DBRS Upgrades Seven and Confirms Eight Classes of Real Estate Asset Liquidity Trust, Series 2004-1

DBRS has today confirmed the following classes of Real Estate Asset Liquidity Trust, Series 2004-1 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class X at AAA (sf)
-- Class H at BB (sf)
-- Class J at B (high) (sf)
-- Class K at B (sf)
-- Class L at B (low) (sf)

DBRS has also upgraded the following classes of Real Estate Asset Liquidity Trust, Series 2004-1 as follows:

-- Class C to AAA (sf) from AA (high) (sf)
-- Class D-1 to AAA (sf) from A (high) (sf)
-- Class D-2 to AAA (sf) from A (high) (sf)
-- Class E-1 to AA (low) (sf) from A (low) (sf)
-- Class E-2 to AA (low) (sf) from A (low) (sf)
-- Class F to A (low) (sf) from BBB (sf)
-- Class G to BBB (high) (sf) from BBB (low) (sf)

The trends on all classes are Stable.

These ratings actions reflect the pool’s continued strong overall performance, with a current weighted-average debt service coverage ratio (DSCR) of 1.98 times (x) and weighted-average debt yield of 21.24%, as of the April 2013 remittance report. There are 42 of the original 73 loans remaining in the pool, with a collateral reduction of 54.39% since issuance. The largest 15 loans represent 64.17% of the current pool balance. Within the top 15 loans, six loans, representing 22.90% of the pool, are fully defeased and two loans, representing 13.55% of the pool, are considered investment grade. The nine non-defeased loans in the top 15 have a weighted-average net cash flow growth of 11.65% since issuance, with a weighted-average DSCR and debt yield of 2.15x and 20.70%, respectively. Additionally, there are a total of 11 defeased loans, representing 31.55% of the pool, as of the April 2013 remittance report.

There were six loans on the servicer’s watchlist as of the April 2013 remittance report, representing 8.93% of the current pool, with a weighted-average DSCR of 1.28x and a weighted-average NCF change from issuance of -13.93%. Two of these loans, representing 0.66% of the pool, are on the watchlist for upcoming maturity. The largest loan on the watchlist is Prospectus ID #11 (Centennial Mall), which represents 3.78% of the pool and is on the watchlist for a decline in occupancy to 51.24% in January 2013 from 98.54% in September 2012. The occupancy decline was the result of the largest tenant vacating the property at the end of their lease late in 2012. According to the servicer, the borrower is looking to break up the vacant space and is currently in negotiations to lease out a significant portion of the space to four tenants. Despite the decline in occupancy, the loan does not have a history of delinquency and benefits from a full recourse guarantee.

DBRS has today confirmed the investment-grade shadow ratings on the two loans in the transaction, representing 13.55% of the current pool balance. Including the defeased loans, approximately 45.10% of the pool is deemed investment grade by DBRS.

For a complete discussion of the DBRS viewpoint, including detailed information on the largest loans in the pool, and the loans on the servicer’s watchlist, please see the April 2013 Monthly Surveillance Report for this pool, which will be published shortly.

Notes:
All figures are in Canadian dollars unless otherwise noted.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are CMBS Rating Methodology and CMBS North American CMBS Surveillance Methodology, which can be found on our website under Methodologies.