Morningstar DBRS Confirms Credit Ratings on All Classes of BX Trust 2021-ARIA

DBRS Limited (Morningstar DBRS) confirmed its credit 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 credit rating confirmations reflect the collateral's overall stable performance since issuance, as revenue per available room (RevPAR) and net cash flow (NCF) continue to trend positively, in line with Morningstar DBRS expectations. The loan benefits 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 Resorts International (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 pandemic, performance has rebounded sharply since issuance. According to a YE2023 operating statement, the combined occupancy, average daily rate, and RevPAR were 93.1%, $353.91, and $329.49, respectively, an increase over the prior year and issuance RevPAR figures of $278.87 and $310.31, respectively. According to a Las Vegas Convention and Visitors Authority Executive Summary report, dated May 2024, there was a 4.2% year-over-year increase in total visitor volume, and a 6.5% increase in RevPAR. The loan reported a NCF of $443.3 million (representing a debt service coverage ratio (DSCR) of 3.98 times (x)), relatively in line with the YE2022 NCF of $455.4 million (representing a DSCR of 8.25x) and surpassing the Morningstar DBRS NCF of $371.0 million. Debt service has increased given the loan's floating rate coupon, which has driven down the DSCR despite stable cash flow.

The $3.2 billion whole loan represents a loan-to-value (LTV) ratio of 79.1% based on the Morningstar DBRS value. At issuance, the sponsor contributed more than $763.4 million in cash equity as part of its acquisition of the properties. The floating-rate loan is interest-only and had a two-year initial term. The borrower executed an extension option, pushing the current maturity date to October 2024, and has two one-year extension options remaining. 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.

There has been new supply added to the market since issuance, including The Fontainebleau, which opened in December 2023 after years of delays. Prior to the sponsor's acquisition, MGM had invested nearly $700 million into the properties since 2012, with plans to invest several hundred million dollars across both properties over the loan term, 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. Morningstar DBRS believes the properties will remain staples on the Las Vegas Strip and continue to perform well despite heavy competition.

At issuance, Morningstar DBRS concluded a NCF of $371.0 million and applied a 9.3% capitalization rate to derive a Morningstar DBRS value of $4.0 billion, which represents a 31.3% haircut to the appraiser's value of $5.8 billion. Although recent financial reporting indicates improved performance, Morningstar DBRS maintained its cash flow approach given the YE2023 statements reflect only the second full year of servicer reporting since issuance, and the recent opening of a major competitor. Morningstar DBRS applied positive qualitative adjustments to its LTV Sizing Benchmarks, totaling 7.0%, to reflect the property's quality, stable cash flow expectations, and strong market fundamentals as evidenced by Las Vegas' quick recovery post pandemic. Morningstar DBRS' credit view remains unchanged from issuance given the subject's prime location, luxury brand, and experienced institutional sponsorship and expects the loan is well positioned to execute its next extension option.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS  
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

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

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

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

Other methodologies referenced in this transaction are listed at the end of this press release.

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 info-DBRS@morningstar.com.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

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://dbrs.morningstar.com/about/methodologies.

-- North American Single-Asset/Single-Borrower Ratings Methodology (July 11, 2024), https://dbrs.morningstar.com/research/436004
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (June 28, 2024), https://dbrs.morningstar.com/research/435293
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.