KBRA assigns preliminary ratings to five classes of Progress Residential 2023-SFR2 (Progress 2023-SFR2) single-family rental pass-through certificates.

Progress 2023-SFR2 is a single-borrower, single-family rental (SFR) securitization that will be collateralized by a $315.1 million loan secured by first priority mortgages on 1,199 income-producing single-family homes. The fixed-rate loan requires interest payments only over its five-year term. The subject transaction will be the 28^th KBRA-rated securitization issued by Progress Residential.

The underlying single-family rental properties are located in or near 28 Core Based Statistical Areas (CBSAs) across 12 states. The top-three CBSAs represent 32.2% of the portfolio and include Atlanta (11.3%), Orlando (10.8%), and Phoenix (10.1%). The aggregate BPO value of the underlying homes is $430.2 million, yielding an LTV of 73.2%. KBRA adjusted the BPOs, which yielded an aggregate value of $397.9 million, which represents a 7.5% haircut to the nominal BPO value. The resulting LTV based on KBRA’s adjusted BPO value was 79.2%.

KBRA uses a hybrid analysis to evaluate SFR transactions, which incorporates elements of both KBRA’s CMBS and RMBS methodologies, as the underlying real estate contains commercial and residential characteristics. As the properties generate a cash flow stream from tenant rental payments, elements of CMBS methodologies are used to determine the loan’s probability of default (PD). To determine loss given default (LGD), KBRA assumes the underlying properties would be liquidated in the residential property market. In determining LGD, KBRA subjects the real estate properties to home price stress scenarios using elements of RMBS methodologies. This hybrid analysis is described in more in KBRA’s U.S. Single-Family Rental Securitization Methodology.

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Related Publications

• SFR KBRA Comparative Analytic Tool (SFR KCAT)
• U.S. Single-Family Rental Securitization Methodology
• Global Structured Finance Counterparty Methodology
• ESG Global Rating Methodology

Disclosures

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.

About KBRA

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. 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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