DBRS Confirms Ratings on Institutional Mortgage Securities Canada Inc., Series 2014-5

DBRS Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-5 (the Certificates) issued by Institutional Mortgage Securities Canada Inc., Series 2014-5 as follows:

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

All trends are Stable. DBRS does not rate the first loss piece, Class H.

The rating confirmations reflect the overall stable performance of the pool since issuance. The pool consists of 41 loans secured by 55 commercial properties. Sainte-Foy Office (Prospectus ID#5) repaid from the trust in full with the March 2015 remittance as a result of maturity payoff. The loan had an outstanding principal balance of $15.3 million at the time of its disposition. Since issuance in July 2014, the transaction has experienced collateral reduction of 6.7% as a result of scheduled loan amortization and repayment.

As of the March 2015 remittance, there are three loans on the servicer’s watchlist, representing 5.6% of the pool balance. Two of the loans on the watchlist, representing 2.3% of the pool balance, are being flagged for upcoming maturity dates in May 2015. The DBRS weighted-average exit debt yield for the expiring loans is 15.5%, and there are no major leases expiring in the near term. The third loan on the watchlist is highlighted below.

Guenette Industrial (Prospectus ID#16, 3.0% of the pool) is secured by an industrial property built in 2008 in Saint-Laurent, Quebec. The subject loan is on the watchlist as a result of the lease expiration of the property’s largest tenant, CAE Healthcare, whose space represents 45% of the net rentable area (NRA). The tenant’s lease expired in March 2015, and per the servicer commentary, it was previously known that the tenant did not plan to renew its lease. Based on the most recent rent roll and the departure of this tenant, current occupancy is approximately 50.1%. The space is being marketed, and there are potential tenants, according to updates from the borrower. During the DBRS site inspection in June 2014, the property quality was found to be above average, and the surrounding industrial submarket was considered strong. The CAE Healthcare space should be attractive for both office and industrial uses with minimal tenant improvements needed owing to the existing level of build-out. According to Altus Insite, out of 32 industrial properties in the immediate area, the average vacancy rate was 11.5% and only one other property reported availability for contiguous space of similar size. To further mitigate this risk, the subject loan is cross-collateralized and cross-defaulted with Carleton Mall (Prospectus ID#10, 3.2% of the pool). Carleton Mall exhibits stable performance with a current occupancy of 85.9%. Both loans benefit from full recourse to Pro REIT.

The DBRS analysis included an in-depth review of the top 15 loans and the loans on the servicer’s watchlist, which collectively represent 67.4% 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 and loans on the servicer’s watchlist. The April 2015 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.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are North American CMBS Rating Methodology (March 2015) and CMBS North American Surveillance (January 2015), which can be found on our website under Methodologies.

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.