American Residential Properties is planning its first securitization of single-family rental homes. It may pay a penalty for coming late to the party, if spread widening on a recent deal from Blackstone's Invitation Homes is a guide.
The deal, American Residential Properties 2014-SFR1, will offer $342 .67 million of securities backed by a single loan that is secured by a pool of 2,880 of single-family rental properties. The floating-rate loan pays only interest for its two-year term and is extendable to a total of five years.
Deutsche Bank and JP Morgan are the lead managers.
Morningstar is the first ratings agency to release a presale report. It expects to assign a 'AAA' rating to the class A notes, which benefit from credit enhancement of 46%; 'AA+' to the class B notes with credit enhancement at 35.5%, AA+’; 'A+' to the class C notes with credit enhancement at 27.9%; 'BBB+' to the class D notes with credit enhancement at 18.8%; and 'BBB' to the class E notes with credit enhancement at 7.1%. Also on offer are class F notes that the agency expects to rate BBB-’.
The properties backing the deal are distributed across eight states and 24 Metropolitan Statistical Areas in the U.S.; however 80.4% of the portfolio is located in three states, Texas (36.9%), Arizona (29.1%), and North Carolina (14.4%). The average cost basis per property, post-rehabilitation, is $156,397 and the average current broker price opinion value is $170,007. The average age of the properties is approximately 12 years and the majority of the properties have three or more bedrooms (97.5%).
American Residential Properties, on average spent only $8,771 to rehab the properties, which is substantially lower than other issuers, according to Morningstar. By comparison, American Homes 4 Rent spent on average of $19,682 rehabbing the properites backing its most recent deal.
The pool has 116 vacant properties (approximately 4.0% by BPO value) and 104 properties are on month-to-month lease (3.4% by BPO value). However, 114 of these properties have come off a previous lease and are proven rent worthy, according to Morningstar. The upfront delinquency rate was 0.5% of total monthly contractual rents or 0.15% of total BPO value.
This is only the eighth single-family rental securitization to be issued since Invitation Homes' inaugural deal last November. Inivatiation Homes' third deal, Invitation Homes 2014-SFR2, priced on Monday. Spreads were notably wider than its previous deal, which priced in May, with the junior notes pricing up to 100 basis points wider.
The triple-A rated notes at 110 basis points over the one-month Libor. The double-A rated notes sold at 160 basis points over one-month Libor, the single-A rated notes sold at 220 basis points over the one-month Libor and the triple-B plus notes sold at 275 basis points over one-month Libor. The bonds were sold at par.
By comparison, in the May deal, the senior, triple-A rated tranche priced at 100 basis points over one-month Libor, 10 basis points tigher. The deal’s double-A rated and single-A rated notes also priced 10 basis points tighter, at 150 basis points over one-month Libor and 210 basis points over one month Libor, respectively.
Further down the capital stack, the issuer sold the triple-B minus notes and double-B rated notes on its latest deal at 97.7 cents on the dollar. The bonds priced at 400 basis points (50 basis points wider than the May deal) and 450 basis points (100 basis points wider than the May deal), respectively, over the one-month Libor.
The widening shows that investors have pulled back from their “most aggressive stance” of the year, according to Interactive Data report. However these deals “continue to garner increasing participation rates and interest from the marketplace, indicating a healthy appetite still exists for the incremental yield offered by U.S. securitized products,” according to Interactive Data report.