DBRS Confirms All Classes of GS Mortgage Securities Corporation Trust 2017-STAY

DBRS Limited (DBRS) confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2017-STAY issued by GS Mortgage Securities Corporation Trust 2017-STAY as follows:

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

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction since issuance. The underlying $200.0 million loan is a floating-rate, interest-only (IO) mortgage with an initial term of three years and two one-year extension options available. The loan is secured by the fee interest in a portfolio of 40 extended-stay hotels totalling 5,195 keys, located in 14 different states across the United States. The hotels all operate under the InTown Suites flag. The brand is owned by the loan sponsor, Starwood Capital Group Global L.P. (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 from Kimco Realty Corporation. With the subject transaction, Starwood cashed out $19.0 million at closing.

As noted by DBRS at issuance, extended-stay hotels have a much more stable cash flow profile than traditional hotels. Based on the DBRS-concluded value of $213.0 million ($40,991 per key) at issuance, the DBRS loan-to-value (LTV) ratio of 93.9% is considered rather high. While the DBRS LTV is high, it is based on a stressed valuation, assuming a significant increase in market cap rates.

As with the overall hotel market, average daily rate (ADR) and occupancy levels at the subject properties have been posting strong gains over the past few years. Although somewhat concentrated in the Southeast region, the portfolio is geographically diverse and relatively granular as the 40 hotel assets are located across 14 states and 19 metropolitan statistical areas. No single hotel represents greater than 4.5% of the allocated loan balance. The cumulative investment-grade-rated proceeds per key exposure is healthy at $31,627 and the DBRS Debt Yield, as calculated at issuance, is high at 15.2%.

The loan was briefly placed on the servicer’s watchlist in January 2018 for delinquent property taxes, but was removed with the next month’s remittance as the issues were resolved. According to the year-to-date ending March 2018 financials, the servicer calculated a debt service coverage ratio (DSCR) of 3.06 times (x) compared with the DBRS Term DSCR of 2.57x at issuance. Cash flows are up over the DBRS figure because of a lower capital expenditure figure that was applied in the servicer’s analysis. Reported revenues and expenses were in line with DBRS estimates. Since 2013, roughly $24.1 million ($4,639 per key) has been spent on capital improvements across the portfolio. The loan is structured with ongoing furniture, fixtures and equipment reserves equal to one-twelfth of 5.0% of the portfolio’s operating income during the immediately preceding 12-month period, collected monthly during the loan term.

At issuance, DBRS assumed a floating 30-day London Interbank Offered Rate (LIBOR) of 1.87%. It should be noted that 30-day LIBOR has increased by 85 basis points and currently equates to 2.08% as of August 1, 2018. As interest rates increase, the DSCR could trend downward in the absence of higher revenue growth.

Smith Travel Research reports dated March 2018 were provided for all 40 hotel properties. The borrower appears to competitively undercut the market in terms of ADR and revenue per available room (RevPAR) to generate higher occupancy levels. The portfolio’s weighted-average (WA) occupancy increased to 85.7% in March 2018 from 84.2% in April 2017 and ranged from 75.8% to 94.3% by property location, which yielded a WA market index of 121.5%. Only two properties have a market index under 100.0%. The portfolio’s WA RevPAR increased to $32.69 in March 2018 from $31.06 in April 2017 with a WA market index of 90.6%. At issuance, DBRS assumed a RevPAR figure of $28.97.

Classes X-CP and X-NCP are 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 ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction. For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes loan level-data for the entire CMBS universe as well as deal and loan-level commentary for all DBRS-rated transactions.

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

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. 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.

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@dbrs.com.

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

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