DBRS Confirms Ratings of WFRBS Commercial Mortgage Trust 2014-C20, Stable Trends

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C20 (the Certificates) issued by Wells Fargo Commercial Mortgage Trust 2014-C20 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SFL at AAA (sf)
-- Class A-SFX at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C 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)

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

The rating confirmations reflect the current performance of the pool, which is stable from issuance, with cash flows remaining generally in line with the DBRS underwritten (UW) levels. The collateral consists of 98 fixed-rate loans secured by 142 commercial properties. At issuance, the transaction had a DBRS weighted-average (WA) debt service coverage ratio (DSCR) and a DBRS WA debt yield of 1.48 times (x) and 9.4%, respectively. As of the February 2016 remittance, 62 loans (77.8% of the pool) reported YE2014 cash flows, while 87 loans (96.4% of the pool) reported a partial year 2015 cash flow (most being Q3 2015). For the Top 15 loans (both annualized 2015 and YE2015 cash flows), the WA amortizing DSCR was 1.59x, with a WA net cash flow growth over the respective DBRS UW figures of approximately 15.8%. All 98 loans remain in the pool, with an aggregate balance of $1.2 billion, representing a collateral reduction of approximately 1.7% since issuance as a result of scheduled loan amortization. The pool is diverse based on loan size, as the largest 15 loans only account for 56.4% of the current pool balance. The pool is concentrated by property type, however, as 19 loans, representing 18.5% of the current pool balance, are secured by hotel properties, three of which are in the Top 15.

As of the February 2016 remittance, there are no loans in special servicing, and 14 loans, representing 9.3% of the pool, on the servicer’s watchlist. Four of these loans, representing 4.4% of the pool, were flagged as a result of items of deferred maintenance. Two loans, representing 0.5% were watchlisted because of tenant rollover, and another loan, representing 0.3% of the pool, was flagged because no financials have been received to date. The remaining seven loans were flagged for performance-related reasons. According to the 2015 cash flows reported (both Q3 2015 and YE2015 figures), these loans had a WA DSCR and WA debt yield of 1.08x and 7.6%, respectively, compared with the DBRS UW figures of 1.30x and 8.3%, respectively.

Two of the seven aforementioned loans, Town Park Office (Prospectus ID#24, 1.0% of the pool) and Parkway Corporate Center (Prospectus ID#36, 0.8% of the pool), have recently exhibited depressed cash flows as a result of rental concessions offered to multiple tenants; however, estimated gross income is expected to be in line with DBRS UW expectations at each property once full unabated rental payments begin. As of Q3 2015 financials, Town Park Office and Parkway Corporate Center had DSCRs of 1.04x and 1.03x, respectively, compared with the DBRS UW figures of 1.42x and 1.21x, respectively. DBRS expects that as of YE2016 financial reporting, performance metrics for either loan should be more in line with DBRS UW figures. While occupancy at Town Park Office increased from 93.0% as of Q3 2015 from 90.0% at issuance, occupancy at Parkway Corporate Center fell to 88.0% from 100.0% during the same time period. For additional information on the Parkway Corporate Center loan, please refer to the press release for this transaction dated March 10, 2015.

The Hilton Garden Inn – Beaumont (Prospectus ID#44, 0.7% of the pool) is secured by a 100-key, limited-service hotel developed in 2007 by the current borrower. The property is located in Beaumont, Texas, approximately 90 miles east of Houston. Amenities at the property include a full-service restaurant, outdoor pool/whirlpool, exercise room, 24-hour business center, guest laundry room, five fixable function rooms (which can accommodate up to 125 people) and a Pavilion Pantry vending area. The loan was placed on the watchlist in May 2015 as a result of a low YE2014 DSCR of 1.09x. As of Q3 2015, the loan had a DSCR of 0.89x compared with the DBRS UW figure of 1.23x. The decline in performance is a result of an increase in operating expenses, which have risen by approximately 49.0% since issuance, primarily because of increases to Advertising & Marketing (86.5%), Utilities (80.3%), General & Administrative (20.1%), Repairs & Maintenance (16.5%) and Franchise Fees (20.0%). According to the borrower, operating expenses have increased because of the age of the building, among other administrative reasons; however, the borrower has brought on new property management that will be implementing the Phase 1 of “Project Grow.” The plan reportedly involves cutting expenses and increasing revenue by offering fewer discounts and by opening a bar in the property, which is expected to add an estimated $5,000.00 in additional revenue per month. According to the June 2015 Smith Travel Research report, the property had a trailing 12-month occupancy rate of 79.1%, an average daily rate of $102.30 and revenue per available room of $80.90 compared with the competitive set’s figures of 67%, $87.00 and $58.00, respectively. The borrower reports that market demand is strong during the week and improves on the weekends as a result of sporting events in the general area. DBRS modeled this loan with an elevated probability of default to mitigate the recent increase in expenses and the decline in overall performance.

At issuance, DBRS shadow-rated two loans, Rockwell – ARINC HQ (Prospectus ID#5, 3.91% of the current pool balance) and Savoy Retail & 60th Street Residential (Prospectus ID#9, 2.82% of the current pool balance), as investment grade. DBRS has today confirmed that the performance of these loans is consistent with investment-grade loan characteristics.

Notes:
All figures are in U.S. dollars unless otherwise noted.

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

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

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