Single-borrower, single-family rental securitizations rated by Morningstar Credit Ratings, LLC are performing within expectations. The Single-Family Rental Research Performance Summary, released February 28, 2017, shows the average vacancy rate improved to 4.9 percent from 5.1 percent in December 2016. Delinquencies held steady at 0.9 percent. Morningstar expects the vacancy rate to dip in the coming months, as retention rates remain strong.
As of December 2016, the most recent data available, the average retention rate for full-term leases was 77.5 percent. Among metropolitan statistical areas, Memphis, Tennessee had the highest vacancy rate of 8.1 percent. Vacancy rates in the Florida MSAs of Fort Lauderdale, Jacksonville, and Sarasota-Bradenton-Venice area were above average, at 6.7 percent or higher. Lease expiration rates in Fort Lauderdale and Jacksonville were higher than average, while in the Sarasota-Bradenton-Venice MSA, the lease expiration rate was below-average at 5.2 percent. In Houston, vacancy among single-family rental homes improved to 6.2 percent from 7.1 percent the month prior. Meanwhile, rents for properties backing single-family rental transactions rose by 3.5 percent in January from their prior contractual rents.
The February 2017 report is noteworthy for what it does not contain: The inaugural single-family rental securitization, Invitation Homes 2013-SFR1, paid in full as of the February 2017 remittance. And thus, isn’t part of the February 2017 analysis. Leaving the performance summary with an analysis of 27 single-borrower deals and over 105,000 properties.
Morningstar publishes its performance summary to provide market participants detailed property-level information on each securitization. The data below summarizes issuer-reported property-level information through January 2017. It includes a summary of the seven multi-borrower transactions. For deals seasoned at least one year, we provide Morningstar DealView® Surveillance Analysis reports, available on our website.
The vacancy rate improved to 4.9 percent partly because of fewer winter lease expirations and a firm average retention rate. Additionally, the overall turnover rate held steady at 2.4 percent as of December 2016, the most recent data available. Morningstar expects these factors may lead to lower vacancies in the coming months. The report shows the MSA-level vacancy rate in single-borrower transactions. MSAs with vacancy above the 4.9 percent average are red, while those below are blue.
In January 2017, the average delinquency rate held steady at 0.9 percent, however, 13 deals had delinquency rates at or above 1 percent, up from eight the month prior. That list includes AMSR 2016-SFR1 at 2.5 percent and TAH 2016-SFR1 at 2 percent. Both transactions have higher levels of Section 8 tenants, and it is likely some of these delinquencies were caused by a timing mismatch between receiving the Section 8 portion of the rent and the reporting of delinquencies. Any review of delinquency should be viewed within the context of the delinquency definitions.
Rents increased 3.5 percent in January 2017, up from 3.3 percent the prior month. Based on the historical rent changes, the rent gains for securitized properties are likely climbing. The RentRange benchmarks track the year-over-year change on three- and four-bedroom median rents, weighted by MSA to match the geographic concentration of the Morningstar database. The report shows the rental change of renewals versus vacant-to-occupied properties. For December 2016, the latest month for which data is available, the rent change for vacant-to-occupied properties was 1.7 percent, while the rent change for renewal properties was at 4.5 percent. This trend matches the relationship these measures experienced one year ago, and renewal rent changes may continue to outpace vacant-to-occupied rent changes through the first quarter of 2017. It shows the average contractual rents by MSA have been largely in-line with or slightly higher than their property-level RentRange estimates. Exceptions are most notable in the Florida MSAs of Sarasota-Bradenton-Venice area and Fort Lauderdale. This shows the MSA-level rent change. MSAs with rent changes above the 3.5 percent average are blue, while those below are red. The size of the circle indicates the percentage of properties from a given MSA in Morningstar’s database.
There have been seven multi-borrower transactions: B2R 2015-1, B2R 2015-2, B2R 2016-1, FKL 2015-SFR1, CAF 2015-1, CAF 2016-1, and CAF 2016-2. As of the most recent remittance report, B2R 2015-1 had two loans that are 30 days delinquent and two are at least 90 days delinquent. One of the loans is 90 or more days delinquent, which is 0.4 percent of the transaction balance, is in foreclosure and was transferred to special servicing in January 2016. In June, the borrower of this loan filed for bankruptcy. The other loan is at least 90 days delinquent in B2R 2015-1 makes up 0.2 percent of the total transaction balance and was transferred to special servicing in June 2016 for payment default. One loan in B2R 2015-1 is reported as current but was likewise transferred to special servicing because of payment default. Separately, B2R 2015-2 has three loans that are 30 days delinquent, which combined account for 2.1 percent of the transaction balance, and three loans that are 90 or more days behind on payments, which account for 0.5 percent of the deal balance. The loans that are at least 90 days delinquent were also transferred to special servicing because of payment default; one of these loans was transferred in May 2016, one was transferred in August 2016, and the third was transferred in September 2016. B2R 2016-1 has three loans that are 30 days delinquent, one that is 60 days delinquent, and one is more than 90 days delinquent. Loans more than 90 days delinquent, accounting for 0.2 percent of the deal balance, has been with the special servicer since October 2016, while the loan is 60 days behind in payments, accounting for 0.2 percent of the deal balance, has been with the special servicer since December 2016. All of the loans in CAF 2015-1 are current, including two loans equal to 4.7 percent of the transaction balance were 30 days delinquent as of the January 2016 remittance and were transferred to special servicing in November 2016. All of the loans in CAF 2016-1 are current, while CAF 2016-2 has one loan that became 90 days delinquent, it was transferred to special servicing in January 2017. Finally, all borrowers in FKL 2015-SFR1 are current. However, one loan that is approximately 1.7 percent of the deal balance was transferred to special servicing in October 2016 for imminent default.
Single-Borrower Charts and Tables
Chart 1 – Single-Family Rental Rent Change Versus RentRange Year-Over-Year Rent Change
Chart 2 – Rental Changes for Renewals Versus Vacant-to-Occupied Properties
Chart 3 – January Average Contractual Rent Versus Property-Level RentRange Estimate by MSA
Chart 4 – MSA-Level Blended Rent Change*
For the full report, charts and tables click here.
About the Author
Morningstar Credit Ratings, LLC is a nationally recognized statistical rating organization (NRSRO) that has earned a reputation for innovation and excellence. Our goal is to help institutional investors identify and understand credit risk. Our analytical approach stresses transparency of the ratings process, strong fundamental credit analysis, and comprehensive investor-focused reporting that provides a concise Morningstar perspective on credit risk.
Our ratings business currently covers commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS), single-family rental securities (SFR), asset-backed securities (ABS) and corporate and financial institution ratings