Morningstar DBRS Confirms All Credit Ratings on SCG 2024-MSP Mortgage Trust

DBRS Limited (Morningstar DBRS) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through Certificates issued by SCG 2024-MSP Mortgage Trust (the Trust) as follows:

-- 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 (sf)
-- Class HRR at B (low) (sf)

All trends are Stable

The credit rating confirmations reflect the overall stable performance of the transaction since issuance. Although full-year financials have yet to be reported, the portfolio has reported revenue per available room (RevPAR) of $153 for the trailing 12 months (T-12) ended December 31, 2024, above the RevPAR of $147 for the T-12 ended December 31, 2023, and Morningstar DBRS concluded RevPAR of $140 at issuance.

The transaction is collateralized by the borrower's fee-simple interest or leasehold interests in a portfolio of four Marriott-branded full-service hotels. The portfolio totals 1,016 keys and includes properties in Atlanta, Georgia (254 keys; 15.7% of allocated loan amount (ALA)), Costa Mesa, California (253 keys; 20.7% of ALA), and Scottsdale, Arizona (two properties totaling 509 keys; 63.6% of ALA). The loan is sponsored by Starwood Capital Group, a private investment firm that at issuance had acquired more than 400,000 hotel keys with $115 billion in assets under management. After acquiring the portfolio in 2019, Starwood invested approximately $37.8 million in capital expenditures (capex), in addition to the $19.4 million invested by the previous owners between 2013 and 2019, for a total of over $57.0 million in capex across the four properties since 2013.

The $220.2 million floating-rate, interest-only loan is structured with a two-year initial term with three one-year extension options available. The initial term has an interest rate cap agreement with a strike rate of 5.4%, while the extension options are subject to the purchase of a new interest rate cap agreement that results in a debt service coverage ratio (DSCR) no less than 1.20 times (x). Loan proceeds and cash proceeds of $8.4 million refinanced existing debt of $218.9 million and covered closing costs.

Property releases are permitted, with release premiums of 110% for the first 20% of the original principal balance and 115% thereafter. The sponsor, however, is prohibited from releasing both the Marriott at McDowell Mountains and the Marriott Costa Mesa properties, with at least one of these properties being required as collateral throughout the fully extended loan term. In addition, the loan has a partial pro rata pay structure that allows for pro rata paydowns for the first 20% of the original principal balance.

According to the January 2025 STR report, for the T-12 ended December 31, 2024, the portfolio reported a weighted-average (WA) occupancy rate, average daily rate (ADR), and RevPAR of 69.1%, $224, and $153, respectively, compared with the competitive set's WA figures of 69.3%, $190, and $131, respectively. For comparison, the Morningstar DBRS' concluded occupancy rate, ADR, and RevPAR at issuance were 64.3%, $217, and $140, respectively, indicating the current performance figures are in line with and slightly exceeding those derived at issuance.

Morningstar DBRS maintained its issuance analysis with this review, which includes a Morningstar DBRS value of $234.2 million, based on the Morningstar DBRS net cash flow (NCF) of $20.4 million and a capitalization rate of 8.7%. This results in a loan-to-value ratio (LTV) of 94.0% on the mortgage loan. The Morningstar DBRS value represents a variance of -24.9% from the issuance appraised value of $312 million. In addition, Morningstar DBRS maintained positive qualitative adjustments to the LTV-sizing benchmarks totaling 4.75% to reflect the recent capex, strong underlying market fundamentals, and post-pandemic NCF recovery.

The Morningstar DBRS credit rating assigned to Class C is lower than the results implied by the LTV sizing benchmarks. The variance is warranted given the lack of full-year financials reported to date as it has not been a full year since the transaction closed in April 2024.

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 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 CMBS Surveillance Methodology (December 13, 2024), https://dbrs.morningstar.com/research/444617.

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 (December 13, 2024), https://dbrs.morningstar.com/research/444612

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

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

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. (July 17, 2023)

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