Citigroup revives $435M hotel CMBS deal shelved at onset of pandemic
Citigroup is bringing back a previously planned $435 million hotel-property securitization that was tabled after the coronavirus outbreak saddled U.S. capital markets in February.
According to ratings agency presale reports, the bank and Brookfield Asset Management are once again marketing Citigroup Commercial Mortgage Trust 2020-WSS, a single-borrower commercial mortgage securitization backed by a portfolio of 74 low-cost, extended-stay WoodSpring Suites hotels. Brookfield's real estate fund holds leasehold interests in the hotels franchised from Choice Hotels International.
The securitization was originally planned in February after the filing of an ABS-15G due-diligence disclosure registration with the Securities and Exchange Commission as well as the issuance of two original presale reports by S&P Global Ratings and Kroll Bond Rating Agency.
“The transaction, which was originally launched on Feb. 28, 2020, was subsequently postponed owing to conditions in the broader capital markets related to coronavirus (COVID-19),” according to a new Kroll presale report distributed Tuesday.
The original transaction's structure remains intact, with six classes of term notes backed by Brookfield's two-year, floating-rate commercial loan maturing in February 2022, with five one-year extensions. The offered notes include a $148.6 million Class A tranche with preliminary AAA ratings from both agencies.
The notes will be supported from the receivables on the interest-only loan (with a coupon of Libor plus 2.213%) from the hotel properties located across 26 states.
Although widespread restrictions on domestic and international travel due to the pandemic have cut deeply into lodging occupancy rates and revenue this year, WoodSpring properties have fared slightly better compared to hotel industry averages by catering to long-term guests in smaller markets.
U.S. hotel revenue-per-available room had declined 42% year-to-date through May 2020, according to S&P, but WoodSpring properties’ RevPAR has declined only 11.6% this year. WoodSpring hotels have remained open throughout the COVID-19 pandemic crisis.
(RevPAR is a common metric used to measure hotel performance that multiplies a hotel’s average daily rate by its occupancy rate.)
Net cash flow has declined 19.8% this year for WoodSpring hotels, but the hotel’s lower expense profile (compared to full-service hotels) has kept the portfolio profitable, according to S&P. The debt-service coverage ratio was 3.22x against earnings in April and 3.73x in May, owing to the current spread aided by a low Libor rate of 0.2%.
But S&P and Kroll caution the WoodSpring portfolio is highly leveraged at 90.4% — and tops 109% with the inclusion of $90 million in mezzanine debt held outside the Citigroup trust.
WoodSpring Suites were formerly known as ValuePlace. In February 2018 Brookfield completed an acquisition of 105 corporate-owned WoodSpring Suites hotels, making it the largest franchisee of 266 WoodSpring properties. As part of the Brookfield acquisition, the WoodSpring brad was acquired by Choice Hotels International.