Retention Rates ‘Strong’ in SFR Securitizations

Both full-term leases and month-to-month leases had “strong” retention rates for the 24 single-family rental securitizations rated by Morningstar Credit Ratings, according to Morningstar’s May 2016 Performance Summary Covering All Morningstar-Related Securitizations.

For full-term leases, 23 out of the 24 SFR transactions reported a retention rate of higher than 70 percent as of the end of March, the latest data available on retentions. The retention rate jumped to at least 80 percent for 19 out of the 24 month-to-month leases, according to Morningstar.

Though the vacancy rate across the 24 transactions ticked up from 4.2 percent in March to 4.3 percent in April, there has been a six-month improvement in the overall vacancy trend. According to Brian Alan, VP of RMBS at Morningstar Credit Ratings, the vacancy rate across SFR securitizations has been below 5 percent across all transactions since the end of 2015.

While reports of rising rents across the country have been widespread, Alan said this is likely not contributing to vacancy, stating, “As retention rates have been consistently in the mid 70s and vacancy is generally low, as a whole, there is not strong evidence that rising rents are a factor in vacancy rates.”

Lease expirations have risen from 4.1 in December up to 7.4 percent in April, but Morningstar said this is not unusual for this time of year.

“In general, property managers seek to arrange scheduled lease expirations so they can better manage the renewal process,” the report noted. “However, lease expirations should continue to rise as summer nears, as tenants prefer moving when children are out of school. The turnover rate may also increase in the coming months, given families preferences to move during the summer.”

The delinquency rate across the 24 Morningstar transactions was 0.4 percent in April, its lowest level in the past year. April marked the fourth consecutive month of decline for the overall delinquency rate, according to Morningstar. All but two of the 24 transactions had delinquency rates below 1 percent in April, with the two exceptions being ARP (American Residential Properties) 2014-SFR1 (1.7 percent) and SWAY (SWAY Residential) 2014-1 (1.2 percent), both of which changed their definitions of delinquency this year, Morningstar reported.

Click here to see the entire Morningstar SFR securitization report.