DBRS Confirms All Classes of Braemar Hotels & Resorts Trust 2018-PRME

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-PRME issued by Braemar Hotels & Resorts Trust 2018-PRME (the Trust) as follows:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. This transaction closed in June 2018 with an original trust balance of $370.0 million. The collateral for this transaction is four full-service hotels (1,685 keys) managed under two different brands and three different flags in four different cities. The hotels are the Seattle Marriott Waterfront (351 keys; 31.0% of total loan amount), the Courtyard San Francisco Downtown (410 keys; 26.7% of the loan amount), the Courtyard Philadelphia Downtown (499 keys; 19.4% of total loan amount) and the Sofitel Chicago Water Tower (415 keys; 22.9% of total loan amount). The debt structure is comprised of the subject $370.0 million first mortgage loan and a $65.0 million in mezzanine debt that refinanced $344.3 million of existing debt, returned $60.8 million of equity to the sponsor and funded $29.9 million in reserves and closing costs. The underlying loan is interest only (IO) throughout the 24-month initial term that includes five one-year extension options. The portfolio is managed by Marriot International (77.1% of allocated loan amount) and AccorHotel Group (22.9% of allocated loan amount) with management expiration dates at least two years beyond the full loan term. The sponsor is Braemar Hotels & Resorts, Inc, a publicly traded real estate investment trust that focuses investments in full-service luxury hotels and resorts located in major gateway markets.

The two Courtyard by Marriott properties are being extensively renovated as the sponsor plans to convert these hotels to Marriott’s luxury brand, Autograph Collection. The conversion of the two properties is scheduled to be complete by December 2019 at an estimated cost of $29.6 million for the Courtyard San Francisco Downtown and $17.2 million for the Courtyard Philadelphia Downtown. The Courtyard San Francisco Downtown completed a renovation of its guest rooms in April 2018 in anticipation of the future conversion, which led to a 23.0% improvement in revenue per available room (RevPAR) as of the trailing 12 months (T-12) ending February 28, 2019, Smith Travel Research (STR) report compared with the T-12 ending February 28, 2018, STR report. The hotel’s website stated the property would change its name to The Clancy with an expected opening date in 2020. The Courtyard Philadelphia Downtown $17.2 million conversion is going as planned with an anticipated July 2019 completion date and the hotel is to be renamed as The Notary Hotel, per the hotel’s website.

Per the T-12 ending March 31, 2019, STR report, the portfolio reported a weighted-average (WA) occupancy rate, average daily rate (ADR) and RevPAR of 83.2%, $251.58 and $210.99, respectively, compared with the WA completive set figures of 81.1%, $240.33 and $206.11, respectively. Year over year, the portfolio had improved an occupancy rate of 0.3%, ADR of 5.1% and RevPAR of 5.9% compared with the figures from the T-12 ending March 31, 2018, STR report. According to the year-end 2018 financials, the loan reported a debt service coverage ratio (DSCR) of 2.33 times (x), compared with the DBRS Term DSCR at issuance of 1.94x. The increase in cash flow from issuance is primarily driven by the improved RevPAR performance by the Courtyard San Francisco Downtown.

DBRS continues to monitor the ongoing renovations and conversion of the two Courtyard by Marriott properties, which have been going as planned. The properties are located in core urban markets with an abundance of demand drivers of commercial and leisure purposes with the San Francisco location conserved one step stronger as a super dense urban market. Although the sponsor cashed out a substantial amount of capital as part of the transaction, the sponsor has invested approximately $61.6 million into the properties since 2013 in addition to the current renovations.

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

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS rated), as well as loan-level and transaction-level commentary for most DBRS-rated and -monitored transactions.

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

The principal methodology is the North American CMBS Surveillance Methodology, which can be found on www.dbrs.com under Methodologies & Criteria. 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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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.

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.com.

The rated entity or its related entities did participate in the rating process for this rating action. 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that 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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada