Morningstar DBRS Finalizes Provisional Credit Ratings on SHR Trust 2024-LXRY

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

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

All trends are Stable.

The SHR 2024-LXRY transaction is secured by the fee-simple and/or leasehold interests in nine luxury hospitality properties located across five states and Washington, D.C. The portfolio consists of 4,957 total keys, including four properties (2,374 keys) operating under the Marriott brand family (Ritz-Carlton Laguna Niguel, Ritz-Carlton Half Moon Bay, Westin St. Francis, and JW Marriott Essex House) three properties (1,611 keys) operating under the InterContinental brand family (Regent Santa Monica, InterContinental Miami, and InterContinental Chicago), one property (750 keys) operating under the AccorHotels brand family (Fairmont Scottsdale Princess), and one property (222 keys) operating under the Four Seasons brand family (Four Seasons Washington, D.C.). The properties were constructed between 1904 and 2001 and have a weighted-average (WA) year built of 1988 and a WA renovation year of 2024.

The transaction sponsor is an affiliate of Strategic Hotels & Resorts (Strategic). Founded in 2004, Strategic currently owns and manages 12 luxury hotels across North America and Europe. Strategic employs brand-specific hotel management companies to operate its management contracts and operating leases. Previously, Strategic was publicly traded on the New York Stock Exchange under the ticker BEE and was subsequently acquired by AB Stable VIII LLC (AB Stable), an indirect subsidiary of Anbang Insurance Group Co., Ltd. (Anbang). The borrower sponsor is under common control with Anbang, the predecessor to the borrower sponsor as owner of the borrower.

The largest two properties by Issuer net cash flow (NCF) are the Fairmont Scottsdale Princess, which represents 26.8% of the Issuer NCF, and the Ritz-Carlton Laguna Niguel, which represents 17.6% of the Issuer NCF. No other property represents more than 13.7% of portfolio Issuer NCF. The properties average 551 keys and the largest hotel, Fairmont Scottsdale Princess, contains 750 keys or 15.1% of the total aggregate keys in the portfolio. The portfolio is located across five states and Washington, D.C., with the largest concentration by Issuer NCF in California, which accounts for 37.3% of the Issuer NCF. The second-largest concentration by Issuer NCF is in Arizona, which accounts for 26.8%, followed by Florida at 13.7%, Illinois at 8.4%, Washington, D.C. at 7.0%, and New York at 6.7%.

The portfolio demonstrated strong performance metrics prior to the onset of the coronavirus pandemic, with 2019 WA (by NCF) occupancy, average daily rate (ADR), and revenue per available room (RevPAR penetration rates of 94.2%, 114.7%, and 107.7%, respectively. The portfolio struggled during the pandemic and has since slowly rebounded with a YE2021 RevPAR of $152.45, representing a 41.1% decrease over the YE2019 RevPAR. The portfolio's RevPAR has picked up over the past two years, reaching $263.73 in 2022, 73.0% above 2021 figures, and increasing slightly to $267.01 at YE2023. Morningstar DBRS expects moderate room-rate growth in the future as a result of recent renovations, the desirable locations of the collateral, and experienced sponsorship. Morningstar DBRS concluded a RevPAR of $289.84, which is 9.7% above the 2019 figure and only 5.3% above the figure for the trailing 12 months ended June 30, 2024, even though the Regent Santa Monica was completely closed and there were capital improvements totaling $129.9 million across the portfolio as of July 2024.

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 Principal Distribution Amounts and Interest Distribution Amounts for the rated classes.

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the credit ratings do not address 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 
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 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 U.S. dollars unless otherwise noted.

The principal methodology is North American Single-Asset/Single-Borrower Ratings Methodology (September 19, 2024) https://dbrs.morningstar.com/research/439699.

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 23,2024), https://dbrs.morningstar.com/research/438283
-- 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 (September 19, 2024), https://dbrs.morningstar.com/research/439702

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