Morningstar DBRS Confirms Credit Ratings on All Classes of Ashford Hospitality Trust 2018-ASHF

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

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

All trends are Stable.

The credit rating confirmations reflect the overall stable-to-improved performance of the underlying hotel portfolio, as evidenced by the growth in net cash flow (NCF), occupancy, and revenue per available room (RevPAR) figures since YE2022. Morningstar DBRS' loan-to-value ratio (LTV) is 78.6% for the Morningstar DBRS-rated debt and 98.9% for the all-in debt. The credit profile of the transaction remains in line with Morningstar DBRS' expectations. As such, Morningstar DBRS did not update the LTV sizing benchmarks as part of this review.

The subject transaction comprises an interest-only (IO), floating-rate loan, collateralized by a portfolio of 19 hotel properties, with multiple formats including all-suite, full-service, limited-service, and extended-stay hotels. The portfolio totals 5,269 rooms across 12 states. As of the June 2024 remittance, the trust balance of $685.0 million represented a collateral reduction of approximately 12.4% since issuance as a result of property releases and principal curtailments. In 2019, three hotels were sold and released from the original portfolio at a release price of 115% of the allocated loan amount (ALA) as outlined in the loan documents, bringing the outstanding balance of the pooled trust mortgage down to $720.7 million. There have been no property releases since 2019; however, the borrower did make a principal curtailment of $35.8 million in April 2023, in order to achieve a debt yield of 9.5%, a requirement for the fourth and fifth loan extensions. The borrower has since exercised the fifth and final loan extension option, which required no principal curtailment given the improved performance, extending the maturity to April 2025. There is additional senior and junior mezzanine financing, which had an initial balance of $202.3 million, which had amortized to $177.0 million as of June 2024. The loan maturities are coterminous.

According to the Q1 2024 financials, the consolidated NCF for the trailing 12 months (T-12) ended March 31, 2024, was reported at $83.9 million, a slight decline of 3.4% compared with the YE2023 figure of $86.8 million, but a 15.5% improvement from the YE2022 figure of $72.6 million and a 193.0% increase from the YE2021 figure of $26.6 million. Given the floating rate nature of the loan, the debt service ratio (DSCR) declined from 2.64 times (x) at YE2022 to 1.56x as of Q1 2024, as a result of the increased debt service payments stemming from a higher interest rate. The increase in cash flow, however, was primarily due to increased room and food and beverage revenues coinciding with increased occupancy. Morningstar DBRS previously upgraded the credit ratings on four classes during the July 2023 review to reflect the strong rebound in portfolio performance and continues to have a positive outlook for the underlying collaterals refinance prospects as the loan approaches its final maturity date.

According to the March 2024 financials, the portfolio reported a T-12 ended March 31, 2024, weighted-average occupancy rate of 69.4%, average daily rate (ADR) of $185, and RevPAR of $134, respectively, with only four of the 19 hotels in the portfolio reporting a RevPAR penetration rate below 100.0%. These updated metrics represent an occupancy, ADR, and RevPAR increase of 2.8%, 1.6%, and a 10.7%, respectively, relative to the YE2022 figures of 66.6%, $182, and $121, respectively. The updated RevPAR for the portfolio is also above the pre-pandemic YE2019 portfolio RevPAR of $129. Overall, Morningstar DBRS expects portfolio performance to remain generally in line with the reported metrics in 2023 through the loan's maturity.

The loan is sponsored by Ashford Hospitality Trust, Inc. (Ashford), an experienced hotel investment company and publicly traded real estate investment trust. The sponsor had previously invested $227.5 million ($39,328 per room) in the portfolio's hotels since acquisition in 2013. In general, the portfolio is performing above its competitive set across all STR metrics, and continues to benefit from granularity by ALA, geographic diversity, experienced management companies, and strong brand affiliation, with most of the hotels operating under the Marriott Hotels & Resorts, Hilton Hotels & Resorts, and Hyatt Hotels Corporation flags. Given the nominal changes since last review, and stable performance, Morningstar DBRS did not update the LTV sizing benchmarks with this review, and the expectations for ongoing performance are largely unchanged.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS  
There were no Environmental, Social, or Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

Class X-EXT 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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

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

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 credit rating was initiated at the request of the rated entity.

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

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

This is a solicited credit rating.

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

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

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

-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261

-- North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428799

-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623

-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982

-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592

-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279.

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