DBRS Confirms Ratings of BAMLL-DB 2012-OSI Trust

DBRS, Inc. (DBRS) has today confirmed the ratings of the 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 $299.1 million first mortgage loan secured by 257 full-service restaurants located in 34 states that are subject to one Master Lease. Since issuance in March 2012, four properties have been released, and the loan has amortized approximately 7.9%. 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 10.0% 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 15.1% of the total first mortgage loan balance as of the January 2015 remittance. In addition to the first mortgage, there is a total of $172.8 million of mezzanine debt bifurcated into two tranches.

The most prevalent concepts out of the 257 restaurants (eight different restaurants) in the portfolio are Outback Steakhouse (Outback) and Carrabba’s Italian Grill, which account for a combined 242 restaurants. 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.

According to annualized Q3 2014 reporting provided for the five restaurant concepts owned and operated by OSI, these 247 restaurants posted weighted-average EBITDAR growth of 2.3% over YE2013 figures and 4.6% over 2012 figures. In total, the Outback restaurants reported EBITDAR growth of 3.2% over YE2013. The EBITDAR-to-rent ratio for these five restaurant concepts was 3.99 times (x) at Q3 2014 compared with 3.93x at YE2013. At issuance, the ratio for all eight concepts was 3.49x.

As of the January 2015 remittance report, four properties, all of which were Outback restaurants, have been released from the trust. Four other properties have gone dark, all of which were Outback restaurants located in Las Vegas, Nevada; Henderson, Nevada; San Antonio, Texas; and Olathe, Kansas, respectively. According to the Go Dark provisions of the Master Lease, up to 14.0% or 36 total properties can go dark before the borrower has to release properties at 115.0% of the allocated loan balance. As OSI continues to make rental payments on the dark properties 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 2014 net cash flow consistent with the haircut used at issuance. In this approach, DBRS removed rental revenue generated by the Master Lease on the total square footage of the four released restaurants. 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 Refinance DSCR of 1.59x. The DBRS net cash flow figure implies a loan-to-value ratio of 65.0%, 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 2015 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 (January 2015), which can be found on our website under Methodologies.