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

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

-- 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 E and F to Stable from Negative. All remaining classes have Stable trends. The rating confirmations and trend changes reflect the underlying collateral’s overall improvement in performance as it continues to recover from the effects of the Coronavirus Disease (COVID-19) pandemic.

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 the allocated loan amount), San Francisco (410 keys; 26.7% of the allocated loan amount), Chicago (415 keys; 22.9% of the allocated loan amount), and Philadelphia (499 keys; 19.4% of the allocated loan amount). 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 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 two years prior to issuance and in 2019, the two Courtyard by Marriott hotels underwent major renovations that converted them to the Autograph Collection, one of Marriott’s luxury brands.

According to the August 2022 operating statement analysis report (OSAR), the portfolio reported a trailing 12-month (T-12) ended March 31, 2022, consolidated occupancy rate of 53.8%; average daily rate (ADR) of $198.17, and revenue per available room (RevPAR) of $107.15. In comparison, the portfolio reported YE2021 and YE2020 occupancy, ADR, and RevPAR metrics of 44.2%, $193.44, and $85.81; and 23.2%, $189.89, and $44.07, respectively. According to the May 2022 STR report, both the Seattle hotel and the San Francisco hotel reported RevPAR penetration rates greater than 100% for the T-12 period. The Chicago hotel and Philadelphia hotel, reported RevPAR penetration rates less than 100%, and although overall performance has improved in recent months, both properties are recovering at a slow pace. On an aggregate basis, the portfolio reported net cash flow (NCF) of $252,500 for the T-12 ended March 31, 2022, period—the first positive figure since YE2020 when NCF was reported at -$13.9 million.

Prior to the pandemic, the portfolio performed relatively well, with a YE2019 occupancy, ADR, and RevPAR of 81.9%, $242.44, and $200.78, respectively. While the underlying collateral has yet to recover to its pre-pandemic or issuance levels, it is noteworthy that overall performance has been trending upward since YE2020. In addition to the loan benefitting from strong sponsorship through Braemar Hotels & Resorts, the current unpaid principal balance of $370 million is considerably lower than the DBRS Morningstar value of $422.7 million, which in itself is 61.1% lower than the issuance appraised value of $692.0 million.

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.

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 loan 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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