OREANDA-NEWS. March 16, 2015. Fitch Ratings has affirmed German Residential Funding 2013-1 Limited (GRF 2013-1), as follows:

EUR1,195.2m class A due August 2024 (ISIN XS0944452563): affirmed at 'AAAsf'; Outlook Stable
EUR230.3m class B due August 2024 (ISIN XS0944452993): affirmed at 'AAsf'; Outlook Stable
EUR131.7m class C due August 2024 (ISIN XS0944453967): affirmed at 'Asf'; Outlook Stable
EUR263.2m class D due August 2024 (ISIN XS0944454858): affirmed at 'BBBsf'; Outlook Stable
EUR98.8m class E due August 2024 (ISIN XS0944455152): affirmed at 'BBB-sf'; Outlook Stable

German Residential Funding 2013-1 Limited is a CMBS transaction secured by a portfolio of German multifamily housing (MFH) assets managed by Gagfah AG.

KEY RATING DRIVERS
The affirmation reflects the stable operating performance since the notes' issue in June 2013, reinforced by stable demand for low-risk income streams, such as that generated by well-managed German MFH assets. Residential vacancy has been declining over the past four quarters, reaching 3.1% in February 2015. This is supported by continued growth of the large German cities, where around half of the assets are located.

Irrecoverable costs, a key driver of operating margins, remain at around 40% of net cold rent (rental net of recoverable items), in line with other comparable diversified MFH portfolios. Higher capital expenditure for modernisation and energy efficiency may temporarily increase the cost ratio, but investment in the maintenance of the buildings is favourable for value and occupancy over the long term.

The takeover of Gagfah by Deutsche Annington is unlikely to negatively affect the management or value of this portfolio. Both companies have long experience in managing large, diverse property portfolios. The creation of a larger operator managing a unified portfolio could ultimately create cost and efficiency benefits (for further details see "Fitch: Deutsche Annington-Gagfah Deal Neutral for CMBS Ratings", dated 3 December 2014 at www.fitchratings.com).

Fitch expects investor appetite for well-managed German MFH portfolios to remain strong in 2015, following 2014 when sales volumes exceeded any year since the previous peak in 2007. With stable cash flows, based on a highly granular tenant base, strong investor appetite will support the portfolio's market value in the medium term, in Fitch's view.

Fitch estimates 'Bsf' collateral proceeds of EUR2,600m.

RATING SENSITIVITY
Any disruption in the management of the portfolio or a sharp economic decline in the regions represented in the portfolio could prompt downgrades or revisions of the Outlooks to Negative.