DBRS Confirms All Classes of BX Trust 2017-APPL

DBRS Limited (DBRS) confirmed the ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2017-APPL (the Certificates) issued by BX Trust 2017-APPL as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS’s expectations since issuance. This deal closed in August 2017, with an original trust balance of $800 million. The loan is a 24-month floating-rate (one-month LIBOR plus 2.15% per annum) interest-only mortgage loan, with five 12-month extension options.

At issuance, the collateral consisted of 51 limited-service extended stay and full-service hotels totalling 6,154 keys across 17 different states. As of the August 2018 remittance, 49 properties remain, totalling 5,805 keys. To date, the loan has experienced a collateral reduction of 9.5% since issuance due to paydowns from the release of Marriot Redmond Town Centre (Prospectus ID#2, 7.8% of the loan at issuance) and Residence Inn Huntsville (Prospectus ID#50, 0.6% of the loan at issuance). The portfolio benefits from a diverse collateral set operating in different markets and under multiple hotel brands and flags, including Marriott and Hilton-branded chains.

At issuance, the transaction had a weighted-average (WA) DBRS Term Debt-Service Coverage Ratio (DSCR) and DBRS Debt Yield of 1.88 times (x) and 10.2%, respectively. The servicer’s year-end 2017 analysis shows an in-place DSCR of 1.98x with net cash flow (NCF) growth of 7.9% over the DBRS NCF figure derived at issuance.

As of the May 2018 Smith Travel Research (STR) report, the largest 15 properties (53.7% of the loan) by allocated loan balance reported a WA revenue per available room (RevPAR) of $132.12, which is in line with the WA RevPAR at issuance of $132.67. As of the same date, the transactions collateral reported a WA RevPAR of $113.63, compared with the WA RevPAR at issuance of $113.11, representing 0.46% growth from issuance.

There are two properties in the top 15, Courtyard Portland Hillsboro (Prospectus ID#6, 3.5% of the loan) and TownePlace Suites Portland Hillsboro (Prospectus ID#7, 3.5% of the loan), that have experienced notable performance declines. Courtyard Portland Hillsboro is a three-storey, 155-key, limited-service hotel that began a $2.7 million ($17,419 per key) required property improvement plan (PIP) in Q4 of 2017. The PIP entails renovations to guest rooms, bathrooms and common areas and is expected to take 12 months to complete. Consequently, the subject has seen a decline in performance due to a number of rooms being offline. TownePlace Suites is a 136-key extended-stay hotel, also located in Hillsboro. The subject has experienced declines in occupancy (-5.2%), average daily rate (ADR; -10.8%) and RevPAR (-16.6%) since issuance. The overall market has declined as well; during the same time period the competitive set also experienced declines in occupancy (-3.2%), ADR (-4.9%) and RevPAR (-7.9%). Per the May 2018 STR report, the Hillsboro market is experiencing strong competition with approximately 11 properties and 1,093 rooms in the midscale chain submarket.

Classes X-CP and X-EXT are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following properties included in this transaction:
-- Prospectus ID#6 - Courtyard Portland Hillsboro
-- Prospectus ID#7 - TownePlace Suites Portland Hillsboro

This commentary is housed under the Loan Commentary section for this deal. For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes loan level data for the entire CMBS universe, as well as deal and loan-level commentary for all DBRS rated transactions.

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

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.