Single-family rental issuer Progress Residential raises $675.3 million

Progress Residential 2024-SFR4 Trust (PROG 2024-SFR4) is issuing pass-through certificates representing the beneficial interests in a trust holding a five-year, fixed-rate, interest-only mortgage with a $675.3 million original principal balance. The transaction is expected to close on July 9, 2024.

The mortgage was originated by Barclays Bank and is secured by the borrower's fee simple interest in 2,070 single-family rental properties in 15 metropolitan statistical areas across 10 states. 

Fitch Ratings says the three largest state exposures represent 57% of the portfolio by broker price opinion value: Florida (26.2%), Arizona (18.1%) and North Carolina (12.7%). The top three MSAs represent 41.9% of the portfolio BPO value: Phoenix-Mesa-Scottsdale, AZ (18.1%); Las Vegas-Henderson-Paradise, NV (12.1%); and Orlando-Kissimmee-Sanford, FL (11.7%). The portfolio has a weighted-average geographic region count of 9.90.

The loan's sponsor is P2 Master Trust A and the equity owner is Progress Residential Equity Owner 14. Midland Loan Services is the servicer and special servicer.

Progress Residential is managed by Pretium REO, a subsidiary of Pretium Partners, which was founded in 2012 to manage Progress Residential and affiliated investment vehicles established to invest in SFR real estate. As of April 30, 2024, Progress Residential and its affiliates and entities under common management owned or managed over 97,000 SFR properties.

Fitch says the sponsor acquired the SFR homes portfolio between April 2017 and March 2024, with 99% of the portfolio acquired between 2019 and 2020. The total issuer cost basis and aggregate BPO value are $497.6 million and $724.2 million, respectively. 

According to Morningstar DBRS, the BPO range for PROG 2024-SFR4 is $189,000-$635,000 and the average BPO value is $349,855.

The weighted average sustainable market value decline for the portfolio based on Fitch's Sustainable Home Price model is 13.3%, resulting in Fitch's valuation of $627.9 million. 

The $675.3 million trust loan equates to debt of around $326,246 per home. Fitch is rating proceeds of investment-grade only classes A (AAA) through D (BBB-), resulting in a Fitch loan-to-value ratio, debt service coverage ratio and debt yield of 77.73%, 0.88x, and 5.27%, respectively.

Morningstar DBRS says the transaction includes a payment-in-kind feature for the Class E1, Class E2, Class F1, and Class F2 certificates. During low debt service coverage ratio periods, if there are insufficient collections to pay monthly debt service, unpaid amounts will be added to the outstanding principal balance. 

Fitch expects to rate the Class A notes as AAA, Class B as AA-, Class C as A-, and Class D as BBB-. Morningstar DBRS has assigned a provisional rating of AAA to the Class A notes, AA to Class B, A to Class C, BBB to Class D, Class E1 and Class E2, and BB to Class F1 and Class F2.