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Ashford refinancing 8 hotels in commercial mortgage bond market

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Ashford Hospitality Trust is refinancing another hotel portfolio in the commercial mortgage bond market.

The real estate investment trust obtained a seven-year, $395 million loan from JPMorgan Chase; proceeds were used to refinance prior existing debt of $378.9 million, funded $5.8 million of upfront reserves, facilitated a $2.4 million cash-equity distribution and covered approximately $7.9 million of closing costs, according to DBRS.

The loan, which has an initial term of two years and can be extended by one year up to five times, pays only interest, and no principal, for its entire term. It was previously securitized in a transaction called BAML 2014-ASHF. It is being used as collateral for a new offering of commercial mortgage bonds called J.P. Morgan Chase Commercial Mortgage Securities Trust 2018-ASH8.

The bonds are backed by a portfolio of eight full-service hotels, of which seven are affiliated with Hilton, IHG or Starwood, and operate under four flags (Embassy Suites by Hilton, Crowne Plaza, Hilton and Sheraton), with one operating as an independent hotel. The hotels have a combined total room count of 1,964 keys.

The hotels are managed by Embassy Suites Management, an affiliate of Hilton Worldwide Holdings, a global firm with more than 570 properties; and Remington Lodging and Hospitality, an affiliate of Ashford. Ashford owns and operates approximately 120 hotel assets across the United States.

Ashford acquired three of the assets in 2005 and five of the assets in 2007.

The portfolio was appraised at $523.1 million ($266,344 per key) in November 2017, at which time its trailing 12-month cash flow was $39.6 million. That represents an increase over its appraised value of $471.0 million ($239,817 per key) and net cash flow of $32.6 million in February 2015.

The as-is portfolio’s appraised value is $523.1 million, assuming individual sales, based on an average cap rate of 8.1%, which equates to a high appraised loan-to-value ratio of 75.5%. The DBRS puts the LTV even higher, at 117.2%, based on its discounted valuation of $336.9 million ($171,541 per key) and a blended reversionary cap rate of 10.63%.

However, the rating agency takes comfort from the fact that the properties are in established suburban or peripheral urban areas with generally stable demand sources. Occupancy has averaged 79.8% since 2010, increasing every year except in 2016.

Furthermore, Ashford has displayed “consistent commitment” to the properties, investing roughly $60.2 million ($30,648 per key) since 2013 and $31.8 million ($16,177 per key) since 2014, according to DBRS.

The rating agency expects to assign an AAA to the senior tranche of notes to be issued in the transaction.

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