DBRS Morningstar Confirms Ratings on All Classes of BHMS 2018-ATLS

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2018-ATLS issued by BHMS 2018-ATLS as follows:

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

All trends are Stable.

The rating confirmations follow improvements in performance for the underlying collateral, Atlantis Resort, driven by the return of tourism in the Bahamas. This is evidenced by reported net cash flow (NCF), which, as of the most recent financial statements, has stabilized to issuance levels.

The loan is secured by the Atlantis Resort, a 2,917-key, beachfront resort comprising of four (The Beach, The Coral, The Royal, and The Cove) hotel towers on Paradise Island in the Bahamas, and the fee interest in amenities including 40 restaurants and bars, a 60,000-square-foot (sf) casino, the 141-acre Aquaventure water park, 73,391 sf of retail space and spa facilities, and 500,000 sf of meeting and group space. The resort also includes a luxury tower with an additional 495 rooms owned by third parties as condo-hotel units and 392 timeshare rooms at the Harborside Resort, neither of which are part of the collateral. The loan sponsor is BREF ONE, LLC, a subsidiary of Brookfield Asset Management Inc.

Whole loan proceeds of $1.2 billion along with $650.0 million in mezzanine debt spread across three loans refinanced existing debt, returned $148.9 million of sponsor equity, and covered closing costs. The $635.0 million trust loan has an initial two-year original term, with five one-year extension options and is interest only (IO) throughout its entire loan term. According to the July 2023 reporting, the sponsor has exercised the loan’s fourth extension option, extending the maturity to July 2024.

The collateral reported an NCF of $182.3 million for the trailing 12-month (T-12) period ended March 31, 2022, surpassing the YE2022 NCF of $133.8 million, YE2021 NCF of $24.4 million, and in line with the issuer’s NCF of $181.3 million. According to the most recent STR report, the combined occupancy, average daily rate (ADR), and revenue per available room (RevPAR) for the T-12 period ended March 31, 2023, were 56.2%, $355, and $200, respectively, up from 35.5%, $277, and $99 for YE2021. In comparison, the occupancy, ADR, and RevPAR were 72.2%, $277, and $200 at issuance, respectively. In 2020, DBRS Morningstar concluded an NCF of $147.8 million and a value of $1.6 billion. DBRS Morningstar utilized a 9.0% capitalization rate in its analysis, giving consideration to the lack of direct competition in the immediate area, reliance on international tourism, and potential for sovereign risk related to the Commonwealth of the Bahamas. Additionally, DBRS Morningstar applied qualitative adjustments to its sizing results totaling 5.25% to reflect the property’s quality, lack of direct competition in the immediate area, and historical cash flow volatility. The resulting DBRS Morningstar loan-to-value ratio (LTV) is 73.1% on the trust amount and 112.6% on the whole loan.

While occupancy at the property remains low, as noted at the time of the last rating action, the collateral has been undergoing significant upgrades and renovations, including the complete redevelopment of The Beach tower and upgrades to all guest rooms and suites in The Royal tower. These capital projects, which are scheduled to be completed in 2024, have likely resulted in rooms being temporarily closed, contributing to the decline in occupancy. According to the servicer’s latest update, The Beach Tower has remained vacant since closing during the Coronavirus Disease (COVID-19) pandemic, and while the property was originally scheduled to reopen as Somewhere Else in 2024, the borrower has stated that design plans and the scope of the renovation work are still being discussed. Other minor capital projects involving dining, operations, the marine waterpark, and supply chain management, among others, were recently completed according to the December 2022 capital expenditure report provided by the servicer, which outlined that the borrower had spent approximately $52.0 million in 2022 on major and minor capital projects, and $76.0 million since 2019.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at (July 4, 2023) https://www.dbrsmorningstar.com/research/416784.

Class X-NCP is an IO certificate that references 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 DBRS Morningstar.

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

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

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

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

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@dbrsmorningstar.com.

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.

DBRS Morningstar 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.

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

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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

North American Single-Asset/Single-Borrower Ratings Methodology (February 23, 2023; https://www.dbrsmorningstar.com/research/410191)

Rating North American CMBS Interest-Only Certificates (December 19, 2022; https://www.dbrsmorningstar.com/research/407577)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022; https://www.dbrsmorningstar.com/research/402646)

North American Commercial Mortgage Servicer Rankings (September 8, 2022; https://www.dbrsmorningstar.com/research/402499)

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008)

A description of how DBRS Morningstar analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

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