Home Partners of America is securitizing a portfolio of single family rental (SFR) homes with a unique feature: the tenants lease-to-own.
The transaction – called Home Partners of America 2016-1 – will sell $483 million of bonds that are backed by a five-year loan secured on a portfolio of 2,232 homes. It's HPA's first ever securitization of SFRs.
Citigroup, Deutsche Bank and Morgan Stanley are the lead managers on the deal.
Moody’s Investor Service and Morningstar assigned triple-A ratings to the class A notes, double-A ratings to the class B notes; single-A ratings to the class C notes and triple-B ratings to the class D notes.
Most of the homes (91.8%) are leased by tenants that can purchase the property in the future at an agreed price.
HPA's right to purchase program gives households that are not ready to purchase a home the ability to move into a home of their choice with a path to own the home. HPA purchases a home chosen by the consumer and leases it back to the tenant. The right to purchase price is based on the annual compounded increases over HPA's total cost basis in the home. There is also a maximum $2500 maintenance adjustment added to the right to purchase cost.
HPA explains its calculation on its website as follows: if the home is purchased for $190,000 plus $1500 in closing costs and $8500 in updating expenses such as replacing carpets or painting rooms; the total cost basis for HPA is $200,000. The right to purchase price is based on a nominal percentage above the total cost basis.
HPA tenants can lease the properties for up to five years and can purchase the home anytime within that period. In most cases a household’s financial commitment is limited to one year of rent.
For HPAs securitization the benefits of lease-to own propetries are two-fold, according to the deal presale reports. Properties are likely to be better maintained relative to straight out rental properties securitized in other SFR transaction, since tenants may one day own the home.
The other upside to HPAs rent-to own is that once the property is purchased it is released from the securitization pool at a premium, which leads to faster deleveraging of the transaction.
HPA created its rent-to-own platform in 2012 originally doing business solely in markets in Illinois, Colorado and Texas under the Hyperion Homes name. As of December 31, 2015, HPA owned 3,349 residential properties in over 40 MSAs with an aggregate investment of above $1 billion.
HOA 2016-1's collateral pool is comprised of properties located in 17 states, with the largest concentration by broker price opinion value in Texas (19.2%). The largest metropolitan statistical area is Chicago (16.6%), followed by Atlanta (10.9%).
The average cost basis per property post renovation is $285,538 and the average current BPO value is $293,245. The average age of the properties is roughly 24 years old. The majority of the properties have three or more bedrooms
HPA owns 1,855 properties in the transaction pool and 377 mortgage loans on single-family properties in Texas are indirectly owned by the sponsor through its ownership of HPA Texas Sub 2016-1 LLC. Although HPA owns the mortgage loans secured by the properties owned by the Texas subsidiary, it had to divide the ownership in order to comply with the Texas state law that requires “Texas mortgage loans are individual mortgages that are not cross-defaulted with each other or with the loan,” according Moody’s.
Pathlight Property Management, which is a joint venture between HPA and a ONEprop owned entity, is the property manager. ONEprop was founded in 1987 and manages over 6,000 SFRs. Pathlight Property Management will manage properties solely for Home Partners of America and does not rely on third-party property managers.