Invitation Homes will the first out of the gate in 2015, as the Blackstone Group (BX) subsidiary is prepping the year’s first single-family rental securitzation.
The offering, Invitation Homes 2015-SFR1, will be collateralized by a $540.9 million loan secured by first priority mortgages on 3,072 income-producing single-family homes. The floating rate loan will require interest-only payments and have a two-year term with three 12-month extension options.
Kroll Bond Rating Agency and Morningstar both weighed in on the offering with presale reports, and both awarded $227.79 million in AAA ratings to the offering’s Class A tranche.
According to KBRA, IH 2015-SFR1 marks the ninth time of the 14 total single-family rental securitizations to be collateralized by a loan that required interest-only payments.
“All else being equal, IO loans are riskier than amortizing loans, which provide for natural deleveraging over the loan term that results in lower risk of maturity default,” KBRA said in its presale report.
“Additionally, should an IO loan default later in its term, it will experience a higher loss given default relative to an amortizing loan owing to its higher outstanding principal balance.”
As this is only the 14th single-family rental securitization, both Morningstar and KBRA cautioned on the asset class’ limited performance history as a potential concern.
“On the whole, single-family rental performance history is limited,” Morningstar said. “For credit rating purposes, historical performance data is necessary to make informed assumptions about the future performance of single-family rental income and related expenses.”
Also of note in this offering is the amount of properties that make up the underlying collateral. The IH 2015-SFR1 loan is secured by mortgages on 3,072 properties, which is the second lowest property count compared to the prior deals, which ranged from 2,876 to 6,473, with an average of 3,893 homes, KBRA noted in its presale.
Both KBRA and Morningstar both noted the age of the properties as potential negative of the deal.
According to KBRA’s report, the underlying properties have an average home age of 27 years, which is the sixth highest among all of the prior SFR transactions, but in line with the previous Invitation Homes transactions. The prior Invitation Homes securitizations consisted of homes with an average age of 28 years.
“All else being equal, KBRA generally views larger, newer homes as being more marketable than smaller, older homes in the event of a default,” KBRA said.
One positive of the deal is its geographic diversity. The underlying properties are located in ten states, with the three largest state exposures representing 58.9% of the aggregate broker price opinion value of the portfolio: Florida (32.8%), California (14.3%), and Georgia (11.8%).
According to KBRA’s report, the pool is most geographically diversified among other SFR securitizations, as measured by KBRA’s geographic concentration factor.
Transactions with greater geographic diversity are better insulated from home price declines in one or a few metro areas relative to pools with higher geographic concentration, KBRA said.
According to Morningstar, the vacancy rate of the underlying properties is 5.6% as of the offering’s cutoff date, which represents a slightly higher vacancy rate than in previous SFR offerings.
But Morningstar notes that it is expected that any vacancies and delinquencies would be worked through as a normal course of business.