DBRS Confirms Ratings of German Residential Funding 2013-2 Limited

DBRS Ratings Limited (DBRS) has today confirmed its ratings on the following classes of Commercial Mortgage Backed Floating-Rate Notes Due November 2024 issued by German Residential Funding 2013-2 Limited:

-- Class A 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 (high) (sf)

All trends are Stable.

The rating confirmations reflect the continued stable performance of the transaction since issuance in October 2013. The transaction consists of two fixed-rate loans and one floating-rate loan, which as of the August 2015 quarterly reporting had a total balance of EUR 681.6 million, representing a collateral reduction of 2.58 % since issuance in October 2013. The loans are cross-collateralised and cross-defaulted. Each was made to three borrowers, all of which are subsidiaries of the sponsor, GAGFAH S.A (GAGFAH). At the beginning of 2015, Germany’s Deutsche Annington and GAGFAH merged, creating Vonovia SE (Vonovia) which became Europe’s second largest real estate company. DBRS’s view of the strong sponsorship has not changed as a result of this merger.

As of the August 2015 reporting, the collateral portfolio consisted of 22,361 residential units, 83 commercial units, 5,012 parking units and 1,119 other units, with the residential and commercial units comprising a total lettable area of 1.37 million square metres and providing approximately 97.8% of the net rental income. Since issuance, 452 units (not including owner-occupied units) have been sold from the portfolio and the net rental income for the remaining units has increased by 1.6% as of the T-12 period ending 30 June 2015. The portfolio’s reported economic vacancy is 5.3%, down from 5.4% at YE2014 and 5.7% at Q2 2014. Financial performance remains stable as the portfolio reported a T-12 ending 30 June 2015 net operating income (NOI) of EUR 53.9 million, an increase of 0.1% compared with the YE2014 NOI and a decrease of 1.5% compared with the YE2013 NOI. While NOI has decreased slightly over time, DBRS attributes much of the decrease to the release of individual properties. The transaction is expected to continue to exhibit stable performance due to decreasing vacancy rates across the residential units. According to the August 2015 Investor Report, the transaction had an interest coverage ratio of 2.41x and a debt service coverage ratio of 2.08x.

The portfolio collateral is geographically well diversified as it is located across approximately 165 communities in Germany, with the largest concentration located in Hamburg. Other notable property concentrations are situated in Hanover, Braunschweig, Göttingen and Osnabrück. Vonovia is an experienced owner and manager of multifamily residential real estate in Germany and has of a portfolio of approximately 370,000 housing units.

Notes:
All figures are in euros unless otherwise noted.

The principle methodology is European CMBS Surveillance Methodology.

The applicable methodologies are European CMBS Rating Methodology, European CMBS Surveillance, Legal Criteria for European Structured Finance Transactions, Operational Risk Assessment for European Structured Finance Servicers, Derivative Criteria for European Structured Finance Transactions and Unified Interest Rate Model for European Securitisations, which can be found on www.dbrs.com under Methodologies.

Other methodologies referenced in this transaction are listed at the end of this press release. This may be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to DBRS’s “The Effect of Sovereign Risk on Securitisations in the Euro Area” commentary on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for these ratings include Situs Asset Management Limited.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS does not rely upon third-party due diligence in order to conduct its analysis; however, Agreed upon Procedures (AUP) are included in the requested documentation.

• DBRS was not supplied with AUP documents. Data checks were performed and DBRS did apply additional cash flow stresses in its scenarios.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does
not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 21 October 2014 when DBRS confirmed its ratings of German Residential Funding 2013-2 Limited.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

A decrease of 10% and 20% in the DBRS Net Cash Flow (NCF), derived by looking at comparable properties, market rents, market occupancies in addition to expenses ratios, capital expenditures and re-tenanting costs, would lead to a downgrade in the transaction, as noted below for each class respectively:

Class A Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of AA (high) (sf)
-- 20% decline in DBRS NCF, expected rating of A (sf)

Class B Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of BBB (high) (sf)
-- 20% decline in DBRS NCF, expected rating of BB (high) (sf)

Class C Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of BBB (low) (sf)
-- 20% decline in DBRS NCF, expected rating of BB (low) (sf)

Class D Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of BB (sf)
-- 20% decline in DBRS NCF, expected rating of B (low) (sf)

Class E Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of BB (low) (sf)
-- 20% decline in DBRS NCF, expected rating of NR

Class F Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of B (sf)
-- 20% decline in DBRS NCF, expected rating of NR

For further information on DBRS historic default rates published by the European Securities and Markets Administration (ESMA) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Scott Goedken, Senior Vice President, Global CMBS
Initial Rating Date: 17 October 2013
Initial Rating Committee Chair: Mary Jane Potthoff, Managing Director, Global CMBS

Lead Surveillance Analyst: Jorge Lopez, Financial Analyst, Global CMBS

Rating Committee Chair: Erin Stafford, Managing Director, Global CMBS

DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations
-- European CMBS Rating Methodology

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375