DBRS Morningstar Confirms All Classes of Hilton USA Trust 2016-HHV

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2016-HHV issued by Hilton USA Trust 2016-HHV:

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

The rating confirmations reflect the performance increases over the prior year as the property continues to rebound after challenges resulting from the Coronavirus Disease (COVID-19) pandemic. Although performance remains below issuance levels, DBRS Morningstar anticipates that property performance will continue to increase as tourism travel returns to pre-pandemic levels; therefore, all trends are Stable.

The collateral is a $750 million pari passu participation interest in a $1.3 billion whole loan on the Hilton Hawaiian Village, a full-service luxury beachfront resort in Waikiki, Hawaii. The hotel consists of five guest towers comprising 2,860 rooms, plus conference space for up to 2,600 attendees. The resort has the longest stretch of beach along Waikiki and the largest amount of meeting space among its competitors. The collateral also includes 138,000 square feet of leased commercial space on the property. The sponsor, Park Intermediate Holdings, LLC, is a wholly owned subsidiary of Park Hotels & Resorts. In 2017, Hilton Worldwide Holdings Inc., formerly Hilton Hotels Corporation, spun off Park Hotels & Resorts, which is now one of the largest publicly traded real estate investment trusts in the U.S. hospitality industry.

The loan was added to the servicer’s watchlist in December 2020 for performance declines as a result of the coronavirus pandemic, caused by the property’s closure from April 2020 through December 2020. A cash sweep period was triggered in March 2021 as a result of the debt service coverage ratio remaining below the required threshold and, as of June 2022, approximately $48.3 million remained in the account. As of March 2022, the loan has exceeded the required threshold and the cash sweep will end once the required threshold has been met for two consecutive quarters. The property reported a trailing 12-month (T-12) debt service coverage ratio of 1.77 times as of March 2022, increasing from below breakeven at YE2020. As of March 2022, the property reported a 114.8% increase in net cash flows when compared with YE2020, when the property experienced negative cash flow.

As of March 2022, the property reported T-12 occupancy, average daily rate, and revenue per available room (RevPAR) figures of 69.2%, $256, and $178, respectively. The RevPAR penetration rate was 118.6% for the T-12 period ended March 31, 2022. Performance remains below pre-pandemic levels: the property reported T-12 occupancy, average daily rate, and RevPAR figures of 93.0%, $267, and $248, respectively, at YE2019. However, occupancy is expected to continue increasing to pre-pandemic levels as a result of Hawaii lifting travel restrictions earlier this year.

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.

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.

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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