Morningstar DBRS Confirms Credit Ratings on All Classes of Institutional Mortgage Securities Canada Inc., Series 2014-5

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the classes of Commercial Mortgage Pass-Through Certificates, Series 2014-5 issued by Institutional Mortgage Securities Canada Inc., Series 2014-5 as follows:
 
-- Class B at AAA (sf)
-- Class C at AAA (sf)
-- Class X at AAA (sf)
-- Class D at A (high) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at BB (low) (sf)

All trends are Stable.

The credit rating confirmations are reflective of the overall pool's stable performance, which remains in line with Morningstar DBRS' expectations. Since the last credit rating action, four loans have repaid successfully at their respective maturity dates, leaving three loans in the pool, per the June 2024 remittance. There has been a collateral reduction of 88.0% since issuance as a result of loan repayments and scheduled amortization. There have been no realized trust losses to date. The remaining pool is extremely concentrated by loan size, as the two largest loans account for approximately 92.7% of the entire deal balance. Morningstar DBRS expects that all three loans will continue to perform and are good candidates for refinance at or within a relatively short time following their scheduled maturity dates, given that these loans have performed well historically and benefit from a full recourse structure.

The largest loan in the pool is Milton Crossroads West (49.0% of the current pool balance), which is secured by a retail development totaling 139,400 square feet across seven buildings in Milton, Ontario. As per the February 2023 rent roll, the property was fully occupied and anchor tenants included SportChek (19.4% of the net rentable area (NRA), lease expired in January 2024, tenant remains in occupancy per online search), Indigo (18.1% of the NRA, lease expires in July 2024), and Michaels (16.8% of the NRA, lease expires in February 2028). Morningstar DBRS has inquired about Indigo's status, but has not received a response as of this press release. Given the property's stable historical occupancy, Walmart shadow anchor, and location in a busy commercial corridor, Morningstar DBRS believes there is a strong likelihood Indigo will renew its lease. As per the most recent financial statements from YE2023, the loan reported a debt service coverage ratio (DSCR) of 1.76 times (x) compared with issuer's DSCR of 1.42x. The loan is sponsored by Calloway Real Estate Investment Trust (Calloway REIT; 50% ownership) and First Gulf Milton West Development Inc. (50% ownership), with full recourse to Calloway REIT's ownership interest.

Les Galeries Richelieu (Prospectus ID#2; 43.7% of the current pool balance) is secured by a 231,545-sf anchored shopping centre in Saint-Jean-sur-Richelieu, Québec. The loan was added to the servicer's watchlist in December 2023 for occupancy concerns. The largest tenant, Provincial Community Health Centre (CLSC; (30.0% of the NRA), had a lease expiry in November 2023 and the borrower did not notify the servicer regarding the renewal of its lease. However, online address listings indicate the tenant is still in occupancy at the subject property. CLSC is operated by the Québec government and operates as a social services clinic at the property. Morningstar DBRS has requested an updated rent roll to confirm CLSC's lease renewal, however, no response was received as of this press release. Given that CLSC is a government tenant and appears to still be located at the subject, Morningstar DBRS believes there is a high likelihood its lease has been renewed. As per the most recent financial statement from YE2022, the property was fully occupied and the loan reported a DSCR of 2.03x. In the event CLSC's lease has not been renewed and the space remains vacant, the loss of rental income could push the DSCR below breakeven. Morningstar DBRS notes mitigating factors such as the loan's low leverage at 46.2%, based on the issuance appraised value, and full recourse to an experienced sponsor, the publicly-traded BTB Real Estate Investment Trust (BTB REIT) and BTB Acquisition and Operating Trust.

Given the concentration of these two loans, Morningstar DBRS' analysis included a recoverability scenario to determine the level of value deterioration required before any rated bonds would be exposed to a loss. Both Milton Crossroads West and Les Galeries Richelieu could withstand issuance appraised value haircuts of 45% to 55% before any loss would be realized by a Morningstar DBRS-rated bond. Based on the historically stable performance of these properties, recourse structures, and low leverage points, Morningstar DBRS believes the remaining pool is well positioned to continue performing through the remaining term.

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) at 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 (July 17, 2023).

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