinckrodt, a major pharmaceutical manufacturer. In October 2020, Mallinckrodt filed for bankruptcy. The loan transferred to special servicing in January 2021 when Mallinckrodt rejected the lease, and foreclosure began in May 2021. In March 2021, the property was re-appraised at a 75% discount to the original appraised value. As of year-end 2021, the property was fully vacant, though the borrower has indicated they found a tenant to occupy the entire building. The borrower has submitted a discounted payoff proposal, which is presently being reviewed.
The third largest specially serviced loan is the Holiday Inn Matteson Loan ($12.0 million 1.6% of the pool), which is secured by the borrower’s fee simple interest in a 202-unit full-service hotel originally constructed in 1984, and extensively renovated in 2012. The loan transferred to special servicing due to payment default in September 2019 and the borrower was also in default under the Franchise agreement due to failure to comply with a PIP and necessary immediate repairs. The property had an updated appraisal in June 2021 that indicated a market value of $13.3 million, which is 41% below the value at securitization. The loan incurred an ARA for $3.48 million in November 2021. As of the August remittance, this loan was last paid through March 2020. The loan has amortized by 7.4% since securitization.
The remaining two specially serviced loans each represent less than 1% of the pool and are secured by a hotel and a single tenant retail property. The Holiday Inn Houston SW- Sugarland loan transferred to special servicing due to payment default in May 2020. The property was appraised for $9 million in August 2021 which is a 40% decline since securitization, though still above the outstanding loan balance. The 24-Hour Fitness Cedar Hill loan transferred to special servicing due to payment default in June 2020 as a result of the single tenant 24 Hour Fitness filing for bankruptcy. The property was recently appraised for $3 million in October 2021 which is a 65% decline since securitization and is below the outstanding loan balance.
Moody’s has also assumed a high default probability for one poorly performing loan. The troubled loan is the Smithridge Plaza loan ($17.4 million 2.2% of the deal) which is secured by the borrower’s fee interest in a grocery anchored retail center in Reno, Nevada. The largest tenant at securitization, Steinmart (33% of NRA), vacated in 2019, as a result of the company going bankrupt, which adversely impacted the performance of this asset, occupancy has remained below 65% since 2019. Moody’s has estimated an aggregate loss of $29.1 million (a 37.3% expected loss on average) from these specially serviced and troubled loans.
As of the August 2022 remittance statement cumulative interest shortfalls were $1.7 million. Moody’s anticipates interest shortfalls will continue because of the exposure to specially serviced loans and/or modified loans. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal entitlement reductions (ASERs), loan modifications and extraordinary trust expenses.
The credit risk of loans is determined primarily by two factors: 1) Moody’s assessment of the probability of default, which is largely driven by each loan’s DSCR, and 2) Moody’s assessment of the severity of loss upon a default, which is largely driven by each loan’s loan-to-value ratio, referred to as the Moody’s LTV or MLTV. As described in the CMBS methodology used to rate this transaction, we make various adjustments to the MLTV. We adjust the MLTV for each loan using a value that reflects capitalization (cap) rates that are between our sustainable cap rates and market cap rates. We also use an adjusted loan balance that reflects each loan’s amortization profile. The MLTV reported in this publication reflects the MLTV before the adjustments described in the methodology.
Moody’s received full year 2020 operating results for 100% of the pool, and partial year 2021 operating results for 98% of the pool (excluding specially serviced and defeased loans). Moody’s weighted average conduit LTV is 121%, essentially unchanged since Moody’s last review. Moody’s conduit component excludes loans with structured credit assessments, defeased and CTL loans, and specially serviced and troubled loans. Moody’s net cash flow (NCF) reflects a weighted average haircut of 17.9% to the most recently available net operating income (NOI). Moody’s value reflects a weighted average capitalization rate of 9.9%.Moody’s value reflects a weighted average capitalization rate of 9.9%.
Moody’s actual and stressed conduit DSCRs are 1.40X and 0.93X, respectively, compared to 1.41X and 0.91X at the last review. Moody’s actual DSCR is based on Moody’s NCF and the loan’s actual debt service. Moody’s stressed DSCR is based on Moody’s NCF and a 9.25% stress rate the agency applied to the loan balance.
The largest loan with a structured credit assessment is the Wyvernwood Apartments Loan ($50 million 6.5% of the pool), which represents a pari passu portion of a $78.0 million senior mortgage loan. The loan is secured by a 1,175-unit garden style multifamily community located on a 63.07-acre site in Los Angeles, CA. This asset operates subject to the City of Los Angeles Rent Stabilization Ordinance (RSO). The loan’s capital structure includes $49.3 million of mezzanine financing, held outside the trust. The property was fully leased as of March 2022 compared to 98% occupied in December 2020. Through year-end 2021 the property’s performance has improved since securitization. The loan is interest only for its entire 5-year term. Moody’s structured credit assessment and stressed DSCR are a2 and 1.3X, respectively.
The second loan with a structured credit assessment is the 20 Times Square Loan ($25 million – 3.2% of the pool, which represents a pari passu interest in a $265 million senior mortgage loan. The property is also encumbered with $485.0 million of B-note and $150.0 million of mezzanine debt. The loan is secured by the borrower’s fee simple interest in a 16,066 SF parcel of land located along Seventh Avenue and West 47th Street in Times Square, New York, NY. The non-collateral improvement above the property are encumbered with a 99-year ground lease with an initial ground rent of $29.25 million per annum, subject to a 2.0% annual increases in years 1- 5 and 2.75% annual increase thereafter. The non-collateral property consists of 74,820 SF of retail space, 18,000 SF of digital signage on 7th avenue and the 452 room EDITION Hotel by Marriott. While hotel and retail properties in Times Square have been significantly impacted by the coronavirus pandemic, the loan benefits from its ground lease priority and in the event of default of the ground lease, ownership of the improvements would revert to the borrower (ground lessor) and serve as collateral for the loan. Moody’s structured credit assessment and stressed DSCR are aaa (sca.pd) and 1.19X, respectively.
The third loan with a structured credit assessment is the 5th Street Station Loan ($8.4 million 1.1% of the pool), which represents a pari passu portion of a $41.9 million senior mortgage. The property is also encumbered with $38.3 million of B-note and $21.7 million of mezzanine debt. The loan is secured by the borrower’s fee simple interest in a 451,727 SF grocery-anchored retail center located in Charlottesville, VA. The property is located 2.5 miles south of the University of Virginia campus and anchors include Wegman’s, Dicks Sporting Goods and Alamo Drafthouse theatre. As of the March 2022 rent roll the property was 91% leased, compared to 89% in December 2020. Moody’s structured credit assessment and stressed DSCR are baa1 (sca.pd) and 1.61X, respectively.
The top three conduit loans represent 16.1% of the pool balance. The largest loan is the Riverfront Plaza ($47.3 million 6.1% of the pool), which represents a pari passu portion of a $137.9 million senior mortgage loan. The property is also encumbered with $25 million of mezzanine debt. The loan is secured by two, 21-story office towers totaling 949,875 SF and located in the central business district (“CBD”) of Richmond, VA. Collateral for the loan also includes a five-story parking garage containing 2,172 parking spaces. As of March 2022, the property was 84% leased, compared to 85% in December 2021 and 83% at securitization. The second largest tenant, BB&T (15% of NRA) vacated the property in February 2022, prior to lease expiration in August 2025, though the company has agreed to maintain lease payments through the term. Further, the loan benefits from amortization and has amortized approximately 5.2% since securitization. Moody’s LTV and stressed DSCR are 128% and 0.84X, respectively, compared to 129% and 0.82X at securitization.
The second largest loan is the Riverwalk Loan ($44.3 million 5.7% of the pool), which represents a pari passu interest in a $79.4 million loan. The loan is secured by four office/flex buildings totaling 630,379 SF and located within the Riverwalk development in Lawrence, MA, approximately 30 miles north of downtown Boston. Per the December 2021 rent roll the property was 95% occupied, compared to 93% at securitization. Moody’s LTV and stressed DSCR are 138% and 0.79X, respectively, compared to 140% and 0.77X at the last review.
The third largest loan is the 139 Ludlow Loan ($33.5 million 4.3% of the pool), which is secured by the borrower’s fee simple interest in a four-story mixed-use property operated as a private members club called “Ludlow House”, located in the Lower East Side neighborhood of New York, NY. The property is 100.0% leased to Soho-Ludlow Tenant, LLC, a subsidiary of Soho House & Co Ltd. Soho House, under a 25-year triple net lease expiring in 2041. Founded in London during 1995, the lessee specializes in the operation of exclusive private members’ clubs, hotels, restaurants, and spas worldwide. This asset also functions as a boutique hotel, with rooms available for short term stays for both members and non-members. Moody’s LTV and stressed DSCR are 142% and 0.67X, the same as at last review.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody’s estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.
Moody’s did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Ashton Khan
Associate Lead Analyst
Structured Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Romina Padhi
VP – Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
