DBRS Morningstar Changes Trends on Two Classes, Confirms All Classes of J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-ASH8

DBRS Limited (DBRS Morningstar) confirmed its ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2018-ASH8 issued by J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-ASH8:

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

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 reports. The trends on all other classes remain Stable.

The loan is secured by eight full-service hotels (totalling 1,964 keys), seven of which are affiliated with Hilton, IHG, or Starwood and operate under four flags (Embassy Suites by Hilton, Crowne Plaza, Hilton, and Sheraton), while one operates as an independent hotel. The portfolio is largely concentrated in California (two hotels, 743 keys; 33.7% of the allocated loan amount (ALA)), Florida (two hotels, 334 keys; 22.4% of the ALA), and Oregon (one hotel, 276 keys; 22.2% of the ALA), with the remaining collateral in Virginia, Minnesota, and Maryland. The properties were built between 1727 and 1999, and since the hotels were acquired, approximately $85.5 million ($43,534 per key) has been invested in improvements.

The interest-only (IO) loan, with an original unpaid principle balance of $395 million, had an initial two-year term maturing in February 2020, with five successive one-year extension options. Since then, the borrower has exercised its third extension option, extending the maturity to February 2023. Loan proceeds of $395.0 million refinanced existing debt of $378.9 million, returned equity of $2.4 million, and funded upfront reserves of $5.8 million. The upfront reserves included a $2.5 million allowance for capital expenditures and a property improvement plan for the Embassy Suites Crystal City asset. Four hotels, representing 61.6% of the ALA, have franchise agreements that expire during the fully extended term of the loan. However, DBRS Morningstar believes all of them will be able to renew with existing flags or secure an appropriate replacement because of their performances and the amount spent on capital improvements.

The sponsor for this loan is Ashford Hospitality Trust, Inc. (Ashford), a publicly traded real estate investment trust that focuses on upper-upscale, full-service hotels in the top 25 metropolitan statistical areas. Per Ashford’s Q1 2022 earnings call, 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 loan was transferred to special servicing in April 2020 for monetary default and a request from the borrower for Coronavirus Disease (COVID-19) relief. A loan modification agreement was executed in January 2021, which included the suspension of furniture, fixtures, and equipment monthly deposits between April and December 2020 and reduced future debt yield extension tests. As of early 2021, the loan was brought current and was placed on the servicer’s watchlist for low debt service coverage ratio (DSCR) from June 2021 until May 2022, when it was removed from the watchlist.

Per the Q1 2022 financials, the portfolio continues to improve, reporting a trailing 12 months (T-12) ended March 2022 net cash flow (NCF) figure of $14.1 million, reflecting a DSCR of 1.42 times (x). This is higher than the YE2021 and YE2020 figures of $9.8 million, reflecting a DSCR of 0.78x, and -$3.0 million, reflecting a DSCR of -0.17x, respectively. When DBRS Morningstar assigned ratings in 2020, it assumed the NCF was $35.8 million. While NCF has yet to reach expectations, according to the most recent T-12 ended March 31, 2022, STR reports, all of the hotels in the portfolio have performed better than the previous year. Portfolio occupancy rose to 57.8%, average daily rate (ADR) reached $180, and revenue per available room (RevPAR) was $107, and penetration rates were 111.3% for occupancy, 101.8% for ADR, and 113.0% for RevPAR. While the T-12 ended March 2022 occupancy and RevPAR figures remain below the DBRS Morningstar figure of 77.5% and $133, respectively, the $180 ADR surpasses the DBRS Morningstar rate of $172. Overall, based on the ADR recovery, the portfolio’s performance improvement, and strong sponsor, DBRS Morningstar believes performance will approach pre-pandemic levels in the 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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