DBRS Confirms Ratings on CFCRE 2015-RUM Mortgage Trust

DBRS Inc. (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates issued by CFCRE 2015-RUM Mortgage Trust as follows:

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

All trends are Stable.

The rating confirmations reflect the overall performance of the transaction, which remains in line with DBRS’s expectations at issuance. This single-borrower transaction closed in July 2015 and is interest-only (IO) for the initial two-year term as well as during the three subsequent one-year extension options. The $140.0 million floating-rate, securitized mortgage loan is supplemented by a subordinate $35.0 million IO mezzanine loan.

The subject loan is secured by the Ritz Carlton Grand Cayman, a 300-room luxury hotel resort located along the renowned Seven Mile Beach on Grand Cayman, the largest of the Cayman Islands. The collateral includes the leasehold interest in the hotel and amenities, which include, but are not limited to, six restaurants and bars, a 20,000-square foot (sf) spa, 59,032 sf of meeting space, 9,600 sf of retail space, two pools and a children’s waterpark, as well as a five-court tennis center.

Improvements are situated on land owned by the government of the Cayman Islands under a ground lease extending through November 2104, which has been prepaid for the entire term. The resort also includes 69 luxury residential condo units, which do not serve as collateral for the loan. There are also 24 hotel-condo units that participate in the hotel’s unit rental program, and the corresponding rental agreements serve as security for the loan. The condo-hotel unit owners are allowed to split their units, yielding a maximum of 65 keys for a total of 365 rooms across the subject hotel at any given time. Since issuance, a further five condo-hotel suites, divisible into up to ten units, have been constructed and added to the pool of rental units, increasing the total room count at the property to a maximum of 375 units.

The collateral’s performance has remained healthy since issuance, as the YE2015 debt service coverage ratio (DSCR) was reported at 3.63 times (x), well above the DBRS stressed Term DSCR of 2.50x. While occupancy decreased 7.5%, according to the April 2016 trailing 12-month STR report, to 61.5% from 69.0%, the average daily rate (ADR) over the same period increased by 10.8% to $685 from $618. The resulting revenue per available room (RevPAR) decreased marginally by 1.3% to $421 from $427. The property continues to outperform its competitive set, with occupancy, ADR and RevPAR penetration of 107.4%, 145.4% and 156.1%, respectively.

The loan benefits from strong institutional sponsorship, as it is majority owned by Five Mile Capital Partners, which has invested over $23 million in improving the property since acquiring it in 2012, including a full renovation of all guestrooms at $32,500 per key in 2013. The loan also benefits from a $3.5 million seasonality reserve balance, with contributions being made during the high season from January to July in order to cover debt service and operating expense shortfalls during the low season.

The Kimpton Seafire & Spa (Kimpton), a 266-key, boutique-style, upscale resort located a mile and a half north of the Ritz Carlton, is scheduled for a December 2016 grand opening and represents the first new development on Seven Mile Beach in ten years. While it will be the newest hotel in the market, DBRS expects the Kimpton to be only slightly competitive to the Ritz Carlton given its inferior amenities and flag, as evidenced by current best available room rates that are on average 25.0% lower. Management’s opinion mirrored that view, and they do not expect a big impact, because of the different guest profile expected at the Kimpton property.

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

The applicable methodologies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.

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