DBRS Morningstar Confirms Ratings on Shelter Growth CRE 2019-FL2 Issuer Ltd, Changes Trends to Negative

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Priority Secured Floating Rate Notes Due 2036 issued by Shelter Growth CRE 2019-FL2 Issuer Ltd as follows:

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

Additionally, DBRS Morningstar changed the trends on Classes B, C, D, E, F, G, and H to Negative from Stable. Classes A and A-S have Stable trends.

The Negative trends reflect the ongoing challenges faced by several loans in the pool, which have been significantly affected by the Coronavirus Disease (COVID-19) pandemic with several loans unable to secure permanent takeout financing. Additionally, five loans, representing 45.8% of the current pool balance, are secured by hotel properties. The hospitality sector has been significantly affected by the pandemic as occupancy and nightly rates remain depressed below historical levels. According to February 2021 reporting, no loans are delinquent; however, four loans, representing 14.2% of the current pool balance, have been granted forbearances. At issuance, DBRS Morningstar considered several properties to be stabilized, with individual borrowers having already achieved the business plans contemplated at loan closing. Given the current economic environment; however, many of these properties may face difficulty achieving pre-pandemic cash flows observed at issuance.

At issuance, the collateral consisted of 18 collateral interests comprising three first-lien whole mortgage loans and 15 pari passu participation interests in either a mortgage loan or a combined loan that consists of a mortgage loan and a related mezzanine loan secured by equity interests in the related mortgage borrower. As of the February 2021 remittance, 13 of the original 18 loans remain in the pool, representing a collateral reduction of 18.9% for a total remaining pool balance of $367.6 million.

As of February 2021 reporting, there are four loans, representing 31.0% of the current pool balance, on the servicer’s watchlist, all of which are being monitored for loan maturity. The largest loan on the servicer’s watchlist is Westin DFW (Prospectus ID#2, 13.6% of the current pool balance). The loan is secured by a 506-key full-service hotel in Irving, Texas, adjacent to the Dallas/Fort Worth International Airport. The collateral was originally built in 1987 and renovated in 2019. The $13.0 million brand-mandated property improvement plan renovation included full renovations to guest rooms, food and beverage outlets, updates to the lobby, and select improvements to the site exterior, which were completed at year-end 2019. The loan had an initial loan maturity in January 2020 and, since that time, the borrower has exercised two of the three one-year extension options with the loan now maturing in January 2022. While the borrower has successfully completed the property renovation, performance has declined as a result of the pandemic. The loan remains current and the borrower did not request relief; however, given the subject’s reliance on both business and leisure travel in addition to meeting and group business, performance is expected to remain depressed well into 2021, which may once again make it difficult for the borrower to secure refinance capital at loan maturity.

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.

DBRS Morningstar materially deviated from its principal methodology when determining the ratings assigned to Classes B and C. The material deviations are warranted given the uncertain loan-level event risk.

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#3 – Ritz Carlton Fort Lauderdale (11.4% of the pool)
-- Prospectus ID#7 – La Posada de Santa Fe Resort and Spa (6.8% of the pool)
-- Prospectus ID#13 – Four Points Boston (4.5% 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.

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 [email protected].

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