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Vacancy rates higher than expected in first REO to rental deal

By Adam Tempkin and Charles Williams

NEW YORK, Feb 19 (IFR) - The stabilized vacancy rates for the single-family home rental properties backing the first-ever REO-to-rental securitization from Blackstone's Invitation Homes unit were higher than that predicted by the issuer.

In a deal "performance update", Morningstar Credit Ratings said the expected stabilized vacancy rate for properties underlying the deal were 8.0% or in line with its expectations but exceeded the issuer's underwritten vacancy rate of 6.0%.

Morningstar along with Moody's and Kroll gave Triple A ratings to the ground-breaking transaction.

The vacancy numbers were still well within the "stressed" parameters of Morningstar's initial assessment, meaning the deal is performing as expected. Moreover, performance is predicted to improve this year as fewer rental leases expire.

And despite an early drop-off in collected rents, payments were made in full to bondholders in December 2013 and January 2014, the rating agency said.

The findings are based on the initial performance data from the first few months of the transaction's life.

"Given the limited historical performance data for the single-family rental asset class as a whole, Morningstar recognizes the importance of sharing detailed portfolio and property-level performance information with the market," wrote a team of ratings analysts led by Becky Cao.

"Morningstar will compare its initial underwriting assumptions with the actual portfolio performance in order to assess if the performance is consistent with its assumptions at issuance."

There has already been a reduction in rental cashflows received since collections started last October, mostly due to lease expirations on the underlying rented-out homes. In total, the percentage of vacant and delinquent properties was 8.3% as of January 2014 by property count. The gross rent collected in January was 7.6% lower than the gross rent collected as of the cut-off date last October.

"This reduction in rent is primarily due to vacant properties and is consistent with Morningstar's expected stabilized vacancy rate of 8.0%, but exceeds the issuer's underwritten vacancy rate of 6.0%," the analysts wrote.

Of the leases that expired in December, 78.5% renewed. This exceeds Morningstar's expected renewal rate of 66.7%.

"As the number of lease expirations decline throughout 2014, and the vacant properties are filled, we expect the vacancy rate to stabilize and to potentially decline," the analysts wrote.

Blackstone's Invitation Homes 2013-SFR1 transaction, for US$479m, was the most hotly anticipated deal of 2013. Though industry observers were surprised that it was rated Triple A, the deal was a success when it priced in November, attracting scores of investors desperate for access to any aspect of US residential mortgage credit after a five-year drought.

The transaction has had mixed performance since then, teetering around par but occasionally going below it.

The trade was backed by rental income from only 3,207 out of more than 40,000 foreclosed US properties that the private equity firm snapped up over the past two years.

Competitors such as American Homes 4 Rent and Colony Capital have similar transactions in the works, with some market players predicting the deals will surface by the end of the first quarter.



HAROT 2014-1: Honda priced its US$1.5bn prime retail trade, Honda Auto Receivables Owner Trust 2014-1. The 1.14/2.18/3.02-year Triple A notes were printed at EDSF plus 14bp, interpolated swaps plus 16bp and interpolated swaps plus 23bp, respectively. JPMorgan, BNP Paribas and Deutsche Bank were the joint leads. The transaction was also upsized from US$1bn.

TAL 2014-1: The first container lease deal of the year was priced by TAL Advantage V. The TAL portfolio consists of 187,000 containers from seven different marine cargo container types and all containers are currently out on lease. The transaction was solely rated by S&P and offered a five-year Single A and Triple B tranche. Price guidance was shown at interpolated swaps plus 200bp area and 265bp area with final spreads set at 190bp and 250bp. Bank of America (structuring lead), RBC and Wells Fargo were the joint leads. The trade was upsized to US$291.02m from US$241.7m.

GALC 2014-1: GreatAmerica Leasing priced its US$423.545m 144A GALC 2014-1 series. The 1.25/2.25/3.36-year Triple As were priced at EDSF plus 33bp, interpolated swaps plus 38bp and interpolated swaps plus 55bp. Wells Fargo (structuring lead) and Bank of America were the joint leads. It was GALC's first primary trade in over a year.


VOLT 2014-NPL1/NPL2: Credit Suisse is out with price guidance on the US$435.3m VOLT 2014-NPL1 and the US$427.3m VOLT 2014-NPL2. The 1.20-year Triple As in both series are being talked with yield ranges of 3.625%-3.75%. Both are expected to price tomorrow.


CSMC Trust 2014-SURF: Credit Suisse has priced the US$186.8m 144A/REG S CSMC 2014-SURF. The collateral consists of one two-year, floating rate commercial mortgage loan with five one-year extension options, secured by a first-priority lien mortgage on the borrowers' fee simple interest in the 198-room Shutters on the Beach hotel and the 129-room Casa del Mar hotel. The 1.99-year Triple A slice was printed at one-month Libor plus 85bp.

JPMBB 2014-C18: JPM and Barclays have priced the US$957.6m JPMBB 2014-C18. The 9.90-year Triple A duper was printed at the wide end of talk at swaps plus 93bp. The 9.96-year Triple B minus (Fitch/Kroll) private class was stamped at swaps plus 380bp. The loan sellers consist of: JPMORGAN CHASE BANK, N.A. (48.0% of IPB), BARCLAYS BANK PLC (29.1% of IPB), REDWOOD COMMERCIAL MORTGAGE CORPORATION (10.2% of IPB); STARWOOD MORTGAGE FUNDING II LLC (9.4% of IPB); RAIT FUNDING, LLC (3.2% of IPB).

GSMS 2014-NEW: Goldman Sachs has announced the US$306.3m GSMS 2014-NEW. The collateral consists of a seven-year, fixed-rate, amortizing mortgage loan secured by first mortgage liens on the fee simple interests of 25 individual borrowers in 25 independent living facilities located in 17 states. The sponsor is Newcastle Investment Corp. Pricing is expected the week of February 24th.