DBRS Confirms All Classes of Canadian Commercial Mortgage Origination Trust 2012-1

DBRS has today confirmed all classes of Canadian Commercial Mortgage Origination Trust 2012-1, as follows:

-- Classes A and X at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

The trends on all classes are Stable.

The pool consists of 25 loans secured by 26 properties. As of the September 2013 remittance, the weighted-average debt service coverage ratio (DSCR) was 1.6x and the weighted-average debt yield was 8.5%. In comparison, the WA DSCR and WA debt yield when the transaction closed in October 2012 were 1.7x and 8.7%, respectively. DBRS recognizes that many of the YE2012 financial statements received do not necessarily reflect a stabilized, twelve-month cash flow figure, given the transaction’s closing date.

The pool is concentrated by loan size, with a pool of 25 loans and the largest loan represents 13.3% of the current pool balance. There are currently four loans on the servicer watchlist, two of which are being monitored for recognized performance issues. Evton Yonge and St. Clair Office (Prospectus ID#4, 6.57% of the current pool balance) and Dundee Ste. Foy Office (Prospectus ID#23, 1.46% of the current pool balance) have been flagged for below-threshold DSCRs. The Evton loan’s YE2012 DSCR of 1.04x represents only a 0.3% decline from the DBRS underwritten cash flow. The Dundee Ste. Foy loan’s YE2012 DSCR of 0.58x represents a 39% decline from the DBRS underwritten cash flow and a 59% decline from the issuer’s underwritten cash flow. The Québec office property was 22% vacant at issuance and occupancy remains low at 80%. DBRS will continue to monitor these loans and expects to obtain a twelve-month financial statement ahead of next year’s surveillance review.

Another loan has been added to the watchlist for recent damage to the property. Kensington Crossing (Prospectus ID#12, 4.15% of the current pool balance) is secured by an anchored retail property in Edmonton, Alberta. A fire occurred at the property on December 25, 2012, affecting eight tenant spaces, including the second- and third-largest tenants, Dollarama (13.4% of NRA) and Bonanza Western Grill (11.9% of NRA). According to the servicer, the site has been cleaned but reconstruction has not begun, as the borrower only recently received replacement valuation and is currently still planning the rebuild. The property is currently receiving full business interruption proceeds. DBRS will continue to follow up with the servicer for updates on the status of the property.

The pool benefits from full or partial recourse guarantees on all but two loans in the pool. The pool also benefits from a relatively tight amortization schedule. Over half of the current pool balance amortizes on a schedule of 25 years or less. DBRS also considers the strong sponsorship in the pool to be a mitigating influence to any potential risk associated with the watchlisted loans. Eight loans, representing 34.8% of the current pool balance, are sponsored by or have recourse to DBRS-rated entities.

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 September 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.

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

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.

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