DBRS Confirms All Classes of COMM 2012-MVP Mortgage Trust

DBRS has today confirmed all ratings of COMM 2012-MVP Mortgage Trust as follows:

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

The collateral for this single-borrower transaction is a portfolio of three full-service hotels with a total of 3,981 rooms. The properties are the Sheraton Dallas, Sheraton Denver and Hyatt Regency St. Louis. The sponsor purchased the properties in 2008 and subsequently spent over $52,000 per key on renovations at each hotel. The mortgage loan has amortized down to $291.7 million, as of the October 2013 remittance. In addition to the mortgage loan, there was $114.9 million of mezzanine debt held outside of the trust at issuance consisting of one senior and one junior note. The current balance of the senior and junior mezzanine notes are $63.1 million and $48.7 million, respectively. The DBRS Term debt service coverage ratio (DSCR) is considered healthy at 2.11 times (x), with a DBRS loan-to-value of 59% and a DBRS value that represents a 24% discount from the actual appraised value at issuance. Leverage on a per square foot basis of $73,270 is considered low given the urban location of the assets and the borrower’s recent investment in capital improvements at each of the properties.

Of some concern is the concentration of property type in the transaction, as all properties are hotels. Hotels have the highest cash flow volatility of all commercial property types, which can lead to rapidly deteriorating cash flow in a declining market. Additionally, the YE2012 OSARs report overall cash flow decline from the Issuer’s underwritten (UW) figures for each of the collateral properties. The portfolio DSCR for YE2012 was reported to be 3.35x, compared to the Issuer’s UW DSCR of 3.82x. Based on the most recent STR reports for T-12 ending July 2013, the Sheraton Dallas and Sheraton Denver continue to underperform their competitive sets. The Hyatt Regency St. Louis is outperforming its competitive set in both Occupancy and revenue per available room (RevPAR), but lags in average daily rate (ADR). DBRS was aware of the competition faced by the properties at the time of securitization. The DBRS UW net cash flow (NCF) was based on T-12 financial statements ending October 2012, and is in line with the NCF reported for YE2012. As such, the most recent NCF as reported by the OSAR does not represent a significant variance from the DBRS projected performance for the loan. Additionally, the STR reports note that at each category, Occupancy, ADR and RevPAR, the properties have improved relative to improvements in their respective competitive sets from T-12 ending July 2013 to the current month. The RevPAR Index jumped to 90.6% from 75.3% in this period for the Sheraton Dallas and to 96.2% from 92.2% for the Sheraton Denver. The ADR Index for the Hyatt Regency St. Louis improved to 94.0% from 93.1% for this time period. The annualized Q2 2013 DSCR was reported to be 3.40x for the portfolio. While this figure reflects the potential for improvement over YE2012, given the seasonality of hotels, an annualized figure may not be indicative of true full-year performance. DBRS will continue to monitor quarterly financial statements as they are received.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North American Surveillance Methodology (November 2012), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.