Fitch Affirms Extended Stay America 2013-ESH

NEW YORK--()--Fitch Ratings has affirmed 23 classes of Extended Stay America (ESA) commercial mortgage pass through certificates, series 2013-ESH. A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The affirmations and Stable Outlooks reflect the stable-to-improving performance of the portfolio as expected since issuance. The collateral has demonstrated an upward trend in cash flow since the sponsor's acquisition in 2010, which parallels the U.S. lodging industry's performance over the same time period. While the improvement is considered a positive, Fitch will continue to monitor the subject portfolio's performance to ensure that revenues and incomes considered at the time of Fitch's initial ratings are sustainable over the loan term. Additional information highlighting Fitch's outlook for hotel property types can be found in the Fitch's Dec. 13, 2013 report '2014 Outlook: Cross-Sector Lodging and Timeshare'; and the Dec. 4, 2013 report '2014 Outlook: U.S. Structured Finance'.

As of the January 2014 distribution date, the pool's aggregate certificate balance remained at $2.52 billion, unchanged from issuance. The mortgage loan is secured by a first priority, mortgage loan with three components: a $350 million, two-year floating rate component; a $350 million five-year fixed rate component; and a $1.82 billion seven-year fixed rate component. The certificates follow a sequential-pay structure on a pro-rata basis among three components, with voluntary prepayment ability for a portion of each of the components.

This single borrower transaction is secured by 680 owned extended-stay hotels with the majority under the Extended Stay America (ESA) brand. Since acquisition of the portfolio in 2010, the sponsors have invested significant capital towards property renovations as part of a portfolio rebranding strategy. Renovations include rebranding and new signage, updated lobbies, and hard and soft goods across the portfolio. At the completion of rebranding, 634 hotels will be under the ESA brand, and 46 will be under Crosslands Economy Studios brand (economic-priced target segment). As of January 2014, renovations at 541 properties have been completed. The loan has strong structural features, including a hard lock-box and cash management agreement and monthly reserve deposits. Total reserves as of December 2013 reported at $61.1 million.

As of the trailing 12 month (TTM) ended September 2013, occupancy reported at 74%, average daily rate (ADR) at $53.46, and revenue per available room (RevPAR) at $39.56. This compares with the year-end (YE) December 2012 at 73% occupancy, $49.73 ADR, and $36.45 RevPAR. Net operating income (NOI) debt service coverage ratio (DSCR) improved to 3.55x for TTM September 2013, compared to 2.88x at YE December 2012. The Fitch stressed loan-to-value was 63.7% compared with 72.1% at issuance.

RATING SENSITIVITIES

The Rating Outlook for all classes remains Stable. No rating actions are anticipated unless there are material changes in property performance or cash flow. The portfolio is performing as expected at issuance.

Fitch has affirmed the following classes:

-- $52.5 million class A-1FL at 'AAAsf'; Outlook Stable;

-- $157.5 million class A-1-5 at 'AAAsf'; Outlook Stable;

-- $157.5 million class A-1-7 at 'AAAsf'; Outlook Stable;

-- $129.5 million class A-2FL at 'AAAsf'; Outlook Stable;

-- $24.5 million class A-2-5 at 'AAAsf'; Outlook Stable;

-- $788.5 million class A-2-7 at 'AAAsf'; Outlook Stable;

-- $157.5 million class X-A-5 at 'AAAsf'; Outlook Stable;

-- $157.5 million class X-A-7 at 'AAAsf'; Outlook Stable;

-- $688.4 million class X-1-7 at 'AAAsf'; Outlook Stable;

-- $688.4 million class X-2-7 at 'AAAsf'; Outlook Stable;

-- $86.0 million class X-1-5 at 'AA-sf'; Outlook Stable;

-- $86.0 million class X-2-5 at 'AA-sf'; Outlook Stable;

-- $297.5 million class X-1FL at 'BBB-sf'; Outlook Stable;

-- $297.5 million class X-2FL at 'BBB-sf'; Outlook Stable;

-- $62.0 million class B-FL at 'AA-sf'; Outlook Stable;

-- $62.0 million class B-5 at 'AA-sf'; Outlook Stable;

-- $325.0 million class B-7 at 'AA-sf'; Outlook Stable;

-- $52.0 million class C-FL at 'A-sf'; Outlook Stable;

-- $52.0 million class C-5 at 'A-sf'; Outlook Stable;

-- $269.0 million class C-7 at 'A-sf'; Outlook Stable;

-- $54.0 million class D-FL at 'BBB-sf'; Outlook Stable;

-- $54.0 million class D-5 at 'BBB-sf'; Outlook Stable;

-- $280.0 million class D-7 at 'BBB-sf'; Outlook Stable.

Additional information on Fitch's criteria for analyzing large loans within a single borrower U.S. CMBS transaction is available in the Sept. 20, 2013 report, 'Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions', which is available at 'www.fitchratings.com' under the following headers:

Structured Finance then CMBS then Criteria Reports

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (May 24, 2013);

--'Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transaction' (Sept. 20, 2013);

--'2014 Outlook: Cross-Sector Lodging and Timeshare' (Dec. 13, 2013);

--'2014 Outlook: U.S. Structured Finance' (Dec. 4, 2013).

A comparison of the transaction's Representations, Warranties, and Enforcement (RW&E) mechanisms to those of typical RW&Es for the asset class is available in the following report: 'Extended Stay America Trust 2013-ESH - Appendix' (Feb. 26, 2013).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718468

2014 Outlook: Cross-Sector Lodging & Timeshare (The Penthouse View)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726600

2014 Outlook: U.S. Structured Finance (External Factors Pose Risk to Stable Outlook)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723460

Extended Stay America Trust 2013-ESH - Appendix

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=702628

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=815481

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Contacts

Fitch Ratings
Primary Analyst
Benson Thomas, +1 212-908-0645
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Christopher Bushart, +1 212-908-0606
Senior Director
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Benson Thomas, +1 212-908-0645
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Committee Chairperson
Christopher Bushart, +1 212-908-0606
Senior Director
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com