Morningstar DBRS Confirms Credit Ratings on All Classes of WSTN Trust 2023-MAUI

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2023-MAUI issued by WSTN Trust 2023-MAUI as follows:

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

All trends are Stable.

The credit rating confirmations and Stable trends reflect that the transaction is early in its lifecycle, with limited reporting since issuance. The loan is secured by a 771-key full-service resort and spa located on the island of Maui. Built in 1971, the Westin Maui Resort & Spa, Ka'anapali offers 700 feet (ft) of direct ocean frontage on the Ka'anapali Beach with an outer island location. The resort offers two guest room buildings, the Hokupa'a and Ocean Towers. In 2021, the sponsors, Oaktree Capital Management, LP and Trinity Investments LLC, completed a $121.0 million capital improvement plan that included a full renovation of the Hokupa'a Tower and comprehensive upgrades to the common areas and amenities. Shortly after completing the capital improvement plan, the sponsors invested an additional $29.0 million to renovate the Ocean Tower and revamp the vacant retail and office space into a multifunctional entertainment complex, including bowling lanes, arcade games, and virtual golf suites. As of late 2023, the servicer, Keybank National Association, confirmed that these renovations were complete. The resort features six outdoor pools overlooking Ka'anapali Beach, a 270-ft water slide, six food and beverage (F&B) outlets; 68,000 square feet (sf) of indoor and outdoor event space for various events; an award-winning, full-service spa with nine treatment rooms; a fitness center; 20,000 sf of retail space; and preferred access to the Ka'anapali Golf Courses.

The four-year fixed-rate loan is interest-only (IO) through its maturity in July 2027. Like most beachfront developments in Hawaii, the collateral is encumbered by a ground lease. The ground lease is scheduled to expire on December 31, 2086, and contains rent provisions that escalate at five-year intervals. Terms for the lease require the greater of (1) annual minimum rent of $4.5 million between January 1, 2019, and December 31, 2026 or (2) percentage rent equal to the sum of the percentages of gross revenues: 6.0% of rooms revenue, 4.0% of F&B revenue, 10.0% of other revenue, and 25.0% of concessions. On January 1, 2027, and every subsequent five-year period starting with January 1, 2032, minimum rent resets to 80.0% of the average of the combined annual minimum rent and percentage rent paid during the three calendar years immediately preceding the reset. Additionally, on January 1, 2027, percentage rent resets to percentages that Campbell Hawaii Investor LLC (the lessor) and WM Lessee LLC (the lessee) will mutually agree upon.

The resort experienced a contraction in operating performance between year-end (YE) 2022 and YE2023 because of business interruptions related to wildfires that broke out on Maui in August 2023. The fires closed down the island to visitors for several months with significant impacts on Maui's economy which relies heavily on tourism. According to the STR, Inc. report for March 2024, the trailing 12-month (T-12) occupancy, average daily rate (ADR), and revenue per available room (RevPAR) figures were 62.9%, $581, and $366, respectively, compared with the prior year's figures of 67.4%, $682, and $460. The resort was not damaged by the fires and, although the property was closed for several months, Morningstar DBRS believes that the asset is well positioned to capture increased demand as travel continues to rebound following Maui's reopening in November 2023.

At issuance, Morningstar DBRS derived a value of $677.2 million based on a capitalization rate of 8.6% and a Morningstar DBRS net cash flow of $57.9 million. The Morningstar DBRS Value represents a -26.3% variance from the issuance appraised value of $918.9 million. The resulting Morningstar DBRS loan-to-value (LTV) ratio was 76.1% compared with the LTV ratio of 56.0% based on the appraised value at issuance. Morningstar DBRS maintained positive qualitative adjustments totaling 8.25% to reflect the high quality of the asset, strong historical cash flows, and Maui's tourism-driven economy, which welcomed over 2.9 million visitors in 2022.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

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, 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.

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
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- 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

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.