DBRS Upgrades Six Classes, Confirms Eight Classes of Schooner Trust, Series 2005-3

DBRS has today upgraded the ratings of six classes of Schooner Trust, Series 2005-3 as follows:

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

In addition, DBRS has confirmed the ratings of eight classes of Schooner Trust, Series 2005-3 as follows:

-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AAA (sf)
-- Class J at B (high) (sf)
-- Class K at B (sf)
-- Class L at B (low) (sf)
-- Class XC-1 at AAA (sf)
-- Class XC-2 at AAA (sf)

All trends are stable.

The trends on Class K and Class L have been changed from Negative to Stable, since the classes are no longer subject to the risk associated with the 71 Rexdale Boulevard loan, as the loan has been fully repaid. The loan, which had previously been in special servicing, was repaid in full with the July 2014 remittance.

The rating upgrades reflect the increased credit enhancement to the bonds from a collateral reduction of approximately 40.7% since issuance. As of the September 2014 remittance, 21 loans have successfully paid out of the pool since issuance, leaving 73 loans remaining in the transaction. The transaction also benefits from defeasance collateral as 23 loans, representing 18.2% of the current pool balance, are fully defeased. Overall pool performance remains stable, as the largest 15 loans in the transaction, excluding defeasance collateral, have a weighted-average (WA) debt service coverage ratio (DSCR) and WA DBRS Exit Debt Yield of 1.63 times (x) and 16.0%, respectively. In the next 12 months, the remaining loans in the transaction are scheduled to mature. The entire pool has a WA DBRS Exit Debt Yield of 17.4%.

There are currently 12 loans, representing 20.5% of the current pool balance, on the servicer’s watchlist; however, six of these loans have been added to the servicer’s watchlist for their respective upcoming maturity dates. The two largest loans on the servicer’s watchlist are discussed in greater detail below. There are no delinquent or specially serviced loans in the transaction.

The Don Mills Road & Van Horne Avenue loan (Prospectus ID #32, 3.36% of the current pool balance) is secured by a multifamily property, totaling 84 units, in the Peanut neighbourhood of Toronto, located about one mile west of Hwy. 404. The loan was added to the servicer’s watchlist in May 2014 after the YE2013 DSCR declined to 1.06x as a result of increased repairs and maintenance costs as well as utilities expenses. The property has a history of an increasing expense load as the YE2012 DSCR was 1.12x. As of the March 31, 2014, rent roll, the occupancy rate remains strong at 98.8%, with average rental rates of $1,370 per unit. In comparison, multifamily properties in the Toronto census metropolitan area are reporting average monthly rental rates of $1,143, according to the Canada Mortgage and Housing Corporation’s Spring 2014 Rental Market Report. In addition, the property is in line with the submarket’s vacancy rate of 1.9%. The April 2014 site inspection indicates that the property continues to exhibit a high occupancy rate of 97.6% and is in overall Average condition.

The Carré Gouin loan (Prospectus ID #56; 1.12% of the current pool balance) is secured by a mixed-use retail and office property in western Montréal, built in 1978 and renovated in 2004. The property is located just east of the Rivière des Prairies, near Route 117 and Hwy. 15. The loan was added to the servicer’s watchlist for a low DSCR, which is the continued result of reduced rental revenue because the vacancy rate has increased since issuance. The YE2013 DSCR of 0.85x improved from the YE2012 DSCR of 0.65x, even though the occupancy rate declined slightly to 69.5% as of April 2014 from 71.5% at April 2013. The improvement in performance is a result of an increase in rental income. The tenancy primarily consists of local retailers and medical office tenants. There is significant rollover risk as tenants combining to occupy 24.4% of the net rentable area have lease expirations by September 2015, and the loan is scheduled to mature in April 2015. DBRS has contacted the servicer regarding the lease renewals of these tenants as well as information on any future leasing potential.

At issuance, DBRS shadow-rated seven loans, representing 9.0% of the current pool balance, as investment grade. DBRS has today confirmed that the performance of these individual loans remains consistent with investment-grade loan characteristics.

As part of its review, DBRS analyzed the top 15 loans, the loans on the servicer’s watchlist and the shadow-rated loans, which comprise approximately 73.8% of the current pool 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 largest loans in the pool, specially serviced loans and loans on the servicer’s watchlist. The September 2014 Monthly CMBS 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.

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 Surveillance Methodology, which can be found on our website under Methodologies.