Morningstar Credit Ratings has reviewed early performance data for American Homes 4 Rent (AMH) 2014-SFR1 and updated its assessment.
When it was offered in May 2014, Kroll Bond Rating Agency, Morningstar and Moody’s Investor Service gave it a sterling AAA rating.
American Homes 4 Rent 2014-SFR1 was initially listed in May as a $482.7 million single-family rental securitization, with the transaction collateralized by a single loan secured by mortgages on 3,871 income-producing single-family homes. In June the data was updated to show that it is a $481 million securitization of 3,852 single-family rental properties.
2014-SFR1 is made up of six classes of mortgage pass-through certificates. Each of the three agencies issued a triple-A rating for $270.4 million of the securitization, which is the largest class of the securitization, by far.
The properties are distributed across five states and 27 metropolitan areas in the United States. According to the presale information, the properties are spread through Florida (30.2%), Texas (23.7%), Georgia (18.5%), Arizona (15.8%) and Nevada (11.8%). The top five markets in the package are Atlanta (16.01%); Dallas-Fort Worth (12.01%); Las Vegas (11.81%); Tampa (11.28%); and Phoenix (11.25%).
Given the limited historical performance data for the single-family rental asset class as a whole, Morningstar says it continues to recognize the importance of sharing detailed portfolio and property-level performance information with the market.
Morningstar reports that cash-flow vacancy for American Homes 4 Rent 2014-SFR1 was 3.4% in June, the first month for which property-level performance data was available. The net cash flow based on total rent collected was sufficient to cover the bond obligations. By property count, month-end vacancy was 3.9% and the delinquency rate was 1.2% as of the June property tape.
As of June 30, Morningstar reports a cash-flow vacancy of 3.4% as measured by contractual in-place rents for occupied properties at month-end divided by contractual in-place rents for occupied properties as of the collateral cutoff date. As expected, given that the portfolio was 100% occupied as of the April 1, 2014, cutoff date, contractual in-place rent was reduced from issuance levels as properties became vacant.
Initial lease expirations peaked in May of this year (12.7% by count).
“Initial lease expirations generally decline through the remainder of 2014, notwithstanding October 2014 when 9.1% of leases by count are due to expire,” Morningstar reports. “Generally, as the number of expiring leases declines throughout 2014 and vacant properties become occupied, Morningstar expects the month-end vacancy rate to stabilize and to potentially decline. Morningstar’s expected stabilized vacancy rate including qualitative adjustments is 10.0% for this transaction.”
By property count, Morningstar reports a month-end vacancy of 3.9% and a month-end delinquency of 1.2% for a total month-end vacancy and delinquency of 5.1% as of June 30, 2014. As of May 31, 2014, Morningstar reports a vacancy of 2.1%. Delinquency data was not available for May 2014. Morningstar measures vacancy based on month-end vacancy. Because a large proportion of lease expirations may occur in the last five days of any calendar month, month-end measures of vacancy may be higher than vacancies reported based on average days of occupancy in a given month.
Based on the number of vacant properties, contractual in-place rents for properties occupied as of June 30, 2014, were 3.4% lower than the contractual in-place rents for occupied properties as of the cutoff date in April 2014 (at which time, 100% of the properties were occupied). Total month-end vacant and delinquent properties by count were 5.1% as of June 30. In Morningstar’s opinion, the net cash flow based on total rent collected is sufficient to cover the bond obligations.