DBRS Places One Class of CMLS Issuer Corp., Series 2014-1 Under Review with Negative Implications

DBRS, Inc. (DBRS) has today placed the following class Under Review with Negative Implications:

-- Class G at B (sf)

DBRS has placed Class G Under Review with Negative Implications due to concerns and uncertainties surrounding the Clearwater Suites loan (Prospectus ID#9, 3.5% of the current pool balance) with the collateral property’s decline in performance in 2015 and in light of the recent wildfire activity in Fort McMurray, where the property is located. The subject loan represents the $10.0 million A-1 non-controlling pari passu note of the $33 million whole loan balance; the $23.0 million A-2 controlling note is secured in the CCMOT 2015-3 transaction, also rated by DBRS.

Clearwater Suites is a 150-unit full-service hotel located in Fort McMurray, Alberta, approximately 17 kilometers from Fort McMurray International Airport, within the city’s downtown core. The area has recently sustained widespread damage as a result of a wildfire that broke out in early May 2016. According to an update provided in early May 2016, the servicer indicated that the hotel had not been physically impacted by the wildfire; however, the property’s website confirms that the subject remains closed until access to the area is provided by the regional authorities. Based on the most recent maps detailing affected areas provided the various news sources, it appears that the subject property falls outside of those areas reported to have sustained significant damage. All residents and workers have been evacuated from the area, and the government is expected to allow re-entry beginning June 1, 2016.

In addition to the issues caused by the wildfire, the property’s performance has shown a steady decline in the last year. Revenues have adversely been affected by the downturn in the oil industry, upon which the area is heavily reliant for jobs and residents. In November 2015, DBRS confirmed all ratings for the subject transaction, noting that the cash flow declines for the subject property were taken into account with an updated DBRS UW NCF derived in conjunction with the analysis for the CCMOT 2015-3 transaction, which closed in late September 2015. The updated DBRS UW NCF figure showed a decline from the previous UW figure of $4.1 million to $3.0 million, a 39.8% decline and representative of a 1.15 times (x) debt service ratio coverage (DSCR), as compared with the previously UW coverage of 1.61x. However, according to the year-end 2015 financials, cash flows fell even further by the end of the year, with a DSCR of 0.86x, down from 1.69x at YE2014. As of December 2015, the property had a year-to-date occupancy rate of 54.1%, an average daily rate (ADR) of $193.89, and a revenue per available room rate (RevPAR) of $104.88, respectively, compared to 70.1%, $212.17, and $148.67 as of December 2014, respectively.

Compounding the increased risk with the performance decline is the likelihood that any business interruption coverage (should it be required in the event the property’s operations are affected by the wildfire activity) would be limited to providing relief to the most recent cash flows achieved over a specified period. However, if the property’s operations are not affected by the fires, DBRS believes there will be a short to middle-term benefit to the property, as displaced residents and workers in the area for reconstruction will need temporary and transient housing. Sustaining improved occupancy rates, however, would be dependent on the ability of the oil industry to rebound. As the situation is ongoing, the extent of the impact to the subject property is unknown at this time. DBRS will continue to monitor as information is received and the property’s operational status is confirmed.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The May 2016 monthly 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.

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

The applicable methodologies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.