DBRS Morningstar Changes Trends on Two Classes, Confirms All Ratings on COMM Trust 2020-CBM Mortgage Trust

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2020-CBM issued by COMM Trust 2020-CBM Mortgage Trust as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class X-NCP at AAA (sf)
-- Class B at AA (sf)
-- Class X-CP at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)

In addition, DBRS Morningstar changed the trends on Classes E and F to Stable from Negative. All remaining classes have Stable trends. The rating confirmations and trend changes reflect the overall improved performance of the collateral, as it continues to recover from the effects of the Coronavirus Disease (COVID-19) pandemic.

The underlying $684.0 million mortgage loan is secured by a first-priority mortgage on the fee and leasehold interests in 52 limited-service hotel properties totalling 7,677 keys. The trust loan is part of a split loan structure composed of seven senior promissory notes in the aggregate principal amount of $298.0 million, one junior promissory note in the aggregate principal amount of $286.0 million, and four senior promissory non-trust notes totalling $100.0 million. The debt contributed to the transaction consists of the seven senior and one junior promissory notes totalling $584.0 million.

The portfolio primarily includes older-vintage hotels, with 47 properties, representing 90.4% of the rooms, built in 1989 or earlier. All the hotels operate under the Courtyard by Marriott flag, benefitting from strong brand recognition as well as brand-wide reservation systems, marketing, and loyalty programs. The properties are located across 25 states, with concentrations in California, Florida, Illinois, and Colorado representing 25.2%, 7.6%, 7.1%, and 6.6% of the allocated loan amount, respectively. There was a $99.0 million reserve established at closing to fund capital improvements across the portfolio. As of the July 2022 servicer reporting, approximately 75% of the reserve has been depleted, with a current balance of $25.1 million. In addition, the servicer noted that a second reserve of approximately $70.0 million will be collected over the next few years to fund additional improvements to properties within the portfolio.

The sponsor for the transaction is CBM Joint Venture Limited Partnership, a joint venture between affiliates of Clarion Partners, LLC (Clarion) and the Michigan Office of Retirement Services (the majority equity interest holder). Clarion acquired the portfolio and other interests between 2005 and 2012 and remains committed to the collateral as evidenced by the $99.0 million reserve at closing and planned secondary reserve of $70.0 million, in addition to substantial historical investment of more than $370.4 million since acquisition.

The portfolio encountered performance challenges because of the coronavirus pandemic, which led to the near-total cessation of commercial and leisure travel. The loan transferred to special servicing in April 2020 in conjunction with the borrower’s request for coronavirus-related relief. Although the lender agreed to modification terms that included forbearance, the borrower ultimately abandoned the request for relief, and the loan was returned to the master servicer in May 2020. As of the July 2022 remittance report, the loan is performing and remains current.

According to the most recent financial reporting, occupancy and cash flow have improved, although they remain below pre-pandemic levels. The YE2021 debt service coverage ratio (DSCR) and net cash flow (NCF) of 1.40 times (x) and $34.3 million, respectively, are considerably higher than the YE2020 DSCR and NCF of -0.64x and -$15.7 million but lower than the issuer’s DSCR and underwritten NCF of 3.46x and $84.8 million. Financial reporting for Q1 2022 indicated a further improvement in operating fundamentals, with annualized NCF climbing marginally higher to $36.6 million. Likewise, consolidated portfolio occupancy has improved to approximately 56% at YE2021 compared with 30% at YE2020.

On an aggregate basis, the portfolio has historically outperformed its competitive sets, with occupancy, average daily rates, and revenue per available room penetration rates higher than 100% since 2016. Increased capital investment funded through the reserves will likely help the portfolio maintain and grow its competitive position while improving the overall financial performance of underperforming assets.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929.

Classes X-NCP and X-CP 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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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

The DBRS Viewpoint platform provides additional information on this transaction and underlying loan including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data. For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com.

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

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), which can be found on dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.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 DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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.dbrsmorningstar.com or contact us at [email protected].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577