KBRA Releases Single-Borrower SFR Comprehensive Surveillance Report
30 Aug 2024 | New York
KBRA releases a Comprehensive Surveillance Report for the KBRA-rated universe of 41 outstanding single-borrower, single-family rental (SFR) securitizations. The transactions, which are sponsored by seven SFR rental companies, have a combined remaining principal balance of $27.9 billion and are secured by 121,523 properties. The transaction structures consist of a total of 388 securities, of which 313 ($25.0 billion) are rated by KBRA.
In connection with this review, 37 ratings ($2.4 billion) have been upgraded and 276 ratings ($22.6 billion) have been affirmed. The upgrades and affirmations consider the overall macroeconomic conditions and performance of each individual transaction and its underlying collateral. In general, transactions have largely exhibited positive or stable performance trends in the form of stable to lower implied loan-to-value (LTV) ratios and/or stable or higher cash flows since issuance and/or prior ratings change, as applicable for seasoned transactions. However, home prices have remained relatively flat or have grown at a much slower pace compared to previous years leading to relatively less value appreciation in the transactions issued over the past two years. Additionally, cashflows from recent transactions have generally been under pressure as expenses have increased at a faster rate than rent growth. In addition, none of the underlying loans has ever been delinquent or specially serviced.
The report and supplemental report provide various key credit metrics that were analyzed and compared to both issuance and ongoing performance data for the individual transactions, which provide useful insights into the overall performance of each issuer’s securitized portfolio. Finally, the publication also provides key takeaways from our analysis, some of which are as follows:
- Valuations for 109,204 of the underlying properties in transactions which have seasoned 13 months or more (34) have appreciated, on average, by 29.4% since the issuance and 4.2% since last year of the respective deals, as measured by changes in CoreLogic’s zip code-level HPI data as of May 2024, with a range of 2.2% to 99.4%.
- For the 41 transactions covered in this report, the average LTV at issuance was 84.1%, while the current Implied LTV is 68.7%. The average Implied LTV as of KBRA’s last review in September 2023 was 67.8%. The slight rise in the implied LTV is due in part to the payoff of five seasoned transactions. In comparing the 35 transactions still outstanding from the last review, the current review has a lower average Implied LTV (67.4%) owing to slight home price appreciation and principal paydowns since the last review (70.5%).
- On average, the servicer reported Net Operating Income (NOI) is 4.8% higher than the issuer’s underwritten NOI at securitization for the 35 seasoned transactions where available. Six of the most recently issued transactions have yet to report updated NOI figures since issuance owing to limited seasoning.
- While the average NOI has increased, 18 transactions have reported a lower NOI than the sponsor’s underwritten figures. These include seven FirstKey, seven Progress, three Tricon and one Starwood transaction and average a decline of 8.6%, ranging from -22.8% (Starwood 2022-SFR3) to -1.7% (Progress 2022-SFR6). These transactions have experienced a 12.7% increase in rent, with a 32.4% increase in operating expenses. However, the reported NOI remain above KBRA’s KNOI from issuance. The 17 transactions with an average 19.0% positive NOI growth experienced a 28.4% increase in rent versus 36.6% increase in operating expenses. All the loans collateralizing each transaction have a KPO of Perform with the exception of Starwood 2022-SFR3 due to its financial performance.
- Contractual rental rates (rent per property) have increased by 19.4% since issuance, on average, across the outstanding transactions with reporting information available. In comparing the 34 transactions still outstanding from the last review, rent has increased by 3.1% since May 2023, on average.
- The current vacancy rate across all portfolios is 4.9%, on average, compared to the average of 5.3% and 3.1% for KBRA’s September 2023 and September 2022 reviews, respectively.
- Tenant delinquency rates currently average 1.6% which is below the average of 2.5% at KBRA’s September 2023 review and the average of 3.7% reported for the September 2022 review.
- The average NOI Debt Service Coverage ratio (DSC) has increased since issuance from 1.76x to 1.87x. In addition, the average NOI Debt Yield (DY) has increased from 5.7% to 6.3%.
Details concerning the classes with rating changes are as follows:
- AH4R 2014-SFR3 Class D to AAA (sf) from AA+ (sf)
- AH4R 2014-SFR3 Class E to AA+ (sf) from AA (sf)
- AH4R 2015-SFR1 Class D to AAA (sf) from AA+ (sf)
- AH4R 2015-SFR1 Class E to AAA (sf) from AA (sf)
- AH4R 2015-SFR1 Class F to AA+ (sf) from AA- (sf)
- AH4R 2015-SFR2 Class D to AAA (sf) from AA+ (sf)
- AH4R 2015-SFR2 Class E to AA+ (sf) from AA- (sf)
- FKH 2020-SFR1 Class B to AAA (sf) from AA+ (sf)
- FKH 2020-SFR1 Class C to AA (sf) from AA- (sf)
- FKH 2020-SFR1 Class D to A+ (sf) from A (sf)
- FKH 2020-SFR1 Class E to A (sf) from BBB+ (sf)
- FKH 2020-SFR1 Class F1 to A- (sf) from BBB (sf)
- FKH 2020-SFR1 Class F2 to BBB+ (sf) from BB+ (sf)
- FKH 2020-SFR1 Class G to BBB- (sf) from BB- (sf)
- FKH 2020-SFR1 Class F to BBB+ (sf) from BB+ (sf)
- FKH 2020-SFR2 Class B to AAA (sf) from AA (sf)
- FKH 2020-SFR2 Class C to AA (sf) from A+ (sf)
- FKH 2020-SFR2 Class D to A+ (sf) from A- (sf)
- FKH 2020-SFR2 Class E to A (sf) from BBB (sf)
- FKH 2020-SFR2 Class F1 to A- (sf) from BB+ (sf)
- FKH 2020-SFR2 Class F2 to BBB+ (sf) from BB (sf)
- FKH 2020-SFR2 Class F3 to BBB (sf) from BB- (sf)
- FKH 2020-SFR2 Class G1 to BBB- (sf) from B+ (sf)
- FKH 2020-SFR2 Class G2 to BB+ (sf) from B (sf)
- FKH 2020-SFR2 Class F to BBB (sf) from BB- (sf)
- FKH 2020-SFR2 Class G to BB+ (sf) from B (sf)
- IH 2018-SFR4 Class C to AA+ (sf) from AA (sf)
- TAH 2018-SFR1 Class D to AAA (sf) from AA+ (sf)
- TAH 2018-SFR1 Class E to AAA (sf) from AA (sf)
- TAH 2018-SFR1 Class F to AA+ (sf) from AA- (sf)
- TAH 2019-SFR1 Class C to AAA (sf) from AA (sf)
- TAH 2019-SFR1 Class D to AA+ (sf) from A+ (sf)
- TAH 2019-SFR1 Class E to AA- (sf) from A- (sf)
- TAH 2020-SFR1 Class C to AA+ (sf) from AA- (sf)
- TAH 2020-SFR1 Class D to AA- (sf) from A (sf)
- TAH 2020-SFR1 Class E to A+ (sf) from A- (sf)
- TAH 2020-SFR1 Class F to A- (sf) from BBB (sf)
To access rating and relevant documents, click here.
Click here to view the report.