DBRS Morningstar Finalizes Provisional Ratings on WSTN Trust 2023-MAUI

DBRS, Inc. (DBRS Morningstar) finalized provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2023-MAUI (the Certificates) issued by WSTN Trust 2023-MAUI (WSTN 2023-MAUI).

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

All trends are Stable.

The WSTN 2023-MAUI transaction is secured by the borrower’s leasehold interest in a 771 key full-service resort and spa located on the island of Maui. Built in 1971, the Westin Maui Resort and Spa, Kaanapali offers 700 feet of direct ocean frontage on the Kaanapali Beach with an outer island location. DBRS Morningstar has a positive view on the collateral and contends the NCF on the Westin Maui Resort and Spa, Kaanapali is sustainable and will continue to grow over the term of the loan considering the hotel’s prime beachfront location, the significant capital invested into the property with continued near-term investment, and the collateral’s strong financial performance.

The resort offers two guest room buildings, the Hokupa’a Tower and the Ocean Tower, both of which offer a unique guest room experience with different price points depending on the size and distinctive interior finishes. The resort features six outdoor resort-style pools overlooking Kaanapali Beach, a 270-foot water slide, six F&B outlets, 68,000 sf of indoor and outdoor event space catered for various events, an award-winning, full-service spa with nine treatment rooms, a fitness center, 20,000 sf of retail space, and preferred access at the Kaanapali Golf Courses and Lanai Club Lounge for guests staying in the Hokupa’a Tower. DBRS Morningstar believes the resort will continue to attract targeted guest groups by fulfilling their various needs and providing them with unique experiences within the multitude of activities it offers. In addition to room and F&B revenue, the resort has also consistently generated approximately 12% of its total revenue in ancillary income from resort fees, its spa and fitness offerings, parking, and private events over the past few years including 2020 amid the Coronavirus Disease (COVID-19) pandemic. DBRS Morningstar views the diversification of operations as a credit positive because the resort’s cash flow will be less susceptible to revenue swings than more limited service hotels, making it more resilient during economic downturns. The sponsor has invested heavily in the property since acquiring the collateral in 2017, and the improvements have bolstered the property’s position within the hospitality segment on Maui. In 2021, the sponsor completed a $121 million capital improvement plan, which included the full renovation of the Hokupa’a Tower, repositioned public areas and amenities throughout the property, re-concepted the lobby, re-concepted F&B offerings, enhanced the pool areas/aquatic amenities, improved meeting and event space, upgraded the spa and fitness facilities, fully renovated and expanded the retail corridor and built an entirely new 430-space parking structure. To further sustain the upkeep of the property and align guest room finishes, the sponsor is in the process of investing approximately $29 million to renovate the Ocean Tower with an expected completion by the end of 2023. Renovations will include a refresh of all hard and soft goods in the guest rooms at the Ocean Tower and the redevelopment of the Westin Family Kids Club, vacant retail, and office space in Ocean Tower. Upon completion of the renovation, the redeveloped space will include a 12,000-sf social space environment that will feature a variety of entertainment for guests such as duckpin bowling lanes, an assortment of arcade games, and virtual golf suites. DBRS Morningstar views the value-add renovation as a key element for the collateral to enhance the hotel’s performance and maintain is status as a competitive asset within the Maui market.

Like most beachfront developments in Hawaii, the collateral is encumbered by a ground lease. The ground lease is scheduled to expire on December 31, 2086, and contains rent provisions that escalate at five-year intervals. Terms for the lease require the greater of (i) annual minimum rent of $4.5 million between January 1, 2019, and December 31, 2026 or (ii) percentage rent equal to the sum of the percentages of gross revenues: 6.0% of rooms revenue, 4.0% of F&B revenue, 10.0% of other revenue, and 25.0% of concessions. On January 1, 2027, and every five-year period afterwards, minimum rent resets to 80.0% of the average of the combined annual minimum rent and percentage rent paid during the three calendar years immediately preceding the reset. Additionally, on January 1, 2027, percentage rent resets to percentages that will be mutually agreed upon by Campbell Hawaii Investor LLC (lessor) and WM Lessee LLC (lessee).

DBRS Morningstar’s credit ratings on the Certificates address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are listed at the end of this press release.

DBRS Morningstar’s credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations (for example, default prepayment premium).

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/416784 (July 4, 2023).

Classes X-CP and X-NCP are interest-only (IO) certificates that reference 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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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

The principal methodology is North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023; https://www.dbrsmorningstar.com/research/410191).

Other methodologies referenced in this transaction are listed at the end of this press release.

With regard to due diligence services, DBRS Morningstar was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of DBRS Morningstar’s methodology, DBRS Morningstar used the data file outlined in the independent accountant’s report in its analysis to determine the credit ratings referenced herein.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies

Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008).

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577).

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646).

North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499).

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

Financial Obligations of the issuer are listed as follows:
-- Class A Principal Amount
-- Class A Interest Distribution Amount
-- Class X-CP Interest Distribution Amount
-- Class X-NCP Interest Distribution Amount
-- Class B Principal Amount
-- Class B Interest Distribution Amount
-- Class C Principal Amount
-- Class C Interest Distribution Amount
-- Class D Principal Amount
-- Class D Interest Distribution Amount
-- Class E Principal Amount
-- Class E Interest Distribution Amount
-- Class HRR Principal Amount
-- Class HRR Interest Distribution Amount