DBRS Confirms Ratings on Institutional Mortgage Securities Canada Inc., Series 2011-1

DBRS, Inc. (DBRS) has today confirmed the ratings on the Commercial Mortgage Pass-Through Certificates issued by Institutional Mortgage Securities Canada Inc., Series 2011-1 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (sf)
-- Class X at AAA (sf)

All trends are Stable.

The rating confirmations reflect the transaction’s current performance, which remains in line with DBRS expectations at issuance. The collateral for the transaction consists of 16 fixed-rate loans secured by 16 retail properties across five provinces in Canada. As of the September 2016 remittance, the pool had a balance of approximately $188.2 million, representing a collateral reduction of 8.65% since issuance. For the loans that have YE2015 financial reporting available, the weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield were 1.65 times (x) and 12.3%, respectively. This is an improvement from the DBRS underwritten WA DSCR and WA debt yield of 1.34x and 9.1%, respectively.

The pool benefits from strong and experienced sponsors, as all of the underlying properties are owned by either RioCan Real Estate Investment Trust (RioCan REIT) or Smart Real Estate Investment Trust (SmartREIT), formerly known as Calloway REIT. DBRS rates these entities BBB (high) and BBB, respectively. Additionally, each loan has a full-recourse guarantee provided by its respective sponsor. There are no delinquent or specially serviced loans; however, one loan, Cara 107th Avenue Edmonton (Prospectus ID#15, 1.3% of the current pool) is on the servicer’s watchlist as a result of the loss of the property’s largest tenant, Swiss Chalet (73.3% of net rentable area (NRA)), which has been dark since 2014, as discussed below.

Cara 107th Avenue Edmonton (Prospectus ID#15, 1.3% of the current pool balance) is secured by a 12,000-square foot retail property in Edmonton, which, at issuance was 100.0% occupied by two restaurant tenants, Swiss Chalet and Harvey’s, representing 73.3% and 26.7% of the NRA, respectively. Both tenants had leases expiring in January 2024, but Swiss Chalet went dark in 2014. According to the servicer, the tenant will continue to pay rent and all operating expenses through the end of its lease obligation. The borrower has not identified a replacement tenant or redevelopment strategy to date. As the property is located at the intersection of a major arterial route and major retail node with new retail and a large office campus located directly across the street, traffic at the remaining tenant, Harvey’s, is not expected to decline. The YE2015 DSCR was 1.65x, and the loan has full recourse to RioCan REIT.

The largest loan in the pool, Kildonan Crossing Shopping Centre (Prospectus ID #1, 10.5% of the pool) (Kildonan) and the second-largest loan in the pool, Welland Smart Centre (Prospectus ID #2, 10.1% of the pool) (Welland) are performing well, with WA net cash flow growth of 17.8% and 9.0% over the DBRS underwritten figures, respectively. According to the February 2016 rent roll provided by the servicer, Kildonan was 95.3% occupied, with anchor tenant Safeway (32.2% of the NRA) in place through January 2019. Other significant tenants include PetSmart and Dollar Tree. Occupancy was up from 92.6% in February 2015, with a YE2015 DSCR of 1.55x as compared with 1.59x at YE2014. Welland was 100.0% occupied as of the January 2016 rent roll, with a YE2015 DSCR of 1.55x, up from 1.44x at YE2014. The property’s largest tenant is Walmart, with 70.0% of the NRA on a lease through 2026.

The ratings assigned to Class C materially deviate from the higher ratings implied by the quantitative results. The deviations are warranted because sustainability of loan trends has not yet been demonstrated.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The September 2016 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact DBRS 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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.