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CMBS exposure to Toys R Us limited, but concentrated

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Some 109 securitized commercial mortgages totaling about $5.5 billion carry Toys R Us, the latest struggling retailer to file for Chapter 11 bankruptcy, according to Trepp.

Moody’s Investors Service, which only tracks the loans that it rates, puts the exposure slightly lower, at 98 loans cross 85 CMBS deals. That’s less than 1% of the CMBS universe it rates, Moody’s analyst Paul Cognetti said in an email.

Morningstar Credit Ratings has identified just $3.6 billion in CMBS that could be affected.

Nevertheless, the exposure is concentrated in a handful of deals, most of them issued after 2010.

By far the largest is a $404.7 million mortgage on a portfolio of 123 Toys R Us properties that is the only loan securing a deal issued in 2016, TRU 2016-TOYS. These properties span a combined 5 million square feet across 29 different states, according to rating agency presale reports.

The loan was underwritten fairly conservatively, according to Trepp. It matures in three years (and can be extended to five), but amortizes on a 30-year schedule. By comparison, many large commercial mortgages securitized on their own pay only interest, and no principal, for their entire terms. At securitization in 2016, it had a debt service coverage ratio of 1.85x and a loan-to-value ratio of 58.3%.

Other major loans with heavy exposure to the retailer include the $380 million Bronx Terminal Market loan, which is split into a $140 million piece that makes up 12.06% of COMM 2014-CR17, a $135 million note that comprises 13.96% of COMM 2014-CR18, and a $105 million piece that represents 10.13% of COMM 2014-UBS3. Toys R Us is listed as the fourth-largest tenant (8.43% of the net rentable area) at the 912,333-square-foot, superregional mall in Bronx, New York with a lease that runs through January 2020, per Trepp.

There is also the $123 million The Plant San Jose note, which makes up 8.76% of WFRBS 2013-C14 and matures in May 2023. As the second-largest tenant, Toys R Us/Babies R Us occupies 13.35% of the 485,895-square-foot regional mall in San Jose, California, under a lease that expires in January 2023. The retail center was 90% occupied for the first quarter of 2017 and generated a debt service coverage ratio of 2.75x.

Toys R Us is the second-largest anchor behind the $61.1 million Plaza La Cienega note, which comprises 6.13% of JPMBB 2013-C14. Backing the loan is a 308,146-square-foot, mixed-use property in Los Angeles. The retailer leases 20.11% of the property’s space through November 2020. Scheduled to mature in August 2023, the loan generated a debt service coverage ratio of 1.97x on an occupancy rate of 98%.

The $31.5 million Summerhill Square loan is secured by a 125,862-square-foot community shopping center in East Brunswick, New Jersey. Top tenant Toys R Us leases 51.45% of the retail center’s space through December 2023. For the 2016 fiscal year, the property was fully leased while the debt service coverage ratio clocked in at 1.50x. Scheduled to mature in May 2023, the loan represents 2.28% of the remaining collateral behind MSBAM 2013-C10.

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