DBRS Confirms Ratings on All Classes of Ashford Hospitality Trust 2018-KEYS

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-KEYS issued by Ashford Hospitality Trust 2018-KEYS (the Trust) as follows:

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

All trends are Stable.

The subject transaction is collateralized by six loans, which are not cross-collateralized. The loans are secured by a total of 34 hotel properties located across 16 states with the largest concentration by allocated loan balance in California (34.7% of the allocated loan balance). The hotels are flagged by various brands owned by Marriott International, Hyatt Hotels Corporation and Hilton Hotels & Resorts with a combined total room count of 7,270 keys, consisting of 19 full-service hotels with 4,767 keys, ten select-service hotels with 1,160 keys and five extended-stay hotels with 893 keys. The loan sponsor is Ashford Hospitality Trust, Inc., a well-established owner and operator of approximately 120 hotel assets across the United States. The senior mortgage loan proceeds of $982.0 million, along with mezzanine debt of $288.2 million, refinanced existing debt of $1,067.0 million, funded $14.1 million of upfront reserves and $25.6 million in closing costs as well as facilitated a $163.4 million cash-equity distribution. The loans are interest-only (IO) throughout the 24-month initial terms with five one-year extension options. The sponsor acquired or constructed the hotels between 1998 and 2015 with most assets acquired between 2003 and 2007. The sponsor has displayed consistent commitment to the subject properties, investing approximately $227.7 million ($29,256 per key) between 2013 and 2017 with $26.7 million ($3,677 per key) budgeted for 2018.

Overall, DBRS considers the properties to be in established suburban or peripheral urban areas with generally stable demand sources. Per the trailing 12-month period ending April 30, 2019, Smith Travel Research reports, the portfolio reported a weighted-average (WA) occupancy rate, average daily rate (ADR) and revenue per available room (RevPAR) of 77.9%, $164.83 and $128.37, respectively, compared with the issuance rates of 79.1%, $159.73 and $126.35, respectively. On a WA basis, the portfolio has outperformed its competitive set across occupancy, ADR and RevPAR with reported values of 73.4%, $151.62 and $111.50, respectively. The portfolio’s WA occupancy rate exhibited a decline of 1.8% year over year (YOY) while the competitive set reported a YOY decline of 1.0%. The portfolio ADR reported a YOY increase of 3.2% compared with the competitive set YOY growth rate of 2.6%. The portfolio RevPAR reported a YOY increase of 1.3% while the competitive set reported a YOY increase of 1.5%.

According to the year-end 2018 financials, the portfolio reported a debt service coverage ratio (DSCR) of 2.59 times (x) compared with the DBRS Term DSCR of 1.99x, representing a net cash flow growth of 6.3%. The $14.1 million in upfront reserves funded at closing covered $9.0 million in property tax and replacement reserves while $5.1 million was allocated toward a property improvement plan (PIP) reserve. DBRS requested information from the servicer regarding the status of the mandatory PIP renovations since closing as well as an updated balance of the PIP reserve and a response is pending. According to the May 2019 reserve report, the loan reported $16.0 million across all reserves, including approximately $9.9 million in a furniture, fixtures and equipment reserve and $5.6 million in other reserves.

Classes X-CP and X-EXT are 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 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.

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

The principal methodology is 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.

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