Morningstar DBRS Finalized Provisional Credit Ratings on FS Trust 2024-HULA

DBRS, Inc. (Morningstar DBRS) finalized provisional credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2024-HULA (the Certificates) issued by FS Trust 2024-HULA (the Trust):

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

All trends are Stable.

The Trust is secured by the borrower's fee-simple and leasehold interest in a 249-key full-service resort private, members-only Hualalai Club, Parcel A (16.3 acres approved for buildout of 20 residential lots) and Parcel 21 (4.8 acres and approved for the buildout of four residential lots), all of which are located on the Big Island of Hawaii. Surrounded by the blue waters of the Pacific, white-sand beaches, and black-lava landscapes, the luxury resort is well situated in the northwest coastline of the Kona Island of Hawaii, epitomizing the allure of a premier Big Island resort. The Four Seasons Resort Hualalai has long been viewed as one of the most luxurious vacation destinations for aspirational travelers and high-net-worth individuals. Morningstar DBRS expects its competitive position to persist given the transformative capital improvements at the property.

The resort features 249 total keys, approximately 37,000 sf of meeting space, including approximately 10,400 sf of indoor meeting space and 26,600 sf of outdoor group space, and an extensive amenity package including six food and beverage (F&B) restaurants, eight pools, Sports Club & Spa, four retail shops, and two 18-hole golf courses. Other revenue-generating property operations include the Hualalai Club, Realty Company (brokers the majority of the Hualalai residential sales), and Utility Companies (Kaupulehu Water Company, Kaupulehu Irrigation Company, and Kaupulehu Wastewater Company). The resort was built and opened in 1996, renovated in 2009 and again from 2019 to 2021, aiming to provide the most luxurious hospitality experience in one of the most renowned travel destinations, the big island of Hawaii. The sponsor's unwavering commitment to conceptualizing the luxurious Hawaiian resort experience has earned the resort the only AAA Five Diamond and Forbes Five Star resort on the Big Island.

The subject mortgage loan of $400.0 million along with approximately $18.4 million of sponsor equity will be used to retire $409.7 million of existing debt, fund an upfront ground lease reserve of approximately $770,000, and cover closing costs of approximately $8.0 million. The loan is a two-year floating-rate IO mortgage loan, with three one-year extension options. The floating rate will be based on the one-month Secured Overnight Financing Rate (SOFR) plus the initial WA component spread, which is approximately 2.749%. The borrower will be required to enter into an interest rate cap agreement, with a one-month Term SOFR strike price of 2.050% during the initial term, and the strike price equal to the greater of 4.50% and a strike rate that, when added to the spread of each component, results in a minimum DSCR of 1.10x on the Mortgage Loan.

MSD Sponsor, an affiliate of BDT & MSD, and Walton Sponsor, which is controlled by certain members of the Walton Family, are the Loan Sponsors and the Borrower Sponsor, respectively, for this transaction. Backed by Dell Technologies founder Michael Dell, BDT & MSD is currently invested in and managing more than $16 billion of real estate. The property is flagged as a Four Seasons hotel, a privately-owned hotel management company that has been managing the resort since its inception in 1996. The management agreement expires in 2035 and has two renewal options of 15-years each remaining for a fully extended maturity date of 2065.

Morningstar DBRS' credit rating on the Certificates addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Principle Distribution Amounts and Interest Distribution Amounts for the rated classes.

Morningstar DBRS' credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Spread Maintenance Premiums.

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
ESG Considerations had a relevant effect on the credit analysis.

Environmental (E) Factors

The following Environmental factor(s) had a relevant effect on the credit analysis: The ESAs identified three RECs and one HREC with estimated total remediation costs ranging from $880,000 to $1,520,000. As a mitigant, the estimated total remediation costs are relatively negligible when compared to the nonrecourse guarantor's required net worth of at least $250.0 million. Additionally the borrower has obtained Environmental Liability Insurance with limits of liability up to $15 million, which is well in excess of the high end of estimated total remediation costs identified by EBI Consulting. Morningstar DBRS considered the environmental remediation expense a relevant environmental ESG factor.

There were no Social/Governance factor(s) 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 Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

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 US dollars unless otherwise noted.

The principal methodology is North American Single-Asset/Single-Borrower Ratings Methodology (July 11, 2024) https://dbrs.morningstar.com/research/436004.

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

With regard to due diligence services, Morningstar DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of Morningstar DBRS' methodology, Morningstar DBRS used the data file outlined in the independent accountant's report in its analysis to determine the credit ratings referenced herein.

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, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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

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

Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024)
https://dbrs.morningstar.com/research/435293

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.