The Tribune

• ‘Stabilisation’ sees $1.2bn debt ratings affirmed

• Rates 28% up on pre-pandemic, RevPAR is flat

• Lower occupancy blamed on Beach Towers loss

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Atlantis has “stabilised” its net cash flow at pre-COVID levels by generating $182.3m for the year to end-March 2023, it was revealed yesterday, as analysts reaffirmed the credit ratings on its $1.2bn debt.

DBRS Morningstar, in its assessment of the Paradise Island mega resort’s post-pandemic rebound, disclosed that average daily room rates (ADR) for the 12 months to end-March were some 28 percent ahead of those achieved when the debt secured on its assets was last refinanced in 2018.

Revenue per available room (RevPAR), a key indicator of hotel industry performance, matched exactly the $200 generated during that pre-COVID period. And, while Atlantis’ occupancy levels were lagging, the analyst’s report pointed out that the 56.2 percent achieved during the 12 months to end-March 2023 was not a like-for-like comparison with the 72.2 percent achieved during the same period for 2018 as the Beach Towers has been closed ever since COVID hit.

Atlantis representatives could not be contacted for comment before press time last night, but the Morningstar review - a report requested by the resort’s owner, Brookfield Asset Management - affirmed the positive momentum and outlook that the wider Bahamian resort and tourism industry has enjoyed since it emerged from COVID-related lockdowns and other restrictions.

Maintaining, or confirming, its existing creditworthiness ratings on the various classes of commercial mortgage-backed securities issued to Atlantis debt holders, Morningstar said: “The collateral reported a net cash flow of $182.3m for the trailing 12-month period ended March 31, 2023, surpassing the year-end 2022 net cash flow of $133.8m, year-end 2021 net cash flow of $24.4m, and in line with the issuer’s net cash flow of $181.3m.”

That latter figure would have been generated in the pre-COVID era at the time of the last debt refinancing in 2018, which means that Atlantis’ annual cash flow has now rebounded in line with the peaks achieved before the pandemic. The $182.3m achieved for the year to end-March 2023 represents a 36.2 percent year-over-year increase, with the $24.4m generated during the period when the tourism shutdown, including lockdowns and border closures, was at its height.”

Drawing on data provided by STR, the entity that monitors the worldwide lodging industry, Morningstar said of Atlantis: “According to the most recent STR report, the combined occupancy, average daily rate (ADR) and revenue per available room (RevPAR) for the trailing 12-month period ended March 31, 2023, were 56.2 percent, $355 and $200, respectively, up from 35.5 percent, $277 and $99 for year-end 2021.

“In comparison, the occupancy, ADR, and RevPAR were 72.2 percent, $277 and $200 at issuance, respectively.” However, it conceded that there were mitigating factors behind the occupancy decline, including the now-completed renovations to all rooms at the Royal Towers, while also acknowledging that Atlantis and BREF One, the Brookfield-controlled investment fund that owns the Paradise Island mega resort, invested $52m in capital upgrades to the property in 2022.

“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 Towers and upgrades to all guest rooms and suites in the Royal Towers,” the rating agency said. 

“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 Towers have remained vacant since closing during the COVID-19pandemic, 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 water park 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 $52m in 2022 on major and minor capital projects, and $76m since 2019.”

Vaughn Roberts, the Paradise Island resort’s senior vice-president of government affairs and special projects, previously told Tribune Business that Atlantis is “going through value engineering” in a bid to ensure construction costs for the redevelopment of its Beach Towers property stay within budget following the post-COVID surge in material prices, labour and other related costs.

The 400-room Beach Towers is awaiting redevelopment into Somewhere Else by Grammy Award-winning musician and producer, Pharrell Williams, and his business partner David Grutman, and Mr Roberts said: “We’re still working through it, working through the design and working through the budget.

“The numbers came in a bit higher on the construction side, so we’re going through a value engineering to find savings. That means tweaking the design and so forth. We’re trying to figure out how to make it work within the budget. From where we sit now, it’s probably a 2024 construction start project. We always thought it was a two-year kind of build-out.

“It’s well over $100m. We don’t know where it will end up, but it’s 425 rooms and it’s a complete renovation of the hotel. It’s the oldest hotel, so we have to do a lot of work with it. Elevators, the rood, building systems. All the main building systems have to be replaced.”

Morningstar, meanwhile, yesterday assigned a 112.6 percent loan-to-value ratio to the debt that is secured on Atlantis’ real estate and other physical assets. “Whole loan proceeds of $1.2bn, along with $650m in mezzanine debt spread across three loans, refinanced existing debt, returned $148.9m of sponsor equity and covered closing costs,” it added, nothing that one component of the debt has been extended for a fourth time to July 2024.

“The rating confirmations follow improvements in performance for the underlying collateral, Atlantis, 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 stabilised to issuance levels,” Morningstar said.

“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 casino, the 141-acre Aquaventure water park, 73,391 square feet of retail space and spa facilities, and 500,000 square feet  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.”