Tricon American Homes is prepping its second securitization of single family rental homes, according to rating agency reports.
Like the sponsor's first securitization, completed in April 2015, the $382.5 million Tricon American Homes 2016-SFR1 has exposure to an unusual type of collateral: Section 8 homes, which are federally assisted housing designed for low-income renters. No long-term history with respect to tenant management and cost containment has yet been established among these Section 8 tenants.
However, these account for a smaller percentage of the pool, 6.4%, compared with 14% for the previous deal.
The deal also has a higher concentration of tenants on month-to-month leases relative to other single-family rental transactions: 306 properties, or 8.3% of the properties by broker price opinion (BPO). The issuer extracts a rent premium of $100 for month-to-month properties, according to Morningstar.
“A high proportion of month-to-month leases could cause unpredictability in rental cash flow.” It notes, however, that retention rates of month-to-month tenants in Tricon’s initial securitization, TAH 2015-SFR1, have been consistently above 90%.
The 3,444 single-family rental properties are distributed across nine states and 25 metropolitan statistical areas. As measured by broker price opinion [BRO] value, 60% of the portfolio is concentrated in three states: Texas (35%), California (13%), and Florida (11.9%), according to Morningstar.
The average cost basis per property post renovation is $132,803 and the average BPO value is $146,529. The average age of the properties is roughly 31 years old. The majority of the properties have three or more bedrooms
The properties are managed by various subsidiaries of TAH; Midland Loan Services is the servicer and master servicer.
The cumulative BPO on the properties is approximately $504,644,642.
As of Sept. 16, 2016, cutoff date, 5.2% of the properties by BPO value were vacant.
Among the strengths of the deal, according to Morningstar, is the fact that actual gross rents are close to market rents. The gross rental yield of 10% is also higher than for other single family rental transactions.
The latest transaction will issue six tranches of notes, four of which have preliminary credit ratings from Moody’s Investors Service and Morningstar Credit Ratings: $162.7 million of class A notes are rated triple-A; $40.4 million of class B notes are rated Aa2/AA; $32.8 million of class C note are rated A2/A; and $21.4 million of class D notes are rated Baa2/BBB+.
There are also two tranches with preliminary ratings from Morningstar alone: $52.9 million of class E notes are rated BBB- and another $52.9 million are rated BB-.
There is also an unrated tranche of notes.
Deutsche Bank Securities and BofA Merrill Lynch are the lead underwriters.
Tricon American Homes is majority-owned by Toronto asset manager Tricon Capital Group.
