Moody’s Investors Service has issued its provisional ratings for the $1 billion single-family rental securitization from Invitation Homes. Moody’s becomes the third ratings agency to issue $483.3 million in AAA ratings to the largest tranche of the deal.
Previously, Morningstar and Kroll Bond Ratings issued AAA ratings for the same segment of the deal. The summary of Morningstar's ratings can be seen here. The summary of Krool's ratings can be seen here.
The offering, referred to as Invitation Homes 2014-SFR1, is backed by one floating rate loan secured by mortgages on 6,537 single-family rental properties.
Moody’s also issued AA2 ratings to $123.5 million of Class B certificates, A2 ratings for $109.8 million of Class C certificates, and BAA2 ratings for $85.1 million of Class D certificates.
The loan backing the securitization will be a non-recourse, first lien, floating rate mortgage loan originated by German American Capital Corporation on the securitization closing date and funded with proceeds of the sale of the certificates.
“Moody's evaluated the portfolio cash flow of Invitation Homes 2014-SFR1 to assess the probability of default during the term of the loan,” the report states. “However, the current limited availability of historical information surrounding vacancy rates, expenses and cash flow associated with single-family rental properties through a stressed environment prevented us from relying significantly on the transaction's cash flow to meet its long term obligations.”
Moody’s concern related to equity foreclosure “was mitigated for this transaction because both mortgages and pledges of the borrower's equity secure the loan that backs the transaction,” the report says. “Moody's was therefore able to assign high investment grade ratings to the senior certificates.”
The property manager for the homes is THR Property Management. “Moody's assessment of THR Property Management, the property manager, is that it has a strong ability to effectively handle the day-to-day business of managing a national single-family rental platform,” the report also states. “THR has a disciplined approach to acquisition and initial renovations. In addition, it has superior technology systems that allow it to efficiently manage employees to control labor costs, track and monitor repairs and maintenance, and, most importantly, to attract, respond to, and retain tenants.”
The floating rate loan will require interest-only payments and have a two-year term with three 12-month extension options. The underlying properties are one to four unit residential properties located in ten states, with the top three representing 70% of the portfolio: Florida (32.0%), California (26.8%), and Arizona (10.8%).
The top three MSAs represent 30%, and include Phoenix, Ariz. (10.8%), Sacramento, Calif. (10.0%) and Atlanta, Ga. (9.2%).
The portfolio is comprised primarily of homes with three or more bedrooms, two or more bathrooms and an average estimated square footage of approximately 1,788 square feet.
The master servicer is Midland Loan Services, a division of PNC Bank, National Association. The special servicer is Situs Holdings, LLC.
Moody’s noted that there were several factors that could lead to an upgrade or downgrade of its rating: A higher-than-assumed decline in home prices, rental vacancy rates, and expenses could have an adverse impact on the ratings. “In addition, the ratings could also be negatively impacted if the ability of the property manager to effectively manage the day-to-day operations of the business is compromised.”
