DBRS Confirms All Classes of CGGS Commercial Mortgage Trust 2018-WSS

DBRS, Inc. (DBRS) confirmed the ratings of the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-WSS issued by CGGS Commercial Mortgage Trust 2018-WSS:

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

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction since issuance, which is secured by the borrower’s fee interest in a portfolio of 92 extended-stay economy hotels totaling 10,978 keys located in 22 different states. The portfolio is encumbered by a total debt load of $530.0 million, with a $405.0 million A-note contributed to the subject transaction and $125.0 million structured as mezzanine debt. All 92 collateral assets were acquired by the sponsor, Brookfield Strategic Real Estate Partners II (Brookfield), at closing for $707.3 million, with Brookfield contributing $177.3 million of cash equity to facilitate the purchase. Simultaneously, Choice Hotels International, Inc. acquired the WoodSpring Suites brand and executed new 20-year individual franchise agreements across the portfolio. The loan has an initial two-year interest-only term with five one-year extension options.

Spread across 22 states and 55 metropolitan statistical areas, the portfolio is geographically diverse with all properties now operating under the WoodSpring Suites flag. The hotels were built between 2003 and 2016, and approximately $54.6 million ($4.9k per key) of capital expenditures has been invested across the collateral portfolio, including rebranding costs. The portfolio benefits from granularity by allocated loan amount and by market, as no single property comprises more than 2.2% of the total allocated loan amount and Florida has the highest concentration with an allocation balance of 22.3%, followed by Colorado at 9.7%.

DBRS has yet to receive YE2018 financial reporting for the portfolio; however, it did confirm all 92 properties remain in the portfolio, and it received November 2018 Smith Travel Research reports for 85 of the hotels in the portfolio, representing 90.2% of the allocated loan balance. According to the trailing-12-month (T-12) figures, the weighted-average occupancy, average daily rate (ADR) and revenue per available room (RevPAR) based on the allocated loan balance were 83.2%, $43.30 and $36.09, respectively. In comparison, the previous year’s T-12 figures were 85.6%, $40.62 and $38.85, respectively. While occupancy declined by 2.4%, performance remained stable as RevPAR improved by 3.5% due to a 6.8% increase in ADR. At issuance, DBRS determined a net cash flow equating to a DBRS Term Debt Service Coverage Ratio of 2.05 times.

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 (September 2018), 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 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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