(Adds detail, background on rally)
By Joy Wiltermuth
NEW YORK, May 13 (IFR) - American Homes 4 Rent (AH4R) is set
to break new ground in the nascent market for rental-backed
securitizations after ratcheting in pricing on its US$482.7m
debut issue to well inside those on two previous deals sold by
AH4R's US$270.396m Triple A rated class, which has attracted
at least US$1bn in demand according to investors, is poised to
price at Libor plus 100bp Tuesday.
That will smash through the L+115bp print level on the
equivalent tranche of Blackstone's US$479.137m Invitation Homes
2013-SFR1 issue in November, as well as Colony's US$513.6m CAH
2014-1 Triple A slice, which priced at a slight discount at
L+120bp last month.
Lead managers on the AH4R issue - Goldman Sachs
(structuring), JP Morgan and Wells Fargo - had already narrowed
price guidance Monday, and pulled it in even further Tuesday by
10-35bp across the six-tranches.
The Triple A slice was initially talked at L+115bp-120bp,
and then at L+110bp-115bp.
One strategist called the tightening "a big move" for the
new single-family rental sector, while others said it mirrored
similar price movements in the CMBS market where spreads have
rallied in recent weeks.
At the riskier end, the trade's bottom US$32.7m F tranche is
now expected to print at L+325bp versus guidance of L+360bp and
initial talk of L+380bp. Spreads in the middle also narrowed in
a 10bp-20bp band from Monday's guidance.
MORTGAGE ASSETS BACK IN DEMAND
Market participants pointed out a more widespread rally
across the market. New-issue CMBS spreads, for example, rallied
in April to within 5bp-10bp of their tightest levels of the
year, according to a JP Morgan report.
At the top of the capital structure, Triple A bonds are now
in the swaps plus 86bp ballpark, and as with AH4R's deal,
spreads on the bottom tranches have been rammed in even more
One standout from recent primary issues is the Deutsche Bank
and Cantor Commercial Real Estate conduit deal, where the
pricing on the BBB- class came 30bps tighter than guidance at
swaps plus 315bp.
The compression has caught many investors off guard, and
some say those that are underweight may have missed the boat.
"Some people think [spreads are] rich or want to sell, but
supply and demand is skewed," the strategist said. "There is
capitulation, with some being forced to put money to
Roughly a dozen large institutional buyers dominate the
sector, buying up US foreclosed homes at bargain prices to
revamp as rentals.
American Homes is the largest publicly traded REIT in the
space, with a portfolio of more than 26,000 homes as of April,
according to first-quarter results.
(Reporting by Joy Wiltermuth; Editing by Natalie Harrison)