Tricon Residential is preparing to issue $452.6 million in mortgage-backed securities (MBS), backed by one fixed-rate, five-year loan for which lease revenue on 2,116 income-producing single family homes serves as collateral.
The deal will close just about one year to the day after Tricon Residential 2022-SFR2 raised $379 million, proving that the so-called 'build to rent' industry is having more than just a moment to mop up properties left in the wake of the 2008-2009 financial crisis.
The deal is the tenth securitization from a joint venture sponsor that includes Tricon Residential, Teacher Retirement System of Texas, Government of Singapore Investment and Pacific Life, according to a pre-sale report from Kroll Bond Rating Agency. Known as SFR JV-2, the partnership buys, renovates, and manages single-family homes and leases them to renters.
Tricon Residential's current deal will issue notes to investors through six classes of notes, Classes A through E will pay principal and interest ranging from 39.00% through 58.70%, of the note amounts' broker price opinion (BPO), while the class F notes will issue only principal at a 63.80% of BPO value. The properties have a purchase price of $684.8 million, and an issuer cost basis of $744.4 million. On average the properties have a BPO value of $335,265 with a weighted average (WA) original lease term of 14.1 months.
The issuer has a debt yield of 7.0%, and a debt service coverage ratio of 1.44x. Among the deal's positive credit aspects, KBRA said, the subject has a loan-to-value ratio of 63.8%, what the rating agency calls the lowest LTV of any single-family rental securitizations since the sector came together in 2013.
Bank of America, Deutsche Bank Securities, Mizuho Securities, Morgan Stanley, and RBC Capital Markets are managers on the deal, according to the Asset Securitization Report's deal database, and what KBRA says are placement agents.
The deal will repay investors through a senior-subordinate structure, a common means of shoring up credit to the deal. In another risk mitigant, a sponsor guaranty stipulates that the sponsor, SFR JV-2, is responsible for the outstanding amount of the debt if certain bankruptcy or insolvency-related actions occur.
KBRA also noted that the properties are heavily distributed throughout the southeast and southwest, and the numbers bear this out. Florida, North Carolina and Texas represent the top three states in the collateral pool, accounting for 58.1% of the pool, according to the rating agency.
KBRA will assign ratings of 'AAA', 'AA' , 'A+' on the classes A, B, C notes, respectively, and 'A-', on the D and E classes, respectively. For its part, Moody's will assign 'Aaa' to the class A notes; 'Aa3' to the class B notes; 'A3' to the class C notes; and 'Baa2' to the class D notes.
