DBRS Upgrades One Class and Confirms Remaining Classes of Canadian Commercial Mortgage Origination Trust, Series 2013-2

DBRS Limited (DBRS) has today upgraded one class of Canadian Commercial Mortgage Origination Trust, Series 2013-2 as follows:

-- Class B to AA (high) (sf) from AA (sf)

In addition, DBRS has confirmed the remaining classes in the transaction as follows:

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

All trends are Stable, except for Class C, the trend on which was changed to Positive from Stable.

The rating upgrade and trend change reflect the increased credit support to the bonds as a result of loan amortization and loan prepayments. Since issuance, the pool has experienced a collateral reduction of 16.8% with 37 loans out of the original 42 loans outstanding as of the November 2016 remittance report. Loans representing 96.8% of the pool are reporting YE2015 or trailing 12-month 2016 figures with a weighted-average (WA) debt service coverage ratio (DSCR) and a WA debt yield of 1.53 times (x) and 10.2%, respectively. Three loans, representing 5.5% of the current pool balance, are scheduled to mature in 2017 and reported a DBRS Refinance DSCR of 1.42x and a WA Exit Debt Yield of 15.3%. All remaining loans are scheduled to mature in 2018. The largest 15 loans in the pool collectively represent 68.5% of the transaction balance and those loans exhibited a WA net cash flow growth of 7.0% over the DBRS underwriting figures, as per the most recent financials, with a WA DSCR and debt yield of 1.55x and 10.2%, respectively.

Nine loans, representing 25.1% of the current pool balance, share common sponsorship through affiliates of Northview Apartment REIT and True North Commercial REIT. To account for this increased concentration risk, DBRS applied a penalty to all loans in the pool, thereby elevating the probability of default.

There are no loans in special servicing as of the November 2016 remittance, but one loan, 4 Racine Road (Prospectus ID#33; 1.0% of the current pool balance), is on the servicer’s watchlist. This loan was flagged for its upcoming January 2017 maturity and, according to the servicer, the borrower is currently working toward a refinance plan. The loan reported a YE2015 DSCR of 1.73x with an exit debt yield of 12.1%. The largest loan in the transaction is discussed below.

The Playfair Residences loan (Prospectus ID#1; 11.0% of the current pool balance) is secured by two high-rise multifamily towers totalling 433 units in Ottawa, Ontario, located within the Alta Vista submarket. At issuance, the borrower initiated an intensification plan for the neighbourhood by developing a “Playfair Community” consisting of three new 14-storey condominium towers in addition to the subject property; however, construction has yet to begin and DBRS has requested an update from the servicer. According to the May 2016 rent roll, the subject was 89.6% occupied with an average rental rate of $1,124 per unit, which has slightly declined from the issuance occupancy rate of 91.5% with the average rental rate remaining consistent. As of November 2016, the subject was advertising rental rates ranging from $650 to $1,699 per unit compared with rental rates at issuance, which ranged from $604 to $1,655 per unit. The subject is mostly composed of one- and two-bedroom units with advertised rental rates of $825 per unit and $1,199 per unit, respectively. This is a decline from issuance rental rates of $959 per unit for one-bedroom apartments and $1,247 per unit for two-bedroom apartments. According to the Fall 2015 CMHC Rental Market Report, the Alta Vista submarket reported an average vacancy rate of 4.1% with rental rates ranging between $805 per unit and $1,523 per unit. One- and two-bedroom apartments had an average rental rate of $924 per unit and $1,134 per unit, respectively. Because of the declines in occupancy and rental rates, the YE2015 DSCR was reported at 1.12x, unchanged from YE2014 but below the YE2013 DSCR of 1.21x and DBRS underwritten DSCR of 1.27x. This loan is scheduled to mature in April 2018 and has full recourse to the sponsor.

The ratings assigned to Class C, D, E, F and G differ from the higher rating implied by the quantitative model. DBRS considers this difference to be a material deviation and, in this case, the sustainability of loan performance trends was not demonstrated and, as such, was reflected in the ratings.

For more information on this transaction and supporting data, please log into DBRS CMBS IReports at www.ireports.dbrs.com. DBRS continues to monitor this transaction monthly with periodic updates provided in the DBRS CMBS IReports platform.

Notes:
All figures are in U.S. 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.

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

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