A single loan initially backed by a portfolio of 36 hotel properties is one of the main collateral elements of the HIT Trust 2022-HI32 issue which has been provisionally rated by Moody’s Investor Services.
The transaction’s sponsor, Hospitality Investors Trust, is an unlisted real estate investment trust. Crestline Hotels & Resorts, Hilton Worldwide Holdings and McKibbon Hotel manage the properties, which have 4,669 rooms in 18 states.
The capital structure includes a P-6 grade note backed by a large commercial mortgage-backed securities transaction of $465 million and $123 million of Aaa (sf) rated (P) grade A notes with a actual debt service coverage ratio of 4.11X, and 28.2% return on debt. Analysts have provided preliminary ratings only for Class A to D tickets.
Moody’s used stabilized free cash flow and an expected variable interest rate of an estimated one-month guaranteed overnight rate of 1.50%, plus an expected lending spread of 5.35% and the cumulative product of the certificates in each category to calculate the actual debt service coverage ratio
The certificates “will not be registered under the Securities Act of 1933” and the issuance permits resale under SEC Rule 144A, according to a report by Moody’s Vice President and Chief Credit Officer Blair Coulson; Gregory Ingaglio, vice president and principal analyst; and Joseph Baksic, Associate Managing Director.
The borrowers are under contract to sell four of the properties to be released from collateral after the closing date, but no allocated loan amount has been allocated to these properties which are excluded from the portfolio calculations.
Analysts see credit strength as the key feature of this transaction fueled by portfolio diversity, pooling of multiple properties, brand recognition and strong management. However, such benefits are partially offset by the pandemic, “high leverage, non-sequential payment arrangements, deficient release arrangements, performance volatility inherent in the hotel industry, age of ownership and negative legal characteristics in terms of credit”.
The Herfindahl loan ownership score is 21.7 based on the loan amount allocated. Washington is the state with the highest concentration with two properties accounting for approximately 13.3% of the loan amount allocated.
The largest hotel, Hilton Garden Inn Monterey, accounts for 10.2% of the allocated loan amount. All hotels operate under a global hotel franchise and benefit from their national marketing efforts.
The portfolio received nearly $79.8 million in investments between 2015 and 2021.