DBRS Upgrades Four Classes and Confirms Two Classes of Asset-Back Notes Issued by Selkirk 2013-1

DBRS Limited (DBRS) upgraded the ratings on the following classes of Asset-Back Notes (the Certificates) issued by Selkirk 2013-1 (the Trust) as listed below:

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

DBRS also confirmed the ratings of the following classes:

-- Class A2 at AAA (sf)
-- Class B 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 remaining collateral in the pool since issuance. In the last 12 months there has been a collateral reduction of 21.7% as a result of 11 loans repaying from the Trust, contributing $200 million in principal reduction to the senior bonds. At issuance, the collateral consisted of 55 seasoned, fixed-rate loans secured by 67 commercial and multifamily properties. As of the November 2017 remittance, 32 loans remain in the pool with an aggregate outstanding principal balance of $417.6 million.

The top 15 loans continue to exhibit stable performance with a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.74 times (x) and 14.0%, respectively, based on the most recent year-end reporting available for the individual loans. The top 15 loans have experienced WA net cash flow (NCF) growth of 24.6% over the DBRS issuance figures. In addition, two loans in the top 15 are maturing in the next 12 months, representing 9.6% of the current pool balance. Based on YE2016 financials, these loans reported a WA DSCR and WA exit debt yield of 2.0x and 18.0%, respectively, metrics indicative of loans with a higher likelihood of being able to refinance at maturity. As of the November 2017 remittance, there are no loans in special servicing and three loans on the servicer’s watchlist, representing 11.3% of the current pool balance. Two of these loans are being monitored for performance declines, with individual DSCRs ranging between 1.03x and 1.16x for the YE2016 reporting period. The remaining loan has been flagged for elevated vacancy as the largest tenant at the subject vacated at lease expiration. DBRS accounted for the elevated vacancy in its analysis for this loan, which is highlighted below.

The 830 Morris Turnpike loan (Prospectus ID#24, representing 3.2% of the current pool balance) is secured by an 83,430 square foot office property located in Milburn, New Jersey. The loan was added to the watchlist as Santander Bank (Santander), which formerly occupied 50.0% of the net rentable area (NRA) and vacated its space upon lease expiration in October 2016. The tenant represented 64.6% of the property’s base rent. According to the servicer, the trailing 12 months’ DSCR fell below 1.20x as of January 2017, following the tenant’s departure from the subject, which qualified as a trigger event under the Cash Collateral Agreement. As of November 2017, the servicer noted that the borrower has remained in compliance of the cash sweep and has been trapping $75,000 per month into a Tenant Improvement Reserve since November 2014, for the formerly occupied Santander space. According to the March 2017 rent roll, the property was 63.4% occupied, with the largest three tenants cumulatively representing 34.5% of the NRA, on leases that are scheduled to expire between March 2018 and February 2024. The largest tenant, Stone Mountain Management Corp. (18.6% of the NRA), has an upcoming lease expiration in March 2018 and DBRS has requested a leasing update from the servicer, with a response pending to date.

As at November 2017, CoStar was reporting an average vacancy rate of 3.4% and an average asking rental rate of $38.25 per square foot (psf) for comparable office properties within the Short Mills/Milburn submarket, which is above the subject’s current average rental rate of $27 psf. Despite the elevated vacancy rate, the loan benefits from experienced sponsorship and the property remains in good overall condition, with no deferred maintenance noted, according to the March 2017 site inspection. As of YE2016 reporting, the DSCR was reported at 1.26x, reflective of a 17.3% growth in cash flows over the YE2015 DSCR of 1.07x. The loan was analyzed with a stressed NCF figure to reflect the elevated vacancy at the subject and the upcoming tenant rollover risk in March 2018.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

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

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.
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 under Related Documents or by contacting us at info@dbrs.com.

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

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.