DBRS Discontinues One Class and Confirms Remaining Classes of GS Mortgage Securities Corporation Trust 2017-STAY

DBRS, Inc. (DBRS) discontinued and withdrew the rating of the Commercial Mortgage Pass-Through Certificates, Series 2017-STAY, Class X-CP issued by GS Mortgage Securities Corporation Trust 2017-STAY as the notional class was structured to receive interest distributions and passed its final distribution date as of January 2019. DBRS also confirmed the ratings of the remaining certificates as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (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 remain Stable.

The rating confirmations reflect the overall stable performance of the transaction. The $200.0 million trust loan is a floating-rate, interest-only mortgage with an initial term of three years and two one-year extension options. The loan is secured by the fee interest in a portfolio of 40 extended-stay hotels totaling 5,195 keys located in 14 separate states throughout the United States. Although somewhat concentrated in the Southeast region, the portfolio is geographically diverse and relatively granular as no single hotel represents more than 4.7% of the allocated loan balance. All hotels operate under the InTown Suites flag, which is owned by the loan sponsor, Starwood Capital Group Global L.P. The sponsor has substantial experience in the hotel sector and acquired the collateral in 2013 from Kimco Realty Corporation as part of the acquisition of the InTown Suites platform for $735.0 million. Loan proceeds were used to refinance $174.5 million of existing portfolio debt, return $19.0 million of equity to the sponsor and cover closing costs.

The portfolio’s performance has improved since issuance as the loan reported a year-end (YE) 2018 debt service coverage ratio (DSCR) of 3.19 times (x), compared with the DBRS Term DSCR of 2.57x that was derived at issuance. The improvement in the YE2018 DSCR over the DBRS Term figure was attributed to a 10% increase in room revenue since issuance. A trailing three-months-ending March 2019 DSCR was reported at 2.79x; however, this covered a weaker demand period during the year as hotels are highly seasonal.

The Smith Travel Research (STR) reports ending March 2019 were provided for all 40 hotels, with the portfolio reporting a weighted-average (WA) trailing 12-month (T-12) occupancy rate, average daily rate (ADR) and revenue per available room (RevPAR) of 85.4%, $40.02, and $34.13, respectively. These figures were relatively similar compared with the WA T-12 ending March 2018 occupancy rate, ADR and RevPAR of 86.2%, $39.21 and $33.83, respectively. As of the March 2019 STR reports, the portfolio reported a RevPAR penetration of only 91.5%; however, the competitive set captured a mix of mid-price and economy extended-stay assets, which do not directly compete with the subject portfolio’s low-price product offering.

All of the properties are well-established within their respective markets and the sponsor has continued to further invest in the collateral since acquisition. Since 2013, approximately $24.1 million ($4,639 per key) has been spent on capital improvements across the portfolio. Additional renovations have been ongoing since issuance based on the site inspection reports with the Birmingham, Columbus East, Columbus North and Dayton properties extensively renovated in 2018 (8.9% of the allocated loan balance). As there are no franchised locations, a property improvement plan is not required for any of the hotels. Because of the older age of the collateral properties, the borrower is required to deposit 5.0% of the portfolio’s operating income into the furniture, fixtures and equipment (FF&E) reserve on a monthly basis. According to the July 2019 loan level reserve report, the FF&E reserves were relatively low at $418,803, as $381,848 was disbursed in June 2019.

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

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

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

The principal methodology is North American CMBS Surveillance Methodology, which can be found on www.dbrs.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 Global Structured Finance Related Methodologies document, which can be found on www.dbrs.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.

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.

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 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.

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