Morningstar DBRS Confirms Credit Ratings on All Classes of Natixis Commercial Mortgage Securities Trust 2018-SOX

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-SOX issued by Natixis Commercial Mortgage Securities Trust 2018-SOX as follows:

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class X at AA (sf)
-- Class C at AA (low) (sf)
-- Class V-ABC at AA (low) (sf)
-- Class D at A (low) (sf)
-- Class V-D at A (low) (sf)
-- Class E at BBB (low) (sf)
-- Class V-E at BBB (low) (sf)
-- Class V2 at BBB (low) (sf)

All trends are Stable.

The 10-year, interest-only, fixed-rate loan is secured by the $110.0 million fee-simple interest in the first 12 floors of the 20-story InterContinental Boston Hotel, which offers 32,000 square feet (sf) of meeting space; three restaurants; and a spa, health, and fitness centre. The property is master leased by the sponsor to InterContinental Hotels Group Resources, Inc. (IHG), under a triple net lease on a 99-year initial term with two 20-year extension options, and a fully extended expiration date stretching to July 2145. The lease is guaranteed by Six Continents, PLC, which is a wholly owned subsidiary of InterContinental Hotels Group, with an expiration of the guarantee in July 2032, four years after the loan's maturity date of June 2028. The luxury residential condominiums (The Residences at the InterContinental) are contained to the top eight floors, and the parking garage is not part of the loan collateral. Additional financing includes a subordinate B note with an issuance balance of $65.0 million and two mezzanine loans with issuance balances of $60.0 million and $30.0 million, respectively, held outside of the trust.

The 424-room, full-service, Four Diamond AAA-rated hotel is in downtown Boston, adjacent to the Financial and Seaport districts, and is self managed by IHG. The hotel completed a $20.0 million renovation in June 2020, which included a renovation of all guest rooms and corridors as well as meeting spaces and the two main restaurants. The loan is sponsored by Extell Boston Atlantic LLC (Extell), a subsidiary of Extell Development.

The rent from the master lease with IHG represents the primary income source for the repayment of the loan. The lease rent stepped up to $21.1 million in August 2022 (the 17th year of the lease agreement) from $16.0 million and is fixed until 2042. As of the YE2023 reporting, the net cash flow (NCF) figure reflected the increased lease rent payment at $21.1 million (with a trust debt service coverage ratio (DSCR) of 3.94 times (x)) compared with the Morningstar DBRS NCF of $14.0 million. Morningstar DBRS notes performance of the tenant is not reported unless the master lease is terminated. The delta between the Morningstar DBRS NCF and lease rent was considered when credit ratings were assigned in 2020. Morningstar DBRS does not view the cash flow discrepancy as an issue during the loan term, but a heightened level of balloon risk exists.

For this review, Morningstar DBRS maintained the Morningstar DBRS NCF of $14.0 million derived in 2020 and a capitalization rate of 8.25% in its analysis, resulting in a Morningstar DBRS value of $169.2 million, representing a -50.3% haircut from the issuance appraised value of $340.6 million. The resulting Morningstar DBRS trust loan-to-value ratio is 65.0% compared with the issuer's figure of 32.2%. Morningstar DBRS also maintained positive qualitative adjustments totaling 4.0% to reflect the high quality of the asset and the strong market fundamentals of downtown Boston.

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

Class X is an interest-only (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 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 info-DBRS@morningstar.com.

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 (July 11, 2024; https://dbrs.morningstar.com/research/436004)
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024; https://dbrs.morningstar.com/research/435294)
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024; https://dbrs.morningstar.com/research/435293)
-- 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 info-DBRS@morningstar.com.