Presale:
J.P. Morgan Chase Commercial
Mortgage Securities Trust 2016-WIKI
This presale report is based on information as of Oct. 6, 2016. The ratings shown are preliminary. This
report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may
result in the assignment of final ratings that differ from the preliminary ratings.
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! Preliminary Ratings As Of Oct. 6, 2016
Class
Preliminary
rating(i)
Preliminary amount
($)
LTV
(%)
Market value
decline (%)(iii)
Debt yield
(%)(iv)
A
AAA (sf)
138,800,000
32.5
82.3
25.2
X-A
AAA (sf)
138,800,000(ii)
N/A
N/A
N/A
X-B
A- (sf)
84,100,000(ii)
N/A
N/A
N/A
B
AA- (sf)
48,200,000
43.8
76.1
18.7
C
A- (sf)
35,900,000
52.2
71.5
15.7
D
BBB- (sf)
47,400,000
63.3
65.4
12.9
E
BB- (sf)
68,600,000
79.3
56.7
10.3
F
B- (sf)
61,100,000
93.7
48.8
8.7
(i)The rating on each class of securities is preliminary and subject to change at any time. The issuer will
issue the certificates to qualified institutional buyers in line with Rule 144A of the Securities Act of
1933. (ii)Notional balance. The notional amount of the class X-A certificates will be reduced by the
aggregate amount of principal distributions and realized losses allocated to class A certificates. The
notional amount of the class X-B certificates will be reduced by the aggregate amount of principal
distributions and realized losses allocated to the class B and C certificates. (iii)Reflects the approximate
decline in the $782 million appraised as-is value that would be necessary to experience a principal loss
at the given rating level. (iv)Based on S&P Global Ratings' net cash flow and the mortgage balance.
LTV--Loan-to-value ratio, based on S&P Global Ratings' values. N/A--Not applicable.
Primary Credit Analyst:
John V Connorton III, New York (1) 212-438-3892; [email protected]
Secondary Contact:
James C Digney, New York (1) 212-438-1832; [email protected]
See complete contact list on last page(s)
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Profile
Expected
closing date
Oct. 27, 2016
Collateral
One fixed-rate commercial mortgage loan totaling $400 million, secured by a first-mortgage lien on the borrowers' leasehold
interest in the 1,230-room Hyatt Regency-Waikiki Beach Resort & Spa.
Payment
structure
Principal payments will be made sequentially, first to the class A, then B, then C, then D, then E, and then F certificates. The issuer
will make interest payments on the certificates to the class A, X-A, and X-B certificates pro rata, based on the interest due, and
then sequentially to the class B, then C, then D, then E, and then F certificates. Realized losses will be allocated in reverse
sequential order.
Loan Seller
JPMorgan Chase Bank N.A.
Borrowers
MAPS Waikiki Hotel LLC, a Delaware limited liability company and special-purpose entity whose primary business is the
ownership and operation of the property, owning the limited liability company interests in, and acting as the sole member of,
MAPS Hotels and Resorts 2 LLC, a Delaware limited liability company (the operating lessee). The borrower will not have any
significant assets other than the property and ownership interest in the operating lessee.
Servicer
Midland Loan Services, a division of PNC Bank N.A.
Special
servicer
Midland Loan Services, a division of PNC Bank N.A.
Trustee
Wells Fargo Bank N.A.
Rationale
The preliminary ratings assigned to the J.P. Morgan Chase Commercial Mortgage Securities Trust 2016-WIKI's $400.0
million commercial mortgage pass-through certificates reflect S&P Global Ratings' view of the collateral's historical
and projected performance, the sponsor's and manager's experience, the trustee-provided liquidity, the loan's terms,
and the transaction's structure. We determined that the loan has a beginning and ending loan-to-value (LTV) ratio of
93.7%, based on our value of the property backing the transaction.
Transaction Overview
An overview of the transaction's structure, cash flows, and other considerations follows (see chart).
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Strengths
The transaction exhibits the following strengths:
• The trust loan balance has strong debt service coverage, at 2.15x, calculated using the 4.02% interest-only fixed rate
and S&P Global Ratings net cash flow (NCF).
• The collateral comprises a 1,230-room full-service resort in Honolulu, situated on a 2.97-acre oceanfront site along
Kalakaua Avenue, a major commercial thoroughfare in downtown Honolulu. It is directly across the street from
Waikiki Beach and within walking distance of restaurants, retail shopping, and entertainment venues, including the
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Honolulu Zoo, Waikiki Aquarium, and the Ala Moana Center.
• The Hyatt Regency Waikiki Resort & Spa is one of the largest hotel properties in Hawaii. The 1,230 guest rooms are
spread across two 40-story oceanfront towers offering panoramic views of Waikiki Beach, Diamond Head, and
Downtown Honolulu. The property's design allows for ocean views from approximately 67% of the guest rooms, not
including partial ocean views. The property opened in 1976 and recently underwent a $110.5 million renovation
($89,818 per key) that began in 2013. The majority of the expenditures were in 2014 (45.2%) and 2015 (39.5%), and
over the course of the renovation program, more than $69.4 million was spent on guestroom renovations ($56,420
per key).
• The retail component of the resort collateral provides a secondary income stream that reduces the loan's
dependence on the hotel's performance. The 94,333 square feet of retail space located on three floors and the
basement of the resort is situated along the highly trafficked Kalakaua Avenue, directly across from Waikiki Beach,
and offers street-level access to pedestrians and tourists in the area, and is not dependent on hotel guests. Based on
our calculations, the retail shops account for more than 28% of the property's total net cash flow. We accounted for
these strengths by assigning a lower cap rate to the retail net cash flow of the property (7.50%) than we did for the
hotel-specific cash flow (8.50%).
• Hyatt Regency Waikiki's performance has continued to strengthen over the past several years following the
economic recovery, led by increased leisure, transient, meeting, and group demand, and because of increased
tourism from Asia. Revenue per available room (RevPAR) at the hotel, including resort fees implemented in October
2011, increased 9.3% in 2013 and dropped 3.6% in 2014 (due, in part, to the renovations occurring at the hotel)
before again increasing 6.6% in 2015 and 8.2% during the trailing 12 months (TTM) as of August 2016. RevPAR at
the property is more than 33.6% higher than the previous peak of 2007, and NCF is more than 71.7% higher than in
2007.
• The property benefits from its affiliation with the nationally recognized Hyatt brand. Besides name recognition, the
chain affiliation enables the hotel to benefit from Hyatt's brand-wide marketing campaigns, reservation system, and
frequent stay program.
• Similar to the overall U.S. lodging sector, the Oahu lodging market has experienced strong RevPAR increases in
recent years: 6.9% in 2010, 14.0% in 2011, 16.4% in 2012, 12.7% in 2013, 6.6% in 2014, and 0.5% in 2015. This
strong improvement in RevPAR has been driven by substantial increases in average daily rate (ADR), as well as
occupancy; ADR in Oahu has increased 46.8% from 2010 levels, increasing to $219.69 from $149.64. Occupancy
rates, in turn, are 7.1% higher than 2010, increasing to 85.4% from 78.3%. Declining Oahu supply continues to
support favorable hotel performance, as the number of hotel rooms available today is 2.9% lower than in 2010, with
future development expected to be muted due to a lack of developable sites.
• The transaction is structured so that the borrower is responsible for most expenses that would typically result in
shortfalls to the certificateholders, such as special servicing, work-out, and liquidation fees, as well as costs and
expenses incurred from appraisals and inspections that the special servicer conducts. In addition, the servicer must
advance interest due on the loan provided the collateral has sufficient value and that the advance is deemed
recoverable from liquidation proceeds, which we believe will help avoid or mitigate shortfalls to the
certificateholders.
Risk Considerations
The risks we considered for this transaction include the following:
• The transaction is concentrated by sponsor, property type, and geographic location. The collateral consists of one
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•
•
•
•
•
•
•
loan secured by one full-service resort lodging property. We accounted for this concentration when assessing the
underlying property and the loan. In addition, the borrowers are structured as a bankruptcy-remote special-purpose
entities (SPEs).
The mortgage loan is interest-only for its entire term, meaning there will be no scheduled amortization during the
loan term. Compared with an amortizing loan, an interest-only loan bears a higher refinance risk because of the
higher loan balance at maturity. We applied an LTV ratio threshold penalty at each rating level to reflect the lack of
amortization.
The trust loan balance has high leverage, with a 93.7% S&P Global Ratings LTV. The LTV based on the appraiser's
valuation is 51.2%. Our long-term sustainable value estimate is 45.4% lower than the appraiser's valuation.
In addition to the first-mortgage loan, there is a $145.0 million mezzanine loan, which increases the S&P Global
Ratings LTV to 127.6% from 93.7%. Including the $145 million mezzanine loan, the all-in debt service coverage
(DSC) falls to 1.32x based on S&P Global Ratings' NCF calculation and the 4.79% weighted average interest rate on
the total debt. However, the loan is subject to an intercreditor, subordination, and standstill agreement between the
mortgage and mezzanine lender that significantly restricts the mezzanine lender's rights in such a manner that we
did not apply an LTV ratio threshold penalty for this additional debt in our analysis.
The collateral is subject to four ground leases, each of which terminates in December 2087. The base rents on three
of the four ground leases covering the property reset in January 2017, and will likely be based on the prevailing rate
of return on land of similar type and location, and the fair market value of the land, as determined by appraisal. We
believe the increase in ground rent will be sizable, based on the strong performance of the Honolulu hotel market,
which drives land values, and we are assuming a ground rent expense more than 25.1% higher than that of the TTM
as of August 2016.
The property faces significant competition from similar to superior hotels: Sheraton Hotel Waikiki, Westin Moana
Surfrider, Hilton Honolulu Hawaiian Village, and the Waikiki Beach Marriott. Per the property's Smith Travel
Research report, the Hyatt Waikiki trails its competitive set in terms of both occupancy and ADR, with a penetration
rate of just less than 100% in both categories. However, the hotel has made significant inroads in terms of its overall
RevPAR penetration since 2014, improving to 98.0% as of the TTM ended August 2016 versus 84.9% in 2014. We
incorporated the very competitive nature of the Honolulu hotel market and the respective locational and physical
attributes of the hotels in our RevPAR assumption, which is approximately 8.6% lower than the August 2016 TTM
RevPAR for the hotel.
The recent and/or planned renovations in the subject's competitive set, the wear and tear experienced by the asset
due to the high occupancies at which the hotel has been running over the past several years, and its continuous
exposure to oceanside elements have required ownership to spend large sums of money to maintain the property's
condition and to maintain pace with competitors. The appraiser has concluded that the $110.5 million renovation
($89,818 per key), while significantly upgrading the hotel's offerings, is unlikely to lead to a sustained
outperformance by the subject property, and will likely only maintain the property's current position within the
five-property competitive set. We concluded the same in our RevPAR assumption, and assumed a figure closer to a
90.0% penetration rate of the competitive set as of the TTM ended August 2016.
The property is within an area prone to tsunamis and tropical storms. However, its location is not designated as a
special flood hazard area by FEMA, according to the Harbor Group, a provider of commercial real estate risk
analysis. Furthermore, the property is covered by an all-risk insurance policy that includes windstorm coverage. The
flood limit under the current insurance policy is $350,000,000 per occurrence and annual aggregate, subject to a
deductible of $250,000. Of note, $100,000,000 of this coverage is dedicated solely to the Hyatt Regency Waikiki.
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Loan Characteristics
Mortgage loan
The first-mortgage has a balance of $400.0 million, and is scheduled to mature on Sept. 22, 2021. The loan is
interest-only for its entire term and bears interest at a fixed rate of 4.02%. Using the S&P Global Ratings NCF and
value, the first-mortgage has a DSC of 2.15x, a debt yield of 8.7%, and an LTV of 93.7%.
Secondary financing
In addition to the first-mortgage loan, the borrower obtained a $145.0 mezzanine loan that bears interest at 6.90%
(through Sept. 7, 2017, the loan bears interest at a rate of 5.40%). The mezzanine loan is coterminous with the
mortgage loan and matures on Sept. 22, 2021.
Using the S&P Global Ratings NCF and value, the first-mortgage and mezzanine loans have a combined DSC of 1.32x,
a debt yield of 6.4%, and an LTV of 127.6%.
To mitigate the risk from this additional debt, the borrower is structured as a bankruptcy-remote special-purpose entity
(SPE) with prohibitions on future debt. The transaction also has a lockbox to ensure that debt service for the
first-mortgage property-related expenses, and replacement reserve amounts are paid before the mezzanine
debtholders receive payments.
According to the issuer, certain indirect owners of the borrower are subject to South Korean regulations limiting the
amount that such companies may invest through equity, and have structured a portion of the purchase price in the
form of the mezzanine loan. However, the loan is subject to an intercreditor subordination and standstill agreement
between the mortgage and mezzanine lender that significantly restricts the mezzanine lender's rights in such a manner
that we did not apply an LTV ratio threshold penalty for this additional debt in our analysis.
Borrowers/sponsor
MAPS Waikiki Hotel LLC, a Delaware limited liability company, is the loan borrower, and is structured as an SPE that
is required to have at least two experienced independent directors provided by a nationally recognized corporate
services company. The borrower also acts as the sole member of the operating lessee MAPS Hotels and Resorts
Hawaii 2 LLC. The borrower leases the property (other than the retail space) to the operating lessee, pursuant to an
operating lease.
The borrower is indirectly controlled by the sponsor, Mirae Asset Maps Frontier US Private Real Estate Investment
Trust 7. Both the borrower and the sponsor are subsidiaries of the Mirae Asset Financial Group ("Mirae") founded by
Hyeon Joo Park. Mirae Asset Management is a global asset management firm based in Seoul, South Korea, with $93.0
billion in total assets under management.
Mirae's portfolio of real estate investments expands across multiple regions, with office and hotel investments in major
cities including Seoul, Shanghai, Sydney, Sao Paulo, Chicago, and Washington D.C. Recent lodging acquisitions
include The Fairmont San Francisco, The Fairmont Orchid on the Big Island of Hawaii, 225 West Wacker in Chicago,
and 1801 K Street in Washington, D.C. The sponsor will be contributing $262.2 million in cash equity in this
transaction.
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Other than the borrower, no person or entity guarantees the nonrecourse carveouts with respect to the mortgage loan.
Trade payables
Trade payables incurred in the ordinary course of operations are permitted up to 2% of the mortgage loan balance.
The loan agreement requires trade payables to be repaid within 60 days of the date billed.
Reserves
A summary of the reserves for the transaction are shown in table 1.
Table 1
Reserves
Required repair reserve
$494,046 initial deposit.
Tax and insurance
escrow reserve
$867,000 initial deposit. Monthly amounts equal to 1/12 of the annual amounts estimated to be due and payable, and
none to the extent that such amounts are being escrowed for by the property manager.
Replacement reserve
Monthly amounts equal to 1/12 of 4.0% of gross receipts for the property, and none to the extent that such amounts
are being escrowed for by the property manager.
Litigation reserve
$1,500,000 initial deposit. Monthly amounts equal to $62,500, capped at $3,000,000, until the litigation is settled or
dismissed.
Ground lease reserve
Monthly amounts equal to 1/12 of the annual amounts estimated to be due and payable, and none to the extent that
such amounts are being escrowed for by the property manager.
Ground lease collateral
reserve
$20,000,000 initial deposit. None ongoing.
Cash management
Under the hotel and retail management agreements, Hyatt, as property manager, has established an operating account
to be maintained by the property manager as agent for the operating lessee. Although the mortgage lender has been
granted a security interest in the operating accounts, until the occurrence of a manager termination event, the property
manager has the right to access and utilize the amounts in the account for the operation of the property and payment
of costs and expenses of its operation. The operating accounts are maintained at First Hawaiian Bank, and the
mortgage lender, First Hawaiian Bank, Hyatt, the borrower, and/or the operating lessee have entered into controlled
account agreements with respect to such operating accounts to perfect the mortgage lender's interest.
In the event that the borrower or operating lessee receives any amounts not required to be deposited with Hyatt, each
is required to transfer all funds to the applicable cash management account once every business day. During the
continuance of a mortgage loan event of default, the mortgage lender may apply any sums to the payment of the debt
in any order in its sole discretion.
A cash sweep period is triggered under the mortgage loan upon (a) a mortgage loan event of default; (b) any
bankruptcy action of the borrower, operating lessee, or affiliated manager; or (c) a debt yield of less than 9.0% on any
date of determination for the calendar quarter immediately preceding the date of such determination, based upon the
TTM period immediately preceding such date of determination, as determined by the lender.
Provided that no cash sweep event triggered by (x) a mortgage loan event of default or (y) a bankruptcy action of the
borrower, operating lessee, or affiliated manager has occurred and is continuing, on each payment date, all funds on
deposit in the cash management account are required to be applied in accordance with the cash management
agreement to debt service, operating expenses (to the extent not paid under the Hyatt management agreement),
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required reserve deposits, and, in the event the debt yield equals or exceeds 8.0%, the debt service payment due under
the mezzanine loan.
Insurance
The borrower is required to maintain comprehensive all-risk insurance for the mortgaged property equaling the
property's full replacement cost and that contains a law and ordinance coverage, or an enforcement endorsement if
any improvements or property uses at any time constitute legal nonconforming structures or uses. The borrower must
also maintain boiler and machinery insurance, commercial general liability insurance, and insurance covering
terrorism. In addition, the borrower must have business interruption insurance in an amount equal to at least 24
months after the interruption. Under the loan agreement, the borrower is required to maintain windstorm, flood, and
earthquake insurance with a deductible not to exceed 5.0% of the insurable value.
The insurance providers must meet minimum rating requirements set forth in the loan agreement ('A' by S&P Global
Ratings). If the insurance is provided by a syndicate, 75% of the insurers in syndicates of four or fewer carriers, or 60%
of insurers in syndicates of five or more, must be rated 'A' by S&P Global Ratings, with no insurer rated less than 'BBB'.
The insurance requirements of the loan agreement are in conformance with our insurance criteria.
The property is located in Flood Zone CX, which is not designated as an SFHA by FEMA, according to the Harbor
Group, a provider of commercial real estate risk analysis. The flood limit under the current policy is $350,000,000 per
occurrence and annual aggregate, subject to a deductible of $250,000. Of this coverage, $100,000,000 is dedicated
solely to the Hyatt Regency Waikiki.
The property is located in Seismic Zone 2A, which is not an area with a high degree of risk for earthquake, according
to Harbor. The policy provides $350,000,000 of coverage applying per occurrence and in the aggregate, subject to a
deductible of 5% of total insurable values minimum $250,000. Tsunami coverage is included in this earthquake limit.
Of this coverage, $100,000,000 is dedicated solely to the Hyatt Regency Waikiki.
Property Characteristics
Collateral description
The Hyatt Regency Waikiki Resort & Spa is one of the largest hotel properties in Hawaii, comprising 1,230 guestrooms
spread across two 40-story oceanfront towers offering panoramic views of Waikiki Beach, Diamond Head, and
downtown Honolulu. The property's design allows for ocean views from approximately 67% of the guest rooms, not
including partial ocean views. The full-service resort is situated on a 2.97-acre oceanfront site that encompasses an
entire city block along Kalakaua Avenue, a major commercial thoroughfare in downtown Honolulu. It is directly across
the street from Waikiki Beach and within walking distance of restaurants, retail shopping, and entertainment venues
including the Honolulu Zoo, Waikiki Aquarium, and the Ala Moana Center.
The property opened in 1976, and recently underwent a major renovation. After acquiring the property in 2013,
Blackstone (who sold the property to Mirae) spent $110.5 million on renovations ($89,818 per key). The majority of the
expenditures were in 2014 (45.2%) and 2015 (39.5%). Over the course of the renovation program, more than $69.4
million was spent directly on guestroom renovations ($56,420 per key).
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The Pualeilani Atrium Shops retail component, with its 48 unique tenants, provides a secondary income stream that
reduces the loan's dependence on the hotel's performance. The 94,333 square feet of retail space located on three
floors and the basement of the resort offers street level access to pedestrians and tourists in the highly trafficked area,
and is not dependent on hotel guests. The previous sponsor added an Urban Outfitters to the Pualeilani shops as part
of previously mentioned renovations. Other major tenants include UGG Australia, Seafood Village (a Chinese food
restaurant), ABC Discount Store, Billabong, and Coach. Other amenities at the property include three food and
beverage outlets, a business center, a fitness center, an outdoor pool, a 10,000 sq. ft. spa, and 23,130 sq. ft. of function
space.
Overview Of The U.S. And Hawaii/Oahu Lodging Sectors
U.S. lodging sector
The U.S. Lodging sector has recovered from the significant declines experienced in the aftermath of the financial crisis
and continues to improve. After an unprecedented RevPAR decline of 16.7% in 2009, which was the largest single-year
decline for the industry on record, the sector has gone through an expansionary phase that currently stands at 70
months (see table 2). This places it in the midpoint of past expansions, as the previous two expansions in the lodging
industry lasted 56 months (between 2003 and 2008) and 111 months (between 1992 and 2001).
Table 2
U.S. Hotel Sector Historical Performance
2010
2011
2012
2013
2014
2015
57.6
60.1
61.5
62.3
64.4
65.6
ADR ($)
97.95
101.57
106.05
110.31
115.39
119.97
RevPAR ($)
56.40
61.04
65.17
68.70
74.32
78.65
RevPAR change (%)
5.0
8.2
6.8
5.4
8.2
5.8
Supply change (%)
2.0
0.3
0.1
0.8
0.8
1.0
Occupancy (%)
Source: Smith Travel Research. ADR--Average daily rate. RevPAR--Revenue per available room. N/A--Not applicable.
In 2015, all fundamentals continued to improve for the lodging sector and reached record highs, with occupancy rates
reaching 65.6%, while ADR reached $120. After surpassing its pre-financial crisis high in 2013, RevPAR reached $78.65
in 2015, 46.4% above the financial crisis low of $53.71 and 20.1% above the pre-financial crisis peak of $65.46 (seen in
2007), and up 5.8% year over year. RevPAR growth in 2015 was experienced across all hotel segments, with the
upper-midscale, midscale, and economy segments demonstrating the strongest growth.
Growth continues to be driven by the improving economy. With the unemployment rate continuing to decrease and
wages finally increasing across the U.S., demand can be expected to improve over the near term. At the same time,
supply is increasing at a faster rate, with 514,762 units under construction or at various stages of planning in 2015--a
13.0% increase over 2016. Mature hotel markets have already seen the effects of this increased supply, as New York
and Houston both saw RevPAR decline in 2015. While they are the only two of the top 25 markets identified by Smith
Travel Research (STR) to undergo RevPAR declines in 2015, the increased supply forecasted over the coming years is
a potential headwind to the lodging industry. That being said, the outlook remains positive for the near term, as STR is
projecting RevPAR growth of 5.0% for 2015, with a minor increase in occupancy of 0.6% and an ADR increase of 4.0%.
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We note the 25% year-over-year increase in foreign investment in for U.S. hotels in 2015, led by investors from Asia
and the Middle East. 2015 also saw the acquisition of Starwood Hotels & Resorts by Marriott International for $12.2
billion, which created the world's largest hotel chain.
Hawaii/Oahu lodging market
Hawaii is an international resort destination with an economy that is highly dependent on the tourism industry.
Tourists are drawn to Hawaii for many reasons, including its beaches, landscape, and unique cultural heritage. Given
Hawaii's remote location more than 2,200 miles from the U.S. mainland, the overwhelming majority of tourists arrive
by air (98%). Hawaii saw a record 8.5 million visitors by air in 2015, representing growth of 4.3% over 2014 and more
than 13.8% higher than the 7.5 million visitors in 2007 (see table 3). Visitor expenditures in 2015 were a record $15.2
billion ($1,780 per visitor), 4% higher than the previous year.
Table 3
Air Visitors To Hawaii (000s)(i)
2007
2008
2009
2010
2011
2012
2013
2014
2015(ii)
TTM July
2016(ii)
U.S. West
3,245
2,769
2,719
2,961
2,995
3,179
3,211
3,287
3,518
3,594
U.S. East
1,902
1,683
1,561
1,632
1,642
1,700
1,702
1,735
1,789
1,828
U.S. combined
5,146
4,452
4,280
4,593
4,637
4,878
4,913
5,021
5,307
5,422
Japan
1,296
1,175
1,168
1,239
1,242
1,466
1,519
1,512
1,499
1,489
Canada
333
360
347
406
478
499
517
525
517
479
Oceania (Australia and New
Zealand)
164
155
137
162
210
273
356
371
398
405
China
57
54
42
62
82
117
125
160
180
178
Korea
42
38
51
82
113
153
177
178
172
194
Other(iii)
458
478
396
438
414
481
397
417
461
531
7,497
6,713
6,420
6,982
7,174
7,867
8,003
8,184
8,534
8,697
Indexed to 2007 (%)
(10.4)
(14.4)
(6.9)
(4.3)
4.9
6.8
9.2
13.8
16.0
YoY growth (%)
(10.4)
(4.4)
8.8
2.7
9.7
1.7
2.3
4.3
1.9
Total
(i)Data exclude cruise ship visitors, which historically represent about 2% of visitors. (ii)Data for 2015 and 2016 are preliminary. (iii)Other
includes Europe, Latin America, and all other visitors not captured above. TTM--Trailing 12 months. YoY--Year-over-year.
Source: Hawaii Department of Business, Economic Development, and Tourism.
Tourists from the mainland U.S. and Japan comprise the majority of visitors to Hawaii. In 2015, of the 8.5 million air
visitors, 62.2% came from the U.S. (41.2% from the Western U.S. and 21.0% from the Eastern U.S.) and 17.6% from
Japan. After significant declines in 2008 and 2009, the number of U.S. visitors reached their pre-financial crisis levels in
2014, and grew another 6% in 2015. Since 2007, a period that includes wide fluctuations in the value of the yen, as well
as the tsunami and related Fukushima disaster in March 2011, the number of Japanese visitors has increased steadily.
Despite the natural and man-made disasters that befell Japan in 2011, the number of Japanese visitors to the Hawaiian
Islands remained steady and increased 0.2% in 2012, showing the resiliency of the market.
While the U.S. and Japanese markets continue to perform strongly, other Asian markets are contributing in increasing
numbers to the overall tourism in Hawaii. Between 2007 and 2015, the number of Chinese visitors to Hawaii increased
more than threefold, to 180,000 in 2015 from 57,000 in 2007, and the Chinese now represent the fifth-largest segment
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of visitors. The recent 10-year multientry U.S. visa policy is expected to help attract repeat visitors from China. Over
this same period, the number of Korean visitors to Hawaii also increased dramatically, to 172,000 in 2015 from 42,000
in 2007. Mirae, the loan sponsor, is a Korean company, and is expected to focus increased attention on the Korean
market. Visitors from China and Korea, along with Oceania, have demonstrated double-digit growth rates since 2007,
and represent the fastest growing segment of visitors.
Oahu, the site of the subject property, is the most visited of the islands, drawing 5.3 million visitors in 2015, up 3.5%
over 2014 and 13.7% higher than the number of visitors in 2007. With its combination of natural beauty, historical
sites, and urban and retail offerings, Oahu attracted 63% of all visitors to the islands--a penetration rate that has
remained stable since 2007. International visitors to Oahu have increased substantially since 2007, representing 46% of
all visitors to the island in 2015, versus 37% in 2007. While both segments have grown since 2009, the number of U.S.
visitors to Oahu has yet to recover from pre-financial crisis highs, while international visitors have demonstrated strong
growth since 2009 (see table 4).
Table 4
Air Visitors to Oahu (000s)(i)
U.S.
2007
2008
2009
2010
2011
2,950
2,555
2,447
2,588
2,592 2,735 2,732 2,763
Growth indexed to 2007 (%)
International
1,744
Total
4,695
1,639
1,578
1,741
(6.1)
(9.5)
(0.2)
4,194
4,025
4,329
2013
2014 2015(ii) TTM July 2016(ii)
2,869
2,893
(6.3)
(2.8)
(1.9)
1,810 2,169 2,312 2,413
(13.4) (17.1) (12.3) (12.1)
Growth indexed to 2007 (%)
2012
(7.3)
(7.4)
2,471
2,506
38.3
41.7
43.7
4,402 4,904 5,044 5,176
5,340
5,399
3.7
24.4
32.5
(i)Data exclude cruise ship visitors. (ii)Data for 2015 and 2016 are preliminary. TTM--Trailing 12 months.
Source: Hawaii Department of Business, Economic Development, and Tourism.
The Hyatt Waikiki is located in Honolulu, Oahu, a city of 350,000 people. The Waikiki area of Honolulu is very popular
among first-time visitors to Hawaii due to its world-class retail shopping and dining, world famous Waikiki Beach, and
proximity to attractions such as Pearl Harbor and Diamond Head Crater. Oahu is easily accessible via direct flights
from numerous international points of departure. Many travelers begin their trips to the Hawaiian Islands through the
entry point of Oahu, and then schedule day trips to the other islands.
From 2011 to 2014, hotels in Oahu have seen occupancy rates in excess of 80% and ADR annual growth ranging
between 5.8% and 14.0% annually, according to STR. These strong occupancy rates have been supported by a
stronger global economy, declining lodging supply on the island (Oahu has experienced an annual decline of 1.1% in
hotel supply since 1997, as units were converted into timeshares and condos), and a lack of developable sites, along
with a strategy pursued by Hawaiian tourism authorities to limit development. Hawaiian officials have increasingly
preferred to drive tourism revenue by focusing on higher expenditures per visitor rather than growth in the absolute
number of visitors to the islands.
Following these larger trends, RevPAR at the property has increased every year over the past five years, with the
exception of 2014, when it decreased by 4% year over year due to the renovations at the property. The hotel's
competitive set in Oahu has seen similar RevPAR increases every year since the 2009 lows--a trend also experienced
by the rest of the U.S. hotel industry.
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With occupancies already running at record highs among the competitive set (see table 5), the stated focus of hotel
management has been on driving the hotel's ADR higher. However, conversations with the hotel's general manager
during our site visit indicated that there is only so much room for rate growth.
Table 5
Oahu Island Lodging Market Historical Performance
2010
2011
2012
2013
2014
2015
78.3
80.9
84.7
83.7
84.4
85.4
ADR ($)
149.64
165.05
183.41
209.13
221.22
219.69
RevPAR ($)
117.12
133.57
155.41
175.14
186.73
187.63
RevPAR change (%)
6.9
14.0
16.4
12.7
6.6
0.5
Supply change (%)
1.1
(0.5)
1.7
0.3
(2.3)
(2.1)
Occupancy (%)
ADR--Average daily rate. RevPAR--Revenue per available room. Source: Smith Travel Research.
RevPAR penetration
The Hyatt Waikiki's competitive set includes other upscale oceanside resorts in Honolulu operated by well-established
and recognizable franchises (see table 6). Transient demand drives the Honolulu market, and the subject and its
competitive set are no exception. In 2015 the transient segment accounted for 82.5% of occupied room nights at the
competitive set. According to Hyatt Waikiki management, transient demand was responsible for 86% of occupied
room nights for the June 2016 TTM, with the meeting and group segment accounting for 14%.
Table 6
Hyatt Waikiki Competitive Set
No. of rooms Meeting space (sq. ft.) Estimated 2015 RevPAR ($)
Westin Moana Surfrider
791
23,612
306.51
Sheraton Waikiki
1,636
48,210
284.22
Hilton Honolulu Hawaiian Village
2,860
150,000
228.95
Hyatt Regency-Waikiki Beach Resort & Spa
1,230
23,130
226.05
Marriott Waikiki Beach Resort & Spa
1,310
55,000
188.68
7,827
299,952
241.15
Total
RevPAR—-Revenue per available room. Source: Cushman & Wakefield appraisal, dated July 18, 2016.
The Westin Moana Surfrider, which is located on the ocean side of Kalakua Avenue, is the market leader. In 2015, the
Surfrider had estimated RevPAR of $306.51, 36% more than the subject's. The Westin Moana Surfrider was the first
hotel built in Waikiki and offers a superior oceanfront location compared to the subject's.
The Sheraton Waikiki, located two blocks from the subject on the ocean side of Kalakua Avenue, achieves RevPAR
that is significantly higher than the Hyatt Waikiki. Similar to the Surfrider, the Sheraton's location directly on the
oceanfront is a driving factor behind the higher RevPAR. The 2,860 room Hilton Honolulu Hawaiian Village is located
approximately two miles from the subject and achieves similar RevPAR as the subject. While it has an oceanfront
location, the Hilton Honolulu Hawaiian village is a 10 minute cab/shuttle bus ride away from the Waikiki core. The
Marriott Waikiki Beach Resort & Spa, a short walk from the property, achieves lower RevPAR than the subject, as it
has a higher percentage of lower rate group business than the rest of the competitive set.
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The appraiser has identified five new developments in the area, with one that could be competitive with the subject.
The Hyatt Centric, which will be located on a side street a block away from Kalakua Avenue, is expected to offer 230
rooms and open in January 2017. Like the Hyatt Waikiki, it will also have a retail component, and it will offer larger
rooms than the subject. However, it is considered to have an inferior location when compared to the subject's, as it is a
block removed from Kalakua Avenue on the inland side, with multiple buildings between the property and the ocean
that could potentially obstruct views. There are also four other developments identified by the appraiser: the Waikiki
Parc Hotel is increasing the size of its guestrooms and decreasing the number of rooms to 200 from 297; the Ritz
Carlton Residences Waikiki already has one of two towers completed and will offer 548 condominium units when
finished in 2017; 133 Kaiulani is expected to be completed in 2018 and will offer 248 condo/hotel units; and the Hilton
Garden was recently redeveloped and now offers 623 units, versus 659 before the development. These units are not
expected to compete directly with the competitive set.
RevPAR for the competitive set increased in each of the past seven years, while the RevPAR for the subject fluctuated
over the same period. Since 2009, RevPAR increased each year for the subject until 2014, when it declined 4% over
the previous year due to renovations. In 2015, RevPAR increased 13% over 2014, and now stands 9% higher than in
2013 before the one-year decline. (See table 7.)
Table 7
Hyatt Waikiki RevPAR Penetration Rates
Occupancy (%)
2013
2014
2015
TTM August 2016
102.0
90.6
96.8
99.0
ADR (%)
86.9
93.7
96.0
98.9
RevPAR (%)
88.6
84.9
92.9
98.0
ADR--Average daily rate. RevPAR--Revenue per available room. TTM--Trailing 12 months. Source: Cushman & Wakefield appraisal, dated July
18, 2016.
Business mix
According to figures provided by the property manager, Hyatt, 86% of the subject property's revenue came from
transient demand versus 14% from meeting and group business for the TTM ended June 2016 (see table 8). Both
sectors are performing strongly, with marked increases over the TTM as of June 2015 levels. The transient demand
segment includes both individual commercial and leisure demand; however, in the subject's market, it consists of
leisure demand almost entirely. Leisure demand comprises individual tourists and families visiting the attractions of a
local market and/or passing through en route to other destinations. Leisure travelers tend to be the most
price-sensitive segment in the lodging market and typically demand extensive recreational facilities and amenities.
Meeting and group demand includes groups who reserve blocks of rooms for meetings, seminars, trade association
shows, and other similar gatherings of 10 or more persons.
Table 8
Business Mix (Transient/Group)
TTM June 2016
Transient
TTM June 2015
2016 vs. 2015
Room
Nights
Rooms
Revenue
ADR
($)
% of
Rooms
Rev
Room
Nights
Rooms
Revenue
ADR
($)
% of
Rooms
Rev
Room
Nights
Rooms
Revenue
ADR
($)
359,080
92,777,336
258.38
86.0
315,657
75,401,523
238.87
84.1
13.8
23.0
8.2
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Table 8
Business Mix (Transient/Group) (cont.)
TTM June 2016
Group
Contract
Total
TTM June 2015
2016 vs. 2015
Room
Nights
Rooms
Revenue
ADR
($)
% of
Rooms
Rev
Room
Nights
Rooms
Revenue
ADR
($)
% of
Rooms
Rev
55,582
15,118,071
272.00
14.0
57,601
14,199,725
246.52
15.8
4,549
38,819
8.53
0.0
5,486
32,224
5.87
0.0
419,211
107,934,226
257.47
100.0
378,744
89,633,472
236.66
100.0
10.7
Room
Nights
Rooms
Revenue
ADR
($)
(3.5)
6.5
10.3
(17.1)
20.5
45.3
20.4
8.8
A significant portion of the hotel's revenue comes from the Asia Pacific regions. As of the TTM ended June 2016,
visitors from the Asia Pacific region generated 58.4%, or $63.1 million, of room revenue at the hotel, versus 57.2%, or
$51.3 million, as of the June 2015 TTM. The majority of the Asia Pacific business is generated by the wholesale tourist
market.
Table 9
Business Mix (Asia Pacific)
TTM June 2016
TTM June 2015
2016 vs. 2015
Room
Nights
Rooms
Revenue
ADR
($)
% of
Rooms
Rev
Room
Nights
Rooms
Revenue
ADR
($)
% of
Rooms
Rev
Room
Nights
Rooms
Revenue
ADR
($)
Asia Pacific
wholesale
190,942
53,782,308
281.67
49.8
156,461
42,129,008
269.26
47.0
22.0
27.7
4.6
Non-Asian
wholesale
31,986
7,110,959
222.31
6.6
41,898
8,437,483
201.38
9.4
(23.7)
(15.7)
10.4
Wholesale
(total)
222,928
60,893,267
273.15
56.4
198,359
50,566,491
254.92
56.4
12.4
20.4
7.2
Internet
55,535
12,774,657
230.03
11.8
39,997
8,420,489
210.53
9.4
38.8
51.7
9.3
Lesiure
group
41,828
10,844,779
259.27
10.0
47,906
11,448,375
238.98
12.8
(12.7)
(5.3)
8.5
Special
offers
28,814
7,345,568
254.93
6.8
17,888
4,575,647
255.79
5.1
61.1
60.5
(0.3)
Business
13,790
4,283,587
310.63
4.0
9,419
2,800,511
297.33
3.1
46.4
53.0
4.5
56,316
11,792,368
209.40
10.9
65,175
11,821,959
181.39
13.2
(13.6)
(0.3)
15.4
419,211
107,934,226
257.47
100.0
378,744
89,633,472
236.66
100.0
10.7
20.4
8.8
Other
Total
TTM--Trailing 12 months.
Ground leases
The property is subject to four ground leases, with the following ground lessors:
• 2424 Kalakaua Associates, with respect to a portion of the hotel parcel;
• 2424 Kalakaua Associates, with respect to the convention center parcel;
• Kevin Mitsuo McCrann and Christopher Alan Capolongo (collectively, the successor trustees under the Okumoto
Joint Irrevocable Trust dated April 6, 1981), with respect to parking parcels; and
• BEA Investments LLC, with respect to a portion of the hotel parce.
Each of the ground leases terminates on Dec. 31, 2087.
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The ground leases, which were most recently amended in 2013, contain most provisions for financeability in the
capital markets, including (i) notice and cure rights for the lender and (ii) an agreement from the lessor to enter into a
new lease with the mortgage lender in the event the ground lease is rejected in a bankruptcy or if it is terminated
(other than as a result of casualty or condemnation). However, the ground leases do not restrict amendments or
modifications without the consent of the mortgage lender and do not contain a no-merger provision.
The operating agreement for the borrower provides that the borrower cannot enter into amendments or terminations
of the ground leases without the prior written consent of the mortgage lender and a special member of the borrower,
deemed "the special vote member" (SVM). The SVM, whose sole purpose is to vote on any amendments or
modifications to any ground lease, will not consent to any amendment or modification of any ground lease that has not
been approved by the mortgage lender. The ground lessors have been notified that any amendment or termination of
the ground lease requires the prior written consent of the mortgage lender and the SVM.
Additionally, the borrower has deposited $20,000,000 into the ground lease collateral reserve fund, which can be
applied by the mortgage lender to any losses, claims, damages, liabilities, costs, or expenses (including, without
limitation, attorney's fees and expenses) incurred by the mortgage lender as a result of a default by the borrower under
any of the negative covenants with respect to each ground lease in the mortgage loan agreement.
The base rents on three of the four ground leases covering the property reset in January 2017, and will likely be based
on the prevailing rate of return on land of similar type and location, and the fair market value of the land, as
determined by appraisal. We believe the increase in ground rent will be sizable, based on the strong performance of
the Honolulu hotel market, which drives land values, and we are assuming a ground rent expense more than 25.1%
higher than that of the TTM as of August 2016.
Management agreement
The Hyatt Waikiki is managed by Hyatt Corp., as is the accompanying retail component. Hyatt Corp. was originally
founded in 1957 and has grown to be one of the largest hospitality companies in the world, with a portfolio of 12
brands and over 627 hotels in 54 countries. The company's subsidiaries manage, franchise, own, and develop hotels
and resorts under the Hyatt, Park Hyatt, Andaz, Grand Hyatt, Hyatt Regency, Hyatt Place, Hyatt Centric, and Hyatt
House brand names.
Under its management agreement, Hyatt is entitled to a basic management fee equal to 3.0% of gross revenues and an
incentive fee equal to 12.5% of the amount of the gross operating profit (as adjusted by deducting certain amounts,
such as insurance costs and property taxes) in excess of the sum of (a) $36,000,000 and (b) 10% of certain amounts
contributed by the operating lessee for capital expenditures. The incentive fee is subject to a cap. Based on respective
property performance projections, neither the issuer nor S&P Global Ratings is assuming an incentive fee is paid. S&P
Global Ratings assumed a 3.0% property management fee on the hotel's income.
The current hotel management contract does not expire until December 2062. The mortgage lender has the right to
require the borrower to terminate the management agreement and replace the property manager with a qualified
manager or qualified brand replacement manager under a replacement management agreement if (i) a mortgage loan
event of default has occurred and is continuing, (ii) the property manager becomes subject to a bankruptcy action, or
(iii) a default occurs under the related management agreement beyond any notice and cure periods, or (iv) in the event
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that the DSC ratio for the property is less than 2.00x.
Third-Party Reviews
We reviewed the appraisal, environmental, and engineering reviews prepared within the past 12 months for the Hyatt
Waikiki. No matters of concern were noted, and none of the issues raised affected our analysis.
Structural And Legal Issues
We reviewed legal matters that we believed were relevant to our analysis. This review included analysis of the major
transaction documents, including the offering circular, trust and servicing agreement, and other relevant documents
and opinions, to understand the transaction's mechanics and its consistency with applicable criteria. We also
conducted a focused legal review of the first-mortgage loan agreement, mezzanine loan agreement, the cash
management agreement, and the intercreditor agreement.
Extraordinary trust expenses
The borrowers must pay special servicing, workout, and liquidation fees, as well as costs and expenses incurred from
any appraisals or inspections that the special servicer may conduct. In addition, the borrowers must pay interest on all
debt service advances and advances that the servicer or trustee makes from enforcing the borrowers' obligations under
the loan documents. Because S&P Global Ratings' credit ratings reflect, among other factors, our view of the likelihood
of timely interest payments on the certificates, the borrowers' obligation to pay these trust fund expenses helps
mitigate the risk of interest shortfalls caused by a monetary or nonmonetary default.
Historical And S&P Global Ratings' Cash Flow
We reviewed the historical cash flows and the issuer- and appraiser-reported cash flows to determine our view of a
sustainable cash flow for the property. We summarize the historical and S&P Global Ratings' projected NCF for the
hotel in table 10.
Table 10
Hyatt Regency – Waikiki Beach Resort & Spa Historical And Projected Cash Flows
2013
Occupancy rate
2014
2015
August TTM
2016
Appraisal
Issuer
S&P Global
Ratings
91.4
81.9
89.1
92.0
91.0
91.7
90.0 (i)
Average daily rate (ADR)
240.59
258.87
253.67
265.71
283.48
271.29
248.30 (i)
RevPAR
219.79
211.96
226.05
244.55
257.96
248.66
223.5
Room revenue
98.677
95.159
101.487
110.093
115.813
111.635
100.326
Food and beverage
revenue
16.596
14.893
14.512
14.575
18.176
14.474
14.336 (ii)
Telephone revenue
0.116
0.099
0.044
0.009
-
0.006
0.014 (ii)
Revenue (mil. $)
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Table 10
Hyatt Regency – Waikiki Beach Resort & Spa Historical And Projected Cash Flows (cont.)
2013
2014
2015
August TTM
2016
Appraisal
Issuer
S&P Global
Ratings
Other income
0.261
0.377
6.858
8.016
6.175
8.004
0.708 (iii)
Spa and fitness revenue
1.991
1.981
1.968
1.960
2.120
1.946
2.041 (ii)
12.495
13.592
11.416
11.296
11.534
11.173
9.827 (iv)
1.554
1.613
1.839
1.838
1.910
1.825
1.853 (ii)
-
-
-
-
-
-
5.930 (v)
131.689
127.714
138.123
147.787
155.728
149.064
135.034
Operating expenses (mil. $)
-
-
-
-
-
-
-
Departmental expenses
-
-
-
-
-
-
-
Room
27.015
27.126
30.079
31.524
33.525
31.966
29.816 (vi)
Food and beverage
18.678
17.848
16.446
16.901
17.354
16.785
15.801 (vii)
Telephone expenses
0.997
-
-
-
-
-
-
Spa and fitness expense
1.652
1.707
1.733
1.713
1.855
1.702
1.876 (vi)
Parking expense
0.562
0.548
0.616
0.639
0.651
0.634
0.603 (vi)
48.904
47.229
48.874
50.778
53.385
51.087
48.097
Other departmental revenue
Retail revenue
Parking revenue
Resort fees
Total revenue
Other departmental expense
Total departmental
expenses
Departmental profit
82.786
80.485
89.249
97.009
102.343
97.977
86.938
General and administrative
8.503
9.194
9.193
9.610
9.713
9.693
9.194 (viii)
Franchise fee
1.155
1.238
1.243
1.275
-
1.286
1.196 (ix)
Advertising and marketing
5.616
5.408
5.803
6.053
7.514
6.106
5.408 (x)
Repairs and maintenance
4.255
4.453
4.537
4.707
4.772
4.674
4.453 (viii)
Utilities
5.241
5.451
4.542
4.305
4.493
4.275
4.781 (xi)
Management fees
3.540
3.433
3.706
4.002
4.672
4.137
3.756 (xii)
Ground rent
8.898
8.440
9.272
9.935
11.672
11.672
12.429 (xiii)
Fixed charges
-
-
-
-
-
-
-
Real estate taxes
2.939
3.217
3.774
4.190
4.136
4.307
4.134 (ix)
Insurance
0.453
2.134
1.599
1.598
1.656
1.523
1.524 (ix)
Equipment leases
0.098
0.102
0.065
0.067
-
0.067
0.06 (ix)
Total undistributed
40.697
43.068
43.735
45.742
48.628
47.740
46.935
Net operating income
42.088
37.416
45.514
51.268
53.715
50.237
40.002
Capital expenditures
5.260
5.099
5.051
5.446
6.229
5.516
5.008 (xiv)
Total capital item
5.260
5.099
5.051
5.446
6.229
5.516
5.008
Net cash flow (NCF)
36.829
32.318
40.463
45.822
47.486
44.721
34.994
NCF for DSCR purposes
34.994
Haircut to issuer NCF (%)
(21.8)
Capitalization rate (%)
S&P Global Ratings value
($)
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Table 10
Hyatt Regency – Waikiki Beach Resort & Spa Historical And Projected Cash Flows (cont.)
2013
2014
2015
August TTM
2016
Appraisal
Issuer
S&P Global
Ratings
S&P Global Ratings value
per key ($)
347,244
(i)Based on position relative to competitive set. (ii)Based on borrower budget, in line with historicals. (iii)Based on a three-year average, and
includes the Expedia lease income. (iv)Based on separate retail underwriting and leases in place. (v)Based on 2014 resort fee levels. (vi)Based on
2014 PAR. (vii)Based on borrower budget. Historicals are based on different accounting method. (viii)Based on 2014 PAR. (ix)Based on borrower
budget. (x)Based on 2014 PAR. Appraisal figures include affiliate fees. (xi)Based on a three-year average. (xii)3.00% of total departmental
revenue, excluding retail income, which is underwritten with its own management fee. (xiii)Based on S&P Global Ratings estimates. (xiv)4.00% of
total departmental revenue, excluding retail income, which is underwritten with its own tenant improvements/leasing commitments and capital
expenditure expense. DSCR--Debt service coverage ratio. RevPAR--Revenue per available room. TTM--Trailing 12 months.
The property's room revenue has historically represented approximately three-quarters of total revenue. The hotel
generates significant revenue from food and beverage operations (between 10%-15%). The retail component of the
resort collateral comprises 7%-10% of the hotel's revenue, and provides a secondary income stream that reduces the
loan's dependence on the hotel's performance. Due to the mostly triple-net nature of the tenant leases, whereby the
tenants are responsible for the bulk of the operating expenses, the retail component generates a much larger
percentage of the hotel's NCF than would otherwise be indicated. Based on our calculations, the retail shops account
for more than 28% of the property's total NCF. We accounted for these strengths by assigning a lower cap rate to the
retail net cash flow of the property (7.50%) than we did for the hotel-specific cash flow (8.50%).
We determined room revenue for the Hyatt Waikiki by assessing not only the hotel's and the competitive set's recent
RevPAR levels, but also historical performance levels and the overall performance of the Honolulu market. Our
RevPAR conclusion was approximately 10.5% lower than that of the competitive set as of the TTM ended August
2016, but in line with average historical RevPAR penetration rates of approximately 95%.
Based on the our cash flow and cap rate calculations, 69.3% of the total $427.1 million Hyatt Waikiki value is derived
from hotel sources and 30.7% from the retail component.
Property Evaluation Details
During our property evaluation, we performed the following reviews:
• Conducted a site inspection of the subject property;
• Analyzed and valued the property, which included reviewing property-level operating statements, the borrowers'
budgets, booking pace reports, and STR reports;
• Reviewed management and sponsorship, which included discussions with property management;
• Reviewed third-party appraisals, environmental reports, and engineering reports for the properties; and
• Reviewed the legal matters that we believed were relevant to our analysis, as outlined in our criteria. We reviewed
the current drafts of the major transaction documents, including the loan agreement, offering circular, and trust and
servicing agreement, to verify compliance with our criteria and to understand the mechanics of the underlying loans
and the transaction.
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Scenario Analysis
We performed several 'AAA' stress scenario analyses to determine how sensitive the certificates are to a downgrade
over the loan term.
Effect of declining NCF
The revenue and NCF derived from the Hyatt Waikiki collateral is generated primarily by the 1,230 rooms comprising
the collateral. Room revenue has historically represented over 75% of total revenue for the asset. Consequently, a
decline in room revenue, which is measured by RevPAR, will likely decrease the cash flow available to pay debt
service. A decline in RevPAR may occur because of a decline in occupancy or ADR.
To analyze the effect of a decline in RevPAR (and consequently cash flows) on our ratings, we have developed
scenarios whereby the RevPAR decreases by 5%-20% from our current RevPAR assumption, which corresponds to
NCF declining from 11% to 43%. To put this in context, RevPAR for the hotel declined by about 4.9% between 2008
and 2009--a period of extreme economic stress in the U.S. lodging sector. (See table 11 for the potential effect on our
'AAA (sf)' rating under these scenarios, holding constant an S&P Global Ratings capitalization rate of 9.63%.
Table 11
Effect Of Declining RevPAR And NCF
Decline in S&P Global Ratings' RevPAR (%)
Corresponding decline in S&P Global Ratings' NCF (%)
S&P Global Ratings' LTV (%)
Potential rating migration from 'AAA (sf)'
0
(5)
(10)
(15)
(20)
0%
(11)
(22)
(32)
(43)
93.7
105.2
119.7
138.7
164.5
AAA (sf) AA+ (sf) AA- (sf)
A (sf) BBB (sf)
RevPAR--Revenue per available room. NCF--Net cash flow. LTV--Loan-to-value ratio.
Transaction-Level Credit Enhancement
To determine a transaction's credit enhancement at each rating level, we use each loan's S&P Global Ratings' DSC and
LTV to calculate the stand-alone credit enhancement (SCE) and diversified credit enhancement. However, because
this transaction is secured by one loan, its SCE represents the transaction's credit enhancement at each rating level.
Our analysis of a stand-alone transaction is predominantly a recovery-based approach that assumes a loan default. We
use the loan's stand-alone LTV thresholds at each rating level to determine the expected principal proceeds that can
be recovered at default and are applicable to a loan with a 10-year loan term, a 30-year amortization schedule, and no
additional debt (a "benchmark 10/30 loan").
We considered the mortgage loan collateral for this transaction to be interest-only for its entire term, and there is
subordinate debt in the form of mezzanine debt. To account for the interest-only risks, we reduced the LTV thresholds
by applying negative adjustment factors across all rating categories. As the loan is subject to an intercreditor,
subordination, and standstill agreement between the mortgage and mezzanine lender that significantly restricts the
mezzanine lender's rights in such a manner, we did not account for this additional debt in our analysis. (See table 12).
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Table 12
S&P Global Ratings' LTVs And Implied Market-Value Declines
Class
Preliminary rating
LTV (%)
Implied market value decline (%)(i)
A
B
AAA (sf)
32.5
82.3
AA- (sf)
43.8
76.1
C
A- (sf)
52.2
71.5
D
BBB- (sf)
63.3
65.4
E
BB- (sf)
79.3
56.7
F
B- (sf)
93.7
48.8
(i)Reflects the decline in the $782.0 million appraised value (as of July 18, 2016) that would be necessary for a principal loss to be experienced at
each given rating level. LTV--Loan-to-value ratio.
Related Criteria And Research
Related Criteria
• U.S. Government Support In Structured Finance And Public Finance Ratings - Dec. 7, 2014
• Insurance Criteria For U.S. And Canadian CMBS Transactions - June 13, 2013
• Methodology And Assumptions: Assigning Ratings To Bonds In The U.S. Based On Escrowed Collateral - Nov. 30,
2012
• Rating Methodology And Assumptions For U.S. And Canadian CMBS - Sept. 5, 2012
• CMBS Global Property Evaluation Methodology - Sept. 5, 2012
• Criteria Methodology Applied To Fees, Expenses, And Indemnifications - July 12, 2012
• Global Investment Criteria For Temporary Investments In Transaction Accounts - May 31, 2012
• Assessing Borrower-Level Special-Purpose Entities In U.S. CMBS Pools: Methodology And Assumptions - Nov. 16,
2010
• Global Methodology For Rating Interest-Only Securities - April 15, 2010
• Understanding Standard & Poor's Rating Definitions - June 3, 2009
• Standard & Poor's Revises Criteria Methodology For Servicer Risk Assessment - May 28, 2009
• Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities - Oct. 1, 2006
Related Research
• Global Structured Finance Scenario And Sensitivity Analysis: Understanding The Effects Of Macroeconomic Factors
On Credit Quality, July 2, 2014
• Industry Economic And Ratings Outlook: With Issuance Up And Delinquencies Down, CMBS Has Positive
Momentum Going Into 2014, Dec. 9, 2013
• U.S. And Canadian CMBS Diversity Adjustment Factor Matrices, Sept. 5, 2012
• Application Of CMBS Global Property Evaluation Methodology in U.S. And Canadian Transactions, Sept. 5, 2012
In addition to the criteria specific to this type of security (listed above), the following criteria articles, which are
generally applicable to all ratings, may have affected this rating action: "Post-Default Ratings Methodology: When
Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23, 2015; "Global Framework For Assessing
Operational Risk In Structured Finance Transactions," Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace
Periods, Guarantees, And Use of 'D' And 'SD' Ratings," Oct. 24, 2013; "Counterparty Risk Framework Methodology
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And Assumptions," June 25, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012;
"Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch And Outlooks," Sept. 14, 2009.
The author would like to thank Zacharia Elofir for his contributions to this presale.
Analytical Team
Primary Credit Analyst:
John V Connorton III, New York (1) 212-438-3892; [email protected]
Secondary Contact:
James C Digney, New York (1) 212-438-1832; [email protected]
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