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Vacancy Rates Down for SFR Securitizations, But Trend Not Expected to Continue

rentalAlthough vacancy rates across single-family rental (SFR) securitizations showed a downward trend in August, the trend is not expected to continue as lease expirations are also declining across most deals, according to data reported by Morningstar Credit Ratings in its September 2015 Single-Family Research: Performance Summary Covering All Morningstar Rated Securitizations released Wednesday.

Higher lease expirations are typically correlated with higher vacancy rates, according to Morningstar, as in the case of PRD 2015-SFR1 (Progress Residential), which had the highest vacancy rate out of 21 securitizations in August and also had one of the highest percentages of lease expirations at 12.0 percent, Morningstar reported.

Morningstar has added two new sets of data to its September report, which summarizes issuer-reported property-level information as of the end of August 2015:

  • Month-to-month (MTM) tenant data; Morningstar found there was a "positive relationship" between the number of MTM tenants and the retention of MTM leases
  • The calculated monthly turnover rate, which was found to be below 6 percent for all 21 securitizations covered in the report.

Only six out of the 21 SFR deals in August reported a delinquency rate of higher than 1 percent, compared to 10 deals in July, which is an indication that delinquency rates are staying low. The ARP 2014-SRF1 transaction (American Residential Properties) once again had the highest delinquency rate out of the 21 transactions at 2.2 percent as of the end of August, holding steady from July after taking a big drop from 3.0 percent in June. That same ARP 2014-SRF1 deal again had the lowest total of delinquent properties as of the end of August, with 2,876. For ARP transactions, delinquency is defined as 30 days or more overdue and owing $500 or more.

Invitation Homes (IH), which defines 30 days or more overdue and owing 25 percent or more of the monthly rent, had the highest number of delinquent properties for any one securitization as of the end of August with 7,207 (for the IH 2015-SFR3 transaction).

The lowest delinquency rate among the 21 securitizations as of the end of August was the AH4R 2014-SFR3 (American Homes 4 Rent) transaction, with a 0.4 percent rate, according to Morningstar.

"The August property-level data for the single-borrower, single-family rental asset class shows performance in line with Morningstar’s expectations," Morningstar said in the report. "Vacancy rates are trending higher, but Morningstar does not anticipate this trend to continue, as lease expirations are declining. In line with recent months, delinquency rates remain low."

Click here to see the complete September 2015 Single-Family Rental Research: Performance Summary Covering All Morningstar-Rated Securitizations. Transactions covered in the summary are those from American Homes 4 Rent, American Residential Properties, Colony American Homes, Invitation Homes, Progress Residential, Silver Bay Realty, SWAY Residential, and Tricon American Homes. Two of those companies, SWAY Residential and Colony American Homes, announced on September 21 that they would be merging in a stock-for-stock transaction that is expected to close in the first quarter of 2016.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

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