DBRS Confirms Ratings of Asset-Backed Notes Issued by Selkirk 2013-2

DBRS Limited (DBRS) has today confirmed the ratings of the Asset-Backed Notes (the Certificates) issued by Selkirk 2013-2, as listed below:

-- Class A2 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 (low) (sf)
-- Class F at B (low) (sf)
-- Class G at CCC (high) (sf)

All trends are Positive with the exception of Class A2, which carries a Stable trend. In addition, Class IO has been discontinued, as the class repaid in full with the July 2015 remittance.

The rating confirmations reflect the overall stability of the pool as a result of scheduled loan amortization, the unexpected full prepayment of ten loans since issuance, and that the performance of the outstanding loans has remained in line with expectations at issuance. Furthermore, the significant increase in collateral reduction of 23.1% over the last 12 months has prompted DBRS to assign a Positive trend to Classes B through G given the strong credit enhancement and the increase in subordination to the bonds. At issuance in December 2013, the collateral consisted of 40 seasoned, fixed-rate loans secured by 57 commercial and multifamily properties. As of the November 2015 remittance, 30 loans remain in the pool with an aggregate outstanding principal balance of $295.9 million. The top 15 loans continue to exhibit stable performance with a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.53 times (x) and 12.3%, respectively, based on the most recent year-end (YE) reporting available for the individual loans. In addition, four loans, representing 16.3% of the current pool balance, are maturing by November 2016 with a WA exit debt yield of 14.9%, according to the most recent year-end reporting available. As of the November 2015 remittance, there are no loans in special servicing and no loans on the servicer’s watchlist. However, three loans in the top 15 have considerable tenant rollover risk within the next 12 months, including the third-largest loan in the pool, representing 9.4% of the current pool balance. DBRS accounted for the elevated vacancies in its analysis for these loans, with the third-largest loan in the pool highlighted below.

The Shadowood Square loan (Prospectus ID#4, representing 9.4% of the current pool balance) is secured by an anchored retail center located in Boca Raton, Florida. According to the December 2014 rent roll, the property was 91.6% occupied, with approximately 23.0% of the net rentable area (NRA) scheduled to expire through 2016, including the second-largest tenant, Bed Bath & Beyond of Boca Raton Inc. This tenant represents 17.5% of the NRA and has an upcoming lease maturity in January 2016. CoStar is reporting vacancy rates of 1.1% and average asking rents of $23.42 per square foot (psf) for comparable retail properties in the Boca Raton West (South Florida) submarket, which is above the subject’s average rental rate of $20.59 psf. As of December 2015, a leasing update has not been provided for the Bed Bath & Beyond tenant. DBRS will continue to maintain a dialogue with the Master Primary Servicer to track the renewal of expiring leases and the signing of new tenants at the subject. Despite the elevated risk associated with the upcoming tenant rollover, the subject’s occupancy has remained historically above 90.0%, and the loan benefits from a tenant improvement/leasing commission reserve that had a balance of $3.0 million at issuance to aid in re-leasing the vacant space at the property. As of YE2014 reporting, the DSCR was 1.61x compared with the DBRS underwritten DSCR of 1.67x, and the property remains in overall good condition with no deferred maintenance noted, according to the January 2015 site inspection.

DBRS continues to monitor this deal on a monthly basis. For more information on this rating action, please contact us 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.