DBRS Confirms All Classes of CFCRE Trust 2018-TAN

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-TAN issued by CFCRE Trust 2018-TAN (the Trust) as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. This transaction closed in February 2018 with an original trust balance of $195.0 million. The subject loan consists of a $135.0 million senior note (Note A) and a $60.0 million subordinate note (Note B), both of which are assets of the Trust. The collateral for this transaction is the Aruba Marriott Resort, a 411-key upscale beachfront resort located in Aruba. Included in the collateral is the Stellaris Casino, the largest casino on the island. The underlying loan is interest-only (IO) throughout its five-year term and the loan is sponsored by a joint venture between DLJ Real Estate Investment Partners and MetaCorp International. The hotel has been managed by an affiliate of Marriott International since it opened in 1995 and the current management agreement runs through 2025 with four consecutive ten-year extension options thereafter.

The hotel has received over $51.0 million ($126,192 per key) of capital investment over the last ten years, including approximately $17.6 million ($42,822 per key) since 2016. Recent renovations include updates to guest rooms, painting the exterior facade, expanding the fitness center and updates to restaurants. Per the trailing 12 months ending September 2018 Smith Travel Research (STR) report, the subject reported an occupancy rate, average daily rate (ADR) and revenue per available room (RevPAR) of 85.8%, $426.28 and $365.54, respectively, compared with the trailing six months ending November 2017 STR report metrics of 83.2%, $305.36 and $254.06, respectively. The subject continues to outperform its competitive set with an overall RevPAR penetration of 154.2%, as ADR and RevPAR both increased over 11% year over year. According to annualized Q3 2018 financials, the loan is reporting a debt service coverage ratio (DSCR) of 3.05 times (x), compared with the DBRS Term DSCR at issuance of 2.23x. The increase in cash flow from issuance represents higher ADR and occupancy as annualized room revenue increased 24% ($11 million).

Aruba’s credit rating continues to exhibit investment-grade characteristics, primarily benefiting from its long-standing institutional relationship with the Netherlands (rated AAA with a Stable trend by DBRS) and its relatively high per capita income in the Caribbean region. Key challenges include weak growth prospects, limited economic diversification and relatively high debt levels for a small island economy. Aruba’s economy also has negative exposure to the current turmoil in Venezuela. This had led to a reduction of tourist arrivals from Venezuela and adversely affects the operations and planned upgrade of an oil refinery in Aruba, which relies on crude oil shipments from Venezuela. DBRS accounted for the sovereign risk at issuance by applying a stressed cap rate in its analysis and as Aruba’s credit rating has remained broadly unchanged and consistent with investment-grade characteristics, DBRS has maintained the assumption for the February 2019 surveillance review.

Class X is an IO certificate 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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

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

The principal methodology is North American CMBS Surveillance Methodology, which can be found on www.dbrs.com under Methodologies & Criteria. 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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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.

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