DBRS Morningstar Upgrades Ratings on Three Classes of Hawaii Hotel Trust 2019-MAUI, Changes Trends on Two Classes

DBRS Limited (DBRS Morningstar) upgraded its ratings on three classes of Commercial Mortgage Pass-Through Certificates, Series 2019-MAUI (the Certificates) issued by Hawaii Hotel Trust 2019-MAUI as follows:

-- Class F to BB (low) (sf) from B (high) (sf)
-- Class G to B (sf) from B (low) (sf)
-- Class HRR to B (low) (sf) from CCC (sf)

In addition, DBRS Morningstar confirmed the following ratings:

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

DBRS Morningstar changed the trends on Classes F and G to Stable from Negative. DBRS Morningstar also assigned a Stable trend to Class HRR with the upgrade to B (low) (sf). All remaining classes have Stable trends.

During DBRS Morningstar’s last review of the transaction, the Negative trends on Classes F and G reflected the underlying pressures and lasting residual effects of the Coronavirus Disease (COVID-19) global pandemic, which have been significantly reduced over the past year as Hawaiian tourism rates have been rebounding. As such, the underlying collateral has reported a substantial increase in net cash flow (NCF) and performance metrics in 2021, which supports the rating confirmations, upgrades, and trend changes.

The collateral for the Certificates is a $650.0 million mortgage loan, which is secured by the borrower’s fee-simple interest in the Four Seasons-branded luxury, five-star resort hotel in Wailea, Hawaii. The full-service luxury hotel features 383 guest rooms, with four food and beverage offerings, specialty retail shops, and 38,000 square feet of meeting space. The hotel operates under the Four Seasons flag via an agreement that expires in February 2025, and benefits from its luxury quality, strong brand affiliation, and a wide range of amenities, including a spa, three outdoor pools, tennis courts, a games room and fitness center, and preferred access to the 54-hole Wailea Golf Club directly across Wailea Alanui Drive from the hotel. The hotel also offers direct access to Wailea Beach as well as stunning views of the island’s volcanic mountains and westward to the bay and Pacific Ocean. Wailea has one of the highest barriers to entry of any resort market in the world. Available sites are extremely rare or nonexistent, and zoning is complex and protective.

Because of the very low demand brought on by the pandemic, the property was temporarily closed between April 2020 and December 2020, which resulted in a negative cash flow in year-end (YE) 2020. Demand has since largely come back, however, and according to a Skift article, dated July 11, 2022, there were over 776,000 visitors to the Islands in May 2022, which is a 92% recovery from May 2019, as stated by the Hawaiian Tourism Authority.

According to the YE2021 financials, the hotel has benefited from these trends and has shown significant performance improvements, reporting an NCF of $56.2 million, an increase from the YE2020 and issuance figures of -$20.4 million and $48.3 million, respectively. The year-over-year increase is predominately due to an increase in occupancy rate from 28.3% as of YE2020 to 63.5% as of YE2021. As such, the loan was removed from the servicer’s watchlist in May 2022, and is no longer cash managed after achieving a debt yield of 8.6% as of YE2021, surpassing the required debt yield threshold of 6.0%. During the same time period, the borrower also exercised its second of five one-year extension options, extending the maturity to May 2023. Additionally, according to the most recent STR report, as of the trailing-28 days (T-28) through August 7, 2021, the property reported an occupancy, average daily rate (ADR), and revenue per available room (RevPAR) of 83.3% , $1,502, and $1,252, respectively, with a RevPAR penetration rate of 175.7% for the same period.

In comparison to the DBRS Morningstar NCF of $44.0 million derived when ratings were assigned in 2020, the loan’s YE2021 NCF of $56.2 million has greatly exceeded expectations, primarily because of higher-than-expected departmental revenue. With Hawaii tourism returning close to pre-pandemic levels, the property’s T-28 through August 2021 ADR and RevPAR figures have surpassed the DBRS Morningstar figures of $960 and $812, respectively. DBRS Morningstar expects performance to remain strong in 2022, in line with 2021 and pre-pandemic performance, therefore supporting the rating upgrades.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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