DBRS Upgrades Four Classes and Confirms Ten Classes of Schooner Trust, Series 2005-4

DBRS has today upgraded four classes of the Schooner Trust Commercial Mortgage Pass-Through Certificates, Series 2005-4 transaction as follows:

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

DBRS has also confirmed the ratings of ten classes as follows:

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

Class G, H, J, K and L were confirmed with a Positive trend. All other trends are Stable.

The upgrades reflect the pool's continued strong overall performance with a current-weighted average debt service ratio (DSCR) of 1.54 times (x) and a weighted-average debt yield of 13.7%, for non-defeased loans; based on the most recent year-end reporting available for the individual loans, as of the August 2013 remittance report. There are 58 of the 76 original loans remaining in the pool with a collateral reduction of 34.2% since issuance. The largest 15 loans represent 80.0% of the current pool balance. Within the top 15 loans, one loan is fully defeased and four loans, representing 20.9% of the current pool balance, are shadow rated investment grade. Excluding the defeased loan, the largest 15 loans in the pool have a current-weighted average DSCR of 1.47x and a weighted-average debt yield of 12.2%. In total, there are two defeased loans, representing 6.1% of the pool, as of the August 2013 remittance report. There are four loans on the servicer's watchlist as of the August 2013 remittance report, representing 15.3% of the current pool balance. According to the servicer, two loans, representing 11.2% of the current pool balance, will be removed from the watchlist in the upcoming remittance report, including the largest loan in the pool, Prospectus ID #2 Southland Mall. Southland Mall was added to the servicer's watchlist after the anchor tenant Wal-Mart (33% not rentable area) vacated the property in February 2010. Wal-Mart continued to pay rent until its lease expiry in January 2011. After the Wal-Mart lease expired in 2011, the DSCR declined from 1.60x at YE2010 to 1.40x at YE2011. Late in 2012, the borrower and Canadian Tire entered into a 15-year lease agreement to fill the space left vacant by Wal-Mart, increasing occupancy from 60.9% to 94.4%, as of March 2013. The loan is shadow rated investment grade by DBRS due to the full recourse guarantee to RioCan REIT.

The second largest loan on the servicer's watchlist is Prospectus ID #13 Dundeal Properties, representing 3.3% of the current pool balance. The loan was originally secured by two flex industrial properties located in Baie D’Urfé, Québec, and Pointe-Claire, Québec. The Pointe-Claire property was sold in December 2012 for $1.9 million and the proceeds from the transaction were used to pay down the loan in January 2013. The Baie D’Urfé property is approximately 36 kilometres south of downtown Montréal. The property lost its largest tenant in late in 2012, decreasing occupancy to 28.2% as of December 2012. Subsequently, the DSCR has decreased from 1.40x at issuance to 0.30x at YE2012 and went as low as -0.06x at YE2011. According to the servicer, the borrower had cited difficulty in re-leasing the property because of lingering odours that resulted from the manufacturing of spices by the previous tenant. Despite the leasing issues at the property, the borrower has kept the loan current. After several conversations with the servicer, DBRS believes it is highly likely the loan will pay out of the pool. The likelihood of repayment is further supported by the borrower's willingness to pay out of pocket for over a year while the cash flow was depressed.

There are a total of seven loans shadow-rated investment grade by DBRS remaining in the pool, representing a combined 23.2% of the outstanding balance.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction, including details on the remaining loans in the pool. The August 2013 Monthly Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

Note:
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 (January 2012) and CMBS North American Surveillance Methodology (November 2012), which can be found on our website under Methodologies.