DBRS Confirms Ratings for German Residential Funding 2013-1 Limited

DBRS Ratings Limited (DBRS) has today confirmed the ratings on the following classes of Commercial Real Estate Loan Backed Floating-Rate Notes Due 2024 issued by German Residential Funding 2013-1 Limited:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)

All trends are Stable.

The transaction is effectively a single-loan transaction with an initial balance of EUR 1,998 million. The loan is secured by a portfolio of German multi-family properties.

At the beginning of 2015, Germany’s Deutsche Annington and GAGFAH, the sponsor of the transaction, merged and created Vonovia SE (Vonovia), which became Europe’s second-largest real estate company. Nothing on this transaction has changed as a result of this merger. DBRS’s view of the strong sponsorship has not changed as a result of this merger.

As of the May 2016 quarterly reporting, the transaction had a total balance of EUR 1,901 million, a 9.5% reduction since issuance in June 2013. The notional reduction has been predominantly due to property disposals.

The portfolio collateral is located across over 100 communities in Germany, with the largest concentration in Berlin. Other notable property concentrations are in Hamburg, Cologne, Köln and Bielefeld.

As per the May 2016 reporting, the property collateral consisted of 54,779 residential units, 479 commercial units and 10,884 parking units, with the residential and commercial units comprising a total leasable area of 3,463,310 square metres. Since issuance, a total of 9,332 units have been sold. The reported vacancy rate is 2.9%, down from 3.0% at the time of the last review in June 2015.

Financial performance remains stable as the portfolio reported a YE2015 net cash flow (NCF) of EUR 166.3 million, or 2.6% higher than the YE2014 NCF figure. As per the May 2016 investor report, the reported interest coverage ratio and debt service coverage ratio were 2.7 times (x) and 2.4x, respectively. At issuance, senior subsidised debt in the amount of EUR 247.0 million was permitted to be secured by the portfolio properties; however, this debt was not securitised in the transaction. According to the servicer’s March 2016 supplemental report, this debt balance had been reduced to EUR 200.0 million, which is a 23.0% reduction since issuance.

The latest reported market value of the current portfolio is EUR 3,145 million which is 3.6% lower than at the time of the last review, due to the property disposals.

The final legal maturity date of the transaction is in August 2024, six years beyond the maturity of the loan. In DBRS view, this would allow for sufficient time to enforce and repay bondholders, if needed.

Notes:
All figures are euros unless otherwise noted.

The principal methodology applicable is: European CMBS Surveillance.

The applicable methodologies are: European CMBS Surveillance, European CMBS Rating Methodology, Legal Criteria for European Structured Finance Transactions, Derivative Criteria for European Structured Finance Transactions and Unified Interest Rate Model for European Securitisations, which can be found on www.dbrs.com under Methodologies.

Other methodologies referenced in this transaction are listed at the end of this press release. This may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include the Servicer, Capita Asset Services Ireland Limited.

DBRS does not rely upon third-party due diligence in order to conduct its analysis.

DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The last rating action on this transaction took place on 12 June 2015 when all the classes of this transactions were confirmed.

The lead responsibilities for this transaction have been transferred to Jorge Lopez Herguido.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com.

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

A decrease of 10% and 20% in the DBRS Net Cash Flow (NCF), derived by looking at comparable properties, market rents, market occupancies in addition to expenses ratios, capital expenditures and re-tenanting costs, would lead to a downgrade in the transaction, as noted below:

Class A Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class A at AAA (sf)
-- 20% decline in DBRS NCF, expected rating of Class A at A(high) (sf)

Class B Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class B at A (sf)
-- 20% decline in DBRS NCF, expected rating of Class B at BBB (sf)

Class C Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class C at BBB(high) (sf)
-- 20% decline in DBRS NCF, expected rating of Class C at BB(high) (sf)
Class D Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class D at B(high) (sf)
-- 20% decline in DBRS NCF, expected rating of Class D at CCC (sf)

Class E Notes Risk Sensitivity:
-- 10% decline in DBRS NCF, expected rating of Class E at B (sf)
-- 20% decline in DBRS NCF, expected rating of Class E at CCC (sf)

For further information on DBRS historic default rates published by the European Securities and Markets Administration (ESMA) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: Scott Goedken, Senior Vice President, EU CMBS
Initial Rating Date: 7 June 2013
Initial Rating Committee Chair: Mary Jane Potthoff, Managing Director, Global CMBS

Lead Surveillance Analyst: Jorge Lopez Herguido, Financial Analyst, Global Structured Finance
Rating Committee Chair: Erin Stafford, Managing Director, Global CMBS

DBRS Ratings Limited
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Registered in England and Wales: No. 7139960

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

-- European CMBS Surveillance
-- European CMBS Rating Methodology
-- Legal Criteria for European Structured Finance Transactions
-- Derivative Criteria for European Structured Finance Transactions
-- Unified Interest Rate Model for European Securitisations

A description of how DBRS analysis structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375