Morningstar DBRS Assigns Provisional Credit Ratings to Great Wolf Trust 2024-WOLF

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2024-WOLF (the Certificates) to be issued by Great Wolf Trust 2024-WOLF (the Trust):

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

All trends are Stable.

The collateral for the Trust includes the borrower’s fee and/or leasehold interests in eight Great Wolf Lodge resorts, totaling 3,044 keys, 461,521 square feet of indoor water park space and 60,459 square feet of meeting space, located across seven states. Transaction proceeds of $1.0 billion along with the transaction sponsor’s cash equity of approximately $9.6 million will be used to repay approximately $702.0 million of existing commercial mortgage-backed securities debt across the Portfolio, repay existing construction debt of approximately $287.6 million for the Manteca and Scottsdale assets, and cover closing costs. Six of the assets, Mason, Williamsburg, New England, Sandusky, Minneapolis, and Wisconsin Dells, were previously securitized in the GWT 2019-WOLF transaction and the remaining two assets, Manteca and Scottsdale, opened in June 2021 and October 2019, respectively. The debt payoff for the six assets is inclusive of the release price premiums for those assets. The Morningstar DBRS value of $1.071 billion represents a 26.4% discount to the aggregate appraised as-is value including intangible business value (IBV)) of $1.456 billion. In addition, the Morningstar DBRS cap rate of 9.93% is approximately 103 basis points higher than the appraised as-is value (including IBV) implied cap rate, allowing for a reversion to the mean in lodging valuation metrics.

The Properties are generally located within drive-to locations that are within a four-hour drive from major metropolitan areas, which provide the demand base for these leisure-oriented assets. The Properties are highly amenitized, providing guests with a complete family vacation experience, with a combination of indoor waterpark, as well as lodging and dining options, among additional exclusive attractions. The sponsor has invested a total of approximately $94.3 million, or $30,985 per key, in capital improvements to the Portfolio since 2020, excluding construction costs for the two new assets in Manteca and Scottsdale. Excluding the two most recently delivered Properties, Manteca and Scottsdale, which tend to have lower immediate capital expenditure (capex) needs and have the latest attractions available from the Great Wolf brand, the previously securitized six assets received approximately $86.7 million in capital improvements since 2020, equating to $39,532 per key. The Portfolio benefits from experienced management and sponsorship, which performs initiatives to help increase ancillary income, improve operating margins, as well as improve overall guest experience and satisfaction. For example, management initiated the Day Pass sales program for waterpark access starting in 2019. As of YE2023, Day Pass sales accounted for approximately $13.1 million in revenue, with 204,592 passes sold, which is significantly higher than the level for the trailing 12-month (T-12) period ended October 31, 2019, as of the GWT 2019-WOLF securitization, of $496,198, with 7,981 passes sold. Day Pass sales have dynamic pricing, which fluctuate based on the occupancy level at each Property. For example, during high occupancy periods (more demand for waterpark passes than availability), day passes will be offered at a premium, in order to drive revenue and minimize impact on overall guest experience.

The Portfolio reported weighted-average occupancy, average daily rate (ADR), and revenue per available room (RevPAR) levels of approximately 81.5%, $266.42, and $217.13, respectively, as of YE2023. The previously securitized six Properties reported occupancy, ADR, and RevPAR increases of 7.9%, 8.8%, and 17.4%, respectively, over their T-12 ended October 2019 performance level. In 2019, prior to the coronavirus pandemic, the Portfolio reported occupancy, ADR, and RevPAR levels of 76.5%, $214.79, and $164.39, respectively (Scottsdale opened in October 2019 and this figure excludes Manteca, which opened in June 2021 and operated under a government-enforced occupancy cap from January 2022 to April 2022). While occupancy declined during the pandemic, the sponsor was successful in recovering occupancy and ADR to higher than its pre-pandemic historical average. Morningstar DBRS believes that the strong 2023 performance is at least partially because of a higher transient proportion in the hotel segmentation as a result of the pent-up demand because of the pandemic-related restrictions and, therefore, Morningstar DBRS believes room rates will normalize. Morningstar DBRS concluded to a stabilized RevPAR of $207.65, which is approximately 3.0% less than the YE2022 level and approximately 4.4% below the YE2023 level. Overall, Morningstar DBRS has a favorable outlook on the Portfolio, during the five-year fully extended term, given the property’s experienced management and sponsor’s continued capex commitment.

Morningstar DBRS’ credit ratings on the Certificates address 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 ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, Spread Maintenance Premium.

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 Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (January 23, 2024).

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 the North American Single-Asset/Single-Borrower Ratings Methodology (October 19, 2023), https://dbrs.morningstar.com/research/422174.

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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit 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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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.

-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
-- Legal Criteria for U.S. Structured Finance (December 7, 2023), https://dbrs.morningstar.com/research/425081

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