Progress Prices Single Family Rental Bond at Discount

Progress Residential priced its second securitization of single-family rental properties.

Sized at $284 million, the triple-A rated securities priced at a spread of 150 basis points over one month Libor, which was wider than the coupon of 140 basis points over, according to a person familiar with the deal.

By comparison the issuer sold the triple-A rated senior notes from its debut issue on Sept. 18, 2014 at a spread of 110 basis points over one month Libor. Both deals structured the class A notes with credit enhancement at 49.1%.

The deal priced more in line with Blackstone’s Invitation Homes $514 million deal, IH 2015-SFR1, which had five-year class-A senior notes that priced at 145 basis points over one month Libor last week, according to Bloomberg.

Progress Residential 2015-SFR1 is backed by a $563 million, two-year loan secured by 4,028 single-family rental homes. The loan has three 12-month extension options for a total possible term of five years. It will pay only interest throughout its entire life.

Progress has grown its portfolio of rental homes since its debut securitization in September 2014. The private equity company founded by former Goldman Sachs partner Donald Mullen, Jr. and former Bear Stearns colleague, Curt Schade, had invested in excess of $2.0 billion in its portfolio of approximately 11,800 homes, as of November 30, 2014, according to a presale report published by Kroll Bond Ratings. The portfolio is comprised exclusively of single-family homes located in 27 markets across 12 states, with the top three markets are Atlanta, Phoenix, and Las Vegas.

Kroll, Moody’s Investors Service and Morningstar assigned preliminary ratings to six classes of notes issued via the latest deal. German American Capital Corporation, a subsidiary of Deutsche Bank, financed the underlying loan.

All of the homes underlying the transaction are occupied and none of the tenants are late on rent. By comparison, six of the prior 14 single family rental transactions included homes that were vacant as of their respective cut-off dates.  

The weighted average (WA) original lease term for the properties is 13.6 months, which is near the average of 14.8 months for previous deals. The properties produce a weighted average rent of $1,414 per month, which is the third lowest compared to previous deals. By comparison, all of the prior transactions had WA rents ranging from $1,187 to $1,808 with an average of $1,521. Over half of the homes (58.4%) of the homes included in the Progress portfolio are located in Florida, Georgia and Arizona.