DBRS Morningstar Confirms WFRBS 2013-C18 Mortgage Trust, Maintains Negative Trends for Two Classes

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of the Commercial Mortgage Pass-Through Certificates, Series 2013-C18 (the Certificates), issued by WFRBS Commercial Mortgage Trust 2013-C18 as follows:

-- 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 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, excluding Classes E and F for which DBRS Morningstar maintained Negative trends.

The rating confirmations reflect the overall stable performance of the transaction. The Negative trends maintained on the two junior classes listed above reflect DBRS Morningstar’s outlook for the specially serviced loan, Cedar Rapids Office Portfolio (Prospectus ID#9, 2.5% of the pool), and the three hotel loans (14.9% of the pool) in the top 10, which reported a weighted-average (WA) net cash flow (NCF) decline of -34.7% over the DBRS Morningstar figures derived at issuance.

The pool’s concentration of underperforming hotel loans is particularly noteworthy as the Coronavirus Disease (COVID-19) outbreak of 2020 has resulted in immediate and significant impacts to the hospitality industry, as leisure and business travel has ground to a halt in the United States and globally. In addition, the pool has a significant concentration of retail properties in the top 10 (49.7% of the pool), which have also been affected with the coronavirus containment efforts, as retailers, property owners, and state and local governments alike have been ordering stores and restaurants to close. All of the larger retail loans in the pool are performing well above issuance expectations to date, with the two largest loans (33.2% of the pool) considered to be investment grade, reporting a WA debt service coverage ratio (DSCR) of 4.68 times (x) based on the most recent year-end financials.

As of the March 2020 remittance, 62 of the original 67 loans remain in the pool, with collateral reduction of 17.5% since issuance, as a result of scheduled loan amortization and loan repayments. To date, there have been no losses to the trust; however, DBRS Morningstar does anticipate a loss with the resolution of Cedar Repaid Office Portfolio, as previously mentioned. In the analysis for this review, DBRS Morningstar assumed a loss severity of 70.0% based on a discount to the recent appraised value of $16.8 million. Although there are some underperforming loans in the pool, overall cash flow growth has been healthy with the pool reporting a WA DSCR of 2.82x based on the most recent year-end reporting, over the DBRS Morningstar WA DSCR figure derived at issuance of 2.05x, representing a NCF growth of 37.6% since issuance.

There are currently 11 loans, representing 18.6% of the pool, on the servicer’s watchlist, the largest of which are the hotel loans previously mentioned. The largest loan, JFK Hilton (Prospectus ID#4, 7.2% of the pool), is secured by a 356-key, full-service hotel in Jamaica, New York, adjacent the JFK airport. As of Q3 2019, the loan reported a trailing 12-month DSCR of 0.96x; however, the decline appears to be primarily driven by the 37.0% increase ($5.9 million) in operating expenses since issuance, primarily driven by increases to real estate taxes, franchise fees, advertising and marketing fees, and general and administrative fees. Revenues have been growing, with the annualized Q3 2019 figure a 17.0% increase over the issuance figure.

The two other hotel loans, Hotel Felix Chicago (Prospectus ID#5, 5.2% of the pool) and HIE Magnificent Mile (Prospectus ID#10, 2.5% of the pool), are located less than a mile from one another in Chicago, and are owned and operated by the same sponsor. Both loans are reporting DSCR figures below a 1.0x, a factor of new supply in the market, which has caused revenue per available room figures to fall significantly since issuance. The Hotel Felix Chicago loan was previously in special servicing, but was returned to the master servicer in February 2019 as a corrected loan, with all outstanding payments recovered.

Given the likelihood of significantly decreased traffic in the last few weeks, and likely into the near to moderate term, DBRS Morningstar will monitor these hotel loans closely and update the loan commentary provided on the DBRS Viewpoint platform as information is received.

At issuance, DBRS Morningstar assigned an investment-grade shadow rating to two loans: Westfield Garden State Plaza (Prospectus ID#1, 17.2% of the pool) and The Outlet Collection – Jersey Gardens (Prospectus ID#3, 16.1% of the pool). DBRS Morningstar confirmed that the performance of these loans remains consistent with the investment-grade loan characteristics.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Class X-A is interest-only (IO) certificate that references a single rated tranche or 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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#4–JFK Hilton (7.2% of the pool)
-- Prospectus ID#5–Hotel Felix Chicago (5.2% of the pool)
-- Prospectus ID#8–Hudson Mall (2.4% of the pool)
-- Prospectus ID#9–Cedar Rapids Office Portfolio (2.5% of the pool)
-- Prospectus ID#10–HIE at Magnificent Mile (2.5% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodology is the North American CMBS Surveillance Methodology, which can be found on www.dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on www.dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. 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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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

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