Morningstar DBRS Downgrades Credit Ratings on Five Classes of Hilton USA Trust 2016-SFP

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on five classes of the Commercial Mortgage Pass-Through Certificates, Series 2016-SFP issued by Hilton USA Trust 2016-SFP as follows:

-- Class A to C (sf) from BBB (high) (sf)
-- Class B to C (sf) from BB (high) (sf)
-- Class C to C (sf) from B (high) (sf)
-- Class X-NCP to C (sf) from CCC (sf)
-- Class D to C (sf) from CCC (sf)

In addition, Morningstar DBRS confirmed its credit ratings on the remaining classes as follows:

-- Class E at C (sf)
-- Class F at C (sf)

All classes have credit ratings that typically do not carry trends in Commercial Mortgage-Backed Securities (CMBS) credit ratings.

The collateral for the underlying loan consists of two full-service hotels located in San Francisco's Union Square. Morningstar DBRS previously downgraded all classes in August 2024 based on Morningstar DBRS' projected liquidated amount for the loan, which has been in special servicing since June 2023. Based the Morningstar DBRS Value of $553.7 million, Morningstar DBRS estimated a liquidated loss of approximately $240.0 million would be realized at disposition, eroding the entire balance of Classes E and F and partially eroding Class D. For more information on that credit rating action, please see the press release dated August 27, 2024, on the Morningstar DBRS website.

Since Morningstar DBRS' last credit rating action, collateral performance has remained depressed and, in November 2024, the master servicer determined that the outstanding monthly payment advances were nonrecoverable and stopped advancing interest to the entire capital stack. As of April 2025, cumulative interest shortfalls totaled $22.3 million, including $3.6 million on Class A, exceeding Morningstar DBRS' maximum tolerance for all credit rating categories and supporting the credit rating downgrades made with this review.

No updated appraised value has been provided to Morningstar DBRS or otherwise within the Investor Reporting Package (IRP) since the loan's initial transfer to special servicing, despite ongoing delinquency since June 2023. However, the Appraisal Reduction Amount (ARA) reported in the April 2025 remittance was $374.6 million, an increase from the July 2024 ARA of $198.8 million at Morningstar DBRS' last review. The ARA calculation typically considers the sum of the principal balance, outstanding advances, and immediate expenses due against 90% of the appraised value amount. Based on the inputs available in the IRP, which do not include the servicer's estimate of immediate expenses due, Morningstar DBRS estimates a value of approximately $488.8 million was considered by the special servicer as part of the April 2025 ARA calculation. A receiver has been working to stabilize operations at both hotels with a goal of selling the properties by the court-ordered deadline of March 31, 2025. According to the April 2025 servicer commentary, a purchase and sale agreement for the collateral was executed on March 28, 2025, and is contingent on the loan being modified, extended, and assumed by the buyer. The loan assumption will reportedly require the contribution of additional equity to fund operating shortfalls as well as renovations to increase the value of the collateral hotels.

The most recent financials reported for the collateral portfolio are as of YE2024, which showed an in-place debt service coverage ratio of -1.13 times (x) and a net cash flow of -$34.2 million. These figures compare with the YE2023 figures of 0.03x and $941,066, respectively.

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 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 Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Class X-NCP is an interest-only (IO) certificates 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 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 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.

Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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 (July 17, 2023): https://dbrs.morningstar.com/research/417279.

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