Morningstar DBRS Confirms Credit Ratings on All Classes of CMLS Issuer Corp., Series 2014-1

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-1 issued by CMLS Issuer Corp., Series 2014-1 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at AA (low) (sf)
-- Class X at AA (low) (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 credit rating confirmations reflect the overall stable performance of the transaction, which remains in line with Morningstar DBRS’ expectation. The pool benefits from a healthy weighted-average (WA) debt service coverage ratio (DSCR), which was reported at 1.53 times (x) based on the most recent financials, compared with the issuance WA term DSCR of 1.39x. In addition, the transaction, continues to benefit from increased credit support to the bonds as a result of scheduled amortization and loan repayments, which has resulted in a collateral reduction of 44.9% since issuance. Most loans in the pool also benefit from some level of recourse to the sponsor and/or low-to-moderate loan-to-value (LTV) ratios that have only decreased, considering the amortizing nature of these loans. Morningstar DBRS anticipates the vast majority of remaining loans in the pool are generally well positioned to successfully repay at their respective maturity dates, all of which are upcoming prior to year-end (YE) 2024, further supporting the credit rating confirmations and Stable trends.

As of the May 2024 remittance, 23 of the original 37 loans remain in the trust, with an aggregate principal balance of $156.5 million. The transaction is concentrated by property type, with loans backed by retail and mixed-use properties representing 38.5% and 17.2% of the current pool balance, respectively. The transaction is also concentrated by geography, with 15 loans, representing 70.3% of the current trust balance secured by properties in Ontario. There are no loans in special servicing. Ten loans, representing 41.4% of the pool balance are on the servicer’s watchlist; however, only one of those loans, Spring Garden Place (Prospectus ID #5; 6.7% of the pool) is being monitored for performance-related reasons. The remaining nine loans are being monitored for upcoming maturity dates.

The second-largest loan on the servicer’s watchlist, Spring Garden Place, is secured by a five-storey, mixed-use office building in Halifax. The loan has been on the servicer’s watchlist since 2017 for a low DSCR, which has been well below break-even since 2018. Challenges at the property began after the former largest tenant, The Bank of Nova Scotia (rated AA with a Stable trend by Morningstar DBRS), reduced its footprint to 5.3% of net rentable area (NRA) in 2019 from 24.1% of NRA at issuance. According to the servicer, the property’s occupancy rate as of September 2023 was 83.3%, compared with 91.5% in April 2022 and 74.1% in March 2021. Per the most recent rent roll on file dated April 2022, the Province of Nova Scotia (rated A (high) with a Stable trend by Morningstar DBRS) was the largest tenant at the property, occupying 26.4% of NRA through five separate leases, with staggered expiration dates in 2023 and 2028. The drop in occupancy between April 2022 and September 2023 may be a result of the Province of Nova Scotia vacating a portion of its space at the property as leases rolled. Morningstar DBRS reached out to the servicer for a leasing update.

Per CBRE’s Q1 2024 Canada Office Report, office properties within Downtown Halifax reported average vacancy rates of 18.0%, relatively unchanged from the prior year’s figure of 18.4%. Historically, net cash flow at the property was depressed because of the low occupancy rate; however, more recently, there has been an increase in expenses, namely repairs and maintenance. Despite sustained downward pressure on cash flows, the loan has remained current, suggesting the sponsor remains committed to the asset. Nonetheless, the loan is nonrecourse, a factor when combined with the low in-place cash flows, soft submarket fundamentals, and near-term maturity, suggests increased risks from issuance. As such, for this review, Morningstar DBRS analyzed this loan with an elevated probability of default penalty, resulting in an expected loss that was more than triple the WA pool expected loss.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at (January 23, 2024; https://dbrs.morningstar.com/research/427030).

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

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

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024; https://dbrs.morningstar.com/research/428798).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology (March 1, 2024)/North American CMBS Insight Model v 1.2.0.0, https://dbrs.morningstar.com/research/428797
-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261
-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
-- Legal Criteria for Canadian Structured Finance (June 20, 2023), https://dbrs.morningstar.com/research/416101

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/410863.

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