DBRS Morningstar Confirms All Classes of MBRT 2019-MBR, Changes Trends on Three Classes to Stable From Negative

DBRS Limited (DBRS Morningstar) confirmed all ratings of the Commercial Mortgage Pass-Through Certificates, Series 2019-MBR issued by MBRT 2019-MBR as follows:

-- Class A at AAA (sf)
-- Class A-IO at AAA (sf)
-- Class A-Y at AAA (sf)
-- Class A-Z at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at AA (low) (sf)
-- Class D at A (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class X-A at B (high) (sf)
-- Class G at B (sf)

DBRS Morningstar changed the trends on Classes F, G, and X-A to Stable from Negative. All remaining classes have Stable trends.

The rating confirmations and trend changes reflect the overall improved performance of the collateral as it continues to recover from the effects of the Coronavirus Disease (COVID-19) pandemic. The interest-only (IO) floating-rate loan is secured by the fee interest in the 400-key AAA Five Diamond-rated luxury, full-service resort hotel and the leasehold interest in the Waldorf Astoria Monarch Beach Resort and Club, previously known as the Monarch Bay Beach Club, a private beach club near the hotel facilities in Dana Point, California. Loan proceeds of $370.0 million, along with sponsor equity of $127.6 million, financed the acquisition of the property at a purchase price of $492.5 million. The loan had an initial two-year term with three one-year extension options. The first extension option was exercised last year and the loan is currently scheduled to mature in November 2022.

The property was rebranded as a Waldorf Astoria hotel in September 2020, providing opportunity for the subject to leverage Hilton’s global sales and booking networks. According to the Branding and Management agreement, Waldorf Astoria paid $40.0 million to operate the property for a minimum of 30 years and the borrower was required to complete a property improvement plan to align with brand standards. Based on the servicer’s November 2021 site inspection report, approximately $40.0 million of renovations are to be completed, with planned projects that included guestroom renovations budgeted at $21.0 million and a lazy river installation for $8.5 million.

According to the April 2022 STR report, the property reported a trailing 12 months (T-12) ended April 30, 2022 occupancy rate of 46.7%, average daily rate (ADR) of $601.07 and revenue per available room (RevPAR) of $280.80, representing a RevPAR penetration rate of 75.8%. This is an improvement from the T-12 ended December 31, 2020, occupancy rate of 41.4%, ADR of $464.06, and RevPAR of $192.18. The subject has historically underperformed when compared with the competitive set with RevPAR penetration rates hovering near 80.0%.

The loan is on the servicer’s watchlist because of a trigger event tied to a low debt yield but the servicer’s commentary noted that the Q1 2022 debt yield was 6.8%, which is above the 6.0% threshold. As such, DBRS Morningstar expects that the loan will be removed from the watchlist in the near term. Based on the year-end (YE) 2021 financials provided, the loan reported net cash flow (NCF) of $18.0 million, compared with YE2020 when the loan reported a negative NCF. Cash flows remain below the DBRS Morningstar NCF of $22.2 million but are expected to continue to stabilize through the end of 2022.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Class X-A 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.

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

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.

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

The principal methodology is the North American CMBS Surveillance Methodology (March 4, 2022), 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.

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].

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