DBRS Confirms All Classes of BX Trust 2017-APPL

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

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

All trends are Stable.

In addition, DBRS discontinued the rating for Class X-CP, as the notional class was structured to receive interest distributions and passed its final distribution date as of July 2018.

The rating confirmations reflect the overall stable performance of the transaction. The trust was secured by 51 limited-service, extended-stay and full-service hotels totaling 6,154 keys across 17 different states in the United States at issuance. The hotels operate under two international brands — Marriott and Hilton Worldwide — totaling ten different flags. The loan sponsor, BSHH LLC, an affiliate of Blackstone Real Estate Partners, acquired the portfolio along with 15 other properties not included in the transaction in May 2013 for $1.1 billion via its acquisition of Apple REIT Six, Inc. The sponsor invested $122.2 million ($3,977 per key annually) of capex across the collateral portfolio prior to issuance. An additional $13.7 million of renovations were budgeted by the sponsor at issuance that included property-improvement-plan expenditures for six hotels over the next five years. Loan proceeds of $800.0 million ($12,997 per key) were used to refinance $734.2 million ($119,299 per key) of existing portfolio debt and return $59.0 million of equity to the sponsor. The loan is a two-year floating-rate interest-only (IO) mortgage loan with five one-year extension options. The loan was delinquent as of July 2019; however, this had to do with the one-year extension being exercised, according to the servicer.

Per the July 2019 remittance, 44 properties remained in the trust with an aggregate principal balance of $679.7 million, representing a collateral reduction of approximately 15.1% that resulted from the release of seven properties, including the second-largest property, Marriott Redmond Town Center, by allocated loan amount (ALA; 7.8% of issuance ALA). According to the YE2018 financials, the loan reported a weighted-average (WA) debt service coverage ratio and debt yield of 2.04 times (x) and 11.1%, respectively, compared with the DBRS Term figures of 1.88x and 10.2%, respectively. The top 15 properties remaining in the collateral (2,217 keys; 57.2% of the current ALA) reported a WA occupancy rate, average daily rate (ADR) and revenue per available room (RevPAR) of 80.9%, $166 and $135, respectively, with RevPAR increasing 1.8% on a WA basis since issuance. The properties’ occupancy rate and ADR on a WA basis increased 0.6% and 3.1%, respectively, based on the trailing-12-months ending March 2019 reporting.

There were two properties, Courtyard Portland Hillsboro (3.7% of ALA) and Hampton Inn Denver West Federal Center (3.0% of ALA), that realized notable performance declines since issuance. The Courtyard Portland Hillsboro underwent a $2.7 million renovation that affected performance since issuance. The most recent site inspection report confirmed the renovations have been completed and the occupancy rate, ADR and RevPAR have increased 8.4%, 9.0% and 18.2%, respectively, as a result. Hampton Inn Denver West Federal Center had a 10.3% decline in RevPAR from March 2018 to March 2019. It was noted at issuance that a renovation was scheduled to take place; however, DBRS has requested an update on whether any renovations affected performance.

Class X-EXT is an IO certificate that references 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 the 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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