DBRS Assigns Provisional Ratings to Cosmopolitan Hotel Trust 2016-COSMO

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2016-COSMO (the Certificates) to be issued by Cosmopolitan Hotel Trust 2016-COSMO:

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

All trends are Stable. All classes will be privately placed.

The collateral for the transaction consists of the fee, condominium and operating leasehold interests in a 3,005-key luxury hotel and casino located in Las Vegas, Nevada. In addition to the $1.037 billion mortgage loan, there is a $388.0 million senior mezzanine loan and $125.0 million junior mezzanine loan outside of the trust. The loan, together with the mezzanine loans, will be used to refinance existing debt of $1.3 billion, pay closing costs of approximately $15.5 million and return $234.5 million to the sponsor.

The collateral includes the fee interest in amenities including, but not limited to, over 250,000 square feet (sf) of convention and banquet facilities, 111,500 sf of casino space, over 96,000 sf of entertainment space (including a 3,200-capacity multi-use entertainment venue), 23,500 sf of retail space, 50,000 sf of spa and fitness facilities and a five-level underground parking garage. The property also includes 17 condominium units, 15 of which are owned by third parties as condominium-hotel units and are not collateral for the loan. The sponsor, Blackstone Real Estate Partners VII-NQ L.P., is an affiliate of The Blackstone Group L.P. (Blackstone). The property is self-managed by the Blackstone. As of June 30, 2016, Blackstone had approximately $356.3 billion of assets under management. The property has benefited from a Marriott Autograph Collection Affiliation agreement since the property opened in December 2010.

The property is located at the center of the Las Vegas Strip, a 4.2-mile stretch of some of the largest hotel, casino and resort properties in the world. The Las Vegas hotel market has averaged 89.4% occupancy from 1985 to 2015 with the lowest occupancy of 83.5% occurring in 2010. The property has continued to stabilize since the previous securitization in Q1 2015 and, because of operational efficiencies, increased gaming margin as well as overall gaming revenues and increased room count, among other factors, net cash flow (NCF) has grown 40.6% from the trailing 12 months (T-12) ended January 2015 to T-12 ended January 2015, increasing by approximately $49.7 million. As of the T-12 ended August 2016 period, the property led its respective competitive set in terms of occupancy (94.2%), average daily rate ($307.89) and revenue per available room ($290.00) with market penetration rates of 103.4%, 119.7% and 124.2%, respectively. Gaming revenue (before promotions) comprised 25.6% of the properties’ total revenue for YE2015, which is much smaller than the 41.6% of total income-to-total revenue for casinos with gaming revenue of $1.0 million and over within Clark County for YE2015.

The DBRS NCF is $149,685,294, representing a -12.5% variance from the Issuer’s NCF. Although the loan does not amortize, the going-in leverage is reasonable with a DBRS Debt Yield of 14.4%. In addition, the DBRS Refinance debt service coverage ratio (DSCR) is at 1.44 times (x), commensurate with the initial ratings assigned by DBRS and based on a stressed 10.00% refinance constant. The loan has minimal default risk during the five-year fully extended loan term as the DBRS Term DSCR is quite high at 2.96x. The DBRS loan-to-value ratio is 67.5%, based on a 9.75% cap rate, and utilizes a DBRS value of $1.54 billion that is a 36.0% and 45.9% discount to the appraised as-is value of $2.4 billion and stabilized value of $2.84 billion, respectively. As a result of the high-quality, irreplaceable Las Vegas Strip location and corresponding leverage, the Certificates backed by the $1.037 billion of first mortgage debt are provisionally assigned ratings between AAA and BB.

The ratings assigned to the Certificates by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

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

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

The applicable methodology is North American CMBS Rating Methodology, which can be found on our website under Methodologies.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form 15-E) which contains the description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not rely on the due diligence services outlined in Form 15-E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

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