Checking in on the Swan and Dolphin (Hotels) in Orlando

Bank of America is securitizing two loans totaling $345 million backing the Walt Disney World Swan Hotel (also known as the Westin Swan) and the Walt Disney World Dolphin Hotel (also known as the Sheraton Dolphin). The Westin Swan and the Sheraton Dolphin are upscale resorts adjacent to each other in the Epcot Resort area within Walt Disney World in Orlando, FL.

The combined properties include 2,267 guestrooms, 329,000 square feet of indoor meeting space, 17 restaurants and lounges, five resort-style swimming pools, two health clubs and an array of other amenities.

The Westin Swan and the Sheraton Dolphin are the only non-Disney owned resorts that are permitted to use the “Walt Disney World” designation as part of their hotel name. Affiliates of Tishman Hotel & Realty LP and Metropolitan Life Insurance Co. own the properties.

In a presale report on the upcoming offering, Morningstar valued the hotels at $478.8 million (calculated using an 8.15% capitalization rate. The Morningstar value, which equates to $211,217 per room, is 24.9% lower than the appraised value of $638 million.

According to Morningstar, the properties have been well maintained, with more than $94.3 million ($41,608 per room) invested on capital upgrades and renovations on both hotels since 2007. Work included: $39 million in room and bathroom renovations, $23.5 million in upgrades to restaurants, meeting space, and public areas, and $31 million in mechanical systems and other.

Between now and 2018, Tishman and Metropolitan Life are planning another $117.4 million ($51,782 per room) in improvements, primarily related to hotel guestrooms to include new soft goods, case goods, mattresses, carpeting, and wall coverings. Other renovations will include upgrades to restaurants, meeting space, and public space as well as ongoing upgrades to the mechanical and other back-of-the house systems. About $48 million is expected to be spent in the coming year.

According to Morningstar, the properties perform much better relative to their peer groups. The occupancy for the Westin Swan and Sheraton Dolphin combined was higher than the hotels in the appraiser’s identified competitive set identified in the appraisal by 10.4% and 10.8% points during 2011 and 2012.

Average room rates at the subject hotels were lower than the competitive set by $3.05 during 2011 but were $1.94 higher than the competitive set during 2012.

Overall the RevPAR for the Westin Swan and Sheraton Dolphin achieve more than their fair share of both demand and revenue reflecting a penetration rate of 112.8% and 116.8% during 2011 and 2012, respectively.

The CMBS offering is expected to close later this month.