DBRS Confirms Ratings on BHS 2014-ATLS Mortgage Trust

DBRS Limited (DBRS) 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-EXTFX at AAA (sf)
-- Class X-CPFL 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 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 on-site amenities 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 resort’s amenities, the income generated from those activities is included in the collateral’s revenue stream. Resort amenities are also sold as packages to travelers aboard cruise ships, which dock at a terminal near the subject throughout the year. The majority of revenue is generated by the restaurants and bars, casino and water attractions. In YE2016, approximately 32.0% of resort revenue was generated from hotel accommodations, which is consistent with YE2015.

Its location in the Caribbean exposes the property to windstorm and flood risks. Hurricane Irma recently hit The Bahamas in mid-September 2017 as a Category 4 hurricane. However, since the eye of the storm did not pass through the region, the island was spared of catastrophic damages and instead only experienced tropical storm level winds and rain. According to online sources, the president and managing director of the Atlantis stated that the resort did not sustain any damage as a result of the hurricane. It was noted that the resort is prepared for such natural disasters as the official Hurricane Preparedness Plan was initiated. As such, the resort did not evacuate any of its guests, unlike its competitor, the newly opened Baha Mar, which evacuated nearly all of its guests and temporarily closed its doors ahead of Hurricane Irma’s arrival.

The Baha Mar is located on the main island of Nassau and is closer to the airport than the Atlantis, which is situated on Paradise Island. Originally scheduled for a December 2014 grand opening, the resort ran into problems with developers and sat incomplete for over two years. After several delays, the first of its three hotel buildings, which include the Grand Hyatt, SLS Hotels and Rosewood Hotels, opened in May 2017. The Grand Hyatt has 1,800 rooms and is the most cost friendly option at the resort. SLS Hotels, which houses 300 rooms is scheduled to open Fall 2017, with Rosewood Hotels opening its 200 rooms in the Spring of 2018. The completion of the project would bring a total of 2,300 rooms online. Amenities at the resort include a 100,000 sf casino, 42 restaurants and lounges, 30 luxury retailers, an 18-hole golf course, 11 swimming pools and a spa. Prior to its completion, The Baha Mar was always viewed as the Atlantis’ biggest competition given its size and offerings; however, the two resorts reportedly cater to different clientele. The Baha Mar appears to target more affluent patrons, casino-goers and international visitors from Asia whereas the Atlantis focuses on providing a family-oriented experience with its amenities and attractions.

According to year-end financials, the YE2016 debt service coverage ratio (DSCR) was 3.63 times (x), compared with the YE2015 DSCR of 3.90x and the YE2014 DSCR of 3.44x. According to the Smith Travel Research report, as of the trailing 12 months (T-12) ending May 31, 2017, occupancy for the Royal, Coral and Beach Towers was 63.3%, the average daily rate (ADR) was $240.21 and revenue per available room (RevPAR) was $152.14. In comparison, the T-12 ending December 2015 showed that the occupancy, ADR and RevPAR were higher at 69.0%, $250.35 and $172.70, respectively. The luxury hotel tower, The Cove, which consists of 600 rooms, reported a T-12 ending May 2017 occupancy of 68.6%, ADR of $436.90 and RevPAR of $299.53. The prior year’s figures reported occupancy of 71.1%, ADR of $445.62 and RevPAR of $316.72. Although these figures have been trending downward over the last year, the YE2016 net cash flow figure represents an increase of 30.9% over the DBRS issuance figure. The short-term impact of the opening of The Baha Mar was considered at issuance and cash flows have displayed strong performance since issuance, mitigating the impact caused by the increased competition.

The ratings assigned to Classes C-FX, C-FL, D-FX, D-FL, E-FX, E-FL, F-FX and F-FL materially deviate from the higher ratings implied by the quantitative results. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative results that is a substantial component of a rating methodology. The deviations are warranted given uncertain loan level event risk.

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.

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies.
This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.