DBRS Confirms All Classes of CHT 2017-COSMO Mortgage Trust

DBRS Limited (DBRS) confirmed the ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2017-COSMO issued by CHT 2017-COSMO Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (high) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction since issuance. This transaction closed in November 2017 with an original trust balance of $1.38 billion fully secured by a loan collateralized by The Cosmopolitan, a luxury hotel and casino in Las Vegas. Whole-loan proceeds, along with $420.0 million of mezzanine loans, refinanced existing debt of $1.55 billion and returned equity of approximately $227.5 million to Blackstone Real Estate Partners (the sponsor for the collateral). The interest-only trust loan is structured with a two-year initial term with five one-year renewal options. Per the October 2018 remittance, the loan has performed as expected with no collateral reduction.

The Cosmopolitan was completed in 2010 and is situated in an excellent mid-strip location between the Bellagio Hotel & Casino and CityCenter. Collateral amenities include, but are not limited to, 3,027 keys; over 250,000 square feet (sf) of convention and banquet space facilities; 115,000 sf of casino space; 96,000 sf of entertainment space; 23,500 sf of retail space; and spa/fitness facilities. The Cosmopolitan hotel is a part of Marriott’s Autograph Collection and is subject to a licence agreement that expires in 2031 with termination options every five years.

In June 2017, the sponsor began a $135.0 million ($46,632 per key renovated) renovation in June 2017 on 2,895 keys, which excluded newly constructed rooms and penthouses. Per the servicer commentary from October 2018, approximately 88.0% of the renovation has been completed and the project is on track to be completed by December 31, 2018. Per the June 2018 financials, the subject reported a trailing-12-month (T-12) occupancy, average daily rate and revenue per available room of 92.6%, $326 and $312, respectively. In comparison, the subject reported T-12 August 2017 figures of 94.8%, $316 and $300, respectively, and YE2016 figures of 94.8%, $311 and $295, respectively. Per the trailing-six-month June 2018 financials, the loan reported a debt service coverage ratio (DSCR) of 2.76 times (x), in comparison with the DBRS Term DSCR at issuance of 2.73x. There is low term-default risk, even though hotels typically exhibit high cash flow volatility compared with other property types. Per the June 2018 financials, 38.7% of revenue was generated from guest rooms, 40.6% from food and beverages and the remaining 20.7% was generated from gaming and alternate sources.

Given the property’s excellent quality and location, limited new hotel casino supply anticipated before the end of 2020 and sponsorship’s continued emphasis and investment in improving gaming performance, DBRS expects loan performance to remain strong during the fully extended term, and the ability to refinance the mortgage loan at maturity should be high as the property has been successfully refinanced twice since 2016.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

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

The principal methodology is North American CMBS Surveillance Methodology, which can be found on dbrs.com under Methodologies & Criteria. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 under Related Documents or by contacting us at info@dbrs.com.

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

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.