DBRS Morningstar Confirms Ratings on All Classes of MSC 2017-ASHF, Changes Trends on Two Classes to Stable from Negative

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-ASHF issued by Morgan Stanley Capital I Trust 2017-ASHF as follows:

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

DBRS Morningstar changed the trends on Classes D and E to Stable from Negative. All remaining classes have Stable trends. The rating confirmations and trend changes reflect the overall improved performance of the collateral as it continues to recover from the effects of the Coronavirus Disease (COVID-19) pandemic.

The trust is secured by a portfolio of 17 full-service, limited-service, and extended-stay hotels, which consists of 3,128 rooms across seven U.S. states. All hotels in the portfolio operate under nationally recognized flags, including Hilton Worldwide Holdings Inc. and Marriott International Inc. (Marriott).

The interest only loan had an initial two-year term and five one-year extension options with a fully extended maturity date of November 2024. The loan exercised its third extension option and is currently scheduled to mature in November 2022 but, per the servicer, is expected to extend to November 2023. The loan is sponsored by Ashford Hospitality Trust, Inc., an experienced hotel investment company and publicly traded real estate investment trust. The hotels are managed by two separate companies; Marriott manages five of the hotels while Remington Lodging and Hospitality, LLC manages the remaining 12 hotels.

The loan was previously in special servicing between April 2020 to April 2021 as the borrower was delinquent for debt service payments and reserve deposits. A loan modification was executed in February 2021 and the loan was returned to the master servicer in April 2021 with all loan and reserve payments brought current in August 2021.

According to the May 2022 STR reports, the portfolio reported a trailing 12 month (T-12) ended May 31, 2022, weighted-average (WA) occupancy rate of 64.3%, average daily rate (ADR) of $145.02, and revenue per available room (RevPAR) of $93.95, representing a RevPAR penetration rate of 111.8%. This is an improvement from the T-12 ended June 30, 2021, WA occupancy rate, ADR, and RevPAR of 44.8%, $107.51, and $48.26, respectively, and only slightly below pre-pandemic levels with the year-end (YE) 2019 RevPAR at $108.93. Overall, 14 properties had RevPAR penetrations greater than 100%, which is comparable with historical trends.

The loan reported a T-12 ended March 31, 2022, net cash flow (NCF) of $22.0 million, compared with the YE2021 NCF of $16.4 million and YE2020 NCF of $400,839. Although these figures remain well below the DBRS Morningstar NCF figure of $41.0 million, the steady improvements suggest the portoflio’s performance is trending in the right direction and should continue to improve as leisure travel has resumed near pre-pandemic levels for the hospitality sector as a whole in 2022. In addition, DBRS Morningstar’s value is below the July 2020 appraisal value of $480.3 million and issuance value of $588.1 million, suggesting there remains significant cushion against future volatility, further supporting the change to Stable trends for two classes with this review.

A cash sweep commenced in April 2020 and the loan will continue to be cash managed until a 8.0% debt yield is achieved. Based on the most recent financials, the debt yield is currently 5.3% and according to the servicer, $2.2 million is currently held in the cash sweep reserve account and approximately $900,000 in fixtures, furniture, and equipment reserve account.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Class XEXT 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.

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

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..

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

The principal methodology is the North American CMBS Surveillance Methodology (March 4, 2022), 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.

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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577