Morningstar DBRS Confirms Credit Ratings on Hawaii Hotel Trust 2019-MAUI

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2019-MAUI (the Certificates) issued by Hawaii Hotel Trust 2019-MAUI as follows:

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

All trends are Stable.

The credit rating confirmations and Stable trends reflect Morningstar DBRS' view that, despite the significant impact to the property's revenue in 2023 related to the wildfires that broke out on the island of Maui in August 2023 and the effects that had on tourism, the underlying hotel was not damaged, and is generally well positioned to capture increased demand as travel begins to rebound following the reopening of West Maui in November 2023. As such, Morningstar DBRS did not update the loan-to-value (LTV) sizing benchmarks as part of this review.

Before the wildfires, the loan had two consecutive years of healthy performance after rebounding from the COVID-19 pandemic, with a YE2022 net cash flow (NCF) of $75.3 million, a 71.1% positive variance over the figure previously derived by Morningstar DBRS in 2020 of $44.0 million, that ultimately resulted in credit rating upgrades to seven certificates, during the June 2023 review. As part of that review, Morningstar DBRS performed a stressed cash flow scenario to test the durability of the ratings, providing additional support for the credit rating upgrades. While the loans debt service coverage ratio (DSCR) fell to 0.93 times (x) as of YE2023, as a result of the business interruptions and rising interest rates, which resulted in a 98.9% increase in debt service obligations between YE2022 and YE2023, the borrower has exercised the loan's fourth maturity extension, extending the loan's maturity to May 2025. The borrower has one one-year extension option remaining, which will include a 25 basis-point increase to the interest rate and the purchase of a replacement rate cap agreement and be subject to performance hurdles.

The $650.0 million interest-only loan is secured by the borrower's fee-simple interest in the Four Seasons Resort Maui at Wailea. The full-service luxury hotel features 383 guest rooms, with four food and beverage offerings, specialty retail shops, and 38,000 square feet of meeting space. The hotel operates under the Four Seasons flag via an agreement that expires in February 2025, and benefits from its luxury quality, strong brand affiliation, and a wide range of amenities, including a spa, three outdoor pools, tennis courts, a games room and a fitness center, and preferred access to the 54-hole Wailea Golf Club directly across Wailea Alanui Drive from the hotel. Wailea has one of the highest barriers to entry of any resort market in the world. Available sites are extremely rare or nonexistent, and zoning is complex and protective.

According to the December 2023 STR report, the property reported trailing-12 month (T-12) occupancy, average daily rate (ADR), and revenue per available room (RevPAR) figures at 63.2%, $1,549, and $979, respectively, with RevPAR falling 16.8% from the previous year's reporting. Despite the business interruptions, the subject continued to outperform its competitive set with penetration rates of 115%, 177%, and 204%, respectively. While the YE2023 NCF fell to $43.3 million, a 42.4% decline when compared with the YE2022 figure, Morningstar DBRS anticipates performance to rebound, as tourism returns to Maui, with officials lifting travel warnings in November 2023 and now actively encouraging tourism in the area.

The subject property has previously suffered from similar declines in performance, namely the pandemic, which caused the property's closure from April 2020 to December 2020, resulting in a negative cash flow at YE2020. Given the property's position in the market, continued capital expenditures on development, and the return of tourism, however, operations were quick to stabilize an NCF of $55.8 million as of YE2021, which exceeded Morningstar DBRS' expectations as indicated above. While the timeline for recovery is undetermined, Morningstar DBRS anticipates that updated performance data would begin to show signs of recovery based on historical trends.

ENVIRONMENTAL, SOCIAL, AND 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 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 (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

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 CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

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

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 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.

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

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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

-- North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428799
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria, (September 22, 2023), https://dbrs.morningstar.com/research/420982
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279, (July 17, 2023).

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