DBRS Confirms Ratings of CGBAM Commercial Mortgage Trust 2013-BREH

DBRS has today confirmed the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2013-BREH issued by CGBAM Commercial Mortgage Trust 2013-BREH as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-ACP at AAA (sf)
-- Class X-BCP at AAA (sf)
-- Class X-NCP at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)
-- Class E at BB (low) (sf)

All trends are Stable. The rating confirmations reflect the continued stable performance of the transaction. This transaction consists of a $600 million single mortgage loan secured by the fee and leasehold interests in 65 select-service, extended-stay and full-service hotels. In addition to the mortgage loan, there is $175 million of subordinate mezzanine debt outside of the trust consisting of a $100 million senior mezzanine loan and a $75 million junior mezzanine loan. The loan is interest only with an initial term of three years, plus two one-year extensions. However, in both May and June 2014, the loan saw a collateral reduction of .01% due to the delivery of unscheduled principle curtailments, resulting in a current trust balance of $593.4 million.

According to the May 2014 Smith Travel Research reports, the Top 15 properties, representing 48% of the allocated loan amount, reported average occupancy rates, average daily rates and average revenue per available room rates of 80.7%, $150 and $119.94, respectively, compared with their competitive set’s averages of 76.2%, $135.5 and $107.4, respectively. As of the July 2014 operating statement analysis report, the entire loan reported a debt service coverage ratio (DSCR) of 4.28 times (x) compared with the DBRS underwritten term DSCR of 2.05x. The DBRS underwritten term DSCR was calculated using a stressed interest rate.

The vast majority of the properties were built between 1996 and 2005, and are typically well located in primarily infill suburban locations with high barriers to entry across 18 different states. Based on the property qualities and locations, DBRS considers the loan per key to be moderate at $79,105. Properties representing the most significant contribution to the overall net cash flow are located in strong coastal markets such as Oregon, California and Washington. All hotels carry nine different national flags but are ultimately operated by two parent companies: Marriott and Hilton. None of these franchise agreements expire prior to 2025, as all franchise agreements were renewed prior to loan closing.
Franchisor-mandated property improvement plans are estimated to cost approximately $64 million within the time parameters of 2013 to 2017. The loan has been structured with an up-front reserve and ongoing monthly reserves. According to the July 2014 loan level reserve report, the balance of this reserve is currently $25.3 million. This reserve is in addition to the traditional furniture, fixtures and equipment reserve.

Blackstone Real Estate Partners VII, L.P., (Blackstone) the sponsor, is the largest owner of hotels in the United States and is considered a very strong operator, with $20.6 billion market capitalization behind it. Blackstone has contributed over $195 million of cash equity behind total financing (preferred equity, mortgage and mezzanine debt). Overall, the transaction benefits significantly from new cash investment behind the mortgage loan.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The July 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.

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.