DBRS Morningstar Confirms Ratings on CMLS Issuer Corp., Series 2014-1

DBRS, Inc. (DBRS Morningstar) confirmed the 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 rating confirmations reflect the overall stable performance of the transaction. As of the March 2022 remittance, 25 of the original 37 loans remain in the pool, with a total collateral reduction of 36.4% since issuance. All of the remaining loans in the pool amortize for the entire loan term, which will further reduce the trust balance over the remaining life of the deal. There are some noteworthy performance declines for a few loans in the pool, however. As of the March 2021 remittance, there are a total of six loans, representing 21.7% of the current trust balance, on the servicer’s watchlist and no loans in special servicing. The watchlisted loans are generally being monitored for low debt service coverage ratios (DSCRs) and occupancy issues. DBRS Morningstar notes that, while two of the loans were being monitored prior to the outbreak of the Coronavirus Disease (COVID-19) pandemic and continue to report significantly declined performance from issuance, most of the watchlisted loans are showing improvements in performance, and two of the six loans are expected to come off the watchlist in the near term. Additionally, four of the watchlisted loans are full recourse to the respective borrowers, and a fifth includes partial recourse provisions.

The transaction is highly concentrated by property type as 12 loans, representing 40.5% of the current trust balance, are secured by retail collateral; mixed-use properties back the second-largest concentration of loans, with three loans representing 17.5% of the current trust balance. Although the coronavirus pandemic has brought challenges for retailers, particularly those struggling prior to the pandemic, the subject transaction’s exposure to the specific retail property types and tenants that have been the most stressed is generally minimal.

DBRS Morningstar’s primary concern for this pool is the Spring Garden Place loan (Prospectus ID#5, 6.3% of the pool), the largest loan on the servicer’s watchlist. The loan is secured by a mixed-use (office and retail) building located in Halifax. Performance has been down since 2017, when the loan was originally added to the servicer’s watchlist for a low DSCR. In addition to tenant exits, there has also been a significant downsize for the largest tenant at issuance, the Bank of Nova Scotia (rated AA with a Stable trend by DBRS Morningstar), which reduced its footprint to 5.3% of the net rentable area (NRA) from 24.1% NRA at issuance in 2019. The servicer most recently reported an occupancy rate of 74.1% as of March 2021, up from a low of 54.3% at YE2018, but still well below the occupancy rate at issuance of 98.2%. The servicer reported a YE2020 DSCR of 0.27 times (x), up from the YE2019 DSCR of 0.22x, but still well below breakeven.

The servicer states the cash flow declines are a combination of the occupancy declines and high maintenance costs for the property. The loan has remained current throughout the years since the DSCR fell below breakeven, with deferred amounts due as part of a short-term forbearance granted in 2020 now fully repaid. The loan is nonrecourse, a factor that combines with the low in-place cash flows to suggest significantly increased risks from issuance. DBRS Morningstar notes the rated Certificates remain well insulated given that the unrated Class H balance of $5.3 million remains intact from issuance with no losses to the trust to date.

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.

Class X is an interest-only (IO) certificate that references multiple rated tranches. When determining the rating assigned to Class X, consideration was given for actual loan, transaction, and sector performance where a rating based on the lowest-rated applicable reference obligation may not reflect the observed risk.

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#5 – Spring Garden Place (6.3% of the pool)

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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 Canadian dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), 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.

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 info@dbrsmorningstar.com.

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