Progress Residential is back this year with a third securitization of single-family rental (SFR) homes, according to KrollBond Rating Agency.
The transaction, called Progress Residential 2015-SFR3, is backed by a $449.7 million five-year, fixed-rate loan that is secured by mortgages on 3,164 single-family homes.
The sponsor's previous deal, Progress 2015-SFR2 was the first to securitize a fixed-rate, five-year loan. Its first two transactions securitize floating rate loans, with an extended term of five-years.
With the current transaction, the sponsor will have four securitizations outstanding with an aggregate balance of $1.9 billion, all of which have a five-year terms and will come due between September 2019 and November 2020. "The concentrated debt maturity profile may result in increased financial stress on the company," Kroll stated in its presale report.
Kroll assigned a preliminary 'AAA' rating to $231.4 million of class A notes; 'AA' to $40 million of class B notes; 'A-' to $29.6 million of class C notes; 'BBB+' to $34.1 million of class D notes; 'BBB-' to $50.4 million of class E notes; and 'BB' to $41.5 million of class F notes. The trust also offers $22.4 million of class G notes that are unrated. All of the notes are due in November 2032.
The loan backing Progress 2015-SFR3 pays only interest for its entire term, similar to the collateral for previous deals issued by the sponsor.
The homes ultimately securing the loan are located in or near 18 Core Based Statistical Areas (CBSAs) across nine states. The three largest state exposures represent 62.0% of the portfolio and consist of Florida (30.2%), Texas (18.7%), and North Carolina (13.1%). The top three CBSAs represent 27.5% of the pool, and include Houston (10.4%), Tampa (8.6%), and Charlotte (8.5%).
The portfolio has a loan-to-value ratio of 75.8%, the highest LTV among the five prior fixed-rate single-borrower SFR securitizations, which ranged from 66.3% to 72.5%, with an average of 68.8%. LTV based on Kroll's calculation is 83.1%, which is also the highest among the previously issued fixed rate single-borrower SFR transactions. The LTVs for the transactions issued during the past 12 months averaged 82.1%, 69.7% to 88.9%. Kroll noted that leverage in the deal is also higher than the average of all 12 fixed- and floating rate-transactions completed during the past year. The LTVs for those deals ranged from 66.3% to 78.9%, and averaged 74.1%.
"Higher leverage generally implies less borrower equity, greater likelihood of default, and higher overall loss severity should an event of default occur, " said Kroll.
The pool of properties backing Progress 2015-SFR3 is also includes vacant homes. As of the property cut-off date, 4.0% of the properties were unoccupied; seven of the 12 SFR transactions issued during the past year included vacant homes at securitization. The vacancy rates for those transactions ranged from 2.1% to 5.6%.
Higher vacancy rates can result in lower total cash flow relative to portfolios with higher occupancies; however Kroll's analysis assumes that all SFR pools will operate with up to a 10.0% normalized vacancy rate.
Progress is a private equity investment firm dedicated to the acquisition, leasing, and management of single-family residential properties throughout the U.S.
The company was launched in September 2012 and is managed by a subsidiary of Pretium Partners, LLC, which was founded by Donald Mullen, Jr. and Curt Schadein 2012. As of June 30, 2015, Progress had invested in excess of $2.5 billion in its portfolio of approximately 14,500 homes.
The single-family homes are located in 26 markets across 11 states, with the top three markets consisting of Atlanta, Phoenix, and Tampa. The company is in the process of internalizing its property management functions, and as of August 31, 2015, approximately 41.7% of the company’s total portfolio is externally managed.