DBRS Confirms All Ratings on BBCMS Trust 2018-RRI

DBRS Limited (DBRS) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2018-RRI issued by BBCMS Trust 2018-RRI as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. At issuance, the $400.0 million trust mortgage loan was secured by the fee and leasehold interests in a portfolio of 86 limited-service Red Roof Inn (RRI) hotels with franchise agreements that expire in 2035, well beyond the loan’s maturity. In aggregate, the portfolio consisted of 10,397 keys located in 25 different states. Since issuance, three properties (10245 El Paso, 10052 Madison and 10253 Boardman), which represented 1.4% of the trust balance, were released from the portfolio during Q2 and Q3 2018. Approximately $6.4 million of principal was paid down to the trust, bringing the total trust balance to $393.6 million. In addition, the $50.0 million mezzanine loan was paid down by an estimated $691,000. As a condition of the release provisions, the borrower was required to pay a release price of 115% of the allocated loan amount and maintain a minimum debt yield of 10.7% with respect to the remaining properties. Portfolio financials for the trailing 12-month (T-12) ending September 30, 2018, reported a debt yield of 11.1%. The portfolio currently consists of 10,044 keys across 83 properties following the release of the three properties mentioned above.

Twenty-three properties totaling 3,205 keys represent Red Roof Inns Inc.’s premier design package, otherwise known as Red Roof PLUS + (RR+). Sponsorship for the loan is provided by a joint venture between affiliates of Westmont Hospitality Group (Westmont; 20% ownership), which owns the RRI and RR+ brands, and Bestford Capital Pte. Ltd. (Bestford Capital; 80% ownership), a Singapore-based investment advisory firm. Westmont owns a diversified portfolio of over 500 hotels across three continents, which include some of the world’s largest hotel brands. RRI West Management, LLC, an affiliate of Westmont, manages the portfolio. The loan has a two-year initial term with three one-year extension options with a floating-rate (one-month London Inter-Bank Offered Rate (LIBOR) plus 3.125% per annum) interest-only (IO) mortgage loan. The sponsors have spent approximately $15.5 million in capital improvements through January 2018 since acquiring the collateral properties in 2015. At issuance, the sponsor indicated that an additional $4.5 million would be invested in nine additional properties.

The T-12 ending September 30, 2018, Smith Travel Research (STR) reports showed that the portfolio was generally in line with DBRS’s expectations at issuance. The largest 16 hotels in the pool by loan size, representing 38.9% of the pool balance, reported occupancy, average daily rate (ADR) and revenue-per-available room (RevPAR) of 75.0%, $85.67 and $65.10, respectively, compared with the T-12 ending November 30, 2017, STR figures of 75.4%, $86.70 and $65.76, respectively. The T-12 ending September 30, 2018, financials reported a debt service coverage ratio (DSCR) of 1.81 times (x), which is slightly down from the DBRS Term DSCR of 1.90x derived at issuance; however, LIBOR has increased since issuance and the DBRS Term DSCR would total 1.75x after increasing LIBOR to the 3.0% strike rate. The portfolio slightly outperformed the DBRS Term DSCR based on the T-12 ending September 30, 2018, financials.
Classes X-CP and X-NCP are 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 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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