DBRS Morningstar Confirms All Ratings on BX Trust 2021-ARIA

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2021-ARIA issued by BX Trust 2021-ARIA:

-- Class A at AAA (sf)
-- Class A-1 at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at AA (low) (sf)
-- Class E at A (low) (sf)
-- Class F at BBB (low) (sf)
-- Class G at BB (sf)
-- Class HRR at BB (low) (sf)

All trends are Stable.

This transaction is collateralized by the borrower’s leased-fee interest in two high-profile Las Vegas resort hotel and casino properties, the Aria Resort & Casino (Aria) and Vdara Hotel & Spa (Vdara). The properties together consist of more than 4,000 guest rooms in various configurations, more than 370,000 square feet (sf) of convention and meeting space, and more than 150,000 sf of casino space centrally located along the Las Vegas Strip. The complex is part of the larger CityCenter mixed-use development, which also includes the Shops at Crystals, a 392-key Waldorf Astoria hotel, and 670 condominium units in the Veer Towers. Both properties are LEED Gold-certified resorts.

The rating confirmations reflect improving performance, which continues to stabilize to pre-pandemic levels in line with DBRS Morningstar's expectations. Both hotels were closed from April 2020 through June 2020 because of government restrictions as a result of the pandemic, significantly affecting property performance. At issuance, DBRS Morningstar recognized stabilized performance in its analysis given the robust recovery trajectory, the operator’s extensive experience managing casino and hospitality properties, strong operating history, and superior location of the properties on the Las Vegas Strip. Over the past 18 months, performance has rebounded sharply. According to a March 2022 operating statement, the combined occupancy, average daily rate, and revenue per available room (RevPAR) for the properties was 83%, $283, and $235, respectively. In comparison, occupancy and RevPAR were 91% and $232 as of YE2019.

The $3.15 billion whole loan represents a relatively conservative loan-to-value ratio of 79.1% on the DBRS Morningstar concluded value, which is below the typical leverage point for most single-asset-single-borrower transactions. There is also no existing additional debt, and the sponsor contributed more than $763.4 million in cash equity as part of its acquisition of the properties. The DBRS Morningstar debt yield is 11.78%, and the look-through debt service coverage ratio of 7.04 times (x), or 4.11x is based on the master rent payments only.

The sponsor, Blackstone Real Estate Partners IX L.P., an affiliate of The Blackstone Group, used the subject financing to acquire the properties from MGM in a sale-leaseback transaction. An affiliate of MGM will continue to manage the properties in accordance with a 30-year, triple-net master lease.

Two major new properties, Resorts World Las Vegas and the Drew (formerly the Fontainebleau), will collectively deliver more than 7,300 new rooms to the Strip over the next several years. Resorts World Las Vegas opened in June 2021 and was the first new property to deliver on the Strip since the Cosmopolitan in 2010. The Drew has experienced significant construction delays and is not anticipated to deliver until 2025. Prior to the sponsor's acquisition, MGM had invested nearly $700 million into the properties since 2012. MGM is planning to invest several hundred million dollars across both properties over the next few years, including a major rooms renovation at Aria. Furthermore, under the terms of the master lease, MGM is required to invest a minimum of 4.0% of actual net revenues per year into the properties throughout the loan term and between 2.5% and 3.0% per year thereafter. DBRS Morningstar believes the subject properties will remain staples on the Las Vegas Strip and continue to perform well despite new competition.

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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

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/402907.

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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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