DBRS Confirms All Classes of BX Trust 2017-CQHP

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

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

The 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. The transaction closed in November 2017 and is secured by four Club Quarters brand-managed hotels totaling 1,228 keys located across four major U.S. cities: San Francisco, Chicago, Boston and Philadelphia. The $273.7 million loan, along with $61.3 million of mezzanine debt and $8.1 million of sponsor equity, refinanced $336.1 million in existing debt. The loan is full IO on an initial two-year term with three one-year extension options.

The sponsor for the loan is BREP VII, a subsidiary of The Blackstone Group, L.P. The sponsor is considered strong due to its extensive holdings in the hospitality industry as well as its ample financial resources. As of September 30, 2018, Blackstone had approximately $119.9 billion in real estate assets under management, reflecting an increase of $8.9 billion since issuance (+8.0%). As of June 2018, Blackstone hotel assets totaled 152,000 keys globally and is notably one of the largest hospitality investors in the United States. The sponsorship entity has approximately $78.7 million of cash equity in the transaction.

Occupancy levels and RevPAR figures for the portfolio have generally remained in line with issuance figures. According to the T-12 June and July operating statements, the portfolio’s weighted-average (WA) occupancy, ADR and RevPAR figures were 90.0%, $168.58 and $151.73, respectively, compared with the issuance figures of 90.9%, $166.42 and $151.23, respectively.

Per the most recent annualized quarterly financials for the individual hotels from June and July 2018, the DSCR was 2.32 times (x), compared with the DBRS term DSCR derived at issuance of 2.50x. The decrease in DSCR since issuance is attributed to a 14.8% growth in total operating expenses, as estimated gross income has increased by 4.8% over the DBRS figure.

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 this transaction. 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 North American CMBS 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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