Invitation Homes prices nearly $1 billion rental securitization

$477.48 million tranche rated AAA by Moody’s, Kroll, Morningstar

Invitation Homes priced its nearly $1 billion single-family rental securitization. The offering, referred to as Invitation Homes 2014-SFR1, is backed by one floating rate loan secured by mortgages on 6,537 single-family rental properties.

Invitation Homes priced the largest tranche of the deal, $477.48 million, at one-month LIBOR plus 100 basis points. The total securitization is for $993 million.

The largest segment of the deal was given AAA ratings in the presale reports from Moody’s Investor’s Service, Kroll Bond Rating Agency, and Morningstar.

The second class of the deal, $122.08 million, priced at one-month LIBOR plus 150 basis points. The third class of the deal, $108.52 million, priced at one-month LIBOR plus 210 basis points. The fourth class of the deal, $84.1 million, priced one-month LIBOR plus 260 basis points.

Deutsche Bank was listed as the sole structuring lead and the joint-book runners/leads were Credit Suisse and JPMorgan.

In the presale documentation, it was noted that the floating rate loan will require interest-only payments and have a two-year term with three 12-month extension options. The offering’s underlying properties are one to four unit residential properties located in 10 states, with the top three representing 70% of the portfolio: Florida (32.0%), California (26.8%), and Arizona (10.8%).

The top three MSAs represent 30%, and include Phoenix, Ariz. (10.8%), Sacramento, Calif. (10.0%) and Atlanta, Ga. (9.2%).

The portfolio is comprised primarily of homes with three or more bedrooms, two or more bathrooms and an average estimated square footage of approximately 1,788 square feet.

In its presale report, Morningstar cited higher expected renewal rates when compared to multifamily rental properties as a positive credit model driver for the deal.

Moody’s noted the strength of the property manager, THR Property Management, in its presale report. “Moody's assessment of THR Property Management, the property manager, is that it has a strong ability to effectively handle the day-to-day business of managing a national single-family rental platform,” Moody’s report stated. “THR has a disciplined approach to acquisition and initial renovations. In addition, it has superior technology systems that allow it to efficiently manage employees to control labor costs, track and monitor repairs and maintenance, and, most importantly, to attract, respond to, and retain tenants.”

Kroll’s presale report cited the relatively new business model of single-family rental securitizations as a reason for uncertainty. “Large-scale institutional ownership and management of SFRs is a fairly new business model and securitizations of these assets in the U.S. are still evolving,” Kroll’s report stated. “While this is the fourth transaction of its kind, and the second issued by Invitation Homes, performance data for the sector is limited.

The deal is scheduled to settle on May 30 and the first distribution is scheduled for June 19.

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