DBRS Morningstar Confirms All Ratings on Margaritaville Beach Resort Trust 2019-MARG

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2019-MARG issued by Margaritaville Beach Resort Trust 2019-MARG as follows:

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

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction, which remains in line with DBRS Morningstar’s expectations. The transaction is secured by the leasehold interest in a AAA Four Diamond-rated luxury resort in Hollywood, Florida, situated on 6.2 acres of beachfront property between the Atlantic Ocean and the intracoastal Stranahan River. The collateral is subject to a 99-year ground lease between the City of Hollywood and the borrower. The ground lease, which commenced in July 2013 and will expire in July 2112, calls for a minimum guaranteed annual rent of $1,000,000, with rent increases of 15.0% on every fifth anniversary of the commencement date.

The resort offers 349 guest rooms, each featuring a private terrace with an ocean/intracoastal view; 30,000 square feet (sf) of indoor/outdoor event space; an adult-only pool; two family-friendly pools; a surf simulator; an 11,000-sf spa; eight branded food and beverage outlets; and 465 parking spaces. The property benefits from its proximity to two major airports: Fort Lauderdale-Hollywood International Airport, located 7.5 miles north, and Miami International Airport, located 23.4 miles south.

The floating-rate, interest-only (IO) loan was structured with an initial term of two years, with three one-year extension options. The borrower has exercised two extension options, extending the maturity date to May 2023. Pebblebook Hotel Trust (Pebblebrook) acquired the resort in September 2021 for $270 million from KSL Capital Partners, LLC. Pebblebrook is a publicly traded real estate investment trust (REIT) and the largest owner of urban and resort lifestyle hotels in the United States. The Company owns 52 hotels, totalling approximately 13,000 guest rooms across 15 urban and resort markets. Pebblebrook funded the acquisition with approximately $108.5 million of cash on hand and assumed the $161.5 million of existing non-recourse, secured debt that resides within the trust. The $270 million sale price was above the issuance appraised value of $248.0 million and well above the current loan balance, suggesting the sale was a credit-positive event that injected fresh equity into the transaction. In conjunction with the closing of the transaction, the $18.5 million mezzanine loan was repaid.

According to the year-end (YE) 2021 financials, the trust loan reported net cash flow (NCF) and a debt service coverage ratio (DSCR) of $18.9 million and 3.87 times (x). In comparison, the trust loan reported NCF and a DSCR of -$444,322 and -0.07x at YE2020 and $17.3 million and 1.81x at issuance, respectively. The improvement in performance was driven by a 138% increase in effective gross income (EGI) and an approximately 20% decrease in debt service payments. According to the June 2022 servicer reporting, the reserve account had a balance of approximately $3.8 million.

According to the March 2022 STR report, the collateral reported an occupancy rate, average daily rate (ADR), and revenue per available room (RevPAR) figures of 75.7%, $413.96, and $313.43, respectively. In comparison, the competitive set reported the same metrics at 64.7%, $340.82, and $220.51, respectively, implying a penetration rate of 117% for the subject property.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance 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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Class X-EXT is an interest-only (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 loan 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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