DBRS Morningstar Confirms Ratings on All Classes of Citigroup Commercial Mortgage Trust 2021-KEYS

DBRS Limited (DBRS Morningstar) confirmed the following ratings on the Commercial Mortgage Pass-Through Certificates issued by Citigroup Commercial Mortgage Trust 2021-KEYS:

-- Class A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (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 overall stable-to-improved performance of the transaction since issuance. While the reported net cash flow (NCF) for year-end (YE) 2022 represents a significant improvement over the DBRS Morningstar NCF derived at issuance, expectations for ongoing performance are largely unchanged as the loan has experienced limited seasoning.

The loan is secured by the borrower’s fee-simple interest in a 199-key full-service hotel, Isla Bella Beach Resort (Isla Bella), spanning more than 24 acres on Knights Key, with more than a mile of oceanfront exposure. Isla Bella is approximately two hours south of Miami, halfway between Islamorada and Key West. Amenities include five swimming pools, a 5,000-square-foot (sf) fitness and spa centre, a 5,000-sf retail marketplace, and a 24-slip marina. The property also features three food and beverage outlets and offers banquets/catering services in conjunction with its 20,000 sf of meeting space. The sponsor, EOS Investors LLC, is an investment firm primarily operating in the hospitality sector. Its portfolio consists of a number of luxury hotels, including two other hotels in the Florida Keys and Key West. At issuance, the sponsor was planning to invest an additional $3.1 million in upgrades to the property.

The property, which was completed in 2019, benefits from high-quality finishes and a desirable location with much of the resort overlooking the ocean. Given the historically high barriers to entry within the submarket, the property is the only luxury hotel that has been developed in the Middle Keys in the past 20 years. The Florida Keys have outperformed virtually every hotel market in the U.S. in recent decades thanks to the ever-improving stock of destination resort hotels, the diverse array of unique experiences, surging Florida population, and airlift and statutory restrictions that prevent any material additions to new supply. According to the April 2023 STR report, the property reported trailing 12-month occupancy rate, average daily rate, and revenue per available room (RevPAR) figures of 77.6%, $584.38, and $453.67, respectively, representing a RevPAR penetration rate of 120.8%. The loan reported a YE2022 NCF of $21.7 million (DSCR of 1.99 times (x)), in line with the YE2021 NCF of $21.3 million (DSCR of 2.76x) and representing an almost 30% improvement over the DBRS Morningstar NCF of $16.8 million derived at issuance. DBRS Morningstar’s NCF analysis was somewhat tempered by the Coronavirus Disease (COVID-19) pandemic and the property’s limited operating history, but the long-term expectations for the property’s performance remain largely unchanged from issuance.

Loan proceeds of $225.0 million refinanced existing debt of $231.3 million and returned $8.7 million of equity to the sponsor. The loan is interest only throughout its initial two-year term, which is scheduled to mature in September 2023, and is structured with three one-year extension options, with a fully extended maturity date in September 2026. Only the third extension option includes a performance trigger, subject to a minimum debt yield of 10.0%. The YE2022 NCF debt yield was reported to be 9.6%.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
There was one environmental factor that had a relevant, but not significant, effect on the credit analysis. The collateral is located in a region exposed to climate change and adverse weather events including hurricanes and storms. Access to the property is dependent on bridges and causeways that may become inaccessible during adverse weather events. DBRS Morningstar deemed the property’s insurance coverage to be sufficient for these events and did not make any adjustments to its LTV sizing hurdles as a result of this factor.

While this factor was not disclosed in prior press releases, DBRS Morningstar has considered this factor in its analysis since issuance.

There were no Social or 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 (May 17, 2022) at https://www.dbrsmorningstar.com/research/396929.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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

The principal methodology is the North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912)

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023;
https://www.dbrsmorningstar.com/research/410191)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)

North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022; https://www.dbrsmorningstar.com/research/402153)

Legal Criteria for U.S. Structured Finance (December 7, 2022;
https://www.dbrsmorningstar.com/research/407008)

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].