Invitation Homes' second securitization of single-family rentals is backed by properties with riskier tenancy, and it had to compensate investors accordingly.
The senior, triple-A rated $483 million of five-year tranche of Invitation Homes 2014-SFR1 priced at 100 basis points over one month Libor. That was in line with the senior, five-year tranche of a deal that American Homes 4 Rent, completed this month. It also compares favorably with the Libor plus 115 basis points that Invitation Homes paid on the senior, 4.9-year tranche of its inaugural deal in November of 2013.
Further down the capital stack, however pricing on the notes widened by up to 50 basis points when compared to the American Homes 4 Rent transaction.
Invitation Homes 2014-SFR1’s five-year, double-A rated notes priced 15 basis points wider, at 150 basis points over one-month Libor; and the five-year single-A notes priced 35 basis points wider, at 210 basis points over one month Libor.
At the triple-B level the deal priced the class D notes (rated triple-B plus) widened by 50 basis points and priced at 260 basis points over one month Libor.
The class E notes (rated triple-B minus) priced at 325 basis points over one-month Libor and the double-B rated, class F notes priced at 375 basis points. Both tranches priced at the same level as the American Homes 4 Rent deal.
The transaction is collateralized by a single loan secured by mortgages on 6,537 income-producing single-family homes. This floating-rate loan will require interest only payments and have a two-year term with three 12-month extension options.
There are also two distinct differences related to tenancy of this deal compared with prior rental securitizations. Homes backing the previous deals were all occupied when those deals closed, while 5.1% of the properties in this portfolio are currently vacant. Also, the credit quality of the tenants in this deal was not as carefully screened as the tenants of homes backing the three previous deals.
The houses backing the latest deal an average age of 26 years. While this is less than the average age of Invitation Homes’ previous deal, (30 years) and Colony American Homes’ deal (28 years), it is more than twice the average home age in the American Homes 4 Rent transaction (12 years). The average home size of 1,788 square feet is also comparable to Invitation Homes previous deal and Colony American Homes’ deal, it is smaller than American Homes 4 Rent’s deal (2,026 square feet).
Older and smaller homes appeal to a narrower group of potential tenants and so could be more difficult to rent should they become vacant.