(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 rivals.
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.
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 aggressively.
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 work.”
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)