DBRS Confirms All Classes of WFRBS Commercial Mortgage Trust 2014-C25, Stable Trends

DBRS, Inc. (DBRS) has today confirmed the ratings for all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C25 issued by WFRBS Commercial Mortgage Trust 2014-C25 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class X-D at AAA (sf)
-- Class X-E at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

All trends are Stable. Up to the full certificate balance of the Class A-S, Class B and Class C certificates may be exchanged for Class PEX certificates and vice versa.

The rating confirmations reflect the overall stable performance of the transaction, which has experienced a collateral reduction of 0.9% since closing as a result of scheduled loan amortization. At issuance, the pool consisted of 59 fixed-rate loans secured by 73 commercial and multifamily properties. As at the November 2016 remittance, all loans remain in the pool with an aggregate outstanding principal balance of $868.2 million. According to the most recent year-end reporting, the pool reported a weighted-average (WA) debt service coverage ratio (DSCR) of 1.83 times (x) and a WA debt yield of 10.3%. At issuance, the DBRS WA DSCR and debt yield for the pool were 1.61x and 9.0%, respectively. Per YE2015 financials, the top 15 loans reported a WA DSCR of 1.86x and a WA net cash flow (NCF) increase of 12.2% over the DBRS underwritten cash flows.

As at the November 2016 remittance, there are no loans in special servicing and six loans are on the servicer’s watchlist, representing 10.5% of the current pool balance. Of these six loans, two have been flagged for deferred maintenance concerns generally minor in nature, one was flagged for a casualty event that is being addressed and another loan, representing 0.6% of the pool balance, has been watchlisted because of a market-driven performance decline (see below). The two other loans (both secured by apartment complexes in Warrensville Heights, Ohio, and owned by the same sponsor) have reported cash flow declines from the DBRS UW figures of -23.9% and -27.4% as at YE2015 resulting from increased operating expenses, as occupancy and rental rates have remained stable. Both loans have reported an improvement with the Q2 2016 annualized financials.

The two largest loans in the pool, representing 23.0% of the total pool balance, are secured by large regional malls operated by Simon Property Group and are highlighted below.

The St. Johns Town Center loan (Prospectus ID#1; 11.5% of the current pool balance) is secured by a 1.4 million square foot (sf) regional mall located in Jacksonville, Florida, and is considered to be the pre-eminent shopping destination in the city. As at September 2016, mall occupancy remains strong at 98.1% with an average rental rate of $29.83 per square foot (psf) — figures comparable with 99.3% and $27.04 psf at issuance, respectively. The slight decrease in occupancy is attributable to the premature departure of Forever 21 (1.5% of the net rentable area (NRA)) in March 2016, which was noted as a surprise as the store appeared to be popular with shoppers. This space currently represents the largest vacancy at the mall, and according to local news reports, Apple is planning to move into this space from its smaller unit at the mall, with a $3.5 million build-out planned. In addition, several large tenants have recently executed five-year lease renewals, including Jo-Ann Fabrics, Ross Dress for Less, DSW Shoe Warehouse and Barnes & Noble. Tenant rollover remains minimal in the next 12 months. The loan, which is interest only (IO) for the full term, reported a Q3 2016 whole-loan DSCR of 2.43x, an improvement over 2.32x at YE2015, and represents an annualized NCF increase of +20.5% over the DBRS UW figures.

At issuance, DBRS assigned an investment-grade shadow rating to this loan. DBRS has today confirmed that the performance of this loan remains consistent with investment-grade loan characteristics.

The Colorado Mills loan (Prospectus ID#2; 11.5% of the current pool balance) is secured by a 1.1 million sf regional mall located in Lakewood, Colorado, a Denver suburb. The subject is the largest mall statewide with the most in-line space and contains a mix of regular and outlet space tenants as well as some non-traditional tenants, such as an indoor trampoline park and an indoor putting green park. Mall occupancy has recently declined to 85.2% as a result of Sports Authority (4.0% of the NRA) vacating its 43,500 sf anchor space in July 2016; however, this space is being assumed by Dick’s Sporting Goods with an April 1, 2017 planned opening date, as per the online mall directory. There is considerable upcoming tenant rollover as United Artists Theatre (7.5% of the NRA), JumpStreet (3.7% of the NRA) and Saks Off 5th (2.5% of the NRA) have leases maturing in the second half of 2017. Junior anchor Burlington Coat Factory recently executed a five-year renewal through 2021 at a similar rental rate. The loan reported a Q2 2016 whole-loan DSCR of 2.08x on an amortizing basis, in line with YE2015, and represents an annualized NCF increase of 16.1% over the DBRS UW figures. The loan has a remaining IO term of 11 months.

The loan’s sponsor, Simon Property Group, is currently developing another outlet mall, the 320,000 sf Denver Premium Outlets located 21 miles north of the subject with a planned opening in October 2017. DBRS believes the impact to the subject will be minimal, as the new mall will be located much farther out and will not have the large population and existing infrastructure surrounding the subject, which benefits from being closely located to Interstate 70 and Highway 6.

The Cornerstone Apartments loan (Prospectus ID#38; 0.6% of the current pool balance) is secured by a 120-unit multifamily complex located in Midland, Texas. The loan has been placed on the servicer’s watchlist as a result of a decline in property performance resulting from the decline in the energy-based local economy. As at June 2016, the property was 82.5% occupied with an average rental rate of $712 per unit, a decline from 97.5% and $774 per unit at issuance, respectively. The current vacancy rate is in line with the 16.2% vacancy rate reported by Reis for similar vintage properties in the Midland-Odessa market. The March 2016 property inspection revealed that lowered rents, move-in incentives and solid long-term management have prevented an even larger occupancy decline. During the inspection, it was noted that the neighboring residential complex was 52% vacant at the time. The Q2 2016 DSCR of 1.22x reflects an NCF decline of 32.3% from the DBRS UW figures. With collateral performance dependent on a recovery in the local economy, the loan is expected to perform at a similar level in the medium term.

The ratings assigned to the Classes C, E, F and PEX certificates materially deviate from the higher ratings implied by the quantitative model. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative model that is a substantial component of a rating methodology; in this case, the rating reflects the sustainability of loan performance trends not demonstrated.

For more information on this transaction and supporting data, please log in to 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 applicable methodologies are North American CMBS Rating Methodology and CMBS North American Surveillance, which can be found on our website under Methodologies.

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

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