DBRS Confirms All Classes of WFRBS Commercial Mortgage Trust 2012-C10

DBRS has today confirmed all classes of WFRBS Commercial Mortgage Trust 2012-C10 as follows:

-- Classes A-1, A-2, A-FL, A-FX, A-3, A-SB, A-S, X-A and X-B at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

The trends on all classes are Stable.

The pool consists of 85 loans, secured by 115 multifamily and commercial properties. As of the October 2014 remittance report, the pool has a balance of approximately $1.3 billion, representing a collateral reduction of 2.3% since issuance as a result of amortization. Overall, the loans in the pool have reported stable performance since issuance. The transaction also benefits from 30 loans structured with amortization schedules of 27 years or less. Additionally, the pool is expected to amortize down 16.6% by maturity.

The DBRS analysis included an in-depth review of the 15 largest loans in the transaction and the loans on the servicer’s watchlist, which represents 59.8% of the current pool balance. According to the most recent reporting, the fifteen largest loans have a weighted-average debt service coverage ratio (WA DSCR) of 2.09 times (x) and a weighted-average debt yield of 9.97%.

The pool is concentrated by property type, as 44.2% of the pool is secured by retail properties, including five loans in the Top 15 which are secured by regional malls and represent 25.1% of the current pool balance. The regional malls within in the top 15 have a WA DSCR of 2.41x at YE2013. These malls are all situated in secondary markets, which are considered to be less liquid in times of economic stress. DBRS reviewed the most recent sales reports made available for these properties and found that inline sales for spaces of 10,000 square feet (sf) or less decreased by 2.3% from issuance. Each of these malls is believed to be the dominant regional mall in its respective market; however, DBRS continues to monitor securitized malls for exposure to weak tenants and slow sales growth. Three of the five malls in question are anchored by Sears, although none of the locations have been included in previous store closure lists.

As of the October 2014 remittance report, there are four loans on the servicer’s watchlist, representing 2.5% of the current pool balance. These loans have a weighted-average DSCR and debt yield of 1.88x and 10.3%, respectively. Three of these four loans have been flagged for non-performance issues, and are not considered by DBRS to be at risk of immediate default.

McHenry Shopping Center (Prospectus ID #33, 0.91% of the current pool balance) is secured by an 186,881 sf anchored retail center in Madison, Tennessee, approximately nine miles northeast of Nashville. The property is located along a major commercial node about two miles from I-65. The YE2013 DSCR was reported to be 2.10x, up from 1.96x at YE2012 and a DBRS underwritten DSCR of 1.89x. This loan is on the watchlist for the upcoming lease expiration of a major tenant. According to the June 2014 rent roll, the property was 92.6% occupied; however, the center’s anchor, Hobby Lobby, has a lease scheduled to expire on November 30, 2014. Hobby Lobby, which currently occupies 33.6% of the NRA, has provided notice of its intention to vacate at lease expiry. The borrower continues to market the space, and the October 2014 balance of the leasing reserve was $500,447. DBRS will continue to monitor this loan closely for updates regarding leasing activity.

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. The October 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:
All figures are in U.S. 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.