DBRS Morningstar Upgrades One Class of Institutional Mortgage Securities Canada Inc., 2011-1, Confirms Remaining Classes

DBRS Limited (DBRS Morningstar) upgraded the following class of the Commercial Mortgage Pass-Through Certificate Series 2011-1 issued by Institutional Mortgage Securities Canada Inc., 2011-1:

-- Class E to BBB (high) (sf) from BBB (sf)

In addition, DBRS Morningstar confirmed the remaining classes as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class X at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (high) (sf)

All trends are Stable.

These rating actions reflect the overall strong performance of the transaction. The pool consists of 16 loans secured by 16 retail properties located across Canada. As of the March 2020 remittance, the pool has a current trust balance of $173.9 million, representing a collateral reduction of 15.6% due to scheduled loan amortization, with all original loans remaining in the pool. All of the loans are scheduled to mature in February 2021. Based on the most recent YE reporting, the pool is reporting a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.58 times (x) and 12.7%, respectively, compared with the WA DBRS Morningstar DSCR and debt yield figures derived at issuance of 1.33x and 9.0%, respectively.

All loans in the pool benefit from strong sponsorship with full recourse to either SmartCentres Real Estate Investment Trust (SmartCentres) or RioCan Real Estate Investment Trust (RioCan), both of which are entities rated investment grade by DBRS Morningstar. In December 2019, DBRS Morningstar assigned a rating of BBB (high) with a Stable trend to $450 million of senior unsecured debentures issued by SmartCentres, while assigning a BBB (high) rating with a Stable trend to $350 million of senior unsecured debentures issued by RioCan in November 2019.

According to the March 2020 remittance, the two smallest loans in the pool (2.0% of the pool balance) were on the servicer’s watchlist, and there were no loans in special servicing. Both watchlisted loans are secured by unanchored retail properties located in Edmonton, Alberta, which were 100.0% leased to Recipe Unlimited Corporation (Recipe; formerly Cara Operations Limited) at issuance. The Cara 107th Avenue Edmonton loan (Prospectus ID#15, 1.3% of the pool) has been on the servicer’s watchlist since the loss of the property’s largest tenant, Swiss Chalet (73.3% of the net rentable area (NRA)), which went dark in 2014. According to the servicer’s commentary, Harvey’s (26.7% of the NRA) remains operational, while Recipe continues to pay rent as obligated by the lease, which runs through 2024.

Similarly, Cara 97th Street Edmonton (0.8% of the pool) was formerly occupied by Swiss Chalet (72.8% of the NRA) and Harvey’s (27.2% of the NRA); however, updated servicer commentary indicates that the property was renovated and a new tenant in Seoul Tofu House (100.0% of the NRA) now fully occupies the building on a lease through August 2023. As of YE2018, the watchlisted loans reported DSCR figures of 1.64x and 1.72x, respectively.

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 is an interest-only (IO) certificate that references multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche.

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

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 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 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 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@dbrsmorningstar.com.

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.

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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