DBRS Confirms Ratings on BHMS 2014-ATLS Mortgage Trust

DBRS Limited (DBRS) has today confirmed all classes of Commercial Mortgage Pass-Through Certificates issued by BHMS 2014-ATLS Mortgage Trust as follows:

-- Class A-FX at AAA (sf)
-- Class A-FL at AAA (sf)
-- Class X-CPFX at AAA (sf)
-- Class X-CPFL at AAA (sf)
-- Class X-EXTFX at AAA (sf)
-- Class X-EXTFL at AAA (sf)
-- Class B-FX at AA (low) (sf)
-- Class B-FL at AA (low) (sf)
-- Class C-FX at A (low) (sf)
-- Class C-FL at A (low) (sf)
-- Class D-FX at BBB (low) (sf)
-- Class D-FL at BBB (low) (sf)
-- Class E-FX at BB (low) (sf)
-- Class E-FL at BB (low) (sf)
-- Class F-FX at B (low) (sf)
-- Class F-FL at B (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance since issuance. This transaction closed in August 2014 and is interest only for the entire term. The underlying loan is secured by the Atlantis Resort (Atlantis) located on Paradise Island, near the City of Nassau, in the Bahamas. The collateral includes four unique hotel towers (Royal, Coral, Beach and The Cove) consisting of 2,917 rooms and an on-site amenity package, including 39 restaurants and bars; a 60,000 square feet (sf) casino; a 141-acre waterpark; 73,391 sf of retail space; and 458,000 sf of meeting and group space. Resort components not included in the collateral are a condominium tower and a timeshare, together representing an additional 887 rooms. However, as timeshare guests also frequent the amenities, the income generated from those activities is included in the collateral’s revenue stream. Approximately 32.0% of resort revenues were generated from the room nights at YE2015, consistent with YE2014. The majority of revenue is generated by the restaurants and bars, casino and water attractions. Resort amenities are also sold as packages to travellers aboard cruise ships, which dock at the cruise ship terminal near the subject throughout the year, creating consistent demand.

According to the year-end financials, the YE2015 debt service coverage ratio (DSCR) was 2.21 times (x), representing an increase from the YE2014 DSCR of 1.97x. According to the Smith Travel Research report, the trailing 12 months (T-12) ending December 2015 occupancy for the Royal, Coral and Beach Towers was 69.0%, the average daily rate (ADR) was $250.35 and revenue per available room (RevPAR) was $172.70. In comparison, the T-12 ending December 2014 showed the occupancy, ADR and RevPAR were 69.7%, $243.83 and $169.84, respectively. The remaining hotel tower, The Cove, which consists of 600 rooms and is considered the luxury tower, reported T-12 ending December 2015 occupancy of 71.1%, ADR of $445.62 and RevPAR of $316.72. All metrics have improved when compared with the prior-year figures showing occupancy of 69.9%, ADR of $422.20 and RevPAR of $295.00.

Overall, performance of the subject has stayed consistent, showing a slight improvement year over year. However, the completion of the Baha Mar resort is expected to create competition to the subject and temporarily affect cash flows. The Baha Mar is located approximately 7.3 miles away from the subject, on the main island of New Providence, and was originally scheduled to open in December 2014. As a result of disputes and stalled construction as of June 2015, the property is currently reported to be 97.0% complete. News reports indicate that, as of August 22, 2016, an agreement was reached between the Bahamas government and Export-Import Bank of China that would allow for the construction to resume beginning September 2016. The expected completion date of the resort is scheduled for the end of the 2016–2017 winter season. The Baha Mar would feature a 100,000 sf casino and an extensive golf course. Although the casino would overtake the Atlantis’ casino in size and become the island’s largest casino, the borrower reports that Atlantis is comfortable with the current size and does not intend to expand. DBRS notes the Atlantis offers a more extensive amenity package as compared with the Baha Mar, catering to a wider range of guests. The Baha Mar will likely target affluent couples, casino-goers and international visitors from Asia, increasing tourism to the island overall. Such demand increases will serve to benefit the entire economy of the island, with Atlantis well situated to retain demand at or near current levels in the near term following the Baha Mar’s delivery. Additionally, as the YE2015 net cash flow figure represents an improvement of 37.1% over the DBRS underwritten figure, any short-term cash flow disruptions over the next few years should be minimally impactful.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.