Morningstar DBRS Assigns Provisional Credit Ratings to GWT Commercial Mortgage Trust 2024-WLF2

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the classes of Commercial Mortgage Pass-Through Certificates, Series 2024-WLF2 (the Certificates) to be issued by Great Wolf Trust Commercial Mortgage Trust 2024-WLF2 (GWT 2024-WLF2 or the Trust) as follows:

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

All trends are Stable.

The collateral for the Trust includes the borrower’s fee-simple interest in nine Great Wolf Lodge resorts (the Properties or the Portfolio). The Portfolio consists of 4,083 keys, 575,166 square feet (sf) of indoor waterpark space, 120,242 sf of outdoor waterpark space, 59 food and beverage (F&B) outlets, and 79,680 sf of meeting space, located across nine states. Transaction proceeds of $1.3 billion, along with a mezzanine loan of $250.0 million, will be used to repay approximately $1.3 billion of existing commercial mortgage-backed securities (CMBS) debt across the Portfolio, repay existing construction debt of approximately $239.0 million for the Perryville asset, return $7.0 million of cash equity to the borrower, and repay closing costs. As a result of the financing, the Sponsor will maintain approximately $880.4 million of implied equity.

Excluding the newly constructed Perryville asset, the assets were previously securitized in the GWT 2019-WOLF transaction. The debt payoff for the eight assets is inclusive of the release price premium for those assets. Great Wolf Lodge Perryville is a newly built lodge that opened in July 2023. Great Wolf Lodge Poconos has recently completed an approximately $160.0 million expansion that included the addition of a new guest tower with 202 hotel rooms and 30 new three-bedroom villas, in addition to a waterpark expansion and new F&B concept. Great Wolf Lodge Grapevine is currently undergoing an approximately $39.6 million renovation, which was scheduled to be largely complete in the weeks following Morningstar DBRS’ site inspection. The renovation scope includes the addition of several new attractions to the lodge, the expansion of existing attractions, and the addition/expansion of several F&B outlets. Great Wolf Lodge is a dominant player in the indoor waterpark market, with only five waterpark resorts currently under construction in the U.S., three of which are Great Wolf Lodges. The locations to be opened do not currently cater to markets served by the Portfolio, as they are in Webster, Texas; Naples, Florida; and Mashantucket, Connecticut.

The Properties are generally within a four-hour drive from major metropolitan areas, which provide the demand base for these leisure-oriented assets. The Properties are highly amenitized and provide guests with a virtually all-inclusive vacation experience because of the combination of F&B outlets and exclusive entertainment options at each resort. The sponsor has invested approximately $126.6 million, or $37,418 per key, in capital improvements to the Portfolio since 2019, excluding a $160.0 million expansion and renovation of Poconos. The Portfolio benefits from experienced management and sponsorship, which performs initiatives to help increase ancillary income, improve operating margins, as well as improve overall guest experience and satisfaction. For example, management initiated a day pass sales program for waterpark access starting in 2019. As of YE2023, 229,901 passes were sold, generating approximately $15.2 million in revenue, a considerable increase from the 177,253 passes sold in YE2022 that generated approximately $11.6 million in revenue. The day passes serve to bolster occupancy throughout the Portfolio during weekdays when demand is lower. However, during high-occupancy periods, said passes will be offered at a premium in order to drive increased revenue while also minimizing impact to overall guest experience.

The Portfolio reported weighted-average (WA) occupancy, average daily rate (ADR), and revenue per available room (RevPAR) of approximately 80.9%, $270.91, and $219.26, respectively, as of the trailing 12-month (T-12) period ended January 31, 2024. The previously securitized eight properties reported occupancy, ADR, and RevPAR increases of 5.1%, 15.5%, and 21.5%, respectively, over their YE2019 performance levels. In 2019, prior to the coronavirus pandemic, the Portfolio reported occupancy, ADR, and RevPAR levels of 77.6%, $240.88, and $186.89, respectively (excluding the Perryville asset, which opened in 2023). While occupancy declined during the pandemic, the sponsor was successful in recovering occupancy and ADR to higher than their pre-pandemic historical averages. Morningstar DBRS believes that the strong 2023 performance is at least partially because of a higher transient portion in the hotel segmentation as a result of the pent-up demand that followed pandemic-related restrictions, leading Morningstar DBRS to conclude that room rates will normalize over the loan term. Morningstar DBRS concluded to a stabilized RevPAR of $218.84, which is approximately 3.8% less than the RevPAR for the T-12 period ended January 31, 2024. Overall, Morningstar DBRS has a favorable outlook on the Portfolio during the five-year (fully extended) loan term given the Properties’ experienced management and the sponsor’s demonstrated continued capex commitment.

Morningstar DBRS’ credit rating on the Certificates address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Principal Distribution Amounts and Interest Distribution Amounts for the rated classes.

Morningstar DBRS’ credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (January 23, 2024).

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

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

The principal methodology is North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428799.

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

With regard to due diligence services, Morningstar DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of Morningstar DBRS’ methodology, Morningstar DBRS used the data file outlined in the independent accountant’s report in its analysis to determine the credit ratings referenced herein.

The credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.
This is a solicited credit rating.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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

-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22,2023), https://dbrs.morningstar.com/research/420982

-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592

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