DBRS Assigns Provisional Ratings to J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-ASH8

DBRS, Inc. (DBRS) assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-ASH8 to be issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-ASH8:

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

The trends are Stable.

All classes will be privately placed. Classes X-CP and X-EXT are notional.

The subject portfolio is secured by eight full-service hotels, seven of which are affiliated with Hilton, IHG or Starwood, and operates under four flags (Embassy Suites by Hilton, Crowne Plaza, Hilton and Sheraton), with one operating as an independent hotel. The hotels have a combined total room count of 1,964 keys. Sponsorship for the loan is Ashford Hospitality Trust, Inc., a well-established owner and operator of approximately 120 hotel assets across the United States. Management for the hotels is provided by two proven firms, Embassy Suites Management LLC, an affiliate of Hilton Worldwide Holdings Inc. (Hilton), and Remington Lodging and Hospitality, LLC (Remington), an affiliate of the borrower. Hilton is a global hotel firm with more than 570 properties, while Remington manages more than 90 hotels across 27 states under 16 different brands. The sponsor acquired three of the assets in 2005 and five of the assets in 2007. The current reported cost basis equates to approximately $477.0 million ($242,872 per key), which is in excess of the subject’s loan amount. Furthermore, the sponsor has displayed consistent commitment to the subject properties, investing roughly $60.2 million ($30,648 per key) since 2013 and $31.8 million ($16,177 per key) since the properties were last securitized in BAML 2014-ASHF. Mortgage loan proceeds of $395.0 million refinanced prior existing debt of $378.9 million, funded $5.8 million of upfront reserves (including a $2.5 million property improvement plan/capex allowance for the Embassy Suites Crystal City asset), facilitated a $2.4 million cash-equity distribution and covered approximately $7.9 million of closing costs. As of February 2015, the portfolio’s appraised value was $471.0 million ($239,817 per key), with a reported net cash flow (NCF) of $32.6 million. Since then, the portfolio’s appraised value has increased to $523.1 million ($266,344 per key) with an NCF of $39.6 million as of the trailing 12 months (T-12) ending November 30, 2017. The loan is a two-year floating-rate (one-month LIBOR, plus 2.92% with a second and fourth extension spread increase of 0.15% and 0.10%, respectively) interest-only (IO) loan with five one-year extension options.

Overall, DBRS considers the properties to be in established suburban or peripheral urban areas with generally stable demand sources. Occupancy has averaged 79.8% since 2010, increasing every year except in 2016, and remained stable as of the T-12 ending November 30, 2017. The average daily rate has also been strong, increasing every year since 2010 at an average rate of 3.9%. These figures have produced strong annual revenue per available room (RevPAR) growth of 5.2% since 2010 (with cumulative growth of 41.8%); however, RevPAR and NCF increases have been increasing at a declining rate since 2014 to 2015, reflecting an overall tightening of the national lodging market. To mitigate this downside risk, DBRS concluded to individual property RevPAR assumptions generally in line with 2015 actual figures. For two assets, the Key West Crowne Plaza La Concha and Sheraton Minneapolis West properties, DBRS concluded to RevPAR assumptions closer to 2014 figures because of the declining occupancy trends that started in 2016, and the lost revenue from a primary corporate account, respectively.

The as-is portfolio’s appraised value is $523.1 million, assuming individual sales, based on an average cap rate of 8.1%, which equates to a high appraised loan-to-value (LTV) of 75.5%. The DBRS-concluded appraisal value of $336.9 million ($171,541 per key) represents a significant 35.6% discount to the appraised value and results in a DBRS LTV of 117.2%, which is indicative of high-leverage financing; however, the DBRS appraisal value is based on a blended reversionary cap rate of 10.63%, which represents a significant stress over the current prevailing market cap rates. The loan’s DBRS Debt Yield and DBRS Term debt service coverage ratio at 9.1% and 1.58 times, respectively, are considered somewhat weak considering the portfolio is primarily securitized by suburban to urban full-service hotels.

Classes X-CP and X-EXT are IO certificates that reference multiple rated tranches. The IO ratings mirror the lowest-rated reference tranche adjusted upward by one notch if senior in the waterfall.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

For more information on this transaction and supporting data, please log into viewpoint.dbrs.com. DBRS will continue to monitor this transaction with periodic updates provided in the DBRS Viewpoint platform.

Notes:
All figures are in U.S. dollars unless otherwise noted.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains the description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not require due diligence services outlined in Form-15E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

The principal methodology is North American Single-Asset/Single-Borrower Methodology, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.

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