Fitch Affirms MSCI 2006-XLF; Revises Outlook

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed Morgan Stanley Capital I Inc. (MSC 2006-XLF) commercial mortgage pass-through certificates series 2006-XLF. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

Affirmations reflect stabilizing performance of the remaining loan in the pool.

The remaining loan in the transaction is the ResortQuest Kauai, a 311-room full-service hotel located on a fee-simple beach-front parcel of land in the city of Kapaa, along the east coast of the island of Kauai, HI. The hotel was rebranded as the Courtyard by Marriott Kauai at Coconut Beach subsequent to acquisition by the current sponsor.

Performance of the hotel has continued to improve subsequent to the rebranding and renovation of the hotel coupled with greater tourism demand on the island. As of September 2015, year-to-date (YTD) net operating income grew 17% to $4.4 million from $3.7 million at year-end 2014. Performance is expected to improve albeit at a slower pace as the hotel approaches stabilization.

For September 2015, the hotel achieved trailing 12 month (TTM) occupancy, ADR, and RevPAR of 82.3%, $143.22, and $117.90, respectively, compared to the prior year performance of 82.0%, $132.81, and $108.87. Despite the improvement, the hotel continues to trail its competitive set with reported TTM September 2015 occupancy, ADR, and RevPAR of 75.3%, $193.09 and $145.43. Also, the hotel has yet to achieve the underwritten stabilized projections for occupancy, ADR, and RevPAR of 81.1%, $165 and $134.

The property was sold in October 2010 and the note assumed for $38 million, which resulted in a $5.2 million realized loss to the N-RQK non pooled rake bond. In conjunction with the sale, the loan was modified with a maturity extension and the establishment of capex and debt service reserves. New sponsorship contributed an estimated $13 million to a recently completed renovation of the hotel which included an expansive new lobby, updated meeting space, family entertainment room and an expanded fitness center. The sponsor exercised the modified loan's first extension option through May 2017.

RATING SENSITIVITIES

The Stable Outlook is due to stabilizing performance of the hotel and sufficient credit support from subordinate classes. The Positive Outlook reflects the potential for upgrade should performance continue to improve and align with stabilization projections. Downgrades are unlikely unless there is an unexpected sharp decline in performance. The classes with realized losses will remain at 'D'.

DUE DILIGENCE USAGE

No third party due diligence was provided or reviewed in relation to this rating action.

Fitch affirms the ratings on the following pooled certificates:

--$22.1 million class J at 'BBBsf'; Outlook Stable;

--$6.8 million class K at 'Bsf'; Outlook to Positive from Stable;

--$5.1 million class L at 'Dsf; RE 100%;

--$0 million class M at 'Dsf; RE 0%.

Fitch affirms the ratings on the following non-pooled component certificates:

--$4 million class N-RQK at 'Dsf'; RE 100%.

Classes A-1 through H, N-SDF, N-LAF and O-LAF have been paid in full. The ratings of interest-only classes X-1 and X-2 were previously withdrawn. Class M, currently rated 'Dsf'; RE 0%, is being affirmed and has been reduced to zero due to realized losses. Fitch does not rate the Class N-W40 certificates.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions (pub. 27 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870009

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1000416

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1000416

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160303006487/en/

Fitch Ratings
Primary Analyst
David Ro, +1-312-368-3132
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill, +1-212-908-0785
Managing Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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