DBRS Morningstar Confirms All Ratings of Institutional Mortgage Securities Canada Inc., 2012-2

DBRS, Inc. (DBRS Morningstar) confirmed the following ratings of the Commercial Mortgage Pass-Through Certificates, Series 2012-2 issued by Institutional Mortgage Securities Canada Inc., 2012-2 as follows:

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

The Negative trends on Classes F and G reflect the exposure to loans secured by properties in Fort McMurray, Alberta, which continues to struggle from the impacts of job losses in the oil sector. All other trends are Stable given the absence of specially serviced loans in the trust, the resolution of the Centre 1000 loan (Prospectus ID#7, previously 9.0% of the pool balance), the recourse provisions provided by the sponsors, and the paydown in the trust. Since DBRS Morningstar’s last review of this transaction, the only specially serviced loan, Centre 1000, liquidated from the trust in August 2021, resulting in a 40.2% loss severity.

As of the December 2021 remittance, the deal is concentrated by multifamily and retail properties, representing 48.4% and 34.2% of the current pool, respectively. There has been collateral reduction of 68.1%, as 10 of the original 31 loans remain in the trust. One additional loan, representing 17.5% of the pool, is fully defeased. There are currently three loans on the servicer’s watchlist, representing 46.3% of the pool balance, which are being monitored primarily because of low debt service coverage resulting from oil and gas retractions in Alberta and/or occupancy concerns.

The largest loan in the pool is Cedars Apartments (Prospectus ID#1, 23.3% of the pool). The trust debt is a $17.9 million pari passu participation in a $26.0 million whole loan secured by a 276-unit multifamily property in Calgary, approximately eight kilometers from the downtown core. The loan was added to the servicer’s watchlist as of October 2020 for low debt coverage service ratio (DSCR). The sponsor decreased rental rates at the property in an effort to maintain occupancy as rental demand in Calgary has declined because of a combination of the economic impact of the pandemic and oil sector job losses. As of January 2021, the property reported a net cash flow (NCF) of $1.67 million, a 3% drop from the January 2020 NCF of $1.73 million and a 14% drop from the Issuer's underwritten NCF of $1.9 million. Occupancy was 92% at January 2021, 93% at January 2020, and 97% at issuance. The loan includes a full recourse to Shelter Canadian Properties Limited (SCPL) and the parent company of SCPL.

The second-largest loan on the watchlist is Lakewood Apartments (Prospectus ID#3, 11.9% of the pool), which is secured by the fee interest in a 111-unit multifamily property in Fort McMurray, eight kilometers from the central business district. As of January 2018, the loan was added to the servicer’s watchlist for low DSCR. After the borrower requested Coronavirus Disease (COVID-19) relief, the loan was initially modified to extend the maturity date to November 2022, and later, in May 2020, the servicer approved a second modification allowing for monthly principal and reserve payments to be deferred from April through August 2020. In September 2020, the borrower recommenced principal and interest payments. Additionally, the modifications also allowed for drawing upon existing reserves to pay the interest portion of debt service and permitted the borrower to delay a $350,000 principal paydown that was previously due by July 2020 to March 2021. DBRS Morningstar is awaiting confirmation from the servicer that the borrower made this payment. As of November 2021, the average rental rate was $1,470/unit, a slight increase from $1,460/unit in February 2021, but still lower than the $1,519/unit in April 2020. YE2020 NCF was reported at $0.76 million, a 62.0% drop from the Issuer’s underwritten NCF of $1.60 million, while occupancy was 76.0% in November 2021, an increase compared with the YE2020 occupancy of 60.0% but lower than the 97.0% at issuance.

The Mont-Tremblant Retail loan (Prospectus ID#9, 11.0% of the pool) is secured by the fee interest in a 49,616-square-foot anchored retail property within a mountainous wooded region north of Montréal, known as the Northern Laurentian Mountains in Mont-Tremblant, Québec. This area is a popular tourist destination, attracting visitors with its local ski resorts and numerous year-round outdoor activities. The loan has been on the servicer’s watchlist since July 2016 for low DSCR, decreasing occupancy, and concerns with tenant rollover. An initial coronavirus-related forbearance was granted that deferred principal and interest payments from April to June 2020. The master servicer approved an additional modification from September 2020 to April 2022, which converted the loan to interest only. YE2020 NCF was reported at $0.3 million, a drop since the YE2019 figure of $0.6 million and the Issuer’s underwritten NCF of $1.0 million. As of October 2021, occupancy was 77.9%, an increase compared with the March 2021 occupancy of 68.7%, YE2020 of 69.0%, and YE2019 of 74.0%. The most recently provided rent roll shows a number of expired leases, so the current tenant composition is a bit uncertain.

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 XC 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 – Cedars Apartments (23.3% of the pool)
-- Prospectus ID#3 – Lakewood Apartments (11.9% of the pool)
-- Prospectus ID#9 – Mont-Tremblant Retail (11.0% 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 Canadian 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 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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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