DBRS Morningstar Confirms All Ratings of STWD 2019-FL1

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Floating-Rate Notes, Series 2019-FL1 by STWD 2019-FL1, Ltd. (the Issuer):

-- Class A Notes at AAA (sf)
-- Class A-S Notes at AAA (sf)
-- Class B Notes at AA (low) (sf)
-- Class C Notes at A (low) (sf)
-- Class D Notes at BBB (sf)
-- Class E Notes at BBB (low) (sf)
-- Class F Notes at BB (low) (sf)
-- Class G Notes at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. In its analysis of the transaction, DBRS Morningstar applied probability of default (POD) adjustments to loans with confirmed issues partially related to the stressed real estate environment caused by the Coronavirus Disease (COVID-19) pandemic. Because of the transitional nature of the underlying collateral, proposed business plans that are necessary to bring the assets to stabilization may be delayed, and, in some cases, borrowers have requested relief from the issuer. DBRS Morningstar has built an additional POD stress into its analysis of this transaction and, based on currently available information, expects the rated classes to be insulated from adverse credit implications at this time, warranting the rating confirmations.

At issuance, the pool consisted of 20 floating-rate mortgages and one fixed-rate mortgage secured by 38 transitional
properties, with a cut-off balance totaling $1.1 billion, excluding approximately $116.0 million of future funding commitments. The transaction is structured with an initial 24-month Reinvestment Period (ending August 2021), whereby the Issuer may acquire additional future funding participations and funded companion participations, with principal repayment proceeds. The transaction stipulates a $5.0 million threshold on pari passu participation acquisitions before a RAC is required if there is already a participation of the underlying loan in the trust. As of the July 2020 remittance, the trust consists of 29 loans with an aggregate principal balance of $1.099 billion and approximately $140.5 million future funding commitments available. To date, 15 of the original 21 loans, representing 84.6% of the current transaction balance, remain in the pool. Two of these loans, Dune Vegas II (Prospectus ID#13, 1.9% of the current pool) and Winrock II (Prospectus ID#19, 0.8% of the current pool) have had collateral releases since issuance as a result of property sales, resulting in a principal paydown of $17.0 million and $16.7 million, respectively. There have been 10 newly acquired loans added to the trust since issuance.

Two loans, The Brown Palace Hotel & Holiday Inn Express Denver Downtown (Prospectus ID#8, 5.6% of the current pool) and The Hyatt Regency Houston (Hyatt Regency) (Prospectus ID#9, 5.3% of the current pool), have recently been granted mortgage relief, stemming from the outbreak of coronavirus. Both loans received three months forbearance (through September 2020 and August 2020, respectively), deferral on monthly FF&E reserve deposits, and extensions on approved capital expenditure projects, among other terms. To date, the Brown Palace Hotel and The Hyatt Regency Houston are operational, while the Holiday Inn Express Denver Downtown remains closed. DBRS Morningstar is monitoring these loans and has applied stressed scenarios in its analysis.

According to the July 2020 remittance, there are no loans in special servicing, but there are two loans (11.1% of the pool) on the servicer’s watchlist. The larger of the two loans, 700 Louisiana and 600 Prairie Street (Prospectus ID#2, 8.7% of the current pool), was flagged for an upcoming maturity date in September 2020; however, the borrower has three 12-month extension options available and the servicer has indicated the borrower will be exercising its first option. The 1213 Walnut Street loan (Prospectus ID#26, 2.4% of the current pool) is being monitored because an ongoing insurance claim for a major casualty (water damage) that occurred prior to loan closing. The cost to rectify was below the restoration threshold per the loan documents, and, according to an update from the collateral manager, the restoration work is nearly complete and the final insurance payment has been received.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – Poydras Office and Hotel (8.8% of the pool)
-- Prospectus ID#2 – 700 Louisiana and 600 Prairie Street (8.7% of the pool)
-- Prospectus ID#4 – Park at Pentagon Row (8.2% of the pool)
-- Prospectus ID#5 – 1310 N Courthouse (7.4% of the pool)
-- Prospectus ID#6 – Coppermine Commons (6.6% of the pool)
-- Prospectus ID#7 – Stadium Gateway (5.9% of the pool)
-- Prospectus ID#8 – Brown Palace Hotel & Holiday Inn Express Denver Downtown (5.6% of the pool)
-- Prospectus ID#9 – Hyatt Regency Houston (5.3% of the pool)
-- Prospectus ID#11 – 1979 Marcus (4.1% of the pool)

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 6, 2020), 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 [email protected].

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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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