Morningstar Credit Ratings has recently published its Single-Family Rental Performance Report for November 2016 showing vacancies increased to 5.2 percent in October while transactions worked through the summer’s increased lease expirations. Rental properties backing single-family rental securitizations increased by 4.4 percent from prior contractual rents. They are now below the year-over-year increases of three/four bedroom RentRange, LLC median rents.
MSA-level rent changed for the regions typically found in single-borrower deals. It now tracks the performance of 25 single-borrower deals, just under 97,000 properties.
Single-Borrower Performance
While the vacancy rate increased this month, a declining overall turnover rate and fewer expected lease expirations may lead to improvement in vacancy in the coming months. The September turnover rate was 3.0 percent across all transactions compared with 3.9 percent in August, and lease expirations across all single-family rental transactions were below 6.0 percent for the first time since January. At 8.2 percent, PRD 2015-SFR3 had the highest vacancy rate at the deal level for the fifth consecutive month, but only 2.3 percent of the deal has lease expirations in October so we expect this metric will improve in the coming months. Chart 5 shows the MSA-level vacancy rate in single-borrower transactions. MSAs with vacancy above the 5.2 percent average are red, while those below are blue. The size of the circle indicates the percentage of lease expirations in the given MSA over the past three months. MSAs in Florida are showing higher levels of vacancy, some of which can be explained by lease expirations.
Rents increased 4.4 percent in October, down from 4.6 percent the prior month and now below the RentRange benchmarks. Chart 1 shows that the rent gains for securitized properties experienced a similar decreasing trend one year prior, however the RentRange measures have increased. 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. Chart 2 shows the rental change of renewals versus vacant-to-occupied properties. For September, the latest month for which data is available, the rent change for vacant-to-occupied properties was 3.1 percent, while the rent change for renewal properties was 4.4 percent.
Higher rental increases for renewed properties than for vacant-to-occupied properties matches the relationship that these measures experienced one year ago, and renewal rent changes may continue to outpace vacant-to-occupied rent changes until the beginning of 2017. Chart 3 shows that 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 Miami, Sarasota-Bradenton-Venice, and Fort Lauderdale. Chart 4 is new this month and shows the MSA-level rent change. MSAs with rent changes above the 4.4 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 overall database. Table 1 shows the MSA-level rent change for the past 12 months. Other performance measures were largely unchanged. Only CAH 2014-2, at 1.1 percent, HPA 2016-1, at 1.0 percent, IH 2015-SFR2, at 1.2 percent, and SWAY 2014-1, at 1.0 percent, had a delinquency rate of at least 1.0 percent. Retention rates of expiring leases in September were at 70.0 percent or above, with the exception of SWAY 2014-1, at 66.7 percent.
Multi-borrower Performance
There have been six multi-borrower transactions: B2R 2015-1, B2R 2015-2, B2R 2016-1, FKL 2015-SFR1, CAF 2015-1, and CAF 2016-1. As of the most recent remittance report, B2R 2015-1 had one loan that is 30 days delinquent, one that is 60 days delinquent, and two that are at least 90 days delinquent. One of the 90 or more days delinquent loans, which is 0.4% of the transaction balance, is also in foreclosure and was transferred to special servicing in January. In June, the borrower of this loan filed for bankruptcy. The other loan that is at least 90 days delinquent in B2R 2015-1, which is 0.2 percent of the total transaction balance, was transferred to special servicing in June because of payment default. Separately, B2R 2015-2 has one loan that is 60 days delinquent and was transferred to special servicing in May. The deal also has two loans that are 90 or more days behind on payments that combine for 0.4 percent of the transaction balance. One of these loans was transferred to special servicing in August, and the other was transferred in September. B2R 2016-1 has three loans that are 30 days delinquent and one loan that has migrated to 90 or more days delinquent. This loan is 0.2 percent of the total transaction balance and was transferred to special servicing in October for payment default. All of the loans in both CAF 2015-1 and CAF 2016-1 are current; however, CAF 2015-1 has two loans equal to 4.7 percent of the transaction balance that were transferred to special servicing in November. Finally, all borrowers in FKL 2015-SFR1 are current. However, one loan that is approximately 1.7 percent of the transaction balance has been listed on the servicer’s watch list report since November 2015 and was transferred to special servicing in October for imminent default.
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