DBRS Morningstar Changes Trends on All Classes and Confirms All Classes of Natixis Commercial Mortgage Securities Trust 2018-SOX

DBRS, Inc. (DBRS Morningstar) confirmed its ratings of the Commercial Mortgage Pass-Through Certificates, Series 2018-SOX issued by Natixis Commercial Mortgage Securities Trust 2018-SOX as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class X at AA (sf)
-- Class C at AA (low) (sf)
-- Class V-ABC at AA (low) (sf)
-- Class D at A (low) (sf)
-- Class V-D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class V-E at BBB (low) (sf)
-- Class V2 at BBB (low) (sf)

With this review, DBRS Morningstar changed the trends on all classes to Stable from Negative. The Negative trends had reflected DBRS Morningstar’s ongoing concerns with the Coronavirus Disease (COVID-19) pandemic, which was contributing to significant uncertainty for hotel properties across the country. The rating confirmations and trend changes with this year’s review reflect DBRS Morningstar’s generally stable outlook for this transaction, based on the following factors: strong sponsorship, a separate guarantee of the lease by the tenant, $20.0 million in capital improvements for the collateral hotel in the last year, and the underlying loan’s status as current throughout the last year with no coronavirus-related relief requested by the loan sponsor.

The transaction consists of a $110.0 million first mortgage secured by the fee-simple interest in the InterContinental Boston hotel. The sponsor developed the property between 2004 and 2006, with hotel operations commencing in November 2006. The property was master leased by the sponsor to InterContinental Hotels Group Resources, Inc. (IHG), under a triple-net lease on a 99-year initial term with two 20-year extension options, and a fully extended term stretching to July 2145. The lease is guaranteed by Six Continents, PLC, which is a wholly owned subsidiary of InterContinental Hotels Group, with an expiration of the guarantee in July, 2032, four years after the loan’s maturity date.

Additional financing includes a $65.0 million subordinate B note and two mezzanine loans of $60.0 million and $30.0 million, respectively, held outside of the trust. The mezzanine loans are co-terminous with the whole loan’s maturity date. Total loan funds were used to refinance existing debt of $209.2 million, cover closing costs, fund a rent step-up reserve account of $10.0 million, fund other reserve accounts, and return $40.9 million of equity to the sponsor. The 10-year loan is interest only (IO) for its entirety with a maturity date in June 2028.

The InterContinental Boston is a 424-room, full-service, Four Diamond AAA-rated hotel in downtown Boston adjacent to the Financial and Seaport districts. In close proximity to the subject are the Boston Convention and Exhibition Center, New England Aquarium, and the Boston Tea Party Ships and Museum in addition to various shops and restaurants. The collateral consists of the fee interest in the first 12 floors of a 20-story building and offers 32,000 square feet (sf) of meeting space; three restaurants; and a spa, health, and fitness center. InterContinental Hotels Group Resources, Inc., the tenant under a master lease of the collateral, self-manages the property. The hotel completed a $20.0 million renovation in June 2020, which included a renovation of all guestrooms and corridors as well as meeting spaces and the two main restaurants.

As a result of the borrower having entered into a master lease of the property, the rent from the master lease represents the primary income source for the repayment of the loan. The master lease rent is currently fixed at $16.0 million with a scheduled step-up to $21.1 million in August 2022 and further rental increases scheduled over the term of the lease. According to the terms of the loan, the borrower is not required to report information on the performance of the tenant unless the IHG lease is terminated. As a result, no occupancy or financial information was provided for the hotel operations. The borrower has remained current on its debt service obligations and, based on the most recent reporting from YE2020, the loan had a debt service coverage ratio of 2.97 times (x) (1.84x when including the noncollateral B note) that has remained constant since issuance.

The loan sponsor is Extell Boston Atlantic LLC (Extell), a subsidiary of Extell Development. Founded in 1989, Extell has developed more than 25.0 million sf of luxury residential, commercial, hospitality, and mixed-use properties throughout major markets in the U.S. with a concentration in New York.

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.

Class X is an IO certificate that references 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 Morningstar.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level 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 the North American CMBS Surveillance Methodology (March 26, 2021), 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.

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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