Home Partners of America is tapping the securitization market to finance a multi-property loan secured by a unique portfolio of lease-to-own single-family rentals.
The $292.4 million Home Partners of America 2019-1 transaction pools 1,168 single-family home and townhome/condo properties, according to presale reports from Morningstar Credit Ratings and Moody’s Investors Service.
The transaction is backed by an eight-year, non-amortizing loan underwritten by Morgan Stanley for Home Partners’ acquisition of the properties that it offers under lease arrangements to borrowers with a right-to-purchase arrangement effective at a future date.
Mosty of the houses (98.2%) are leased under those terms. The homes are spread across 49 metropolitan statistical areas in 20 states. The top five MSA market concentrations are Atlanta (14.18%), Dallas (8.49%), Minneapolis (8%), Denver (7.12%) and Tampa, Fla. (5.82%).
This is the fifth overall securitization by Home Partners since it was founded in 2012.
The eight-year mortgage itself in non-amortizing.
The transaction includes seven classes of notes in the capital stack. A $142.5 million Class A tranche has preliminary triple-A ratings from Moody’s and Morningstar.
The homes in the portfolio range from older rehabbed homes built as early as 1923 to new-construction homes, all with an average broker-price opinion valuation of $315,530. The range of monthly rents if $1,300 to $3,610 on lease terms averaging 12.3 years.
Moody’s has an estimated loan-to-value ratio of 91.71% for the pool of homes, and a debt-service coverage ratio of 1.66x. The annual debt yield is expected to be 5.07%, according to a Moody’s presale report.
The issuer said the notes in the transaction will be paid from estimated annual net cash flow income of $18.9 million, which is effectively reduced when more than $30 million in gross revenue when factoring in expenses for maintenance, insurance, HOA payments, leasing/marketing costs as well vacancy and collection losses on the properties.
The ratings agencies see much smaller cash flows coming from the portfolio, however. Moody’s, while largely agreeing with the underwritten annual income estimate of more than $31 million, has a much lower estimated cash flow of $14.8 million, a 21.7% haircut, based on its own higher assessment of expenses and losses.
Morningstar had a much sharper cut (46.2%) on NCF to $10.2 million, mostly based on a far lower gross income expectations of $27.5 million (compared to Home Partners’ $32.2 million).
