Montage Resort & Spa Laguna Beach is preparing to sponsor a $340 million commercial mortgage-backed securities (CMBS) offering, after a pivot to leisure travelers during the pandemic led to strong performance relative to its peers.
The LUXE Trust 2021-MLBH transaction is an interest-only, floating rate mortgage loan with an initial three-year term and two successive one-year extension options, according to DBRS Morningstar. The loan is secured by the fee-simple interest in the 258-room, luxury full-service hotel on the beachfront of Laguna Beach, Calif. The property features highly rated restaurants and other luxury amenities.
DBRS notes that the loan has an elevated loan-to-value (LTV) ratio of 104.6%, “which increases the term and balloon risks.” It adds that the debt service coverage ratio (DSCR) is 2.79 times, based on one-month Libor of 0.10% plus a 2.35% spread.
The rating agency’s DSCR will be 1.41 [times], based on the strike rate of 2.5%, plus a 2.35% spread.
The rating agency notes the resort’s proximity to the greater Los Angeles and Orange Country metropolitan area, and its success in shifting its “yield strategy” from group and convention business to leisure travelers during the pandemic. While its revenue per available room (RevPAR) fell 32.4% in 2020 compared to 2019, that decline was significantly less than the 47.5% and 55% decline in RevPAR results nationwide and in the Anaheim-Santa Ana submarket, respectively.
“The resort weathered the storm well throughout the pandemic, remaining open and operational throughout the entire time and demonstrating strong performance with trailing 12 month (T-12) ended August 2021 cash flow up nearly 154% from 2020,” DBRS says.
The resort’s occupancy rate fell to 47.5% in the 12 months ended August 2021. However, its average daily rate (ADR) increased to $1,141.31 in that period from $726.98 in 2019, up 57%.
While occupancy has declined, DBRS noted, but added that Montage Resort & Spa has been successful in raising the rates above their pre-pandemic highs. This has mitigated the impact of the pandemic on the property’s RevPAR. This particular market niche is less susceptible to revenue swings, making it more resilient during economic downturns, DBRS said.
Montage Report & Spa is an affiliate of Strategic Hotels & Resorts, a leading US luxury hotel owner and asset manager that owns and manages 15 luxury hotels across North America and Europe.
The capital structure features seven tranches, with ratings that span the scale, from ‘AAA’ to ‘B’.
