DBRS Morningstar Confirms All Ratings on Five BX Commercial Mortgage Trust Transactions

DBRS Limited (DBRS Morningstar) confirmed all ratings of the Commercial Mortgage Pass-Through Certificates (the Certificates) on five BX Commercial Mortgage Trust transactions as follows:

BX Commercial Mortgage Trust 2020-VIVA:
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)

BX Commercial Mortgage Trust 2020-VIV2:
-- Class C at A (sf)

BX Commercial Mortgage Trust 2020-VIV3:
-- Class B at AA (low) (sf)

BX Commercial Mortgage Trust 2020-VIV4 (BX 2020-VIV4):
-- Class A at AAA (sf)
-- Class X at AAA (sf)

BX Commercial Mortgage Trust 2021-VIV5 (BX 2021-VIV5):
-- Class A at AAA (sf)
-- Class X at AAA (sf)

All trends are Stable.

The collateral for these transactions, which had closing dates between May 2020 and October 2021, are certain components of a $3.0 billion first-priority mortgage loan encumbering both the MGM Grand and Mandalay Bay (MGM/Mandalay) properties in Las Vegas. The Issuer elected to issue components of the whole loan across these five transactions because of the market volatility caused by the Coronavirus Disease (COVID-19) pandemic. For a description of the debt pieces by transaction, please see the press release dated October 18, 2021, for the BX 2021-VIV5 transaction on the DBRS Morningstar website at www.dbrsmorningstar.com.

The rating confirmations reflect the overall stable performance since DBRS Morningstar’s prior review. The loan is interest only (IO) through the initial 10 years of its 12-year term. The sponsors, Blackstone Real Estate Income Trust and MGP Operating Partnership, together with certain other parties, formed a joint venture (JV) to acquire the MGM/Mandalay properties for an aggregate purchase price of $4.6 billion ($471,892 per room). The borrowers, Mandalay PropCo, LLC and MGM Grand PropCo, LLC (which are subsidiaries of the JV), subsequently executed a 30-year triple-net master lease with two 10-year renewal options with the MGM/Mandalay Tenant, a wholly owned subsidiary of MGM Resorts.

During DBRS Morningstar’s prior review of the transaction, the operating cash flows and occupancy rates of the MGM/Mandalay properties had remained significantly depressed from their 2019 levels because of the ongoing effect of the coronavirus pandemic, which led to a cash trap activation. Since then, the hotel market in Las Vegas has been making a strong recovery as per the LVCVA Executive Summary report, exhibiting a 5.7% year-over-year increase in the total visitor volume for July 2022. While visitor volume remains approximately 5.3% below the pre-pandemic level, the average daily rate and revenue per available room figures as of the trailing 12-month (T-12) period ended July 31, 2022, surpassed the 2019 level. According to the T-12 ended March 31, 2022, financials, the MGM/Mandalay properties reported a consolidated occupancy rate and net cash flow (NCF) of 80.2% and $173.3 million (reflecting a debt service coverage ratio (DSCR) of 1.60 times (x)), respectively, a substantial improvement of the YE2020 figures of 54.2% and -$354.1 million (reflecting a DSCR of -3.26x). Although cash flow remains depressed compared with the DBRS Morningstar NCF of $440.5 million (reflecting a DSCR of 4.38x), the properties are showing recovery with the T-12 ended March 31, 2022, consolidated room revenue income reporting a 129.8% increase over its YE2020 figure, and other departmental revenue reporting a 118.7% increase over its YE2020 figure.

According to a February 17, 2022, site inspection, the properties, in total, have approximately $40.5 million of capital expenditures in process and approximately $55.0 million planned in the next 12 months.

DBRS Morningstar believes the mortgage loan that serves as collateral for the Certificates benefits from unique structural features that provide additional protection for bondholders. Notably, the master lease structure insulates the mortgage loan from direct exposure to the volatility of the properties’ operating cash flows. The terms of the master lease require the MGM/Mandalay tenant to make an initial master lease payment of $292 million per year, with those payments to escalate by 2.0% through the lease’s 15-year anniversary date. The lease payments escalate by the greater of 2.0% and CPI (with CPI capped at 3.0%) for the remainder of the lease term. The transaction also benefits from a guaranty provided by MGM Resorts, which covers payment and performance of the MGM/Mandalay Tenant’s monetary obligations and certain other obligations under the master lease agreement. In addition to the payment and performance guaranty, MGM Resorts also executed a shortfall guaranty.

The DBRS Morningstar loan-to-value ratio of 65.97%, based on a 9.69% capitalization rate and a concluded valuation of $4.54 billion, represents a conservative leverage point with the ability to withstand a substantial realized decline in market value prior to mortgage impairment. In addition, the sponsors contributed a combined $1.6 million in cash equity to obtain the properties, suggesting there is massive incentive to continue supporting the loan through what is expected to be a temporary decline in performance for the underlying hotel properties.

ENVIRONMENTAL, SOCIAL, 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 https://www.dbrsmorningstar.com/research/396929 (May 17, 2022).

Class X in the BX 2020-VIV4 transaction and Class X in the BX 2021-VIV5 transaction are 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 ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data. For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com.

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

The principal methodology is North American CMBS Surveillance Methodology (October 3, 2022), which can be found on dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. 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 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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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.dbrsmorningstar.com or contact us at [email protected].

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