Fitch to Rate REAL-T 2016-2; Presale Issued

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has issued a presale report for Real Estate Asset Liquidity Trust's (REAL-T) commercial mortgage pass-through certificates series 2016-2.

KEY RATING DRIVERS

Fitch Leverage: The pool has a Fitch debt service coverage ratio (DSCR) and loan-to-value (LTV) of 1.13x and 105.1%, respectively, which is slightly better than the REAL-T 2016-1 metrics of 1.12x and 110%, but slightly worse than the 2015 through 2016 YTD Canadian transaction average DSCR and LTV of 1.16x and 105.1%.

Less Concentrated Pool: The pool's loan concentration index (LCI) score of 329 and the top 10 concentration of 44.2% (including crossed loans) represent better diversity than recent Canadian transactions; the 2015 through 2016 YTD Canadian transaction average LCI was 374 and top 10 concentration was 53.5%. The pool's sponsor concentration index (SCI) score of 679 represents significant sponsor concentration. The largest sponsor is the Skyline Group of Companies, which is the sponsor of eight loans representing 18% of the pool.

Canadian Loan Attributes and Historical Performance: The ratings reflect strong historical Canadian commercial real estate loan performance, including a low delinquency rate and low historical losses of less than 0.1%, as well as positive loan attributes, such as short amortization schedules, recourse to the borrower and additional guarantors. For more information on prior Canadian CMBS securitizations, see Fitch Research on 'Canadian CMBS Default and Loss Study,' dated October 2013, available on Fitch's website at www.fitchratings.com.

Retirement and Hospitality Concentration: The pool has higher concentration of retirement and hotel property types (21.6%), which generally tend to exhibit more cash flow volatility over time and, therefore, have higher default probabilities in Fitch's multiborrower model. The 2015 through 2016 YTD Canadian average concentration of these property types was 13%.

Strong Collateral Quality: The collateral quality of the portfolio is better than typical Canadian transactions, with six properties (21.4% of the pool) receiving grades of 'A-' or better, including the #1 loan, Villagia Retirement Homes (7.1%), and the #9 loan, The Opus Hotel (3.3%).

RATING SENSITIVITIES

For this transaction, Fitch's net cash flow (NCF) was 13.3% below the most recent year's net operating income (NOI; for properties for which a full-year NOI was provided, excluding properties that were stabilizing during this period). Unanticipated further declines in property-level NCF could result in higher defaults and loss severities on defaulted loans and in potential rating actions on the certificates.

Fitch evaluated the sensitivity of the ratings assigned to REAL-T 2016-2 certificates and found that the transaction displays average sensitivity to further declines in NCF. In a scenario in which NCF declined a further 20% from Fitch's NCF, a downgrade of the senior 'AAAsf' certificates to 'Asf' could result. In a more severe scenario, in which NCF declined a further 30% from Fitch's NCF, a downgrade of the senior 'AAAsf' certificates to 'BBB+sf' could result. The presale report includes a detailed explanation of additional stresses and sensitivities on page 10.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by Deloitte LLP. The third-party due diligence described in Form 15E focused on a comparison and re-computation of certain characteristics with respect to each of the mortgage loans. Fitch considered this information in its analysis and it did not have an impact on Fitch's analysis or conclusions. A copy of the ABS Due Diligence Form-15E received by Fitch in connection with this transaction may be obtained through the link contained on the bottom of the related rating action commentary.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions,' (May 2016).

Fitch expects to rate the transaction and assign Rating Outlooks as follows:

--$141,625,000 class A-1 'AAAsf'; Outlook Stable;

--$219,791,000 class A-2 'AAAsf'; Outlook Stable;

--$10,537,000 class B 'AAsf'; Outlook Stable;

--$13,171,000 class C 'Asf'; Outlook Stable;

--$13,171,000 class D 'BBBsf'; Outlook Stable;

--$5,269,000 class E 'BBB-sf'; Outlook Stable;

--$4,741,000 class F 'BBsf'; Outlook Stable;

--$4,742,000 class G 'Bsf'; Outlook Stable;

All currencies are in Canadian dollars (CAD).

Fitch does not expect to rate the $421,477,036 (notional balance) interest-only class X or the non-offered $8,430,036 class H certificates.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Criteria for Analyzing Multiborrower U.S. and Canadian Commercial Mortgage Transactions (pub. 01 Jul 2016)

https://www.fitchratings.com/site/re/882237

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Rating Criteria for Structured Finance Servicers (pub. 01 Jul 2016)

https://www.fitchratings.com/site/re/884140

Rating Criteria for U.S. Commercial Mortgage Servicers (pub. 14 Feb 2014)

https://www.fitchratings.com/site/re/735382

U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)

https://www.fitchratings.com/site/re/873395

Related Research

REAL-T 2016-2

https://www.fitchratings.com/site/re/887294

REAL-T 2016-2 -- Appendix

https://www.fitchratings.com/site/re/887446

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1011350

ABS Due Diligence Form 15E 1

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1011350&flm_nm=15e_1011350_1.pdf

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011350

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160907006851/en/

Fitch Ratings
Primary Analyst
David Klante
Associate Director
+1 312-368-3143
Fitch Ratings, Inc.
70 West Madison St.
Chicago, IL 60602
or
Secondary Analyst
Charles MacKenzie
Analyst
+1 212-908-0267
or
Committee Chairperson
Robert Vrchota
Managing Director
+1 312-368-3336
or
Media Relations
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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