Progress Residential is refinancing another securitization of single-family rental properties.
On Tuesday it launched a new transaction, Progress Residential 2016-SFR2, that will be collateralized by a single $623.5 million floating-rate loan secured by mortgages on 3,787 income-producing single-family homes of which 2,790 homes (74.3% by BPO) were previously securitized in the Progress 2015-SFR1 transaction. The “rollover” homes, represented 69.8% of that deal’s total asset count.
The new transaction will issue eight classes of certificates will be issued, six of which are entitled to monthly distributions of interest and principal, one principal-only class, and the remaining class is a residual interest. Kroll Bond Rating Agency, Moody's Investors Service and Morningstar Credit Ratings all expects to assign triple-A ratings to the senior class of notes to be issued by the trust,
Deutsche Bank Securities, BofA Merrill Lynch, and Morgan Stanley are the lead managers.
The floating-rate loan pays only interest, and no principal, for its entire two-year term. It can be extended by 12 months up to three times, for a total of five years. Having an option to extent the term helps offset the risk that the properties will decrease in value before the end of the loan's initial term, making it difficult to refinance.
Among the ratings considerations cited by all three rating agencies is the geographic concentration of the properties in the trust, which are located in nine states. The largest concentration by, by broker price opinion, is in Florida (30.3%). The largest metropolitan statistical area is Atlanta (16.2%), followed by Tampa, Florida (11.1%).
As of Sept. 30, 5.6% of the properties, by valuations, were vacant.
Similar to Progress 2016-SFR1, which was the first single-family rental transaction to repay in full, the net proceeds from the underlying subject loan will be used to retire the Progress 2015-SFR1 securitization. This will be the third deal to pay off in full; the other was American Residential Properties 2014-SFR1.
The homes being rolled over from the 2015 transaction have appreciated by a total of $61.5 million, 11.7%, according to KBRA. Yet the new transaction is more highly leveraged, with a loan-to-value ratio of 78.9%, compared wtih 73.7% for the deal repaid. This suggests that Progress is cashing out some of the equity it built up over the past year.