Kroll Bond Rating Agency (KBRA) assigns ratings to eight classes of Progress Residential 2021-SFR3 (Progress 2021-SFR3) single-family rental pass-through certificates.
Progress 2021-SFR3 is a single-borrower, single-family rental (SFR) securitization collateralized by a $602.7 million loan secured by first priority mortgages on 2,381 income-producing single-family homes. The fixed-rate loan requires interest-only payments and have a five-year term. The subject transaction is the fourteenth KBRA-rated securitization issued by Progress Residential.
The underlying single-family rental properties are located in or near 21 Core Based Statistical Areas (CBSAs) across nine states. The top-three CBSAs represent 39.5% of the portfolio and include Miami (17.0%), Atlanta (13.7%), and Charlotte (8.8%). The aggregate BPO value of the underlying homes is $634.4 million, yielding an LTV of 95.0%. KBRA adjusted the BPOs, which yielded an aggregate value of $602.7 million. This represents a 5.0% haircut to the nominal BPO value. The resulting LTV based on KBRA’s adjusted BPO value was 100.0%.
Progress 2021-SFR3 includes a voluntary substitution feature that permits the issuer to substitute up to 35.0% of the underlying homes, by property count as of the closing date, subject to meeting certain conditions in the loan agreement. Substitution exceeding a cumulative 5.0% (by count as of the closing date) is subject to rating agency confirmation (RAC) from KBRA.
The sponsor has the right to release properties without prepaying the loan balance or paying yield maintenance or additional release premium to the trust. Exercise of the excess collateral release (ECR) feature is subject to satisfying certain terms and conditions, including but not limited to: obtaining updated BPOs for 100% of the collateral properties; the loan-to-value (LTV) ratio based on the updated BPOs cannot exceed 85.0% for the first ECR and 83.0% for any subsequent ECR; the LTV for each loan component cannot exceed the LTV as of the closing date of the securitization; and certain performance tests must be met. Utilization of the feature is also subject to RAC from KBRA.
KBRA utilized its U.S. Single-Family Rental Securitization Methodology to evaluate the transaction. The methodology leverages elements of KBRA’s commercial mortgage-backed securities and residential mortgage-backed securities criteria due to the fact that the collateral underlying an SFR transaction has both commercial and residential characteristics. As the properties generate a cash flow stream from tenant rental payments, CMBS methodologies were used to determine the loan’s probability of default. To determine loss given default, KBRA assumed the underlying collateral properties would be liquidated in the residential property market.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority pursuant to the Temporary Registration Regime. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.
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