Fitch Affirms SCG 2013-CWP Hotel Issuer Inc.
--\\$30.2 million class A-1 at 'AAAsf'; Outlook Stable;
--\\$188 million class A-2 at 'AAAsf'; Outlook Stable;
--\\$25 million class B at 'AAsf'; Outlook Stable;
--\\$40 million class C at 'Asf'; Outlook Stable;
--\\$65 million class D at 'BBBsf'; Outlook Stable;
--\\$40 million class E at 'BBB-sf'; Outlook Stable.
The interest-only class X is not rated by Fitch.
KEY RATING DRIVERS
The trailing 12-month (TTM) performance of the hotel portfolio has increased since Fitch's last rating action in 2014. As of April 2015, the servicer-reported portfolio TTM net cash flow (NCF) was \\$60.7 million versus the reported TTM NCF of \\$58.6 million at issuance. Fitch's stressed debt service coverage ratio (DSCR) and loan to value (LTV) for the trust component of the debt are 1.52x and 69%, respectively, compared with 1.41x and 73.9%, at issuance.
There is an \\$80 million interest-only mezzanine loan subordinate to and co-terminus with the trust mortgage. The transaction has a standard sequential-pay structure.
The portfolio consists of five, Westin-flagged hotels that are well-located in the downtown core of five of Canada's six largest cities. Four of the five assets achieved revenue per available room (RevPAR) growth year-over-year (as of end of April 2015) and occupancy remains strong at all five hotels. Between 2005 and 2012, the properties underwent approximately \\$181 million (\\$61,887 per key) in capital expenditures. Therefore, there were no property improvement plans (PIPs) required upon the loan sponsor, Starwood Capital Group's, purchase of the portfolio. Also, prior to issuance, the sponsor signed a 30-year management agreement with Starwood Hotels.
The ratings reflect strong historical Canadian commercial real estate loan performance, including a low delinquency rate and low historical losses. In addition, the legal framework generally favors lenders' rights.
The Rating Outlook for all classes remains Stable. Hotels have historically exhibited volatile performance compared with other property types; however, as the transaction continues to amortize coupled with the increase in portfolio cash flow and no further economic headwinds from the decline in oil prices, upgrades may be warranted. Conversely, no downward rating actions are expected unless there is significant deterioration of property occupancy and cash flow.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.