itch Ratings has assigned final ratings and Rating Outlooks to WMRK Commercial Mortgage Trust 2022-WMRK, Commercial Mortgage Pass-Through Certificates, Series 2022-WMRK.

RATING ACTIONS

Entity / Debt

Rating

Prior

WMRK 2022-WMRK

A

LT

AAAsf

New Rating

AAA(EXP)sf

B

LT

AA-sf

New Rating

AA-(EXP)sf

C

LT

NRsf

New Rating

NR(EXP)sf

D

LT

NRsf

New Rating

NR(EXP)sf

E

LT

NRsf

New Rating

NR(EXP)sf

F

LT

NRsf

New Rating

NR(EXP)sf

HRR

LT

NRsf

New Rating

NR(EXP)sf

Page

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VIEW ADDITIONAL RATING DETAILS

Fitch assigns final ratings and Rating Outlooks as follows:

--$641,200,000 class A 'AAAsf'; Outlook Stable;

--$118,500,000 class B 'AA-sf'; Outlook Stable;

The following classes are not rated by Fitch:

--$256,000,000 class C;

--$197,200,000 class D;

--$310,000,000 class E;

--$267,850,000 class F;

--$94,250,000 class HRR (a);

(a) Non-offered horizontal credit risk retention interest.

Transaction Summary

The WMRK Commercial Mortgage Trust 2022-WMRK commercial mortgage pass-through certificates represent the beneficial interest in a trust that holds an approximately $1.89 billion ($396,092 per collateral key), two-year, floating-rate, IO commercial mortgage loan. The loan has an initial term of two years, followed by three, one-year extension options. The loan's floating rate of interest is based on the one-month term Secured Overnight Financing Rate (SOFR) plus a spread of approximately 4.54%. Additionally, the loan has an interest rate cap protection based on a notional amount equal to the full loan amount and a strike rate of 4.0%.

Collateral for the loan includes the borrower's fee and leasehold interests in a portfolio of 16 full-service hotel properties (seven destination resort hotels and nine urban hotels) located across nine states and 16 markets within the U.S. The portfolio comprises approximately 5,012 total keys, of which 4,759 are collateral keys and the remainder are third-party-owned condominium units that participate in a management rental program from which the portfolio derives a portion of its gross revenue.

The mortgage loan, along with approximately $1.16 billion of sponsor equity was used to acquire the portfolio for about $2.8 billion, pay transaction closing and financing costs, and establish a $46.4 million letter of credit to cover brand-mandated performance improvement plans. The subject transaction is part of a larger $3.8 billion acquisition of Watermark Lodging Trust's (Watermark) hospitality REIT by Brookfield (the loan sponsor). Chicago-based Watermark owned a total of 24 upscale hotels and resorts comprising 7,916 rooms located across 14 states.

The certificates are expected to follow a standard sequential paydown structure, except for the first 20.0%, which is freely prepayable and applied pro rata among the components of the mortgage loan. Except for the prepayable portion of the loan, principal payments received prior to November 2023 will be subject to a prepayment premium. On and after November 2023, the entirety of the loan will be open to prepayment with no prepayment penalty or fee.

The loan was originated by Citi Real Estate Funding, Inc., Bank of America, N.A., JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A., which act as trust loan sellers. Wells Fargo Bank, N.A. is the master servicer with Situs Holdings, LLC as special servicer. Computershare Trust Company, N.A. is acting as trustee and certificate administrator. Pentalpha Surveillance LLC is the operating advisor.

KEY RATING DRIVERS

High Fitch Leverage: The approximately $1.89 billion mortgage loan equates to total senior debt of about $396,092 per collateral key, with a Fitch stressed debt service coverage ratio (DSCR), loan to value ratio (LTV) and debt yield (DY) of 0.69x, 148.5% and 7.1%, respectively. The Fitch DSCR, LTV and DY through the lowest Fitch-rated tranche (AA-sf) are 1.71x, 59.8% and 17.5%, respectively. Fitch's stressed net cash flow (NCF) of approximately $133.3 million represents a 21.7% haircut to the issuer's underwritten figure.

Geographically Diversified Portfolio: The portfolio consists of 16 full-service hotel properties located across nine states and 16 markets. Seven properties are destination resort hotels and nine are urban hotels. The largest three state concentrations by mortgage allocated loan amount (ALA) are California (43.7% of ALA), Florida (23.4%) and North Carolina (14.5%). The largest three markets are Santa Barbara, CA (20.7%), San Francisco, CA (11.8%) and Duck Key, FL (9.7%).

Institutional Sponsorship: Brookfield Asset Management, Inc. is one of the world's largest alternative investment management companies. With approximately $264.0 billion of assets under management, Brookfield's real estate platform comprises over 500.0 million sf of commercial space and approximately 24,400 employees. Brookfield's lodging portfolio includes over 173 hotels globally (approximately 33,600 rooms) across several lodging platforms.

Recent and Planned Capital Improvements: Between 2016 and 2022, approximately $177.0 million ($37,185 per collateral key) was invested by the seller, Watermark Lodging Trust, to complete renovations across the portfolio. Renovations included guestrooms, amenities, meeting and event spaces as well as a refresh of food and beverage outlets. Following acquisition, Brookfield plans to spend an additional $149.5 million ($31,418 per collateral key) to implement strategic value-add capital improvements across the portfolio. Planned renovations include comprehensive or targeted guestroom improvements, modernization of food and beverage outlets, and improvements to public and meeting spaces, among others. For additional information and property-specific planned capex, see the Historical Capital Improvements and Sponsor Business Plan section of this report.

Strong Resort Performance Recovery Following Pandemic: Overall portfolio performance has improved following the coronavirus pandemic. Portfolio occupancy, average daily rate (ADR) and revenue per available room (RevPAR) for the TTM period ended August 2022 were 61.0%, $323.5 and $197.4, respectively. Recent portfolio RevPAR performance compares favorably to the 2019 performance (pre-pandemic), when the portfolio exhibited occupancy, ADR and RevPAR of 72.0%, $271.5 and $195.5, respectively. Recent performance has mainly been driven by the strong rate performance across the destination resort hotels, as evidenced by the TTM RevPAR of $287.1 for the resort hotels (37.4% above the 2019 level). The urban hotels have a demand mix that relies more on group business, which is still recovering from the pandemic. The urban hotels in this portfolio exhibited a TTM RevPAR of $136.9 (26.6% below the 2019 level).

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Declining cash flow decreases property value and capacity to meet its debt service obligations. The table below indicates the model implied rating sensitivity to changes in one variable, Fitch NCF:

Original Rating: 'AAAsf'/'AA-sf'

--10% NCF Decline: 'AAsf'/A-sf';

--20% NCF Decline: 'Asf'/'BBB-sf';

--30% NCF Decline: 'BBBsf'/'BBsf'.

Fitch has revised its global economic outlook forecasts as a result of the war in Ukraine and related economic sanctions. Downside risks have increased and, therefore, Fitch has published an assessment of the potential rating and asset performance impact of a plausible, albeit worse than expected, adverse stagflation scenario on Fitch's major structured finance and covered bond subsectors (What a Stagflation Scenario Would Mean for Global Structured Finance).

Fitch expects the North American CMBS sector in the assumed adverse scenario to experience virtually no impact on ratings performance, indicating very few rating or Outlook changes. Fitch expects the asset performance impact of the adverse case scenario to be more modest than the most stressful scenario shown above, which assumes a further 30% decline from Fitch's NCF at issuance.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Similarly, improvement in cash flow increases property value and capacity to meet its debt service obligations. The table below indicates the model implied rating sensitivity to changes to the same one variable, Fitch NCF:

Original Rating: 'AAAsf'/'AA-sf'

--20% NCF Increase: 'AAAsf'/'AAAsf'.

Best/Worst Case Rating Scenario

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by PricewaterhouseCoopers LLP. The third-party due diligence described in Form 15E focused on a comparison and re-computation of certain characteristics with respect to the mortgage loan and related mortgaged properties in the data file. Fitch considered this information in its analysis and it did not have an effect on Fitch's analysis or conclusions.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

Additional information is available on www.fitchratings.com

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