DBRS Assigns Provisional Ratings to Real Estate Asset Liquidity Trust, Series 2018-1

DBRS Limited (DBRS) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-1 to be issued by Real Estate Asset Liquidity Trust, Series 2018-1:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class X at A (high) (sf)
-- Class C at A (sf)
-- Class D-1 at BBB (sf)
-- Class D-2 at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable.

Classes D-2, E, F and G will be privately placed. The Class X balance is notional.

The collateral consists of 66 fixed-rate loans and four pari passu co-ownership interests secured by 140 commercial properties. The transaction is a sequential-pay pass-through structure. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off loan balances were measured against the DBRS Stabilized net cash flow (NCF) and their respective actual constants, 11 loans, representing 6.4% of the total pool, had a DBRS Term debt service coverage ratio (DSCR) below 1.15 times (x), a threshold indicative of a high likelihood of mid-term default. Additionally, to assess refinance risk given the current low interest rate environment, DBRS applied its refinance constants to the balloon amounts. This resulted in five loans, representing 13.6% of the pool, having refinance DSCRs below 1.00x based on the trust balance, indicating elevated refinance risk.

Ten loans, representing 19.3% of the pool, were considered by DBRS to have strong sponsor strength and 44 loans, representing 52.3% of the pool, were considered to have meaningful recourse to the respective sponsor; all else being equal, recourse loans typically have a lower probability of default and were analyzed as such. All loans in the pool amortize for the entire term, with 55.0% of the pool, amortizing on schedules that are 25 years or less and the remaining loans amortizing on schedules that are between 25 to 30 years.

Fourty-three loans, representing 20.7% of the pool balance, are seasoned loans originated by a separate financial institution and were acquired by the Royal Bank of Canada (RBC) (the acquired loans). The majorty of thse loans have dated rent rolls and/or operating statements that are more than 24 months. However, RBC warrants proven payment history. Additionally, RBC conducted its own analysis, including updated valuations, site visits and property cash flow analysis of each loan based on the bank’s standards. These loans are generally seasoned with lower loan-to-value ratios based on RBC’s updated valuations.

The DBRS sample included 37 of the 70 loans in the pool. Site inspections were performed on 93 of the 140 properties in the portfolio (64.2% of the pool by allocated loan balance). The DBRS sampled RBC originated loans had an average NCF variance of -3.3% from the Issuer’s NCF and ranged from -19.5% (U-Haul Royal Windsor Drive) to +9.1% (U-Haul East Drive). The DBRS sampled acquired loans had an average NCF variance of -21.0% to the Issuer’s NCF. For the non-sampled loans, DBRS applied the average NCF variances of RBC-originated loans and acquired loans, respectively.

Class X is interest-only (IO) that references multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

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

For more information on this transaction and supporting data, please log into www.viewpoint.dbrs.com. DBRS will continue to monitor this transaction with periodic updates provided in the DBRS Viewpoint platform.

Notes:
All figures are in Canadian dollars unless otherwise noted.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains the description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not require due diligence services outlined in Form-15E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

The principal methodology is North American Multi-borrower CMBS Methodology, 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.