Fitch Ratings has interjected in the ongoing sale of the Mint 2015 securitisation debt, issued by JPMorgan which is secured by three rebranded Hilton hotels, with an unsolicited press release issued on Friday afternoon challenging the ratings rationale concluded by Standard & Poor’s and DBRS.
In its first public intervention on a CMBS transaction pre-pricing which it is not rating since the first securitisation of Chiswick Park more than four years ago, Fitch Ratings claims that the transaction is exposed to risks in changes to the supply and demand for hotel rooms.
This could negatively affect the profitability and, in turn, the sustainable cash flow levels which the two London and one Amsterdam hotel could support, in Fitch’s view.
The Mint 2015 PLC transaction is the securitisation of a loan refinancing Blackstone’s reduced Mint hotel portfolio, in JPMorgan’s return to European CMBS and also the first post-crisis multi-jurisdictional, dual-currency securitisation.
The transactions is comprised of two loans which are secured by three four-star hotels, rebranded as DoubleTree by Hilton hotels in 2012, with a separate capital structure for the sterling and euro component parts.
Of particular focus to Fitch in its assessment was the €131.0m euro-denominated trance which Fitch said would not have been awarded an ‘AAAsf’ rating which S&P DBRS gave in their pre-sale reports.
“This is because the Amsterdam market suffers from a structural declining trend in hotel revenues, which would affect Fitch’s analysis at the higher rating levels,” the rating agency stated on Friday.
“Fitch would also estimate sustainable free cash flow for the London hotels more conservatively than the other rating agencies, in light of threats from market competition and an overheating market.”
Fitch claims that historical market data on revenue per available room (RevPAR) suggest that the Amsterdam market as a whole is above trend, and therefore vulnerable to a later correction
“Moreover, the underlying long-term trend is downward, which in Fitch’s CMBS analysis would warrant a greater haircut, particularly in the higher rating stresses.”
Fitch estimates sustainable free cash flow of around €13m a year – “well below the estimate of one of the other agencies,” Fitch noted. By comparison, DBRS’ analysis stated a net cash flow for the Amsterdam hotel of €14.8m, while S&P offered a figure of €13.1m for the hotel’s sustainable net operating income.
Fitch estimates sustainable free cash flows for the two London hotels of around £20m a year, about 15% below S&P and DBRS’ published levels.
Prevailing yields for well-branded hotels in London are slightly below the 10-year average. Fitch estimates a sustainable market value of around £350m for the London hotels, about midway between the estimates of the other agencies.
However, in Amsterdam, despite falling sharply below the five-year average in the last 18 months, prime yields remain around 150bp higher than in London. Fitch estimates a sustainable market value of €175m for the Amsterdam hotel, around 10% below the other agencies’ levels.
JPMorgan is expected to issue initial pricing guidance this week, with settlement originally slated for next week.