Morningstar DBRS Confirms Credit Ratings on Citigroup Commercial Mortgage Trust 2021-KEYS

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2021-KEYS (the Certificates) issued by Citigroup Commercial Mortgage Trust 2021-KEYS as follows:

-- 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 credit rating confirmations reflect the overall stable performance of the transaction since Morningstar DBRS' last review. The most recently reported net cash flow (NCF) indicates asset-level level performance that is stable-to-improving from Morningstar DBRS' issuance expectations. Historical occupancy remains strong, as does the local hospitality market with high barriers to entry, and the collateral benefits from experienced sponsorship in EOS Investors LLC.

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 another hotel in the Florida Keys. 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.

Loan proceeds refinanced existing debt and returned $8.7 million of equity to the sponsor. The floating-rate interest-only loan has a current maturity date of October 2024, with two one-year extension options remaining, for a fully extended maturity date in October 2026. Only the third extension option includes a performance trigger, subject to a minimum debt yield of 10.0%.

Per the most recent reporting, NCF and the debt service coverage ratio (DSCR) fell slightly from the time of the last credit rating action. The annualized NCF and DSCR were reported to be $19.1 million and 1.02 times (x) as of the trailing nine-month period ended September 30, 2023, a slight regression from the YE2022 figures of $21.7 million and 1.99x, respectively. However, the annualized Q3 financial figures remain in line with the Morningstar DBRS NCF of $16.8 million. The decline in DSCR reflects an increase in debt service payments, per the most recent reporting. Despite this dip, STR metrics remain strong. Per the December 2023 STR report, the property reported running 12-month occupancy rate, average daily revenue (ADR), and revenue per available room (RevPAR) of 81.9%, $539.36, and $441.55, respectively. The property is outperforming its competitive set across all metrics.

For purposes of this review, Morningstar DBRS maintained the cash flow and valuation assumptions used when ratings were assigned. The Morningstar DBRS value of $197.5 million, based on the Morningstar DBRS NCF of $16.8 million and a capitalization rate of 8.5%, represents a loan-to-value ratio of 113.9% on the total secured debt and 93.7% on the Morningstar DBRS-rated debt. Qualitative adjustments totaling 6.00% were also maintained to represent the property's strong historical occupancy and stable cash flow expectations, high property quality, and irreplaceable beachfront location in a high barrier to entry market. Morningstar DBRS expects the property will continue to exhibit stable performance.

ENVIRONMENTAL, SOCIAL, AND 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. Morningstar DBRS 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.

There were no 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; 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
DBRS Tower, 181 University Avenue, Suite 700
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/legal-criteria-for-us-structured-finance)

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279.

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