DBRS Morningstar Changes Trends on Three Classes, Confirms All Ratings of Ashford Hospitality Trust 2018-ASHF

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

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

With this review, DBRS Morningstar removed Classes D, E, F, and X-EXT from Under Review with Negative Implications, where they were placed on September 24, 2020. DBRS Morningstar also changed the trends on Classes A, B, and C to Stable from Negative. Classes D and X-EXT were assigned Stable trends and Classes E and F were assigned Negative trends.

The Negative trends reflect DBRS Morningstar’s concerns with the portfolio, which continues to face performance challenges as it begins to rebound after the relaxation of travel restrictions related to the Coronavirus Disease (COVID-19) global pandemic.

The transaction benefits from the sponsor’s stability and long-term commitment to the underlying hotel portfolio, as displayed by the raising of additional capital to fund cash shortfalls throughout the pandemic and continued reinvestment in the collateral. Although cash flow remains depressed amid the pandemic, the portfolio is reporting revenue per available room (RevPAR) penetration rates exceeding 100% on a trailing 12 month (T-12) basis as of June 2021.

The loan is currently being monitored on the servicer’s watchlist for low net cash flow (NCF), which was reported at -$374,000 for the T-12 period ended June 2021 and $8.3 million as of year-end (YE) 2020, representing an 90.86% decline from the previous year. According to the T-12 month ended June 2021 STR reports, the portfolio reported aggregate occupancy, average daily rate (ADR), and RevPAR of 38%, $134.51, and $46.21, respectively. In comparison, the competitive set reported occupancy, ADR, and RevPAR of 34%, $124.13, and $41.31, respectively. The current top six hotels (by allocated loan amount (ALA)) in the portfolio are outperforming their individual competitive set with the exception of the Melrose Georgetown Hotel and Hilton Garden Inn Austin Downtown, which are performing slightly below their competitive sets. The corresponding RevPAR penetration rates relative to the competitive set also reflects above-average performance as these figures were reported near or above 100%.

The loan had been transferred to special servicing in April 2020 for monetary default and the borrower had requested coronavirus relief. A Standstill Agreement was executed in July 2020 that, among other things, deferred debt service and reserve payments through October 2020, after which regular payments would resume in addition to a moratorium reserve deposit. The moratorium deposits, along with current interest payments, are applied to the oldest outstanding interest receivables. Additionally, the borrower also settled on an agreement with its mezzanine lenders which entailed waiving mezzanine loan payments while the payment accommodations for the senior debt are in effect. The loan returned to the master servicer and was added to the watchlist in May 2021 as a result of ongoing cash flow issues, although the borrower has continued to make payments during the pandemic and abiding by the July 2020 Standstill Agreement. The servicer expects the loans to be brought fully current from an interest receivable perspective in the next two months.

The original collateral for Ashford Hospitality Trust 2018-ASHF was a $782.7 million first mortgage, floating-rate loan originated to refinance existing debt of $977.0 million on a portfolio of one luxury hotel and 22 full-service, select-service, and limited-service extended-stay hotels located in 12 states and the District of Columbia. The largest state concentration was Texas with four properties, 1,296 rooms, and 22.4% of the ALA. A total of 5,785 rooms comprised the hotels, which were a mix of 17 fee-simple properties representing 67.8% of the ALA, four combined fee and leasehold properties representing 27.0% of the ALA, and one ground-leased property representing 5.3% of the ALA. The sponsor for this loan is Ashford Hospitality Trust, Inc. (Ashford), a publicly traded real estate investment trust which focuses on investing in upper-upscale, full-service hotels in the top 25 metropolitan statistical areas. Per Ashford’s Q2 2021 earnings call, hotels are exhibiting positive EBITDA, and RevPAR for all hotels in the portfolio increased approximately 372% compared with Q2 2020. Additionally, across their portfolio of 100 hotels (22,286 net rooms), the company foresees strong momentum in Q3 2021 as July 2021 numbers looked likely to outperform June numbers, particularly in regards to RevPAR.

The loan, originated in April 2018, had an initial two-year term followed by five successive one-year extension options. Additional senior and junior mezzanine financing totalling $202.3 million is held outside the trust and is co-terminus with the trust financing. The refinancing required additional borrower’s equity investment of $33.3 million. A $24.7 million capital expenditure reserve was established at closing for future capital requirements at various hotels, including $14.7 million for property improvement plans at three hotels that had not recently been renovated. The sponsor had previously invested $227.5 million ($39,328 per room) in the portfolio hotels since acquisition in 2013.

The original 22 hotel portfolio comprised hotels operating under nine different franchise flags representing three major brands: Marriott for 11 hotels and 52.9% of 2017 NCF, Hilton for six hotels and 21.9% of 2017 NCF, and Hyatt with two hotels and 12.8% of 2017 NCF. In 2019, three hotels were sold and released from the security portfolio. The Residence Inn in Tampa, Courtyard in Savannah, and the Marriott Plaza in San Antonio were released with a 115% paydown of the ALA for each hotel bringing the outstanding balance of the pooled trust mortgage down to $720.7 million.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

The DBRS Morningstar ratings assigned to Classes D, E, and F each had a variance that was higher than those results implied by the LTV Sizing Benchmarks from the September 24, 2020, review, when market value declines were assumed under the Coronavirus Impact Analysis. The DBRS Morningstar ratings did not have any variances than those results implied by LTV Sizing Benchmarks considered with this year’s review, when a baseline valuation scenario was used. For additional information on these scenarios, please see the DBRS Morningstar press release dated September 24, 2020, in respect of the subject transaction. DBRS Morningstar maintains Negative trends on certain classes as outlined in this press release as a reflection of our ongoing concerns with the coronavirus impact to the subject transaction.

Class X-EXT is an interest-only (IO) certificate that references 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 Morningstar.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-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 (March 26, 2021), which can be found on dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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 [email protected].

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

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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