Morningstar DBRS Confirms Credit Ratings on All Classes of GS Mortgage Securities Corporation Trust 2018-LUAU

DBRS Limited (Morningstar DBRS) confirmed its credit 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)

All trends are Stable.

The credit rating confirmations and Stable trends reflect Morningstar DBRS' view that, despite the negative impact to the property's revenue due to business disruptions from August 2023 through October 2023 as a result of the wildfires that broke out on the island of Maui, the hotel collateral remains well positioned to capture increased demand as travel and tourism begin to rebound following the reopening of the hotel in mid-October 2023. Notably, the hotel did not sustain any physical damage and had been performing above 2022 levels before the breakout of the fires. As such, Morningstar DBRS did not update the loan-to-value (LTV) sizing benchmarks as part of this review.

Prior to the wildfires, the loan had exhibited two consecutive years of cash flow growth after performance bottomed out during the COVID-19 pandemic, with a YE2022 net cash flow (NCF) of $16.4 million, representing a 20.7% increase from the Morningstar DBRS NCF of $13.6 million derived in 2020, and exceeding the Issuer's NCF of $15.3 million. Per servicer commentary, the YE2023 debt service coverage ratio (DSCR) was reported at 0.07 times (x); however, a revised operating statement analysis report posted with the May 2024 remittance shows a YE2023 DSCR of 0.71x. Morningstar DBRS has inquired about the revision to the financials and is awaiting a response as of the date of this press release. Although DSCR declined in 2023, as a result of the business interruptions and rising interest rates, which resulted in an 82.6% increase in debt service obligations between YE2022 and YE2023, the borrower has exercised the loan's fourth of five available maturity extension options, extending the loan's maturity to November 2024, which included a 25 basis-point (bp) increase to the interest rate that is set at the Secured Overnight Financing Rate (SOFR) plus 275 bps. The borrower purchased an SOFR interest rate cap with a strike price of 3.5%.

The $215.0 million floating-rate interest-only (IO) loan is secured by the fee-simple interest in the 466-key Ritz-Carlton Maui, Kapalua, a luxury resort hotel on the island of Maui, Hawaii. The property consists of 300 hotel keys and 166 residential condominium suites. Of the 166 condominium suites, 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 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. The sponsor is Blackstone Real Estate Partners (Offshore) VIII-NQ L.P., a leading global asset manager with over $1.1 trillion assets under management as of Q1 2024, and $339.0 billion of real estate assets under management, making it one of the largest owners of hotels in the world.

According to the December 2023 STR report, excluding the months of August 2023 and September 2023 when the property was temporarily closed, the property reported trailing-12 month (T-12) occupancy, average daily rate (ADR), and revenue per available room (RevPAR) figures at 60.4%, $751, and $454, respectively, with RevPAR increasing by 7.3% since the previous year's reporting and by 23.0% since issuance. The corresponding penetration rates are 98.5%, 89.1%, and 87.8%, respectively. As a result of business interruption and the hotel's temporary closure between August to October 2023, the property's YE2023 NCF fell to $12.0 million, a 27.1% decline compared to the YE2022 NCF. According to various news articles, tourism has resumed in the greater Maui area, with the subject property having also reported several new entertainment attractions and amenities per other online sources. Given the property's luxury quality, capital improvements, and the return of tourism to Maui with officials lifting travel warnings in November 2023 and now actively encouraging tourism in the area, Morningstar DBRS anticipates the hotel's performance to rebound in 2024.

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

Class X-NCP is an interest-only (IO) certificates that reference 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 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
-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261
-- 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 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].