DBRS Morningstar Confirms All Ratings on BX Trust 2021-ARIA

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2021-ARIA issued by BX Trust 2021-ARIA as follows:

-- 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.

The rating confirmations reflect the collateral’s overall stable performance in the two years since issuance, as revenue per available room (RevPAR) continues to surpass pre-pandemic levels as expected. The loan continues to benefit from strong sponsorship, the collateral’s prime location, and high occupancy rates across the properties.

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

While both hotels were closed between April 2020 and June 2020 because of government restrictions as a result of the Coronavirus Disease (COVID-19) pandemic, performance has rebounded sharply since issuance. According to a March 2023 operating statement, the combined occupancy, average daily rate, and RevPAR for the trailing 12-month period ended March 31, 2023, were 92.9%, $315, and $292, respectively, an increase over the prior year and issuance RevPAR figures of $235 and $125, respectively, while exceeding the pre-pandemic RevPAR of $232 as of YE2019. Despite the improvement in performance, the YE2022 net cash flow (NCF) was $225.8 million, compared with the DBRS Morningstar NCF of $371.0 million. This was primarily driven by a substantial increase in repairs and maintenance expense to $332.4 million, which may be a nonrecurring expense but DBRS Morningstar requested clarification from the servicer. Considering the transaction is relatively new in vintage, there is a lack of loan seasoning and full-year financial reporting available. At issuance, DBRS Morningstar concluded a NCF of $371.0 million and applied a 9.3% capitalization rate to derive a DBRS Morningstar value of $4.0 billion, which represents a 31.3% haircut to the appraiser’s value of $5.8 billion. Additionally, DBRS Morningstar applied positive qualitative adjustments to its sizing, totaling 7.0%, to reflect the property’s quality, cash flow volatility, and market fundamentals.

The $3.2 billion whole loan represents a loan-to-value ratio of 79.1% based on the DBRS Morningstar value. At issuance, the sponsor contributed more than $763.4 million in cash equity as part of its acquisition of the properties. The two-year, floating-rate loan is interest-only and is scheduled to mature in October 2023, but the loan has three one-year extension options. These options are exercisable when certain requirements are met, including the loan achieves the minimum debt yield threshold and the existing interest rate cap agreement is extended or a new agreement is executed.

As noted at issuance, two major new properties, Resorts World Las Vegas and the Drew (formerly the Fontainebleau), were expected to 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 open on the Strip since the Cosmopolitan in 2010. The Drew has experienced significant construction delays and is not anticipated to open 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 major room renovations at the Aria. Furthermore, under the terms of the master lease, MGM is required to invest a minimum of 4.0% of actual net revenue per year into the properties throughout the loan term and between 2.5% and 3.0% per year thereafter. According to online news articles, the Sky Suites and Sky Villas at the Aria were updated. DBRS Morningstar requested additional details from the servicer regarding any ongoing renovations. DBRS Morningstar believes the properties will remain staples on the Las Vegas Strip and continue to perform well despite new competition.

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.

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 [email protected].

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 [email protected].