The Blackstone Group's conduit real estate mortgage investment trust is checking back in to the securitization market with plans to sell $2.075 billion in bonds secured by its portfolio of Motel 6 and Studio 6 hotel properties.

Motel 6 Trust 2017-MTL6 is the first Motel 6/Studio 6 securitization in two years to be issued by the Blackstone REMIC, which acquired the nationwide budget hotel chain in 2012 for $1.98 billion.

According to presale reports, the collateral includes not only the fee interest in the newly refinanced commercial loan, but the Motel 6 corporation's intellectual property and franchise agreements plus cash-flow pledges from both company- and franchise-owned hotel properties.

Motel 6

The capital stack includes a $641.8 million Class A senior-note tranche with preliminary AAA ratings from S&P Global Ratings, Kroll Bond Rating Agency and Fitch Ratings, supported by credit enhancement of 67.44%. A Class B notes series is sized at $226.7 million and is rated AA-, with the agencies also rating five other subordinate tranches.

The deal also includes $103.8 million in unrated notes that will be held by Blackstone as the risk-retention piece of the deal.

A substantial portion of the capital includes the fees from the new two-year, interest-only commercial mortgage loan taken out by Blackstone Real Estate Partners VII that will refinance approximately $2 billion in debt for the company, as well as pay out $286.5 million in equity to Blackstone.

That will help Blackstone recoup some of the $542.9 million is has spent in renovating the 460 corporate-owned hotels in the portfolio, most of which are aging properties with an average age of 34 years. Blackstone has nearly completed the “Phoenix” renovation project, with only 32 properties left to remodel to complete the extensive systemwide makeover of the properties by the end of the year.

The renovations have paid off with increased cash flow and net margins for the iconic chain, which has nearly two-thirds of its company hotels and fast-growing franchised base of 935 third-party owned locations seated in secondary and tertiary markets. Motel 6 has a higher-than-average occupancy rate (68.8%) than similar low-cost lodgings including Super 8, Days Inn and Best Western.

Franchise revenue has grown nearly 71% in the last five years. The issuer estimated total estimated annual cash flow for the properties in the pool at $281 million. S&P estimates a debt-to-service coverage ratio of 1.56x based on the loan’s spread of 2.39% and the 4.5% LIBOR cap.

Both S&P and Fitch have taken into account the potential damage to 17 Motel 6 properties located in the Texas coast areas affected by Hurricane Harvey, factoring into a 23.2% net cash flow haircut by S&P.

The refinancing effort by Motel 6 also included a $225 million interest-only mezzanine loan that is not part of the trust collateral.

The transaction was co-arranged by JPMorgan and Deutsche Bank.

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