Bank of America Merrill Lynch is securitizing a single commercial mortgage that real estate investment trust Ashford Hospitality Trust is using to refinance an existing 17 hotel properties in seven states.
BAMLL Commercial Mortgage Trust Securities Trust 2016-ASHF will issue seven classes of notes totaling $325 million with preliminary ratings from Standard & Poor’s and Moody’s Investors Service. The notes are backed by a $325 million, floating-rate two-year loan (with a coupon of 1-month Libor plus 4.2%). The term of the loan can be extended by one year up to four times.
The loan pays only interest, and no principal, for its entire term of up to six years; both rating agency cited this as a risk factor, since the lack of amortization could make the loan difficult to refinance.
The capital stack is topped by $121.2 million in Class A notes that carry a triple-A rating from both Moody’s and S&P. The tranche’s credit protection is in effect for up to a 77.9% decline in the total appraised value of $547.3 million of the 17 hotel properties. A $42.8 million Class B tranche is rated ‘AA-’ by S&P and ‘Aa3’ by Moody’s, and a $30.8 million Class C tranche is rated ‘A-’/‘A3’. Only S&P issued ratings on the subordinate notes: $43.1 million of Class D at ‘BBB-’; $66.3 million Class E notes at ‘BB-’ and $20.8 million of Class F notes at ‘B+’.
The mortgage loan is secured by cross-collateralized and cross-defaulted mortgages of the borrowers’ fee interests across the hotels group, which includes eight full-service, three extended-stay and six limited-service lodgings properties, according to S&P. All of the properties are affiliated with national recognized franchises such as Embassy Suites, Courtyard by Marriott, Starwood and Hilton.
The current loan refinances $268.4 million of mortgage debt and includes the issuance of $87.5 million in new mezzanine loans. The loan also includes includes a $99.5 million equity redemption – which will net out the approximate $101 million that the sponsor has paid in capital improvements on the properties since 2011. The loan is structured with $22.2 million set aside for property improvements this year.
Moody’s reports the mortgage balance carries a loan-to-value ratio of 102.4%, below other fixed-rate standalone property loans previously assigned comparable ratings. The mezzanine loans, however, boost the LTV to 130%. The debt service coverage ratio of 2.42x.
S&P notes the properties in the portfolio has improved in lodging industry measures such revenue per available room, increasing from $98.06 per $100 in 2008 to $104.15 in 2015 – a 6.2% improvement. The properties saw RevPAR improve by 8.6% in 2014 and 6.3% in 2015; however each of those figures lagged the U.S. lodging sector overall in those years.
A majority of the hotels in the group (accounting for 66.9% of the allocated loan amount) are managed by Remington Lodging & Hospitality LLC (unrated), while the remaining five are managed by affiliates of Marriott International. The largest allocation of the loan is a $43.5 million slice for the Sheraton City Center Indianapolis, representing 13.4% of the allocation.
Ashford Hospitality has a majority equity stake in 132 U.S. hotels as of December 2015, according to Moody’s.
BAML’s last transaction for Ashford was in February 2015 when it placed a deal for $285 million in certificates on eight hotel properties.