DBRS Confirms the Ratings of FREMF 2013-K33 Mortgage Trust

DBRS, Inc. (DBRS) has today confirmed the ratings of FREMF 2013-K33 Mortgage Trust, Series 2013-K33, as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at A (high) (sf)
-- Class C at BBB (high) (sf)
-- Class X1 at AAA (sf)
-- Class X2-A at AAA (sf)
-- Class X2-B at AAA (sf)

The trends on all classes are Stable. DBRS does not rate the first loss bond, Class D.

The rating confirmations reflect the continued stable performance of the transaction. The collateral consists of 86 fixed-rate loans secured by 88 multifamily properties. As of the August 2016 remittance report, the pool has had a collateral reduction of approximately 2.0% since issuance in October 2013. According to YE2015 reporting, the pool had a weighted-average (WA) debt service coverage ratio (DSCR) of 2.17 times (x) and a WA debt yield (DY) of 7.5%. The Top 15 loans are reporting a YE2015 WA DSCR of 2.03x and a WA DY of 8.67%. The transaction also benefits from defeasance of collateral, as two loans, representing 1.6% of the current pool balance, are fully defeased.

As of the August 2016 remittance report, there are seven loans on the servicer’s watchlist, representing 9.7% of the current pool balance, and there are no delinquent or specially serviced loans. Six of the eight loans on the watchlist are flagged for deferred maintenance or damage caused by natural disasters, which are not expected to affect financial performance. The largest loan on the watchlist is highlighted below.

The Lindell Portfolio loan (Prospectus ID#4, 3.26% of the pool balance) is secured by a five-building, 666-bed student housing complex located in St. Louis, Missouri, adjacent to St. Louis University. The loan was added to the servicer’s watchlist, as it experienced a 32.8% net cash flow decline in 2015 compared with the prior year. The resulting YE2015 DSCR was 0.82x compared with 1.22x at YE2014. Performance declined as a result of a decrease in occupancy, which was most recently reported at 83.5% in March 2016 compared with 84.0% at YE2014 and 91.0% at issuance. A new property manager was hired in early 2015 in an effort to increase occupancy at the subject. The new manager (Cardinal Group) altered the leasing strategy at the subject by leasing on a per-bed basis as opposed to a per-unit basis. Efforts have produced positive results, as the pre-leased occupancy for the upcoming Fall 2016 semester was reported at 98.0% as of July 2016, an increase from the 79.0% pre-leased occupancy rate in July 2015. Average rental rates for the upcoming semester are stable at $679 per bed. Property management is also pursuing a strategy to increase revenue by adding additional beds by converting some of the larger one- and two-bedroom units; however, additional information on this strategy is unknown at this time.

The commercial portion of the property, which totals approximately 57,000 square feet was 100.0% occupied as of June 2016. The largest tenants include a bowling alley and movie theatre, which recently extended their leases to December 31, 2019, and December 31, 2017, respectively. New tenants recently signing leases include a restaurant and a caterer. The initial changes made by the new property management have resulted in an improvement in performance, as the loan is reporting a Q1 2016 DSCR of 1.02x. DBRS expects performance to continue to improve with the increased pre-leasing rate compared with last year.

The Aspen Heights – Phase two loan (Prospectus ID#8, 2.3% of the current balance) is secured by a 284-unit, cottage-style student housing complex located two miles south of the University of Texas-San Antonio. This loan has also seen an increase in the stability of its performance over the past year. The loan is reporting a YE2015 DSCR of 1.26x, an improvement over the YE2014 DSCR of 1.02x. As of the March 2016 rent roll, the property was 96.8% occupied compared with the YE2014 occupancy rate of 94.0%. According to the servicer, the pre-leased occupancy rate for the property was 99.9% for the Fall 2016 semester compared with 96.0% as of the same time last year. Additionally, the average rental rate for the upcoming school year has increased by 5.0% to $621 per bed. As occupancy and rental rates are trending up, DBRS expects the loan will continue to stabilize and performance will further improve.

The rating assigned to Class B and Class C differs from the higher rating implied by the quantitative model. DBRS considers this difference to be a material deviation, and in this case, the rating reflects the sustainability of loan performance trends not demonstrated.

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

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.

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