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Atrium refinancing portfolio of 29 hotels via CMBS

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A national hotel operator is returning to the securitization market to refinance a portfolio of 29 of its 50 properties.

Atrium Holding Co., the parent firm of Atrium Hospitality, an Alpharetta, Ga.-based manager of Hilton, InterContinental, Marriott and other branded hotels in 26 states, recently obtained a $600 million first mortgage from three banks: Goldman Sachs, Citigroup and JPMorgan Chase. Proceeds, along with $150 million of mezzanine financing and $6.1 million in additional equity, were used to repay $718 million in existing debt, including a $585 million loan originally issued by JPMorgan in 2016 and securitized in a previous transaction.

The first mortgage, along with the fees and leasehold arrangements, are being used to collateralize a new mortgage bond offering dubbed Atrium Hotel Portfolio Trust 2017-ATRM. Six tranches of notes will be issued in the deal, including $215.4 million of Class A notes that Kroll Bond Rating Agency expects to rate at AAA and five subordinate tranches with rated between AA- and B. There is also a $30 million residual interest will be held by the sponsor for risk-retention purposes.

The hotels being used as collateral are older, mostly full-service hotels (all built between 1979 and 2000) that have undergone prior renovations or are earmarked for future upgrades. Atrium spent $171.4 million on capital improvements for 22 of them since 2011. Another $134.5 million is budgeted for improvements through 2024, according to Kroll.

Hotel brands in the portfolio include Embassy Suite by Hilton (10 properties), Holiday Inn, Renaissance, Hampton Inn, Homewood Suites and a single property each for Sheraton and Crowne Plaza. The largest hotel in the portfolio (by allocated loan amount) is the Grapevine, Tex., Embassy Suites by Hilton location north of Dallas-Fort Worth International Airport.

The portfolio’s hotels have an aggregate daily occupancy of 70.1%, with an average daily rate of $127.64 that produces daily revenue per room at a rate of $89.46. The revenue per room rate grew 7.3% and net cash flow went up 4.9% between 2014 and 2016 as more room renovations were completed, but the net cash flow declined by 5.4% as a new phase of renovation plans took more rooms offline, according to Kroll.

Most of the hotels in Atrium’s portfolio are underperforming the nationwide average of the respective brands because they are located in secondary market which comprise 62% of the portfolio), and because many are undergoing extensive renovations.

The pool's largest concentrations are in South Carolina (14%), Texas (13.9%) and North Carolina (9.8%).

Kroll calculates the loan-to-value ratio on the portfolio to be 59.5%, which is 32 basis points lower than the issuer-stated LTV of 91.4%; in the presale report, the rating agency cited its own on-site and third-party assessments along with net-cash flow variance. Kroll’s haircut to the issuer-stated net cash flow of $79.5 million is 6.9% at $74 million.

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CMBS Kroll Bond Rating Agency