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Investments

American Residential prices first REO-to-rental securitization

Latest in up-and-coming asset class

Houses on money

Just shy of two weeks ago, American Residential Properties (ARPI) presented itself as the newest player in the REO-to-rental securitization game, when it announced that it was bringing a $342.67 million securitization to the market.

At the time, the offering, American Residential Properties 2014-SFR1, was the third REO-to-rental securitization to hit the market in as many weeks, demonstrating the growing popularity of the asset class.

Now, American Residential has priced its securitization. The $184.66 Class A tranche, which received AAA ratings from Morningstar in its presale report, priced at 1-month LIBOR plus 110 basis points.

The Class B tranche, which received $35.93 million in AA+ ratings from Morningstar, priced at 1-month LIBOR plus 175 basis points.

The Class C tranche, which received $26.31 million in A+ ratings from Morningstar, priced at 1-month LIBOR plus 235 basis points.

The Class D tranche, which received $30.92 million in BBB+ ratings from Morningstar, priced at 1-month LIBOR plus 300 basis points.

The Class E tranche, which received $39.97 million in BBB ratings from Morningstar, priced at 1-month LIBOR plus 392 basis points.

And the Class F tranche, which received $24.45 million in BBB- ratings from Morningstar, priced at 1-month LIBOR plus 442 basis points.

The anticipated settlement date of the offering is August 26.

According to Morningstar’s presale report, 80.4% of the underlying portfolio is located in three states including Texas (36.9%), Arizona (29.1%), and North Carolina (14.4%). The average cost basis per property post-rehabilitation is $156,397. The average age of the properties is approximately 12 years and the majority of the properties have three or more bedrooms (97.5%).

Of note in Morningstar’s presale report was the vacancy rate of the underlying properties, which stands at 4.06% as of the cutoff date. In many of the previous SFR securitizations, the properties were 100% occupied on the respective cutoff dates.

Also of note in the ARP offering was the lower average rehab cost of the properties, which is $8,771. In previous offerings in the asset class, the average rehab cost has varied from $19,682 to $22,916.

But the properties that make up the ARP offering are much younger than the previous offerings, with an average year built of 2002. According to Morningstar’s report, 64.3% of the properties were built between 2001 and 2010.

As with the other SFR offerings, Morningstar cautioned on the limited history of the asset class as a potential concern for the bonds’ performance.

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