FEBRUARY 2019

COMMENTARY Monitoring “The Stuff That Counts”: ’s Closures Minimally Affect CMBS Transactions Monitoring “The Stuff That Counts”: Shopko’s Closures Minimally Affect CMBS Transactions DBRS.COM 2

Contact Information Table of Contents

Edward Dittmer Introduction 3 Senior Vice President North American CMBS Shopko Industrial Portfolio: COMM 2015-CCRE25 4 +1 212 806 3285 [email protected] Shopko Portfolio: JPMDB 2017-C5 4

Stephanie Hughes DBRS Perspective 5 Business Writer North American CMBS Appendix — Shopko Store Closures 6 +1 416 597 7496 [email protected]

Erin Stafford Managing Director Head of North American CMBS +1 312 332 3291 [email protected]

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Structured Finance: CMBS February 2019 Monitoring “The Stuff That Counts”: Shopko’s Closures Minimally Affect CMBS Transactions DBRS.COM 3

Introduction The store closures announced by Shopko will likely have a minimal impact on commercial mortgage-backed securities (CMBS) in aggregate; however, DBRS, Inc. (DBRS) does see the potential for localized defaults as the company rejects leases across the country. In addition, the closures highlight the risk of exposure faced by retailers owned by firms, specifically. According to Bloomberg, Shopko, which was acquired by , Inc. in 2005, had sought debt restructuring from its lenders, but its efforts proved unsuccessful. With ownership unwilling to invest further in the company, Shopko filed for Chapter 11 bankruptcy protection in January 2019. Since then, the original closure list has ballooned to over 250, which will reduce the company footprint by more than half.

While DBRS identified only 12 loans in the CMBS universe with Shopko exposure, virtually all the stores backing CMBS collateral will close. With few exceptions, Shopko is the sole tenant at these properties, significantly increasing default risk across the related loans. Two loans have a balance greater than $25.0 million: One has high default risk, and the other is backed by distribution centers rather than stores and thus may not have a similar risk profile. For a complete list of the announced closures, please refer to the appendix.

Exhibit 1: Shopko Properties in the CMBS Universe

Tenant % Loan Property of Total Loan DBRS- Deal Loan Name Property City, State Balance Size Occupancy NRA Status Status Rated?

COMM 2015- Shopko $49,835,004 1,376,000 100.0% 100.0% Performing No CCRE25 Industrial Portfolio Omaha Omaha, NE 535,000 100.0% 100.0% Distribution Center

DePere DePere, WI 494,000 100.0% 100.0% Distribution Center

Boise Boise, ID 347,000 100.0% 100.0% Distribution Center

JPMDB Shopko Oregon $27,346,527 319,006 Performing No 2017-C5 Portfolio

Shopko Salem, OR 117,326 100.0% 100.0% Closing Salem

Shopko Bend, OR 100,840 100.0% 100.0% Closing Bend

Shopko Eugene, OR 100,840 100.0% 100.0% Closing Eugene

GSMS Lowell Plaza Lowell, IN $15,385,758 60,578 100.0% 33.4% Performing Open Yes 2014-GC26 Portfolio

DBJPM Shopko Madison Shopko Madison, WI $7,900,000 99,101 100.0% 100.6% Performing, WL Closing Yes 2016-C1 Madison

MLMT Plover Plaza Plover Plaza Plover, WI $7,144,151 108,038 100.0% 83.7% Delinquent, SS Closing No 2006-C1

WBCMT Shopko Plaza Shopko Peoria, IL $6,623,959 128,955 98.0% 87.1% Performing, WL Closed No 2005-C17 Plaza 1

JPMDB Shopko Billings Shopko Billings, MT $6,432,704 100,800 100.0% 100.0% Performing Open No 2017-C5 Billings

CFCRE Shopko Neenah Shopko Neenah, WI $6,372,195 94,225 100.0% 100.0% Performing Closing No 16-C7 Neenah

WFCM Shopko Green Shopko De Pere, WI $5,403,698 65,495 100.0% 100.8% Performing Closing Yes 2015-NXS2 Bay Green Bay

WFCM Shopko Rapid Shopko Rapid City, $5,396,413 94,106 100.0% 100.0% Performing, WL Closing No 2015-NXS4 City Rapid City SD

1 The Shopko at this location is dark and paying rent through 2020. Bankruptcy likely will result in rejection of the lease.

Structured Finance: CMBS February 2019 Monitoring “The Stuff That Counts”: Shopko’s Closures Minimally Affect CMBS Transactions DBRS.COM 4

Exhibit 1: Shopko Properties in the CMBS Universe

Tenant % Loan Property of Total Loan DBRS- Deal Loan Name Property City, State Balance Size Occupancy NRA Status Status Rated?

CFCRE Shopko Winona Shopko Winona, MN $5,166,450 84,375 100.0% 100.0% Performing Closing No 2016-C7 Winona

CD 2016-CD2 Shopko West Shopko West West Valley $4,750,519 94,106 100.0% 100.0% Performing Closing No Valley City Valley City City, UT

MSBAM Shopko Nampa Shopko Nampa, ID $4,026,568 90,446 95.0% 100.1% Performing Closing No 2015-C26 Nampa

WFCM 2016- Shopko - Shopko - Redding, CA $3,955,012 94,078 100.0% 100.4% Performing Closing No BNK1 Redding Redding

Source: DBRS Viewpoint.

Shopko Industrial Portfolio: COMM 2015-CCRE25 The largest loan associated with Shopko is its industrial portfolio secured in COMM 2015-CCRE25 with a balance of $49.8 million. While there may be short-term risk, the loan benefits from having two assets in Shopko’s primary markets and a third (Boise, ) that could be backfilled. Rather than stores, this loan is backed by three distribution centers leased to Shopko through 2035. The centers are in Omaha, ; De Pere, ; and Boise. According to Shopko’s website, there is one other distribution center in Lebanon, Indiana.

While the company has not announced the closure of its distribution centers, the post-bankruptcy store footprint will determine which of these centers Shopko retains. Given the list of closures, the Boise location is most at risk of closure. Nearly one-third of the closing stores are in Mountain West and Pacific Coast locations, including (19 stores), (12), (eight), Idaho (seven) and (six). Notably, all the stores in Washington, Oregon and Utah will close. Therefore, there may be no need for the Boise distribution facility.

Still, unless the Shopko bankruptcy results in a complete liquidation of the chain, DBRS expects this loan to make it through the bankruptcy. The centers in Wisconsin and Nebraska serve the heart of Shopko’s market — the Upper Midwest. Despite up to half the stores closing in this region as well, it remains a natural retreat point: The company is headquartered in Green Bay, Wisconsin, and its stores have a longer history and acceptance by shoppers in the area. Even if the Boise location closes, the effect will be minimal — it is the smallest of the three centers, accounting for less than 25.0% of the portfolio’s cash flow. Further, the Boise market1 and Mountain West region are among the most dynamic in the country. This suggests that the property could be backfilled in a lease- rejection scenario.

Shopko Oregon Portfolio: JPMDB 2017-C5 The second-largest exposure in CMBS is the Shopko Oregon Portfolio, which has a balance of $27.3 million and is backed by three Shopko stores, all of which are closing. Hence DBRS believes this loan has high default risk. Although the three stores are part of shopping centers and are, in two cases, attached to other stores, they have separate owners who may be unwilling to fund shortfalls if the properties cannot be backfilled relatively quickly. The sponsor, Gordon Sondland, is a well-known real estate investor in Oregon and may be more equipped to support the property and backfill the space.

Among DBRS-rated transactions, three are exposed to Shopko with only the Indiana Retail Portfolio (GSMS 2014-GC26) having a balance greater than $10.0 million. One Shopko store in the portfolio will remain open.

1. Blanchard, Nicole, “Boise is the fastest-growing large metro area in the U.S., Forbes says,” Idaho Statesman, March 1, 2018.

Structured Finance: CMBS February 2019 Monitoring “The Stuff That Counts”: Shopko’s Closures Minimally Affect CMBS Transactions DBRS.COM 5

DBRS Perspective Although Shopko closures should not affect CMBS on a large scale, the company’s filing comes on the heels of other bankruptcy filings by private-equity-owned retailers over the last two years. These include Claire’s, Sports Authority, , , Eastern Outfitters, Payless ShoeSource, Gymboree and Toys“R”Us. At a number of companies, leveraged have saddled retailers with high levels of debt, leaving some unable to sustain themselves as the shift in the retail continues. Once these owners determine they no longer want to invest in their portfolio companies, large-scale closures and bankruptcies tend to follow. As such, transactions with high levels of exposure to private-equity-owned retailers are of particular concern. DBRS will continue to monitor the status of these companies and provide reporting where there are potential issues.

Structured Finance: CMBS February 2019 Monitoring “The Stuff That Counts”: Shopko’s Closures Minimally Affect CMBS Transactions DBRS.COM 6

Appendix — Shopko Store Closures

State City Address Store Name Arizona 207 S Mountain Ave Springerville Hometown 55 Lake Boulevard Redding Shopko 415 US Highway 24 N Buena Vista Hometown 333 S Lincoln Burlington Hometown 401 US Highway 24 Leadville Hometown 502 E 8th Ave Yuma Hometown 109 N Market Street Audubon Hometown 106 Smith Street Bloomfield Hometown 313 North Roosevelt Ave Burlington Shopko 1901 Court Avenue Chariton Hometown 1620 N 2nd Street Cherokee Hometown 1180 S 16th St Clarinda Hometown 1003 Central Ave West Clarion Hometown 22422 Highway 9 Cresco Hometown 1425 Edgington Avenue Eldora Hometown 3402 Main Street Emmetsburg Hometown 2402 Central Ave Estherville Hometown 616 E Us Hwy 9 Forest City Hometown 4810 Avenue O Fort Madison Shopko 902 S Locust Glenwood Hometown 202 SW Kent Greenfield Hometown 808 4th St Southeast Hampton Hometown 202 Susan Lawrence Drive Ida Grove Hometown 413 W Huron Street Valley Hometown 201 N Fillmore Mount Ayr Hometown 1345 S Frederick Avenue Oelwein Hometown 2220 Hwy 175 West Onawa Hometown 1006 S County Road Toledo Hometown 911 S K Ave Vinton Hometown 200 Red Bull Division Drive Webster City Hometown Idaho 8105 W Fairview Avenue Boise Shopko 2655 South Ave Boise Shopko 6355 Main Street Bonners Ferry Hometown 2100 Caldwell Blvd Nampa Shopko 429 Ave Orofino Hometown 4215 Yellowstone Ave Pocatello Shopko 1649 Pole Line Rd E Twin Falls Shopko 110 Watters Drive Dwight Hometown 1190 North 6th Street Monmouth Shopko 200 W Burnside Drive Monticello Hometown 1520 W 9th Street Mount Carmel Hometown 251 S 4th Street Savanna Hometown 700 Progress Blvd Tuscola Hometown Indiana 1215 E Main Street Attica Hometown 100 Cross Country Plaza Batesville Hometown 334 N Halleck Street Demotte Hometown 2052 E Commercial Ave Lowell Hometown 840 North US 41 Rockville Hometown 1101 N Indiana Avenue Syracuse Hometown

Structured Finance: CMBS February 2019 Monitoring “The Stuff That Counts”: Shopko’s Closures Minimally Affect CMBS Transactions DBRS.COM 7

State City Address Store Name 1903 North Buckeye Avenue Abilene Hometown 710 N Ll And G Avenue Anthony Hometown 1026 N Independence Avenue Beloit Hometown 300 Cross Street Burlington Hometown 821 West Crawford Street Clay Center Hometown 908 E 14th Street Larned Hometown 1212 W Main Street Lyons Hometown 505 W Holme St Norton Hometown 1401 Phillipsburg Hometown 87 S Fossil St Russell Hometown 1702 Main Street Scott City Hometown 1710 North Street Seneca Hometown 515 East Oklahoma Avenue Ulysses Hometown 777 Bypass Road Brandenburg Hometown Michigan 540 Jenner Drive Allegan Hometown 400 South Main Street Brooklyn Hometown 56835 Station Drive Calumet Hometown 11250 North Mission Road Clare Hometown 56419 Pokagon Street Dowagiac Hometown 2530 First Avenue North Escanaba Shopko 174 James Robertson Drive Gladwin Hometown 2278 N Comfort Drive Hart Hometown 900 Memorial Drive Houghton Shopko 1995 South Cedar Imlay City Hometown 784 S Cedar Street Ste E Kalkaska Hometown 15900 Picture Bay Trail L'anse Hometown 1150 West Washington Marquette Shopko 91 W Pine Lake Drive Newaygo Hometown 3825 S Huron Road Standish Hometown 2655 West Blvd Tecumseh Hometown E 9916 M28 East Wetmore Hometown 2610 Bridge Ave Albert Lea Shopko 1209 18th Ave Northwest Austin Shopko 145 Broadway Avenue N Cokato Hometown 421 Gateway Drive Ne East Grand Forks Hometown 3225 10th Street East Glencoe Hometown 125 Main Street N Hutchinson Shopko 416 US Highway 59 Mahnomen Hometown 200 10th Ave Se New Prague Hometown 810 Diekmann Drive Paynesville Hometown 2820 Hwy 63 South Rochester Shopko 301 South St James Hometown 1002 Old Mn Ave St Peter Hometown 501 Hwy 10 Se St Cloud Shopko 216 Main Avenue Ne Warroad Hometown 1755 North Humiston Ave Worthington Shopko Missouri 101 S Polk Albany Hometown 812 Harvest Hills Drive Carrollton Hometown 115 Leroux Drive Doniphan Hometown 1307 S State Hwy 32 Eldorado Springs Hometown 212 North Main Street Gallatin Hometown 459 Grand Ave Memphis Hometown 2001 East 9th Street Trenton Hometown

Structured Finance: CMBS February 2019 Monitoring “The Stuff That Counts”: Shopko’s Closures Minimally Affect CMBS Transactions DBRS.COM 8

State City Address Store Name Montana 125 East Glendale Dillon Hometown 301 Northwest Bypass Great Falls Shopko 1001 N Center Avenue Hardin Hometown 117 West 1st Avenue Plentywood Hometown 148 Main Street Roundup Hometown 500 N Central Ave Sidney Hometown 6475 US Highway 93 South #15 Whitefish Hometown 600 Us Highway 2e Wolf Point Hometown 1900 Hwy 49 Beulah Hometown 320 Highway 12 East Bowman Hometown 6717 Highway 200 Carrington Hometown 601 Division Avenue South Cavalier Hometown 932 W 12th Street Grafton Hometown 1709 Main Street Libson Hometown 935 3rd Street Se Mayville Hometown 1420 North 7th Street Oakes Hometown 602 Main Avenue West Rolla Hometown 225 Hwy 2 Se Rugby Hometown Nebraska 1511 East 4th Street Ainsworth Hometown 2585 State Hwy 14 Albion Hometown 312 Flack Street Alliance Hometown 2410 Dahlke Ave Auburn Hometown 123 N 24th Street Beatrice Hometown 601 Galvin Road South Bellevue Shopko 1300 Stone Street Falls City Hometown 301 E Highway 20 Gordon Hometown 718 4th Street Gothenburg Hometown 1217 South Highway 71 Kimball Hometown 4200 South 27th Street Lincoln Shopko 100 South 66th Street Lincoln Shopko 3400 North 27th Street Lincoln Shopko 6845 South 27th Street Lincoln Shopko 2005 Krenzien Drive Norfolk Shopko 100 Texas Trail Drive Ogallala Hometown 133 Trotter Avenue Ord Hometown 211 S 23rd Street Plattsmouth Hometown 1150 East 3rd Superior Hometown 500 Plaza Drive West Point Hometown New Mexico 908 West Avenue D Lovington Hometown 701 Great Basin Blvd Ely Hometown 825 Valley Street Minerva Hometown 378 Lewisville Road Woodsfield Hometown Oklahoma 816 E State Rd Fairview Hometown Oregon 60 Ne Bend River Mall Ave Bend Shopko 2815 Chad Drive Eugene Shopko 1230 Lancaster Drive Se Salem Shopko 500 North Highway 281 Aberdeen Shopko 1951 E King Ave Chamberlain Hometown 1135 Mt Rushmore Road Custer Hometown 1208 N Highway 77 Dell Rapids Hometown 1400 Morningside Dr Milbank Hometown 1845 Haines Ave Rapid City Shopko 614 W 3rd Street Redfield Hometown

Structured Finance: CMBS February 2019 Monitoring “The Stuff That Counts”: Shopko’s Closures Minimally Affect CMBS Transactions DBRS.COM 9

State City Address Store Name South Dakota (Continued) 1601 W 41st St Sioux Falls Shopko 4501 East Arrowhead Parkway Sioux Falls Shopko 1712 Sd Hwy 10 Sisseton Hometown 905 W Sd Highway 46 Wagner Hometown 620 E Highway 12 Webster Hometown Texas 2500 E Highway 90 Alpine Hometown 1203 North Main Street Andrews Hometown 308 South 2nd Street Canadian Hometown 927 North Ave G Clifton Hometown 1300 East Central Ave Commanche Hometown 509 Blair Street Dalhart Hometown 124 Lumar Dr Jacksboro Hometown 334 E Highway 302 Kermit Hometown 705 W Marshall Howard Blvd Littlefield Hometown 1907 S Stockton Avenue Monahans Hometown 1301 S Main Street Perryton Hometown 1000 US Business 67 Presidio Hometown Utah 660 N Main St Beaver Hometown 860 S Main Street Blanding Hometown 747 South Main Brigham City Shopko 94 North 400 East Delta Hometown 1150 North Main Layton Shopko 1341 North Main Street Logan Shopko 1145 South Highway 191 Moab Hometown 5959 South State Street Murray Shopko 1174 N Main Street Nephi Hometown 1018 Washington Boulevard Ogden Shopko 125 S State Street Orem Shopko 4060 Riverdale Road Riverdale Shopko 1635 E Highway 40 Roosevelt Hometown 2165 East 9400 South Sandy City Shopko 955 North Main Street Spanish Fork Shopko 5800 South Redwood Road Taylorsville Shopko 440 W Main Street Tremonton Hometown 1553 West 9000 S West Jordan Shopko 4850 West 3500 South West Valley Shopko Washington 867 North Columbia Center Blvd Kennewick Shopko 5500 Martin Way E Lacey Shopko 471 Wine Country Road Prosser Hometown 1450 South Grand Ave Pullman Shopko 814 13th Avenue Sw Quincy Hometown 9520 N Newport Hwy Spokane Shopko 13414 E Sprague Ave Spokane Shopko 4515 South Regal Street Spokane Shopko 2530 Rudkin Road Union Gap Shopko 1651 West Rose Street Walla Walla Shopko 1340 North Wenatchee Avenue Wenatchee Shopko 5801 Summit View Ave Yakima Shopko Wisconsin 2101 East Evergreen Drive Appleton Express 2761 Prairie Ave Beloit Shopko 1010 W Ryan Street Brillion Hometown W3208 Van Roy Road Buchanan Express 200 Commerce Drive Columbus Hometown

Structured Finance: CMBS February 2019 Monitoring “The Stuff That Counts”: Shopko’s Closures Minimally Affect CMBS Transactions DBRS.COM 10

State City Address Store Name Wisconsin (Continued) 230 North Wisconsin Street De Pere Shopko 1450 East Geneva Street Delavan Shopko 598 Lucas Lane Ellsworth Hometown 1771 Wisconsin Ave Grafton Shopko 216 S Military Ave Green Bay Shopko 2585 Lineville Road Howard Express 5300 52nd St Kenosha Shopko 802 N Main Street Kewaunee Hometown 1120 STH 67 Kiel Hometown 800 East Maes Ave Kimberly Shopko 2400 Rose Street La Crosse Shopko 3705 Monroe Road Ledgeview Express 7401 Mineral Point R Madison Shopko 2201 Zeier Rd Madison Shopko 3415 Calumet Ave Manitowoc Shopko 2741 Roosevelt Road Marinette Shopko 2820 Roosevelt Road Marinette Express 406 Gateway Avenue Mauston Hometown 2050 Horicon Street Mayville Hometown 1578 Appleton Rd Menasha Shopko 2101 West Broadway Monona Shopko 699 S Green Bay Road Neenah Shopko 1800 Plover Road Plover Shopko 1011 N Wisconsin Street Port Washington Express 4801 Washington Ave Racine Shopko 2200 Lincoln Street Rhinelander Shopko 1010 South Mainline Dr Seymour Hometown 100 County Rd B Shawano Rx 518 South Taylor Drive Sheboygan Shopko 1200 Main Street Stevens Point Shopko N 66 W 25201 County Vv Sussex Shopko 701 S Church St Watertown Shopko 825 West Fulton Street Waupaca Hometown 800 Riverside Drive Waupaca Express N2934 State Road 22 Wautoma Rx 1710 S Main St West Bend Shopko 946 E Main Street Winneconne Hometown Wyoming 1105 Bridger Drive Green River Hometown 925 North 6th Street Greybull Hometown 1255 Main Street Lander Hometown 1080 Hwy 414 Mountain View Hometown 142 S Hwy 20 Thermopolis Hometown 100 South 20th Street Worland Hometown Source: Shopko.

Structured Finance: CMBS February 2019 Note: All figures are in U.S. dollars unless otherwise noted.

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