KBRA Assigns Preliminary Ratings to ESA 2021-ESH

Kroll Bond Rating Agency (KBRA) announces the assignment of preliminary ratings to 11 classes of ESA 2021-ESH, a CMBS single-borrower securitization.

The collateral for the transaction is a $4.65 billion non-recourse, first lien mortgage loan. The floating rate loan has an initial two-year term with three one-year extension options and requires monthly interest-only payments based on one-month LIBOR. The loan is secured by the borrowers’ fee simple interests in 555 lodging properties totaling 61,650 keys and the leasehold interests in five hotels totaling 607 keys, all operating under the Extended Stay America flag located in 40 states. For the TTM 4/2021 period, excluding 13 development properties, the portfolio’s occupancy was 75.7% with an average daily rate (ADR) of $59.62, resulting in revenue per available room (RevPAR) of $45.11.

KBRA’s analysis of the transaction included a detailed evaluation of the properties’ cash flows cash flows using our U.S. CMBS Property Evaluation Methodology and the application of our U.S. CMBS Single Borrower & Large Loan Rating Methodology. In addition, KBRA also relied on its Global Structured Finance Counterparty Methodology for assessing counterparty risk in this transaction and its ESG Global Rating Methodology, to the extent deemed applicable.

The results of our analysis yielded a KBRA net cash flow (KNCF) for the portfolio of approximately $487.9 million, which is 8.4% below the issuer’s NCF, and an aggregate KBRA value of approximately $4.14 billion ($66,450 per key), which is 32.2% below the appraiser’s hypothetical portfolio market value of $6.1 billion ($97,981 per key) assuming the portfolio is sold together in a single transaction to a single purchaser and is subject to the existing management and license agreements. The resulting in-trust KBRA Loan to Value (KLTV) is 112.4%. In our analysis of the transaction, we also reviewed and considered third party engineering, environmental, and appraisal reports; the results of our site inspections of the properties, and legal documentation review.

Click here to view the report. To access ratings and relevant documents, click here.

Related Publications

• U.S. CMBS Property Evaluation Methodology
• U.S. CMBS Single Borrower & Large Loan Rating Methodology
• Methodology for Rating Interest-Only Certificates in CMBS Transactions
• Global Structured Finance Counterparty Methodology
• ESG Global Rating Methodology

Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority pursuant to the Temporary Registration Regime. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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