DBRS Upgrades Six and Confirms One Class of Asset-Backed Notes Issued by Selkirk 2013-2

DBRS Limited (DBRS) has today upgraded the ratings of the following classes of Asset-Backed Notes (the Certificates) issued by Selkirk 2013-2 as listed below:

-- Class B to AAA (sf) from AA (low) (sf)
-- Class C to AA (sf) from A (low) (sf)
-- Class D to A (sf) from BBB (low) (sf)
-- Class E to BBB (low) (sf) from BB (low) (sf)
-- Class F to BB (high) (sf) from B (low) (sf)
-- Class G to BB (low) (sf) from CCC (high) (sf)

DBRS has also confirmed the rating of one class as follows:

-- Class A2 at AAA (sf)

All trends are Stable.

The rating upgrades reflect the increased credit support to the bonds as a result of scheduled loan amortization, successful loan repayment and the overall improved performance of the pool since issuance. In the last 12 months, eight loans have been repaid from the Trust, contributing $96.7 million in principal reduction to senior bonds. At issuance, the collateral consisted of 40 seasoned, fixed-rate loans secured by 57 commercial and multifamily properties. As of the November 2016 remittance, 22 loans remain in the pool with an aggregate outstanding principal balance of $199.2 million. The top 15 loans continue to exhibit stable performance with a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.69 times (x) and 14.4%, respectively, based on the YE2015 reporting. The top 15 loans have experienced WA net cash flow growth of 9.3% over the DBRS underwritten figures. In addition, five loans, representing 33.5% of the current pool balance, are scheduled to mature by August 2017. Based on YE2015 financials, these loans reported a WA DSCR and WA exit debt yield of 1.41x and 11.4%, respectively, metrics indicative of a higher likelihood of being able to refinance at maturity. As of the November 2016 remittance, there are no loans in special servicing and no loans on the servicer’s watchlist. However, three loans in the top 15 have considerable tenant rollover risk within the next 12 months, including the sixth-largest loan in the pool, representing 4.8% of the current pool balance. DBRS accounted for the elevated vacancies in its analysis for these loans, with the sixth-largest loan in the pool highlighted below.

The Oak Hollow Square loan (Prospectus ID#16, representing 4.8% of the current pool balance) is secured by a retail shopping center located in High Point, North Carolina. According to the December 2015 rent roll, the property was 98.0% occupied, with two tenants, representing 35.4% of the net rentable area (NRA), scheduled to expire through August 2017, including the second-largest tenant, Stein Mart, Inc., which represents 26.0% of the NRA. As of November 2016, CoStar was reporting vacancy rates of 1.8% and average asking rental rates of $16.76 per square foot (psf) for comparable retail properties within a 0.5-mile radius of the subject in the Guilford Country submarket, which is above the subject’s average rental rate of $9.96 psf. Although a leasing update has not yet been provided for Stein Mart, Inc., the tenant has been in occupancy of its space since September 1999. Despite the elevated risk associated with the upcoming tenant rollover, the subject’s occupancy has remained historically above 95.0% since issuance, and the loan benefits from an experienced sponsor. As of YE2015 reporting, the DSCR improved to 1.55x compared with the DBRS underwritten DSCR of 1.15x, and the property remains in overall good condition, with no deferred maintenance noted, according to the March 2016 site inspection. DBRS modeled the loan with a stressed net cash flow figure to reflect the upcoming tenant rollover risk.

The ratings assigned to the Class D, E, F and G 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.

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.

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 (October 2016), which can be found on our website under Methodologies.