DBRS Confirms Ratings of BAMLL-DB 2012-OSI Trust

DBRS has today confirmed the ratings of BAMLL-DB 2012 OSI Trust, Commercial Mortgage Pass-Through Certificates, Series 2012-OSI, as follows:

-- Class A-1 at AAA (sf)
-- Class A-2-FX at AAA (sf)
-- Class A-2-FL at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)

All trends are Stable.

The collateral consists of a $311.0 million first mortgage loan secured by 261 full-service restaurants located in 34 states that are subject to one Master Lease. Since issuance in March 2012, the loan has amortized approximately 4.3%. The borrower for the transaction is New Private Restaurant Properties, LLC and the Master Lease Guarantor is OSI Restaurant Partners, LLC (OSI). The Master Lease has a 15-year term, with rental rates starting at $33.00 per square foot triple net. The rental rate automatically increases 10% in Year 6 and Year 11 of the lease.

The first mortgage loan features both a fixed- and floating-rate component, with the floating-rate component currently representing 15.7% of the total first mortgage loan balance as of the March 2013 remittance. The transaction is a sequential-pay structure; however, the floating-rate component, Class A-2-FL, is fully pre-payable with no penalty as 12 months have elapsed since closing. In addition to the first mortgage, there is a total of $172.8 million of mezzanine debt bifurcated into two tranches.

The 261 restaurants forming the collateral for the trust consist of eight different restaurant concepts. The most prevalent concepts in the portfolio are Outback Steakhouse (Outback) and Carrabba’s Italian Grill, which account for 199 and 47 assets, respectively. The remaining concepts are Cheeseburger in Paradise, Lee Roy Selmon’s, Roy’s Hawaiian Fusion, Bonefish Grill, Fleming’s, and Sterling’s Bistro. The Cheeseburger in Paradise, Lee Roy Selmon’s and Sterling’s Bistro assets, which combined account for ten properties in the trust, are third-party owned and are not owned or operated by OSI. The majority of the properties are located in infill suburban markets, with good visibility and access from major thoroughfares.

According to annualized Q3 2013 reporting provided for the five restaurant concepts owned and operated by OSI, these 251 restaurants posted weighted-average sales growth of 3.2% and weighted-average EBITDAR growth of 3.3% over YE 2012 figures. The results were influenced by the performances of Outback, which reported sales growth of 3.7% and EBITDAR growth of 4.9%. The EBITDAR-to-rent ratio for these five restaurant concepts was 3.93 times (x) at Q3 2013, compared with 3.98x at YE 2012. At issuance, the ratio for all eight concepts was 3.49x. While performance of the loan is primarily measured based on the EBITDAR-to-rent ratio, the servicer calculated a Q3 2013 debt service coverage ratio (DSCR) of 4.94x on the first mortgage loan and a whole-loan DSCR of 2.09x.

As of the January 2014 remittance report, no properties have been released from the trust and two properties have gone dark. Both properties were Outback restaurants located in Las Vegas, Nevada, and Olathe, Kansas, respectively. According to the Go Dark provisions of the Master Lease, up to 14% of the total property count can go dark before the borrower has to release properties at 115% of the allocated loan balance. According to the loan provisions, up to 37 properties can go dark before the borrower will be forced to release properties. As OSI continues to make rental payments on the property per the Master Lease agreement, cash flow has not been negatively affected.

For the purposes of this review, DBRS applied a haircut to the annualized Q3 2013 net cash flow consistent with the haircut used at issuance. DBRS also applied an additional debt penalty consistent with the additional debt penalty used at issuance. Both actions were taken to capture the impact of any short-term cash flow volatility over the near term, deriving a stable first mortgage DBRS DSCR of 1.62x. The DBRS net cash flow figure implies a loan-to-value ratio of 66.4%, based on a cap rate of 10.0%, which is considered conservative, given the cash flow stability provided by the Master Lease and location of the majority of the assets in suburban areas.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The January 2014 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

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

These ratings are endorsed by DBRS Ratings Limited for use in the European Union.

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.