A single loan initially backed by a portfolio of 36 hotel properties is one of the main pieces of collateral for the HIT Trust 2022-HI32 issuance that has been provisionally rated by Moody’s Investor Services.
The transaction sponsor, Hospitality Investors Trust, is a publicly registered, nontraded real estate investment trust. Crestline Hotels & Resorts, Hilton Worldwide Holdings and McKibbon Hotel manage the properties, which have 4,669 guest rooms in 18 states.
The capital structure includes a Class P-6 note backed by a $465 million large loan commercial mortgage-backed security transaction and $123 million in (P) Aaa (sf) rated Class A notes with 4.11X actual debt-service coverage ratio, and 28.2% debt yield. Analysts provided provisional ratings only for Class A through Class D notes.
Moody’s used stabilized net cash flow and expected floating interest rate of one-month-term Secured Overnight Financing Rate estimated at 1.50%, plus an expected 5.35% loan spread and the cumulative certificate proceeds through each class 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 authored by Moody’s Blair Coulson, vice president and senior credit officer; Gregory Ingaglio, vice president and senior analyst; and Joseph Baksic, associate managing director.
The borrowers are under contract to sell four of the properties to be released from the collateral after the closing date, but no allocated loan amount has been assigned 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, multiple property pooling, brand recognition and strong management. However, such benefits are partially offset by the pandemic, “high leverage, nonsequential payment provisions, deficient release provisions, the performance volatility inherent within the hotel sector, property age and credit negative legal features.”
The loan property-level Herfindahl score is 21.7 based on the allocated loan amount. Washington is the state with the largest concentration with two properties, or approximately 13.3% of the allocated loan amount.
The largest hotel, Hilton Garden Inn Monterey, represents 10.2% of the allocated loan amount. All the 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.