DBRS Morningstar Changes All Trends to Stable from Negative, Confirms Ratings on All Classes of GS Mortgage Securities Corporation Trust 2018-LUAU

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-LUAU (the Certificates), issued by GS Mortgage Securities Corporation Trust 2018-LUAU:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)
-- Class X-CP at BBB (sf)
-- Class X-NCP at BBB (sf)

DBRS Morningstar also changed the trends on all classes to Stable from Negative.

The Negative trends previously reflected DBRS Morningstar’s concern with the performance challenges the underlying collateral faced because of the travel restrictions brought on by the Coronavirus Disease (COVID-19) global pandemic. According to YE2021 financials the servicer provided, performance metrics have shown improvement as tourism travel begins to rebound closer to pre-pandemic levels, and, as such, DBRS Morningstar changed the trends to Stable to reflect the improved performance and continued positive outlook of the collateral.

The collateral for the Certificates is the fee-simple ownership interest in the 466-key Ritz-Carlton Kapalua, a luxury resort hotel on the island of Maui, Hawaii. The mortgage loan totals $215.0 million, and the property consists of the 300 hotel keys and 166 residential condominium suites. Of the 466 keys, 68 are owned by third parties that rent their units on the Ritz-Carlton hotel website. The unit owners pay all expenses and share revenue in a 50/50 split with the hotel. Additionally, the hotel owns the remaining 98 condominium units, whose income is included as collateral for the loan. Total collateral includes the 398 keys and the revenue sharing from other units. The sponsor is Blackstone Real Estate Partners VIII-NQ L.P., a leading global asset manager with over $881.0 billion assets under management as of Q4 2021, and $279.5 billion of real estate assets under management, making it one of the largest owners of hotels in the world.

The floating-rate, interest-only (IO) loan matured in November 2020; however, the borrower has exercised the first two of five total available one-year extension options with a current maturity date of November 2022. Interest is set at the Secured Overnight Financing Rate (SOFR) plus 275 basis points (bps), and the spread is subject to an increase of 25 bps upon the fourth extension. The borrower purchased an SOFR interest rate cap with a strike price of 3.5%.

The hotel was constructed in 1976 and opened as a Ritz-Carlton in 1992 on the 49-acre site that features a three-tiered swimming pool, multiple whirlpools, a fitness facility and a 17,500-square-foot (sf) spa, six food and beverage outlets, retail space, tennis courts, and 229,000 sf of multipurpose space, including indoor meeting space and an outdoor ballroom. The hotel has access to two championship golf courses that are not part of the collateral.

According to the March 2022 financials, the trailing-twelve-months (T-12) ended March 31, 2022 reported a net cash flow of $13.0 million (with a debt service coverage ratio (DSCR) of 2.09 times (x)), an increase from the YE2020 figure of -$12.1 million (with a DSCR of -1.63x), and below the YE2019 figure of $18.7 million (with a DSCR of 1.71x). As previously noted, tourism has increased since late 2021 as many travel restrictions have been lifted, which has resulted in increased room revenue. According to the March 2022 STR report, the portfolio’s occupancy, average daily rate, and revenue per available room reported T-12 figures of 53.0% (+187.6% over the March 2021 figure), $742.48 (+24.3%), and $393.49 (+257.5%), respectively. Relative to its competitive set, the property exhibited occupancy, ADR, and RevPAR penetration rates of 76.6%, 139.8%, and 107.0%, respectively.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors 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.

Classes X-CP and X-NCP 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.

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 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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