NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed 23 classes of Extended Stay America Trust (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. The strong performance of the hotel sector is expected to continue into 2015 as new supply remains below the historical average and demand nears record levels. 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 Fitch's Dec. 9, 2014 report '2015 Outlook: U.S. Structured Finance'; and the Dec. 16, 2014 report '2015 Outlook: U.S. Lodging'.
As of the December 2014 distribution date, the pool's aggregate certificate balance was $2.518 billion, a slight decline from $2.520 billion at 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. The loan has strong structural features, including a hard lock-box and cash management agreement and monthly reserve deposits. Total reserves as of December 2014 reported at $90.3 million. At issuance, the portfolio was encumbered with an additional $1.08 billion in mezzanine financing, which was not part of the original trust and has since paid in full.
This single borrower transaction was originally secured by 680 owned extended-stay hotels with the majority under the 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 were 100% complete in 2014, with 633 hotels now under the ESA brand, and 47 under the Crosslands Economy Studios brand (economic-priced target segment). In July 2014, two Atlanta properties were released from the collateral and sold for approximately $1.8 million.
As of the year to date (YTD) ended September 2014, occupancy reported at 76%, average daily rate (ADR) at $57.97, and revenue per available room (RevPAR) at $44.10. This compares with the year-end (YE) December 2013 at 74% occupancy, $54.14 ADR, and $40.18 RevPAR. Net operating income (NOI) debt service coverage ratio (DSCR) improved to 5.88x for YTD September 2014, compared to 5.34x at YE December 2013.
RATING SENSITIVITIES
The Rating Outlook for all classes remains Stable. Positive Outlooks or rating actions may be considered in the future should portfolio performance continue to improve, and market fundamentals remain stable.
Fitch has affirmed the following classes:
-- $50.5 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. 19, 2014 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 >> CMBS >> Criteria Reports
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (Aug. 4, 2014);
--'Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transaction' (Sept. 19, 2014);
-- '2015 Outlook: U.S. Lodging' (Dec. 16, 2014);
-- '2015 Outlook: U.S. Structured Finance' (Dec. 9, 2014).
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=754389
Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=772328
2015 Outlook: U.S. Lodging (Cycle Maturing, But Supply-Demand Balance Remains Attractive)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=818268
2015 Outlook: U.S. Structured Finance (Rate Rise and Regulatory Implementation Move to the Forefront)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=818508
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=965875
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