DBRS Confirms Ratings on all Classes of Institutional Mortgage Securities Canada Inc., Series 2014-5

DBRS Limited (DBRS) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-5 issued by Institutional Mortgage Securities Canada Inc., Series 2014-5 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class X 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, with the exception of Class G, for which DBRS has maintained a Negative trend to reflect the concerns surrounding the Nelson Ridge Pooled Loan (Prospectus ID#17, 3.3% of the pool), which is secured by a multifamily property located in Fort McMurray, Alberta.

As at the February 2018 remittance, 32 loans remain in the pool, with an aggregate principal balance of $222.2 million, representing a collateral reduction of 28.7% since issuance as a result of scheduled amortization and successful loan repayments. To date, 24 loans, representing 72.4% of the pool, have reported year-end 2016 (YE2016) financials, while 29 loans, representing 87.6% of the pool, have reported YE2015 financials. For those loans reporting YE2016 financials, the weighted-average (WA) DSCR and WA Debt Yield were 1.49x and 10.4%, respectively, generally flat as compared with the WA DSCR and WA debt yield for those loans reporting YE2015 figures. Based on the most recent reporting, net cash flow for the top 15 loans is up by 5.3% on a weighted-average basis over the DBRS Issuance NCF figures.

There are eight loans on the servicer’s watchlist, representing 20.6% of the pool, including the Nelson Ridge Pooled Loan, which is part of a pari passu whole loan secured by a multifamily property in Fort McMurray, Alberta. Due to the sustained difficulties in the local economy, the property has shown significant performance declines since issuance. The loan was previously transferred to special servicing for imminent default in February 2016, and was later returned to the master servicer as a corrected loan in late January 2017 after the borrower brought the loan current.

According to the July 2017 rent roll, the Nelson Ridge property had an occupancy rate and an average rental rate of 73.3% and $1,540 per unit, respectively. Occupancy is generally flat as compared with the July 2016 figures, with average rental rates generally steady as compared with trends for the last few years. At issuance, the property reported an occupancy rate and average rental rate of 89.5% and $2,228, respectively, demonstrating the sharp decline in rental rates driven by the dropoff in the oil markets since issuance. Although occupancy has improved in the last 18 months, DBRS believes larger concerns (such as the permanent reduction in required workforce within the oil sands region, driven by technological advancements and other market factors) will limit the property’s ability to cash flow anywhere near the issuance levels in the near to medium term. These factors, coupled with the financial difficulties for the loan’s sponsor, Lanesborough Real Estate Investment Trust, suggest a successful refinance for the loan at the scheduled maturity in December 2018 is unlikely. As such, DBRS has assumed a stressed scenario in its analysis for the loan as part of this review and will continue to monitor the loan closely for developments.

There are seven additional loans on the servicer’s watchlist, the largest of which is the Fengate Industrial Portfolio loan (Prospectus ID#5, 6.3% of the pool). The loan is secured by a portfolio of industrial properties located throughout the Cambridge, Ontario, area and has been on the watchlist since August 2015 for an occupancy decline since issuance. However, improvements have recently been achieved and the portfolio had an overall occupancy rate of 83.8% as at the August 2017 rent rolls, a significant increase compared to the February 2016 occupancy rate of 69.4%, but still below the issuance occupancy rate of 89.0%. In addition, there is significant near-term rollover risk as approximately 27.8% of the net rentable area scheduled to roll (or has already rolled) in the next 12 months.

Class X are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated reference tranche adjusted upward by one notch if senior in the waterfall.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#5, Fengate Industrial Portfolio
-- Prospectus ID#11, Templegreen Apartments
-- Prospectus ID#12, Coachman House Apartments
-- Prospectus ID#16, Guenette Industrial
-- Prospectus ID# 17, Nelson Ridge Pooled Loan

For complimentary access to this content, please register for the DBRS Viewpoint platform at viewpoint.dbrs.com. The platform includes issuer and servicer data for the entire CMBS universe, as well as deal and loan-level commentary for all DBRS rated transactions.

Notes:
All figures are in Canadian 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.

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