DBRS Morningstar Confirms All Classes of GS Mortgage Securities Corporation Trust 2017-SLP

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

--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)

All trends are Stable.

The rating confirmations and Stable trends reflect the performance trends for the properties within the collateral hotel portfolio, with the most recent financials reported by the servicer showing that performance continues to improve from the lows experienced amid the Coronavirus Disease (COVID-19) pandemic. While the loan is scheduled to mature in October 2022, the borrower is currently in discussions with the servicer to meet a resolution. Based on the improved performance, DBRS Morningstar believes the servicer will be amenable to granting a maturity extension, if needed, and the sponsor should remain committed to the subject portfolio as travel demand continues to build back to and in some markets, above, pre-pandemic levels.

At issuance, the $800 million mortgage loan was secured by the fee-simple interest in a portfolio of 138 hotels, all but two of which are limited/select-service or extended-stay formats. Of the $800.0 million in total debt, $332.7 million consists of a senior A-note that has been split into a $257.7 million controlling note (A-1) and two pari passu, noncontrolling companion loans (A-2 and A-3) totalling $75.0 million, and the remainder consists of a $467.3 million B-note. The $725.0 million trust loan comprising this transaction represents the controlling piece of the larger A-note and the B-note. The remainder of the A-note debt is securitized in two multiborrower conduit transactions in GSMS 2017-GS8 and GSMS 2018-GS9, both of which are not rated by DBRS Morningstar. In aggregate, the portfolio totals 10,576 keys in 27 states and across 84 unique metropolitan statistical areas in the United States, with concentration in Texas representing 17.2% of the allocated loan amount (ALA). The hotels operate under 16 different flags across six different brands, the majority of which (nearly 93.4% of ALA) are affiliated with either Marriott International, Inc. or Hilton Hotels & Resorts. Only 11 hotels, representing 12.0% of the ALA, have franchise expiries during the loan term. Property releases are permitted at release premiums ranging from 105% and 120% of the ALA, depending on the percentage of the original principal balance, but none have been processed to date.

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 $120 billion of assets under management and approximately $70 billion of equity capital raised since 1991. An affiliate of Aimbridge Hospitality manages 127 hotels in the portfolio (9,302 keys; 84.9% of the ALA).

The loan, which has been on the servicer’s watchlist since October 2020, is currently being monitored for the upcoming maturity and pandemic-related relief. A Standstill Agreement was executed in June 2020, which suspended the monthly furniture, fixtures, and equipment escrow payments through December 2020. As of June 2022, the servicer has confirmed the borrower replenished reserves using out of pocket funds and is in discussions with the servicer regarding the October 2022 maturity date.

Per the YE2021 financials, the portfolio reported net cash flow (NCF) of $56.7 million, reflecting a debt coverage service ratio (DSCR) of 3.66 times (x) for the A-note, and 1.79x for the A- and B-note. Although this NCF figure is below the DBRS Morningstar NCF of $77.9 million derived when ratings were assigned in 2020, it is a substantial improvement from the YE2020 NCF of $20.0 million (DSCR of 1.29x). According to the servicer, in 2021, the portfolio experienced a year-over-year (YOY) increase in occupancy, average daily rate (ADR), and revenue per available rooms (RevPAR) to 62% (+32% YOY), $101 (+12% YOY), and $63 (+48% YOY), respectively. A trailing-28 day (T-28) ended February 26, 2022, STR Report showed the portfolio outperforming the competitive set across all three metrics with occupancy, ADR, and RevPAR penetration rates of 107.9%, 104.3%, and 112.6%, respectively. Based on these improvements, the servicer anticipates the portfolio will reach pre-pandemic levels by 2023.

Although the T-28 STR metrics continue to lag DBRS Morningstar’s occupancy, ADR, and RevPAR of 70.9%, $111, and $79, respectively, performance metrics have steadily increased since 2020, with the T-28 ADR reaching the 2019 figure of $102, and the reported cash flows continue to show improvement toward pre-pandemic figures, with the servicer recently reporting a T-12 ended March 31, 2022, DSCR of 4.60x for the A-note debt, with revenues for the period up by almost $20.0 million from YE2021. Given the performance trajectory for the portfolio in the last year and committed sponsor, DBRS Morningstar expects a positive resolution in regard to the loan’s upcoming maturity.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and 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.

Class X-A and X-B are 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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