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

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

-- 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 changed the trends on Classes E and F to Stable from Negative to reflect the overall improved performance of the underlying portfolio as it begins to rebound to pre-pandemic levels, according to the most recent financials and STR report. All remaining classes carry Stable trends.

The loan is secured by the borrower’s fee-simple interest in 17 properties (representing 67.8% of the allocated loan amount (ALA)), the combined fee and leasehold interests in four properties (27.0% of the ALA), and a ground lease in one property (5.3% of the ALA) in the Ashford Highland Hospitality portfolio that consists of one luxury hotel and 22 full-service, select-service, limited-service, and extended-stay hotels, totalling 5,785 keys. The properties are across 12 states and the District of Columbia, with the largest state concentration in Texas (four properties; 22.4% of the ALA). Most of the hotels benefit from strong brand recognition, operating under the Marriott, Hilton, and Hyatt flags. 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.

The sponsor for the loan is Ashford Hospitality Trust, Inc. (Ashford), a publicly traded real estate investment trust that invests in upper-upscale, full-service hotels. Per Ashford’s Q1 2022 earnings call, its hotels have exhibited sequential revenue per available room (RevPAR) improvement over Q1 2021, which has continued into Q2 2022, while the company’s liquidity and cash position remain strong. Additionally, across its portfolio of 100 hotels (22,286 net rooms), 27.0% of the properties are outperforming the 2019 hotel EBITDA levels, and according to the asset management team, the portfolio is well positioned to capitalize on the industry’s continued recovery.

The interest-only (IO) loan, originated in April 2018, had an initial two-year term followed by five successive one-year extension options. Since then, the borrower has exercised its third extension option, extending the maturity to April 2023. There is additional senior and junior mezzanine financing totalling $202.3 million outside the trust that is co-terminous with the trust financing. The initial refinancing required additional equity investment of $33.3 million from the borrower. 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’s hotels since acquisition in 2013.

The loan was transferred to special servicing in April 2020 for monetary default when the borrower had requested Coronavirus Disease (COVID-19) relief. A standstill agreement was executed in July 2020, which, 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 borrower also settled on an agreement with its mezzanine lenders, which entailed waiving mezzanine loan payments while the payment accommodations for the senior debt were in effect. The servicer had been monitoring the loan for low cash flow until June 2022, when the loan came off the watchlist.

Per the Q1 2022 financials, the portfolio reported net cash flow (NCF) of $38.6 million for the trailing 12 months (T-12) ended March 31, 2022, reflecting a debt coverage service ratio (DSCR) of 2.24 times (x). Although this NCF figure is well below the DBRS Morningstar NCF of $83.3 million derived when ratings were assigned in 2020, it is a substantial improvement from the YE2020 NCF of -$8.3 million (DSCR of -0.36x). Based on the most recent T-12 ended March 31, 2022, STR report, most of the hotels in the portfolio have exhibited increases over the previous year and have reported a RevPAR of $116, with occupancy, average daily rate, and RevPAR penetration rates of 110.8%, 106.6%, and 118.6%, respectively. The year to date ended March 31, 2022, reported a RevPAR of $126, which surpasses the issuance DBRS Morningstar RevPAR of $120. Overall, based on the portfolio’s improved performance and strong sponsor, DBRS Morningstar believes the portfolio will reach pre-pandemic levels in the short to medium term.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and governance (ESG) 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.

Class X-EXT is an 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 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].

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