DBRS Morningstar Changes Trends on Four Classes, Confirms All Ratings of Braemar Hotels & Resorts Trust 2018-PRME

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-PRME issued by Braemar Hotels & Resorts Trust 2018-PRME:

-- 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)

DBRS Morningstar changed the trends on Classes A, B, C, and D to Stable from Negative. Classes E and F continue to carry Negative trends, reflecting DBRS Morningstar’s concerns with the portfolio, particularly the Chicago and Philadelphia properties, which have been slower to rebound after the relaxation of travel restrictions related to the Coronavirus Disease (COVID-19) global pandemic.

The loan was transferred to the special servicer in April 2020 as the sponsor was unable to make its April 2020 debt service payment. In June 2020, the sponsor agreed to a modification that included the waiver of deposits into the furniture, fixtures, and equipment (FF&E) reserve account from April 2020 to January 2021. Additionally, the borrower was granted permission to use FF&E reserve funds to cover debt service shortfalls. The borrower is currently in the process of replenishing these reserves as outlined in the loan modification. As of the September 2021 remittance, the loan is current and is no longer being monitored on the servicer’s watchlist.

The subject portfolio is secured by four full-service hotels, managed under two different brands and three different flags in four different cities: Seattle (361 keys; 31.0% of allocated loan amount), San Francisco (410 keys; 26.7% of allocated loan amount), Chicago (415 keys; 22.9% of allocated loan amount), and Philadelphia (499 keys; 19.4% of allocated loan amount). The $370.0 million subject mortgage loan with $65.0 million of mezzanine debt refinanced $344.3 million of existing debt, returned approximately $65.7 million of sponsor equity, and funded escrows and reserves of $20.0 million. The sponsor for this loan is Braemar Hotels & Resorts, formerly known as Ashford Hospitality Prime, which is a publicly traded real estate investment trust that was spun off from the larger Ashford Hospitality Trust. The sponsor focuses investments in full-service luxury hotels and resorts in major gateway markets.

The portfolio has a combined room count of 1,685 keys with management provided by Marriott International (Marriott) and AccorHotel Group. The portfolio operates under three flags: Courtyard by Marriott (two hotels; 46.2% of the total loan amount), Marriott (one hotel; 31.0% of the total loan amount), and Sofitel (one hotel; 22.9% of the total loan amount). Each property was renovated within the two years prior to issuance. In 2019, the two Courtyard by Marriott hotels underwent major renovations that converted them to the Autograph Collection, one of Marriott’s luxury brands. The estimated costs of the conversion were $29.6 million ($72,525 per key) for the Courtyard San Francisco Downtown and $17.2 million ($34,419 per key) for the Courtyard Philadelphia Downtown. The renovations focused on improvements to the guest rooms, meeting rooms, lobby, common areas, restaurant, meeting space, and exteriors.

According to the June 2021 operating statement analysis report, the portfolio reported a trailing 12-month ended June 30, 2021, occupancy of 23.9%; average daily rate of $167; and revenue per available room (RevPAR) of $46. The portfolio reported YE2019 operating figures of 81.9%, $242, and $201 as well as YE2018 figures of 83.3%, $243, and $203. According to the July 2021 Smith Travel Research (STR) report, both the Seattle hotel and the San Francisco hotel reported RevPAR penetration rates greater than 100% in the trailing three month and trailing six month periods. Both properties rank either 1 or 2 in RevPAR out of their respective competitive sets in 2021. The Chicago hotel and Philadelphia hotel have both struggled in 2021, reporting RevPAR penetration rates less than 100% and report the lowest RevPAR figures in comparison with their respective competitive sets.

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.

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.

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

The principal methodology is 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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