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Ashford taps CMBS for cash-in refi of 22-hotel portfolio

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Ashford Hospitality Trust is tapping the securitization market to refinance another hotel portfolio. This time, it’s putting down additional cash, rather than cashing out equity in the properties.

The real estate investment trust has obtained a $782.7 million first mortgage from Bank of America, Barclays and Morgan Stanley secured by 22 full-service, limited-service and extended-stay hotels. Proceeds, along with two mezzanine loans totaling $202.3 million and $33.3 million in cash, will be used to refinances existing senior and mezzanine debt totaling $977 million. (The bulk of the debt being retired, $775 million, was securitized in the CSMC 2015-DEAL transaction.)

Additionally, the new transaction will fund approximately $24.7 million of upfront reserves and approximately $16.7 million in closing costs.

The first mortgage, which pays a floating rate of interest and has a fully extended term of seven years, is being used as collateral for a new transaction called Ashford Hospitality Trust 2018-ASHF, according to S&P Global Ratings.

S&P considers the transaction to be highly leveraged; it puts the loan-to-value ratio on the first mortgage at 94.8%, based on what it considers to be a “long-term sustainable value for the portfolio.” After taking the mezzanine debt into account, the LTV rises to 119.3%.

The 22 hotels operate under nine different nationally recognized flags from three brand families: Marriott, Hilton and Hyatt. Only three hotels (14.8% of the pool by allocated loan amount) are independently operated. In addition to name recognition, the brand affiliations enable the hotels to benefit from national brandwide marketing campaigns and frequent- stay programs, per S&P.

Another strength, according to the rating agency, is the fact that the portfolio is geographically diverse with the hotels located in 12 U.S. states and Washington, D.C. Texas has the highest concentration with four hotels representing 22.4% of the trust balance by Alabama, Georgia and Washington, D.C.

A potential concern is the fact that several of the hotels are in markets where the appraiser and/or property managers identified new hotels that are planned or under construction that will compete directly with the subject properties, including Savannah, Ga., Washington, D.C., and Chicago.

The presale report also notes that the Residence Inn Tampa Downtown (2% by allocated loan amount) is expected to be sold on May 11, 2018. Accordingly, the property is expected to be released, and a prepayment in the amount of $17,819,338 is expected to be made to the trust.

S&P expects to assign an AAA to the senior tranche of notes to be issued; there will also be seven subordinate tranches with ratings ranging from AA- to B-.

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