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 credit rating confirmations reflect the overall stable performance of the transaction, which remains in line with Morningstar DBRS' expectation. The transaction, which is secured by a 424-room, full-service, Four Diamond AAA-rated hotel in downtown Boston, continues to benefit from a stable cash flow stream, given the in-place 99-year master lease to InterContinental Hotels Group Resources, Inc. (IHG), which represents the primary income source for the repayment of the loan.

The $110.0 million interest-only (IO), fixed-rate loan is structured on a 10-year term, with a maturity date in June 2028. 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 collateral for the loan is 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 self-managed by IHG. A $20.0 million renovation was completed in June 2020, which included an upgrade 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, a New York-based real estate development company that has developed and managed more than 25 million sf of residential, commercial, hospitality and mixed-use properties in Manhattan and other major markets across the nation.

The property is master leased by the sponsor to InterContinental Hotels Group (IHG) under a triple net lease on a 99-year initial term with two 20-year extension options, resulting in a fully extended expiration date in July 2145. The lease is guaranteed by Six Continents, PLC, which is a wholly owned subsidiary of IHG through July 2032, four years after the loan's maturity date. The top eight floors of the subject comprise luxury residential condominiums (The Residences at the InterContinental), which, along with the parking garage is not part of the loan collateral.

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. Given the increase in the master lease payment, the YE2024 financial reporting reflects a net cash flow (NCF) figure of $21.1 million (with a trust debt service coverage ratio of 3.93 times (x)), compared with the Morningstar DBRS NCF of $14.0 million derived in 2020, which was based on a look-through analysis to the improvements. The delta between the Morningstar DBRS NCF and lease rent was considered when credit ratings were assigned in 2020. Morningstar DBRS also notes that performance of the tenant is not reported unless the master lease is terminated.

For this review, Morningstar DBRS maintained the valuation approach used in 2020. As noted above, Morningstar DBRS derived a look-through value for the leased fee interest of $169.2 million, based on a Morningstar DBRS NCF of $14.0 million and a capitalization rate of 8.25%. The Morningstar DBRS value represents a -50.3% variance from the issuance appraised value of $340.6 million. The resulting Morningstar DBRS trust loan-to-value (LTV) ratio is 65.0% compared with the LTV of 32.2% based on the appraised value at issuance. Morningstar DBRS maintained positive qualitative adjustments totalling 4.0% to reflect the high quality of the asset, stable cash flows derived from master lease rent payments, and the strong market fundamentals of downtown Boston.

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 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 at https://dbrs.morningstar.com/research/454196 (May 16, 2025).

Class X is an 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 (February 28, 2025), https://dbrs.morningstar.com/research/448963.

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 ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS Limited
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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 (February 28, 2025), https://dbrs.morningstar.com/research/448962
-- 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

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.