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Invitation Homes' next SFR ABS has least leverage to date

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Invitation Homes is taking advantage of housing price appreciation to refinance two more single family rental securitizations.

Its latest transaction, Invitation Homes 2018-SFR4, recycles from Colony American Homes 2015-SFR1 (2,748 properties, representing 53.9% of the new deal’s collateral, by broker price opinion), and Colony Starwood Homes 2016-SFR1 (2,645 properties, 46.1%), according to rating agency presale reports. Both of the earlier transactions will be repaid in full using proceeds from the new transaction.

Invitation Homes 2018-SFR4 will be backed by a single, $963 million, floating-rate mortgage from Deutsche Bank that is secured by the pledge of mortgages on the individual properties. This loan pays only interest, and no principal, for its entire extended term of seven years.

The amount of debt on the rollover homes has increased from $867.8 million to $960.3 million. Despite this, the loan-to-value ratio of the properties has decreased since the prior securitizations, to 65% from 77.6% for CAH 2015-1 and 68.4% for CSH 2016-1, primarily due to price appreciation of the underlying collateral, according to Kroll Bond Rating Agency.

Similarly, the LTV based on Kroll’s adjusted broker price opinion value for these properties is lower at 73.1%, which decreased from 86.8% and 76.4% for CAH 2015-1 and CSH 2016-1, respectively.

That’s the lowest leverage among the comparative set rated by Kroll, which ranged from 66.5% to 83.4% and averaged 74%.

Moodys Investors Service's presale report focuses on another measure of leverage, the debt service coverage ratio, which it reckons to be "low compared to other floating rate, non-amortizing securitizations," at 1.40X. The DSCR in this transaction is primarily driven by rising interest rates, the weighted average spread on the offered certificates and increase in capital expenditure reserves, per Moody's.

The rating agency noted that it "slightly increased" the expected capital expenditure to account for higher expenses associated with maintenance and repairs due to the aging and deterioration of properties. It also slightly increased repairs and maintenance costs to account for the risks associated with Section 8 tenants.

Like a number of other recent single family rental securitizations, the transaction allows for discretionary substitutions of up to 5% of the number of properties as of the closing date, as long as certain restrictions are met. Each substitute property must be an occupied, detached single-family residential property (excluding co-ops and manufactured housing) with a broker price opinion value of at least $75,000, among other restrictions.

Kroll, Moody's and Morningstar Credit Ratings all expect to assign triple-A ratings to the senior tranche of notes to be issued in the transaction.

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