The Blackstone Group’s Invitation Homes priced its third single family rental securitization of the year at significantly wider levels than its previous deal, according to a pricing document.
Spreads on 2014-SFR3 were widen across the credit curve. Pricing on the Aaa’/ AAA’/ AAA’/ rated notes widened by 20 basis points from the issuer’s previous transaction, IH2014-SFR2, to 130 basis points over one-month Libor. Moody’s Investors Service, Kroll Bond Ratings and Morningstar rated the senior notes.
Further down the capital stack, the widening was more pronounced with the BBB-’/ BBB-’ notes and the BB-’ notes pricing at 400 basis points over Libor and 450 basis points over Libor, respectively; that's 100 basis points wider that the previous deal.
The securitization trust is structured similarly to other single-family rental deals that have come to market in the last two years. It is backed by a single, $775.1 million loan secured by mortgages on 4,048 single-family residences with a total value, based on broker price opinions, of $981,000, according to a presale report published by KBRA.
The interest rate on the loan is one-month Libor plus 247 basis points; it pays only interest for its two-year term and can be extended by 12 months up to three times, for a total possible term of five years. By comparison, four out of the 10 prior transactions provide for monthly amortization. Kroll’s report notes that, all else equal, interest only loans are riskier than amortizing loans; should the loan default later in its term, it will experience a higher loss because it has a higher principal balance.
The homes backing the latest deal have leases with an average term of 16.7 months. They are concentrated in California (37.1%), Florida (32.1%) and Arizona (8.8%); this is typical of the asset class, as sponsors focusing on investment opportunities in regions with distressed home prices and landlord-friendly laws.
The loan-to-value ratio, based on KBRA’s “stressed” broker price opinions, is 86.2%, which the rating agency said is the higher than all of the previous SFR securitizations. The KBRA stressed BPO LTVs for the prior transactions ranged from 72.1% to 85.4%, with an average of 78.8%. KBRA’s stressed BPO LTVs for the previous three Invitation Homes transactions ranged from 81.9% to 85.4%, with an average of 83.7%.
The underlying homes in IH 2014-SFR3 have an average age of 28 years, similar to six of the 10 previous transactions. The average home size of 1,905 square feet is in the middle of the range of 1,698 to 2,045 square feet for the previous deals.