Wyndham Worldwide is tapping the securitization market to help finance its $2 billion purchase of the La Quinta Inns & Suites from the Blackstone Group.
It's a complicated transaction that involves two spinoffs.
Concurrent with the May 30 acquisition, La Quinta (now part of Wyndham Hotels & Resorts) spun its 307 hotels off into a real estate investment trust called CorePoint Lodging.
CorePoint concurrently obtained a $1.035 billion loan on the commercial property from J.P.Morgan Chase; proceeds were used to repay approximately $1 billion of existing La Quinta corporate debt that had been assumed CorePoint, fund reserves and a $180,000 environmental work escrow and pay closing costs. CorePoint also obtained a $150 million revolving line of credit from JPMorgan Chase, KeyBank and Société Generale that is also secured by the portfolio but stands behind the loan in terms of payment priority.
Wyndham Hotels & Resorts was concurrently spun off from its parent, Wyndham Worldwide, and became an independent public company with more than 55 brands across 125,000 properties located in more than 120 countries. The La Quinta brand will serve as the primary midscale brand within Wyndham’s portfolio, which mainly consists of full-service and economy hotels.
La Quinta continues to hold the management and franchise businesses.
The mortgage, which has an initial term of two years and can be extended by one year up to five times, pays only interest of Libor plus 2.75% and no principal. It is being bundled into collateral for an offering of mortgage bonds called J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-LAQ, according to Kroll Bond Rating Agency.
The 314 hotels securing the loan were constructed between 1965 and 2009 and range in size from 73 to 348 keys (rooms). Since 2010, La Quinta has invested more than $700 million (approximately $18,000 per key) on capital improvements across the portfolio.
Kroll puts the loan-to-value ratio of the transaction, based on first mortgage, at 73.5%, which it considers to be low compared with transactions it has rated over the past 12 months backed by loans to a single borrower. The comparative set has a weighted average KLTV of 92.9% and ranged from 49.1% to 111.1%.
The leverage looks even more favorable compared with loans on lodging properties recently securitized in conduit CMBS, which have a weighted average KLTV of 98.1%.
Both Kroll and Fitch expect to assign an AAA rating to the senior tranche of mortgage bonds to be issued, which benefit from 34.5% credit enhancement (per Kroll).
Under the terms of the loan, CorePoint can enter in to a franchise and management agreements on the hotels with an operator other than La Quinta, so long as this operator is also owned by Wyndham.