Morningstar DBRS Assigns Provisional Credit Ratings to BAHA Trust 2024-MAR

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2024-MAR (the Certificates) to be issued by BAHA Trust 2024-MAR (the Trust):

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

All trends are Stable.

The BAHA Trust 2024-MAR (BAHA 2024-MAR) transaction is secured by the borrower's fee-simple and partial leasehold interest in the Baha Mar Resort, a beachfront, luxury resort encompassing 2,323 keys. The AAA Four Diamond luxury resort is well located on New Providence, an island of the Bahamas, approximately 185 miles southeast of the coast of Florida. The resort offers three hotel brands: the Grand Hyatt Baha Mar (1,800 keys), SLS Baha Mar (298 keys), and the Rosewood Baha Mar (225 keys). The differentiated, upscale hotel brands present various offerings and experiences that attract a diverse guest base across from transient, corporate, and group travelers at various price points. Morningstar DBRS has a positive view of the collateral considering its high property quality, prime beachfront location, strong post-coronavirus recovery, and significant capital investment made into the property.

Located along Cable Beach, the collateral offers access to approximately 3,000 square feet (sf) of white-sand beaches, and the infamous, turquoise Caribbean water. The resort offers an extensive amenity package, including 45 food and beverage (F&B) outlets, over 10 pools, the Baha Bay waterpark, a casino, 33,000 sf of high-end retail, two spas, two fitness centers, a racquet club featuring both tennis and pickleball courts, and approximately 300,000 sf of meeting space, including the 200,000 sf Baha Mar convention center. The resort also offers multiple day and nightclubs, a game zone, a kids club, and an art gallery. The property's robust amenities package appeals to leisure, corporate, and group demand, allowing the property to easily shift segmentation. The Baha Mar Resort has collected impressive awards, notably from AAA, Forbes, Conde Nast, and U.S. News, highlighting the resort's luxury offerings and experience.

Built in 2017 and 2018, the collateral opened in multiple phases between April 2017 and June 2018. Since the borrower parent's acquisition of the resort in 2017, the borrower parent has invested approximately $570 million in capital improvements to enhance the collateral's competitive position in the market. This capex program included the addition of Baha Bay, a luxury waterpark for approximately $189 million. Ongoing renovations include the $12.8 million rooms renovation at the SLS ($42,953 per key), which is anticipated to be complete by Q4 2024. Additionally, the borrower parent is completing a $16.8 million renovation and expansion of the Jazz Club, which is anticipated to be one of the main entertainment venues at the collateral. Morningstar DBRS believes the room renovations of the SLS Baha Mar and delivery of the new Jazz Club will not only elevate guest experiences, but also increase revenue potential. The continued investment from the borrower parent further strengthens the collateral's competitive position as a top-performing resort in the Bahamas and the greater Caribbean.

The mortgage loan of $1.50 billion will be used to return $1.3 billion of equity to the transaction borrower parent, fund an insurance upfront reserve of $120.7 million reserve for windstorm insurance deficiency, cover approximately $30.0 million in closing costs, and fund a deferred maintenance reserve. The loan is a five-year fixed-rate interest-only (IO) mortgage loan. The interest rate will be fixed annum rate, which will be determined based on the final pricing of the Certificates.

The borrower parent for this transaction is Chow Tai Fook Enterprises (CTFE), a private investment holding company representing the Cheng family of Hong Kong, one of Hong Kong's wealthiest families. The family's total assets exceed $150 billion. The borrower parent boasts an investment portfolio across multiple different sectors such as power generation, healthcare, education, media, and commercial real estate. Notable lodging assets owned by CTFE include the Carlyle, a Rosewood hotel, the Beverly Wilshire, a Four Seasons hotel, the Rosewood Hong Kong, and the Rosewood Washington, D.C. CTFE has actively invested in the subject property since completing the development of the asset between 2017 and 2018.

The property has demonstrated strong performance since the coronavirus pandemic. The subject property opened in phases between 2017 and 2018, right before the onset of the pandemic. In 2019, prior to the pandemic, the collateral reported an occupancy rate of 62.1% and an average daily rate (ADR) of $347.57, resulting in a revenue per available room (RevPAR) of $215.96. While occupancy declined during the coronavirus pandemic, the property's performance continued to struggle in 2021 as a result of international travel restrictions, with a YE2021 RevPAR of $160.44 representing a 25.7% decline over 2019 levels. RevPAR has continued to increase rapidly over the past two years; the property achieved a RevPAR of $373.51 in 2022 and $421.34 as of YE2023. The property's trailing twelve-month period (T-12) ended August 30, 2024, of $424.27 is 96.5% higher than the 2019 RevPAR, but only 0.69% higher than the 2023 RevPAR. Morningstar DBRS believes this normalization of the room rate is because of the phasing out of the pent-up transient demand witnessed in 2022 and H1 2023 following the removal of the coronavirus pandemic-related travel restrictions. Morningstar DBRS expects moderate room rate growth in the future because of the subject's desirable location, ongoing capital improvements, and diversified amenities and offerings. Morningstar DBRS concluded a stabilized RevPAR of $409.70, which is 3.4% less than the T-12 2024 level.

Morningstar DBRS' credit ratings on the Certificates addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the related Principal Distribution Amounts and Interest Distribution Amounts for the rated classes.

Morningstar DBRS' credit ratings does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, the credit ratings do not address Yield Maintenance Premiums.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS  
ESG considerations had a relevant and/or significant effect on the credit analysis.

Environmental (E) Factors  
Climate and Weather Risks had a relevant effect on the credit analysis. Located in the Caribbean, the islands of the Bahamas are subject to frequent hurricanes; although, the country is working toward improving its resilience to climate change and storm surges. The loan structure requires wind/named storm insurance coverage and an upfront Windstorm Insurance Deficiency reserve, which together, will achieve coverage equal to loss projections over a 500-year return period.
 
Governance (G) Factors
Passed-through Governance credit considerations had a significant effect on the credit analysis because of Morningstar DBRS' private credit rating analysis of the Commonwealth of the Bahamas, which analyzed the country's economy, environmental concerns such as natural disasters/hurricanes, and public debt.

There were no Social factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings at (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

The Class X certificates are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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

The principal methodology is the North American Single-Asset/Single-Borrower Ratings Methodology (September 19, 2024), https://dbrs.morningstar.com/research/439699.

Other methodologies referenced in this transaction are listed at the end of this press release.

For a more detailed discussion of the sovereign risk impact on Structured Finance credit ratings, please refer to Appendix C: The Impact of Sovereign Credit Ratings on Other Morningstar DBRS Credit Ratings of the Global Methodology for Rating Sovereign Governments, (July 15, 2024), https://dbrs.morningstar.com/research/436000.

With regard to due diligence services, Morningstar DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains a description of the information that a third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While due diligence services outlined in Form-15E do not constitute part of Morningstar DBRS' methodology, Morningstar DBRS used the data file outlined in the independent accountant's report in its analysis to determine the credit ratings referenced herein.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- Legal Criteria for U.S. Structured Finance (October 28, 2024), https://dbrs.morningstar.com/research/441840
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.