DBRS Morningstar Confirms All Ratings on Institutional Mortgage Securities Canada Inc., Series 2016-7

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-7 issued by Institutional Mortgage Securities Canada Inc., Series 2016-7 as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance, despite more recent challenges that have generally been driven by the effects of the Coronavirus Disease (COVID-19) pandemic. At issuance, the transaction consisted of 38 fixed-rate loans secured by 60 commercial and multifamily properties, with a trust balance of $352.4 million. According to the November 2021 remittance report, three loans have been paid in full, leaving 35 loans within the transaction. There has been a collateral reduction of 18.9% since issuance, lowering the trust balance to $285.8 million. Defeasance has been minimal with only one loan defeased since issuance, representing 5.1% of the pool. There have been no losses to date, with the $6.6 million unrated Class H balance at issuance unchanged as of the November 2021 remittance.

The transaction is concentrated by property type as nine loans, representing 30.3% of the current trust balance, are secured by retail assets, whereas eight loans, representing 24.7% of the current trust balance, are secured by industrial assets. The remaining concentrations by property type are relatively low, including multifamily, which represents about 11% of the pool balance. In general, industrial assets have shown greater resilience to cash flow declines and have typically been one of the strongest performing property types during the pandemic.

According to the November 2021 remittance, there are no loans in special servicing. There are six loans, representing 19.7% of the current trust balance, on the servicer’s watchlist. These loans are being monitored for a variety of reasons, including low debt service coverage ratios (DSCR), occupancy, and tenant rollover concerns. The primary driver, however, continues to be challenges faced by retail properties, which have been at heightened risk of exposure to the effects of the pandemic. Where merited, DBRS Morningstar assumed probability of default penalties for select loans to increase the expected loss in the analysis for this review. Analysis results suggest the trust remains generally well insulated from these increased risks.

The largest loan on the servicer’s watchlist is Portage Place (Prospectus ID#1; 8.4 % of current pool balance), which is secured by a grocery-anchored retail centre in Peterborough, Ontario, roughly 140 kilometres from Toronto. The loan has been on the watchlist for the last 18 months and has been monitored for occupancy and cash flow declines from issuance, as well as the sponsor’s relief request in response to pandemic-related hardships. A minor loan modification was approved and the loan has remained current. The borrower recently reported a 100% leased rate for the property, and the in-place cash flows as of the YE2020 reporting period have improved from issuance. As such, the overall risk profile for this loan remains low to moderate, with DBRS Morningstar continuing to monitor near-term tenant rollover and the status of recently signed tenants that are expected to bring the physical occupancy rate back up to historical levels.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Classes X is an 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#1 – Portage Place (8.4% of the pool)
-- Prospectus ID#8 – Hilton Mississauga Meadowvale (3.7% 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 North American CMBS Surveillance Methodology (March 26, 2021), 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 [email protected].

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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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