Progress Residential, a single-family rental company founded by former Goldman Sachs partner Donald Mullen, Jr., priced its inaugural securitization today, according to a person familiar with the deal.
Deutsche Bank, which provided Progress Residential with a $400 million line of credit last year, is the lead manager of the securitization. The company has acquired over 8000 homes in 20 markets across the U.S.
Morningstar and Kroll Bond Ratings assigned ratings across the capital structure. Moody’s Investors Service is also rating the deal, with the exception of the class E and F notes.
The Aaa’/ AAA’/ AAA’ rated class A note priced at a spread of 110 basis points over one month Libor. The class A notes has credit enhancement at 49.1%.
The Aa2’/ AA’/’AA+/, class B notes priced at a spread of 190 basis points. The notes have credit enhancement at 39.6%;
The A2’/ A-’/ A+’, class C notes priced at 225 basis points and have credit enhancement at at 31.5%
The Baa2’/ BBB+’/ BBB+’ class D notes priced at a spread of 275 basis points. The class D notes have credit enhancement at 24.7%
The class E notes, rated BBB-’/ BBB’ priced at a spread of 415 basis points and the F notes, rated, BB’/ BB+’ priced at a discount margin of 485 basis points over one month Libor. The class E and F notes have credit enhancement at 13.1% and 5% respectively.
Progress Residential’s single-family rental bond is backed by a single loan that pays interest only for an initial two-year period, after which it can be renewed for three 12-month periods, for a total of five years.
The loan is secured by the rental payments on a pool of 3,142 single-family homes. This is the same structure used in the nine deals to hit the market to date, starting with the Blackstone Group’s Invitation Homes in November 2013.
By comparison, American Residential, which priced its debut deal ARP1-2014-SFR1 in August, priced the similarly rated class A notes at 110 basis points over the one-month Libor. Moody’s, KBRA and Morningstar rated the notes Aaa’/ AAA’/ AAA’.
The rest of the capital structure was priced wider than the latest deal. For example the Aa2’/ AA’ /“AA+’ rated class B notes priced 15 basis points wider, at 205 basis points over one-month Libor.
The A2’/ A-’/ A+’ rated class C notes priced 25 basis points outside of Progress Residential at 250 basis points over one month Libor. Further down the curve, the class D notes rated Baa2’ / BBB+’/ BBB+’ priced 25 basis points wider at 300 basis points over one month Libor and the BBB-’/ BBB-’, class E notes priced 10 basis points wider at 425 basis points.
The class F notes, which were rated BBB-’ only by Morningstar, priced at 475 basis points, ten basis point wider that the today’s deal.
Progress Residential’s securitization pool includes properties that are distributed across 10 states and 27 metropolitan statistical areas, or MSAs, in the United States; however 61.0% of the portfolio is located in three states, Arizona (26.9%), Texas (21.4%), and Georgia (13.7%). These state have suffered some of the more dramatic house price declines in the recent housing downturn, according to Morningstar.
The average age of the properties is approximately 14 years and 99.8% of the properties have three or more bedrooms. The average cost basis per property post- rehabilitation is $180,957 and the average current broker price opinion (BPO) value is $204,483.
ARP1-2014-SFR1 has a less geographic diverse pool, with properties that are distributed across eight states and 24 Metropolitan Statistical Areas in the U.S. But, like the latest deal, most or 80.4% of the portfolio is located in three states, Texas (36.9%), Arizona (29.1%), and North Carolina (14.4%).
At 12 years, the properties in American Residential's pool are younger but are valued less; the average current broker price opinion value comes in at $170,007, lower that the older properties included in the Progress Residential pool.
Another major difference is that the Progress Residential bond was sold with zero vacancies; ARP1-2014-SFR1 on the other hand, had 116 vacant properties (approximately 4.0% by BPO value) and 104 properties were month-to-month lease (3.4% by BPO value) at the time the bond priced.
