DBRS Morningstar Confirms Ratings on All Classes of Morgan Stanley Capital I Trust 2017-ASHF

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)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the underlying hotel portfolio, which reported a trailing 12 months (T-12) ended March 31, 2023, revenue per available room (RevPAR) figure that exceeds the pre-Coronavirus Disease (COVID-19) pandemic figures, suggesting the overall credit profile remains stable and in line with DBRS Morningstar’s expectations.

The subject transaction comprises an interest-only (IO), floating-rate loan, collateralized by a portfolio of 17 hotel properties, with multiple formats represented including all-suite, full-service, limited-service, and extended-stay hotels. The portfolio combines 3,128 rooms across seven states. As of the May 2023 remittance, the trust balance of $415.0 million represented a collateral reduction of 2.8% since issuance. The principal repayment was the result of the release of a parking parcel for a property in St. Petersburg, Florida. All hotels in the portfolio operate under nationally recognized flags, including Hilton Worldwide Holdings Inc. and Marriott International, Inc. (Marriott).

The loan was structured with an initial term of two years, with five one-year extension options available to take the loan to a fully extended maturity date in November 2024. The loan is being monitored on the servicer’s watchlist for the upcoming maturity in November 2023. When the fourth extension option was exercised in November 2022, the terms required a 12.5 basis points increase in the spread, and should the fifth and final extension option be exercised, the spread will again increase by 12.5 basis points and a minimum debt yield of 8.0% must be achieved. A cash flow sweep was previously in place because of a decline in performance, but the servicer has confirmed that the required minimum debt yield of 7.5% was achieved and the cash sweep was terminated, with all reserved funds returned to the borrower. Based on the loan metrics reported by the servicer, DBRS Morningstar believes the debt yield hurdle for the maturity extension option would be achieved.

The loan is sponsored by Ashford Hospitality Trust, Inc. (Ashford), 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. Per Ashford’s Q4 2022 earnings call, the company reported continued RevPAR improvement post-pandemic across the firm’s portfolio as a whole.

According to the March 2023 STR reports, the portfolio reported a T-12 ended March 31, 2023, weighted-average occupancy rate of 70.0%, average daily rate of $161.44, and RevPAR of $114.14, representing a RevPAR penetration rate of 111.0%. The T-12 ended March 31, 2023, RevPAR figure compares with the YE2021 figure of $33.87 and is slightly above the YE2019 figure of $112.91.

The loan reported a T-12 ended March 31, 2023, net cash flow (NCF) of $37.6 million, compared with the YE2022 NCF of $34.5 million and YE2021 NCF of $16.4 million. Although up significantly from the lows of the pandemic, NCF remains below the DBRS Morningstar NCF figure of $41.0 million. However, as RevPAR figures are now surpassing the pre-pandemic levels (and DBRS Morningstar’s RevPAR figure of $105.10), the cash flow should continue to increase and move back in line with DBRS Morningstar’s expectations.

When ratings were assigned in 2020, the DBRS Morningstar NCF of $41.0 million was capped with a 9.3% cap rate, resulting in a DBRS Morningstar value of $439.9 million, a variance of 24.8% from the appraised value of $585.0 million at issuance. The DBRS Morningstar Value implies a loan-to-value (LTV) ratio of 95.5% compared with the LTV of 72.0% on the appraised value at issuance. No qualitative adjustments were made to the LTV sizing benchmarks.

The DBRS Morningstar ratings assigned to Classes B, C, and D are lower than the results suggested by the LTV sizing benchmarks. The variances are warranted, given the relatively limited time since the collateral hotel portfolio’s performance has improved to pre-pandemic levels.

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 (May 17, 2022).

Class XEXT 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.

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

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023)
https://www.dbrsmorningstar.com/research/410191

Rating North American CMBS Interest-Only Certificates (December 19, 2022)
https://www.dbrsmorningstar.com/research/407577

Legal Criteria for U.S. Structured Finance (December 7, 2022)
https://www.dbrsmorningstar.com/research/407008

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022)
https://www.dbrsmorningstar.com/research/402646

North American Commercial Mortgage Servicer Rankings (September 8, 2022)
https://www.dbrsmorningstar.com/research/402499

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023)
https://www.dbrsmorningstar.com/research/415687

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