Treasure Island casino backs $380M CMBS offering

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Treasure Island Hotel & Casino is the latest Las Vegas casino tapping the commercial-mortgage securitization market as it winds up a multiyear, exhaustive renovation program.

According to Moody’s Investors Service, the 27-year-old casino on the Las Vegas Strip is serving as collateral for a $380 million bond sale, backed by a recently underwritten $400 million first-mortgage loan underwritten by JPMorgan.

The transaction, JPMorgan Chase Commercial Mortgage Securities Trust 2020-ACE, will include $290 million in senior notes with preliminary Aaa ratings from Moody’s Investors Service for the Class A tranche.

Moody’s is also rating $64.22 million in Class B notes (Aa3) and a $25.75 million Class C tranche (A2). About $20 million will be kept by the trust for risk-retention purposes that better align the sponsor’s interests with that of investors.

Treasure Island is owned by Las Vegas billionaire businessman Phillip Gene Ruffin, who acquired the property in 2009.

The loan backing the bonds is a five-year, interest-only loan with a 3.7% fixed rate. Moody’s report does not indicate if the loan is refinancing existing debt, or paying cash-out equity to the sponsor.

Moody’s estimates the loan-to-value ratio of 66.3%, with a high debt-service coverage ratio of 4.76x.

The notes will be paid from the revenues of the 2,884-key full-service casino, which in recent years has undergone nearly $160 million in renovations as it competes with rival casino upgrades and also repositions itself for its target family audience with expanded retail and restaurant space.

About $88.4 million has been spent on boosting “non-hotel and casino” features of the resort, which derives 72.7% of its revenues from non-gaming sources, according to Moody’s.

The recent renovations have impacted the property’s net cash flow rate, which has declined 6.2% between 2017 ($87 million) and the trailing 12 months prior to September 2019 ($81.6 million) due to the renovations.

But Treasure Island’s upgrades are needed to keep up with improvements at neighboring casinos on the Las Vegas Strip, Moody’s notes. The Park MGM Resort (formerly Monte Carlo Resort and Casino), The Luxor, The Flamingo, Bally’s and the Stratosphere “have either recently completed or announced renovation programs of varying degrees,” Moody’s report stated.

Treasure Island follows other casino properties whose owners have recently taken out asset-backed obligations. Last year, Brookfield Property Partners and Nuveen Real Estate took out a cash-out $1 billion refinance loan for the Grand Canal Shoppes that occupy both the Venetian Hotel and Casino and the neighboring Palazzo Resort and Casino.

In December, a $1.6 billion loan for the Bellagio Hotel & Resort was issued and parceled into multiple mortgage securitizations to finance its acquisition by Blackstone Group in a sale/leaseback arrangement with MGM International.

The renovations also coincide with an expected uptick in Las Vegas visitor volume this year with the completed expansion of the 1.9 million-square foot Las Vegas Convention Center and the relocation of the newly named Las Vegas Raiders from Oakland, Calif., for the 2020 NFL season next fall.

The property was originally developed by Mirage Resorts and opened in 1993. Besides nearly 1200 slots and over 50 gaming tables, the property has 14 restaurants and 10 bars/lounges amid nearly 70,000 square feet of on-site retail space. Treasure Island also hosts the popular Cirque du Soleil Mystère show in its 1,629-seat theater.

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