Home Partners of America is marketing its second securitization of single-family rental properties.
The $342 million deal, Home Partners of America 2016-2, is ultimately backed by a portfolio of 1,410 single-family rentals, 1,148 of which are financed by a single loan by Citibank to the sponsor and 262 of which are financed by individual mortgages to a wholly owned subsidiary of the sponsor.
The bulk of the properties, or 1,343, are subject to Home Partners of America's Right to Purchase Program, in which tenants have a the right to purchase the leased property at a premium during the term of the lease.
Moody's Investors Service thinks that this helps reduce credit risk, because tenants with the right to purchase a home have an incentive to maintain the properties. The fact that properties are in this program may also indicate that they are in better school districts, and so will hold their value better, even if the tenants do not purchase them.
"Also, when tenants exercise the right to purchase, the property is released from the securitization at a premium, which leads to faster deleveraging of the transaction," the ratings agency states in its presale report.
Among the other drivers of Moody's credit ratings is the limited operating history of Home Partners of America, which was formed in 2012 and controlled by BlackRock and KKR. In its presale report, it noted that, as of June 30, HPA had approximately $1.8 billion in committed capital including $750 million of equity.
The limited performance history of the broader single-family rental industry is also a drawback, according to Moody's.
The securitization trust will issue seven classes of securities; both Moody's and Morningstar expect to assign triple-A ratings to the senior tranche, which benefits from total credit support of 48.87%.
The deal is smaller than Home Partner's inaugural, $508.9 million securitization, completed in January, and has a slightly higher advance rate of 47.2% vs. 46.5% for the initial deal.
As with the inaugural deal, the primary loan financing the properties has an initial term of two years and can be extended to up to five years, but pays only interest for its entire term.
The properties are located in 42 total major statistical areas in 18 total states, although the properties owned by Home Partners' subsidiary with individual mortgages are all in Texas.
The average square footage of the homes is only slightly larger than that of the first deal at 2,411 vs. 2,283, and the average monthly rent is also slightly higher at $2,238 vs. $2,160. The average initial lease term for each deal is 13 months. Homes in the latest deal are slightly older, built in 1995, on average, vs. 1991.
The occupancy rate at closing will be lower, at 88.18%, but taking into leases that have been signed but not yet begun, the occupancy rate is 99.57%, similar to 99.5% for the previous deal.