NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to six classes of Invitation Homes 2018-SFR3 (IH 2018-SFR3) single-family rental pass-through certificates.
IH 2018-SFR3 is a single-borrower, single-family rental (SFR) securitization that will be collateralized by a $1.1 billion loan secured by first priority mortgages on 5,531 income-producing single-family homes. The entire subject portfolio consists of rollover properties that were previously securitized in three prior securitizations. Of these properties, 4,385 homes (74.2% by BPO) were previously securitized in IH 2015-SFR3, 664 homes (13.4%) were included in IH 2013-SFR1, and 482 homes (12.4%) were in the IH 2014-SFR2 portfolio. IH 2015-SFR3 is expected to pay-off in full in conjunction with the closing of the subject transaction. The IH 2013-SFR1 securitization was fully repaid in February 2017, which was followed by the full repayment of IH 2014-SFR2 in November 2017.
The floating-rate loan will require interest-only payments and have a fully extended loan term of seven years (two-year initial term with five, 12-month extension options). IH 2018-SFR3 will be the third single-borrower SFR securitization issued by Invitation Homes following the merger with Starwood Waypoint Homes. Including the current deal, Invitation Homes and its predecessor entities will have issued a total of 18 SFR securitizations.
The subject transaction is the eighth KBRA-rated SFR securitization to include a voluntary substitution feature that permits the issuer to replace any property or sub-portfolio of properties with a substitute property or portfolio of properties up to a maximum of 5.0% of the homes in the underlying portfolio, by count, as of the closing date. IH is allowed to replace up to 276 properties over the remaining duration of the deal with occupied detached single-family homes. As the substitution threshold is by count, it is conceivable that up to 11.1% of the pool, by BPO value, could be substituted if the assets that were removed from the pool were comprised of those with the highest BPO values.
The underlying single-family rental properties are located in or near 33 Core Based Statistical Areas (CBSAs) across eight states. The top-three CBSAs represent 37.4% of the portfolio and include Atlanta (13.4%), Los Angeles (12.3%), and Miami (11.8%). The aggregate BPO value of the underlying homes was $1.5 billion, yielding an LTV of 70.0%. KBRA adjusted the BPOs, which yielded an aggregate value of $1.4 billion. This represents a 10.7% haircut to the nominal BPO value. The resulting LTV based on KBRA’s adjusted BPO value was 78.4%.
KBRA used its Single-Family Rental Securitization Methodology to evaluate the transaction. The methodology leverages elements of KBRA’s commercial mortgage-backed securities and residential mortgage-backed securities criteria due to the fact that the collateral underlying an SFR transaction has both commercial and residential characteristics. As the properties generate a cash flow stream from tenant rental payments, CMBS methodologies were used to determine the loan’s probability of default. To determine loss given default, KBRA assumed the underlying collateral properties would be liquidated in the residential property market.
The preliminary ratings are based on information known to KBRA at the time of this publication. Information received subsequent to this release could result in the assignment of final ratings that differ from the preliminary ratings.
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Representations & Warranties Disclosure
All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction’s representations, warranties and enforcement mechanisms that are available to investors when issuing credit ratings. KBRA’s disclosure for this transaction can be found in the report available here.
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