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

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

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-FX at AAA (sf)
-- Class A-FL at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class 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)

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

The rating confirmations reflect the continued overall stable performance of the transaction. The transaction originally closed in December 2012, consisting of 85 loans secured by 115 multifamily and commercial properties. Since issuance, the transaction has experienced a collateral reduction of 3.6% as a result of scheduled amortization. The transaction benefits from defeasance collateral, as two loans, representing 3.1% of the current pool balance, have fully defeased. Excluding defeasance, the top 15 loans are reporting a weighted-average (WA) debt service coverage ratio (DSCR) of 2.01 times (x) and a WA debt yield of 10.1% as of YE2014 reporting.

There is a relatively high concentration of retail properties that serve as collateral for the deal as 27 loans, representing 44.4% of the pool balance, are secured by retail properties. In addition, a total of 18 loans are located in tertiary (5.9% of the pool balance) and rural (13.3% of the pool balance) markets. Within the Top 15, there are five regional malls located in secondary markets. These loans represent 25.3% of the pool and, as of YE2014, have a WA DSCR of 2.34x and a WA debt yield of 11.7%. Each mall is considered to be the only regional mall within its respective market; however, DBRS continues to monitor these loans for any risks as a result of their respective locations, specifically decreasing anchor store sales.

As of the October 2015 remittance, there are four loans on the servicer’s watchlist, representing 7.6% of the pool balance. The largest loan on the watchlist is Prospectus ID #4, STAG REIT Portfolio, representing 5.1% of the pool balance. This loan is secured by a portfolio of 28 industrial, manufacturing and warehouse properties located across eight states. Twenty-five of these are occupied by single tenants, while the remaining three are occupied by two tenants. It was added to the watchlist due to an increase in vacant and poorly occupied individual properties. As of October 2015, the overall portfolio occupancy is 82.5%, down from 90% at YE2014 and 95% at YE2013. The increase in the overall vacancy rate appears to be driven by the performance of the six assets located in the greater Wichita and Kansas City, Kansas, areas. The largest property is located in O’Hara Township, Pennsylvania (24.4% of the portfolio net rentable area (NRA)) and remains 100% occupied. The loan continues to perform well with a Q2 2015 DSCR of 2.06x, up from the YE2014 DSCR of 1.55x.

Prospectus ID #38, One North Arlington, representing 0.9% of the pool, is secured by a seven-story office building located in Arlington Heights, Illinois. This loan is on the watchlist for an ongoing low occupancy rate and the expiration of the largest tenant’s lease. As of June 2015, the occupancy rate decreased to 36.8% after the former largest tenant, State Farm Mutual Automobile Insurance (State Farm; 30.0% of NRA), vacated upon lease expiration. The space is currently only listed as available and not vacant on CoStar; however, according to the June 2015 rent roll, the tenant has vacated the property. Prior to the departure of State Farm, the property was 71.8% occupied, down from 82% at issuance. As a result of the ongoing low occupancy rate, the DSCR continues to decrease year over year, with the trend expected to continue given the increase in vacancy. The Q2 2015 DSCR was 1.20x, compared with the YE2014 DSCR of 1.13x and the YE2013 DSCR of 1.43x. According to CoStar, the property is located in the Northwest Chicago Office submarket. As of Q2 2015, the submarket reported an average vacancy rate of 17.9% with an annual rental rate per square foot of $21.91 for Class A office properties. DBRS will continue to monitor this loan 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 and loans on the servicer’s watchlist. The October 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 U.S. 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.

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

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