DBRS Morningstar Confirms All Classes of GS Mortgage Securities Corporation Trust 2017-SLP, Changes Trends to Stable

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-SLP issued by GS Mortgage Securities Corporation Trust 2017-SLP as follows:

--Class A at AAA (sf)
--Class X-A at AAA (sf)
--Class B at AA (sf)
--Class C at A (sf)
--Class X-B at BBB (high) (sf)
--Class D at BBB (sf)

With this review, DBRS Morningstar changed the trends across all classes to Stable from Negative, due to the loan’s overall stable performance during the pandemic as indicated in the loan’s debt service coverage ratio (DSCR) of 1.29 times (x). The loan has also remained current with no reported delinquencies.

The $800.0 million mortgage loan is secured by the fee and leasehold interests in a portfolio of 138 hotels, two of which are full-service hotels but the majority of which are limited-service/select-service or extended-stay hotels. In aggregate, the portfolio totals 10,576 keys located in 27 states and across 84 unique metropolitan statistical areas (MSAs) in the United States. The borrower used loan proceeds to refinance $753.1 million of debt, a portion of which was previously securitized across four different securitizations. The remaining $46.9 million in subject loan proceeds financed a $34.2 million upfront property improvement plan (PIP) reserve and returned $1.6 million of cash equity to the sponsor.

The hotels operate under 16 different flags across six different brands, the majority of which (nearly 93.4% of the portfolio by allocated loan balance) are affiliated with either Marriott International, Inc. or Hilton Hotels & Resorts. Only 11 hotels, representing 12.0% of the allocated loan balance, have franchise expiries during the loan term. An affiliate of Aimbridge Hospitality manages 127 hotels in the portfolio (9,302 keys; 84.9% of the total loan amount). Since acquiring the collateral properties from various affiliates in 2015, the sponsor has made a sizable capital investment across the portfolio with $80.7 million ($7,634 per key) spent through Q2 2017. In addition, prior to the sponsor’s acquisition of the portfolio, previous Starwood Capital Group (Starwood) affiliates invested $88.3 million across the collateral, bringing total PIP renovations and elective capital expenditures to $185.2 million ($17,514 per key) since 2012. The upfront PIP reserve of $34.2 million ($3,238 per key) was allocated to required PIP work scheduled for 2018 through the end of 2022. In addition, the loan is structured with ongoing furniture, fixtures, and equipment (FF&E) reserves equal to 4.0% of gross revenue.

The sponsor for this loan is SCG Hotel Investors Holdings, L.P., an affiliate of Starwood. Starwood is a private investment firm that primarily focuses on global real estate with more than $60 billion of assets under management and approximately $45 billion of equity capital raised since 1991.

The loan is currently being monitored on the servicer’s watchlist for performance concerns associated with the pandemic. In June 2020, the borrower and special servicer agreed to a Standstill Agreement that suspended the monthly FF&E escrow payments until December 2020. While the year-end 2020 net cash flow was down 75.3% year over year, the loan still managed to produce positive cash flow as the YE2020 DSCR was 1.29x. The portfolio’s year-end 2020 performance reported an average occupancy, average daily rate (ADR), and revenue per available room (RevPAR) of 20.4%, $86.28, and $41.86, respectively. Prior to the effects of the Coronavirus Disease (COVID-19) pandemic, the portfolio reported YE2019 average occupancy, ADR, and RevPAR of 71.1%, $109, and $77.

According to the trailing 12 months ending July 2021 STR reports, the majority of the portfolio’s 10 largest hotels by allocated loan amount recorded RevPAR penetration exceeding 100%. Only three hotels among the 10 largest—DoubleTree Holland, Courtyard Lexington Keeneland Airport, and TownePlace Suites Boise—had penetration rates below 100%.

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.

Classes X-A and X-B 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 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 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 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings

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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 (416) 593-5577