Tricon Capital Group pays 125 basis points over one month Libor on the triple-A, two-year notes issued under its inaugural single family rental securitization, Tricon American Homes 2015-SFR1, according to a pricing document.
That’s 10 basis points tighter than what Blackstone’s Invitation Homes pays on the triple-A, two-year notes issued from its IH 2015-SFR2. Morningstar, Moody's Investor's Service and Kroll Bond Ratings assigned ratings to the senior notes.
The issuer sold the most junior, double-B rated tranche at 350 basis points over one-month Libor. That's 20 basis points less than the 370 basis points that Invitation Homes pays on a similar rated tranche from its early April transaction. Morningstar was the only rating agency to rate Tricon's junior notes.
Tricon is the latest entrant in the single-family rental securitization market, and its inaugural deal offers investors greater exposure to two unusual types of collateral: Section 8 homes and condominiums.
Section 8 homes, which are federally assisted housing designed for low-income renters, account for 14% of the transaction pool, according to Morningstar. No long-term history with respect to tenant management and cost containment has yet been established among these Section 8 tenants.
Condos and two-to-four family properties account for 7.5% of the pool; the highest proportion of multi-family properties in any single-borrower, single-family transaction to date, according to Morningstar.
The pool also includes 366 properties, or 13.7%, that are leased on a month-to-month basis.
The issuer extracts a rent premium for month-to-month properties. According to Morningstar, the gross rental yield for the pool is 9.5%, higher than some of the previous single-family rental transactions.
Although investors can bank on higher rental yields, they should also expect higher vacancies. The vacancy rate at cut-off was 5.0% and Morningstar applies a 14% vacancy assumption to the pool, higher than any other single-family rental securitization.
