DBRS Changes Trend on One Class, Confirms Six Classes of A10 Term Asset Financing 2013-2, LLC

DBRS, Inc. (DBRS) has today confirmed the following Commercial Mortgage Pass-Through Certificates, Series 2013-2 issued by A10 Term Asset Financing 2013-2, LLC:

-- Class A at AAA (sf)
-- Class B at A (sf)
-- Class C at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

All trends are Stable with the exception of Class B, which has had its trend changed to Positive from Stable.

The rating confirmations and trend change reflect the improvement in performance of the majority of the loans remaining in the transaction. The current pool consists of nine loans secured by traditional commercial real estate assets, including office, retail and industrial properties. According to the September 2016 remittance, there has been collateral reduction of 55.5% since issuance as a result of full and partial loan repayment. The loans benefit from low leverage on a per-unit basis, with the weighted-average debt yield based on the most recently reported net cash flow and outstanding trust balance at 11.9%, which is relatively strong, given the pool consists of stabilizing assets.

The transaction is concentrated, as the largest loan, which consists of a portfolio of nine cross-collateralized properties, represents 25.0% of the current pool balance based on the individual properties’ fully funded loan amounts. The largest three and five loans represent 58.0% and 78.3% of the current pool balance based on their fully funded loan amounts, respectively. None of the loans in the pool have a maturity date prior to June 1, 2017, as several borrowers have exercised one-year extension options for loans that had original maturity dates in 2016. The largest and second largest loans are highlighted below.

The IPTV-B Aggregate Pool loan is secured by a portfolio of nine properties located in six states. The nine individual loans are cross-collateralized and cross-defaulted and are secured by a mix of unanchored retail, office and industrial assets. At issuance, the portfolio consisted of 25 individual properties; however, 16 assets have been released since issuance. Proceeds from the sale of these 16 assets have reduced the balance of the portfolio loan by $31.9 million, inclusive of an aggregate $6.8 million principal reduction to the nine remaining loans.

The portfolio loan has a current remaining aggregate unpaid balance (UPB) of $18.1 million, with an additional $2.8 million available in future funding to facilitate future leasing costs. Eight of the remaining nine loans have yet to stabilize and continue to struggle in signing new tenants, primarily due to being located in secondary markets and having poor accessibility and visibility. According to Q1 2016 and Q2 2016 reporting, the weighted-average occupancy rate for the remaining properties based on the outstanding loan balances was 48.9%. The Plaza at Eastlake loan (current UPB of $5.7 million), which is secured by an office property in Chula Vista, California, was 31.5% occupied and the Gateway East-West loan (current UPB of $4.2 million), which is secured by an office property in Oxon Hill, Maryland, was 56.9% occupied. Occupancy rates at both buildings remain relatively unchanged since issuance. While each remaining individual loan in the portfolio has a respective future funding component available to facilitate future leasing, based on the lack of leasing momentum since issuance, it remains questionable whether the borrower will be able to sign new tenants. Despite the ongoing leasing issues across the remaining properties within the portfolio, the loan reported a weighted-average debt yield of 7.7% based on annualized Q1 2016 and Q2 2016 reporting. The loan also benefits from strong sponsorship provided by a joint venture between Iron Point Partners and The Baupost Group.

The Osceola Square Mall is secured by a 400,000 square foot (sf) former regional mall in Kissimmee, Florida, that has been transformed by leasing large spaces to non-traditional tenants to cater to the local population. As of March 2016, the mall was 75.0% occupied; however, the borrower is finalizing ten-year leases with three tenants, which would increase occupancy to 96.0%. The tenants would occupy large spaces ranging in size from 22,000 sf to 39,500 sf. Other large tenants at the property include Burlington Coat Factory (Burlington), Florida Technical College, Ross Dress for Less (Ross) and Cerebral Palsy Central Florida, which have lease expirations in February 2018, August 2023, January 2022 and July 2025, respectively. The borrower is currently negotiating with Burlington on a five- or ten-year lease renewal and recently came to an agreement with Ross to extend its lease by five years. The remaining future funding balance of $2.7 million will be released in conjunction with the new leasing, which will increase the UPB to $15.0 million from $12.3 million. The property is expected to stabilize once the new tenants take occupancy of their respective spaces. DBRS is awaiting confirmation from the servicer regarding the move-in dates; however, it is expected to be well ahead of the August 2017 loan maturity date.

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

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.