Morningstar DBRS Confirms Credit Ratings on All Classes of HONO 2021-LULU Mortgage Trust
CMBSDBRS, Inc. (Morningstar DBRS) confirmed its credit ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2021-LULU issued by HONO 2021-LULU Mortgage Trust:
-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class X-EXT at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)
All trends are Stable.
The credit rating confirmations reflect the stable performance of the underlying collateral, which continues to report revenue per available room (RevPAR) figures approaching pre-pandemic levels. While total revenue has remained largely in line with Morningstar DBRS' expectations since issuance, an increase in departmental expenses resulted in the net cash flow (NCF) at YE2024 decreasing by 7.1% from the Morningstar DBRS NCF derived at issuance. Morningstar DBRS updated its loan-to-value ratio (LTV) sizing to reflect the collateral's most recent performance, the results of which supported the credit rating confirmations with this review.
The transaction is collateralized by the borrower's leasehold interest in Hyatt Regency Waikiki Beach Resort and Spa (Hyatt Regency Waikiki), a 1,230-key, full-service luxury resort with about 95,000 square feet (sf) of open-air retail space, 20,510 sf of meeting and event space, and various other amenities, including a 10,000-sf spa situated along Honolulu's world-renowned Waikiki beach. The primary hotel and retail structure is subject to two separate ground leases while the convention space and parking garage are each subject to a separate ground lease. All four ground leases are scheduled to expire on December 21, 2087, and contain rent provisions that escalate at five- and 10-year intervals. The property is managed by Hyatt Hotels Corporation (Hyatt) under a management agreement that runs through December 2062. The sponsor is an affiliate of Mirae Asset Global Investments Co., Ltd., a global real estate investment firm that owns a portfolio of various property types, including office, industrial, multifamily, and hospitality.
The floating-rate loan is interest only (IO) and has a two-year initial term and three one-year extension options, with a fully extended maturity date in October 2026. Morningstar DBRS expects the third and final extension option to be exercised, but the borrower has not yet indicated its plans as the maturity date approaches. As a condition for exercising the extension options and to mitigate the borrower's exposure to interest rate increases, the borrower is required to enter into an interest rate cap agreement resulting in a debt service coverage ratio (DSCR) of at least 1.10 times (x).
The performance of the hotel portion of the collateral has stabilized since the lows experienced from 2020 to 2022, reporting a RevPAR of $244 for the trailing 12-month (T-12) period ended February 28, 2025--a slight decrease from the T-12 period ended May 31, 2024, RevPAR of $249 and the pre-pandemic YE2019 RevPAR of $250, but in line with the Morningstar DBRS RevPAR of $245 at issuance. In comparison with its competitive set, the subject outperformed with an occupancy rate of 88.4% but underperformed with an average daily rate (ADR) of $275. Because of its lower ADR relative to its competitors, the subject's RevPAR penetration rate was reported at 94.3% in the T-12 period ended February 28, 2025.
The servicer reported a YE2024 NCF of $16.8 million, equivalent to a DSCR of 0.41x, below the YE2023 and Morningstar DBRS NCF of $19.6 million and $31.5 million, respectively. However, the retail revenue is likely not reflected in the servicer-reported NCF, as noted in previous reviews. The servicer confirmed a YE2024 retail revenue figure of $12.6 million, which remains in line with the YE2023 reported figure of $12.9 million. At the last review, the March 31, 2024, rent roll comprised more than 50 retail tenants while the March 31, 2025, rent roll comprised 46 tenants, 18 of which have lease expiry dates in 2025 or 2026. The decrease in NCF is largely due to a 5.5% increase in total expenses since YE2023 as revenue increased 2.6% year over year. As a mitigant, the loan benefits from healthy reserves of more than $20.0 million, $17.7 million of which is held in a debt service reserve, mitigating the impact of rising interest rates since securitization for the floating-rate loan. Other strengths of the transaction include the collateral's prime location in Waikiki's main shopping and dining district; a long-term management agreement with Hyatt; and strong, experienced sponsorship.
For this review, Morningstar DBRS updated its LTV sizing benchmarks to reflect the most recent financial reporting. The YE2024 NCF along with servicer-reported YE2024 retail revenue results in an updated Morningstar DBRS NCF of $29.3 million. Morningstar DBRS applied a capitalization rate of 10.09%, resulting in a Morningstar DBRS Value of $290.6 million with a LTV of 104.0%, representing a 7.0% decrease from the previous Morningstar DBRS Value of $312.6 million. The updated value represents a haircut of 62.3% from the appraiser's value of $771.0 million. Morningstar DBRS also maintained positive qualitative adjustments totaling 3.0% to account for the subject's strong property quality and its irreplaceable location along Waikiki Beach.
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 (May 16, 2025), https://dbrs.morningstar.com/research/454196
Class X-EXT is an interest-only (IO) certificate that reference 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 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.
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, Inc.
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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 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
-- Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025),
https://dbrs.morningstar.com/research/450750
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024),
https://dbrs.morningstar.com/research/438283
For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
Ratings
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