[1]While the single-borrower single-family rental (SFR) securitizations in Kroll Bond Ratings Agency’s rated universe has seasoned only 10 months on the average, the properties that have securitized are appreciating in value, according to KBRA [2]’s Single-Borrower SFR Comprehensive Monitoring Report [3].
It has been slightly more than two years since the first single-borrower SFR transaction was completed, when Invitation Homes brought a $479.1 million deal to the market backed by rental payments on approximately 3,200 single-family homes in five states in October 2013 (IH 2013-SFR1). The single-borrower SFR securitization market recently passed $13 billion [4] in issuance with its 25th transaction.
The 23 transactions in KBRA’s rated universe were issued by eight sponsors that own 157,000 properties; approximately 91,000 of those properties have been securitized and have appreciated by an average of 8.7 percent since the respective transactions’ issuance dates, according to KBRA. The most seasoned transactions experienced the most appreciation; the transaction with the highest level of appreciation was the very first one that was issued, IH 2013-SFR1, with 15.7 percent.
Meanwhile, the level of appreciation decreased the later the vintage of the transaction. Collateral included in the transactions that were issued in 2014 has appreciated by an average of 9.8 percent, and that rate slows to 6.1 percent for collateral in transactions issued in 2015, according to KBRA.
The Net Cash Flow (NCF) reported by servicers is 4.1 percent on average above the issuer’s underwritten cash flow at the time of securitization, KRBA said. For the seven transactions issued by Invitation Homes and one each issued by Starwood Waypoint Residential (SWAY) and Silver Bay, the NCF was higher than the sponsor’s underwritten figure at securitization; for 13 of the remaining 14 rated transactions, NCF was lower than the sponsor’s underwritten figure at securitization, KBRA reported.
“The lower NCF can be attributed to multiple factors including vacancy, which generally trended to more normalized levels; higher than expected expenses; and certain assumptions in a sponsor’s property cash flow analysis that were overly optimistic,” KRBA said. “However, in all cases the net cash flows are well in excess of KBRA’s figures at securitization.”
The contractual rent rates, or the rent per property, have increased by 3.4 percent on average across all transactions; the rental rates for transactions with vintages of 2013, 2014, and 2015 increased by 6.1, 4.0, and 2.2 percent, respectively. The transactions issued during those three years rose annually by 3.2, 3.4, and 4.8 percent, respectively; KBRA notes that the rental rate has not declined in any of the transactions since their issuance dates.
Tenant retention rates remained low with an average of 76.6 percent across all transactions, while the current vacancy rate of 5.5 percent was reported to have increased for most transactions since issuance.
“The low retention rate can generally be attributed to the lack of seasoning and decrease in occupancy from 100.0 percent at issuance to more normalized rate of 95.0 percent as of September 2015,” KBRA said. “(The increase in vacancy rate) was to be expected, as the collateral for many of the securitizations was 100.0 percent occupied at issuance.”