DBRS Confirms Ten Classes of Institutional Mortgage Securities Canada Inc., Series 2013-3

DBRS has today confirmed ten classes of Institutional Mortgage Securities Canada Inc., Series 2013-3, as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 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)
-- Class X at AAA (sf)

All classes have Stable trends.

These rating actions reflect the overall stability of the pool’s performance since issuance. The deal has experienced a 2.60% collateral reduction since issuance as a result of amortization. The transaction closed in February 2013 and consists of 38 loans secured by 43 commercial real estate properties. There are no watchlisted, delinquent or specially serviced loans as of the April 2014 remittance. The transaction is concentrated by loan size, as the largest 15 loans represent 68.46% of the current pool balance. The pool is also concentrated by property type, with 73.5% of the pool represented by Anchored Retail and Office properties. DBRS recognized the diversity of the underlying properties and the full recourse provided on all but three loans as mitigating factors to the pool’s concentration risks.

DBRS is monitoring two top 15 loans that are not currently on the servicer’s watchlist. Merivale Mall (Prospectus ID#2, 8.8% of the current pool balance), is secured by a grocery-anchored community shopping centre in the west central area of Ottawa. According to the December 2013 rent roll, leases representing approximately 36.8% of the net rentable area (NRA) were scheduled to expire in the next 12 months. The servicer has indicated that the updated May 2014 rent roll reflects that the number of upcoming lease expirations has dropped to 18.0% of the NRA and that two large tenants are negotiating lease extensions. SportChek recently signed a one-year renewal and is reportedly seeking to expand at the property, and the borrower is also in discussions with YMCA for a lease renewal, per servicer commentary. DBRS is awaiting receipt of the May 2014 rent roll to confirm the property’s current occupancy; however, given the recent extension with SportChek and the on-going discussions with both SportCheck and YMCA, it is likely the borrower has been able to resign many of the expiring leases. Additionally, the loan is full recourse to Bentall Kennedy, an experienced owner and operator of commercial real estate in North America.

Complexe Léry (Prospectus ID#4, 6.5% of the current pool balance) is secured by the leased fee interest in two multi-tenant Class A office buildings located in Trois-Rivières, Québec. As of the February 2014 rent roll, vacancy had increased to 12.0%, which is higher than the in-place vacancy of 5.1% at issuance and the DBRS underwritten vacancy adjustment of 10% at issuance. As of the February rent roll, major tenants include Deloitte, the Business Development Bank of Canada, Hydro-Québec, Astral Media and the SIQ. DBRS plans to monitor the loan to see if the increase in vacancy is sustainable or a matter of timing due to tenant fluctuations. The loan is full recourse to an experienced real estate investment trust with a large portfolio of commercial real estate, specializing in Québec markets.

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 largest loans in the pool and, if applicable, loans in special servicing and the loans on the servicer’s watchlist. The May 2014 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:
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 CMBS Surveillance Methodology (November 2012), which can be found on our website under Methodologies.