DBRS Morningstar Confirms Ratings on InTown Hotel Portfolio Trust 2018-STAY

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-STAY issued by InTown Hotel Portfolio Trust 2018-STAY:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class X-NCP at AA (low) (sf)
-- Class D at A (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class G at B (sf)

DBRS Morningstar also changed the trends on Classes A, B, C, X-NCP, and D to Stable from Negative. In addition, the ratings on Classes E, F, and G have been removed from Under Review with Negative Implications, where they were placed on March 27, 2020, because of the negative impact of the coronavirus pandemic. The trend on Class E is Stable, and Classes F and G have Negative trends as a result of sustained underlying pressures and lasting residual effects of the Coronavirus Disease (COVID-19) pandemic.

The $471.0 million mortgage loan is secured by the fee interest in a portfolio of 85 economy, extended-stay hotels, totalling 10,764 keys. All of the hotels in the portfolio operate under the InTown Suites flag. The brand is owned by the loan sponsor, Starwood Capital Group Global LP (Starwood), which has substantial experience in the hotel sector and maintains considerable financial wherewithal. Starwood acquired the collateral assets in 2013 when it purchased the InTown Suites platform for $770.0 million from Kimco Realty Corporation and in 2015 when it acquired the remaining 50 extended-stay properties from Mount Kellett Capital Management. Today, Starwood owns all 196 InTown Suites.

As of the August 2021 remittance, all properties remain within the loan for an aggregate principal balance of $471.0 million. The loan was originally structured as a three-year, floating-rate interest-only (IO) mortgage loan with two one-year extension options. As per the servicer, the loan matured in January 2021, but a one-year loan extension was approved, which extends the maturity to January 2022. The loan is structured with ongoing furniture, fixtures, and equipment (FF&E) reserves that are to be collected at 5.0% of gross revenue on a monthly basis, which are available for planned maintenance throughout the term. The FF&E reserve balance as of August 2021 is $1.1 million.

Although somewhat concentrated in the southeastern U.S., the portfolio is geographically diverse and relatively granular—the 85 hotel assets are located across 18 states. Texas has the highest concentration by allocated loan balance and number of hotels at 30.3% and 27, respectively. The next-largest state concentration is Florida, with eight hotels, which represents 12.7% of the total loan amount by allocated balance. Given the diverse nature of the portfolio, no single hotel represents greater than 2.1% of the allocated loan balance.

Since acquiring the portfolio in 2013 and 2015, Starwood has invested roughly $75.5 million ($7,010 per key) of capital expenditures across the collateral portfolio; of that, Starwood spent $41.8 million ($3,883 per key) in 2015 and 2016 across 42 properties. The remaining assets have only received light updates as needed. The portfolio has an average age of 20 years and many of the properties DBRS Morningstar inspected at issuance were generally dated, with some exhibiting deferred maintenance, resulting in low curb appeal.

At issuance, the portfolio had a long historical background of high occupancy, with a 10-year average of 83.7% and a 10-year average revenue per available room (RevPAR) of $26.78. The weighted-average occupancy, average daily rate, and RevPAR for these properties at issuance was 80.9%, $48.53, and $39.03, respectively, compared with the trailing 12 months ended September 2018 figures of 82.2%, $50.58, and $41.42, respectively. The subject portfolio fared well throughout the pandemic with YE2020 occupancy at 83% and Q1 2021 occupancy at 84%. DBRS Morningstar also notes that the borrower did not request any Paycheck Protection Program loans or coronavirus-related relief throughout the pandemic.

The DBRS Morningstar ratings assigned to Classes E and F had variances that were higher than those results implied by the loan-to-value (LTV) Sizing Benchmarks from the October 14, 2020, review, when market value declines were assumed under the Coronavirus Impact Analysis. The DBRS Morningstar ratings assigned to Classes E and F had variances that were higher than those results implied by LTV Sizing Benchmarks considered with this year’s review, when a baseline valuation scenario was used. For additional information on these scenarios, please see the DBRS Morningstar press release dated October 14, 2020, in respect of the subject transaction. DBRS Morningstar maintains Negative trends on certain classes as outlined in this press release as a reflection of its ongoing concerns with the coronavirus impact to the subject transaction.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Class X-NCP is an IO certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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