DBRS Morningstar 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, 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-NCP at BBB (sf)

DBRS Limited (DBRS Morningstar) discontinued and withdrew the rating on Class X-CP as the bond has exceeded its stated maturity of November 2019 and is no longer receiving interest payments.

All trends are Stable.

The rating confirmations reflect the continued performance improvements for the collateral resort hotel, which saw temporary cash flow declines as a result of the travel restrictions brought on by the Coronavirus Disease (COVID-19) pandemic. Property revenues are now exceeding pre-pandemic levels.

The collateral for the transaction is the fee-simple interest in the 466-key Ritz-Carlton Maui, Kapalua (the property), 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, and that income is included as collateral for the loan. The sponsor is Blackstone Real Estate Partners (Offshore) VIII-NQ L.P., a leading global asset manager with over $991.0 billion assets under management as of Q1 2023, and $331.8 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 had an initial maturity in November 2020; however, since that time, the borrower has exercised the first three of five total available one-year extension options with a current extended maturity date in November 2023. 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 a 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 YE2022 financials, net cash flow (NCF) was reported at $16.4 million (reflecting a debt service coverage ratio (DSCR) of 1.77 times (x)), a 141.5% increase from the YE2021 figure of $6.8 million (a DSCR of 1.09x) and the DBRS Morningstar NCF of $13.6 million. The increased cash flows are the result of increases in hotel revenue streams across several categories including room revenues, food and beverage sales, and other departmental revenue. According to the December 2022 STAR report, the property’s trailing 12 months ended December 31, 2022, occupancy, average daily rate (ADR), and revenue per available room (RevPAR) figures were 53.8% (+15.3% more than the December 2021 figure), $786.4 (+10.4%), and $423.0 (+27.3%), respectively. Relative to the competitive set, the property exhibited occupancy, ADR, and RevPAR penetration rates of 77.2%, 129.2%, and 99.8%, respectively. Given the sustained improvement in performance metrics since the pandemic, DBRS Morningstar expects the sponsor should be able to continue successfully executing the maturity extensions allowed under the loan terms, or secure a replacement loan.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental, 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.

Class X-NCP is an 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.

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

The principal methodology is 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
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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].