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Rating Action:

Moody's upgrades Class C and Class D certificates issued by American Homes 4 Rent 2015-SFR1

12 Feb 2019

New York, February 12, 2019 -- Moody's Investors Service ("Moody's") has upgraded the ratings of Class C certificates and Class D certificates issued by American Homes 4 Rent 2015-SFR1. The certificates are backed by one loan secured by a pool of single family rental properties.

Complete rating actions are as follows:

Issuer: American Homes 4 Rent 2015-SFR1

Cl. C, Upgraded to Aaa (sf); previously on Apr 12, 2018 Upgraded to Aa2 (sf)

Cl. D, Upgraded to Aa3 (sf); previously on Apr 12, 2018 Upgraded to A2 (sf)

RATINGS RATIONALE

The rating upgrades are primarily driven by a steady build-up in equity in the properties securing the loan in the transaction. The transaction's cash flow further benefit from the operator's ability to maintain operating expense ratios below Moody's original expectations, steadily increase contractual rents and keep vacancies and delinquencies low.

In 2017, the borrower to the loan agreement added an amendment that would permit the borrower to voluntarily replace a property or a portfolio of properties with eligible properties, subject to certain criteria. Such conditions include satisfaction of a property value test, a geographic diversity test and a rents and cash flow test. In addition, substitution of property is subject to a 10% limit on the number of properties over the life of the loan. Since the amendment, the borrower has performed two sets of voluntary substitutions: 300 new properties in June 2018 and 110 new properties in November 2018. The substitutions replace a total of 373 properties that originally backed the loan agreement. The transaction documents allow for voluntary substitution of up to 446 properties during the life of the loan.

The total broker price opinion ("BPO") value of the new properties is $90 million, compared to a BPO of $69 million of the replaced properties as of deal closing. After adjusting for price appreciation, the aggregate BPO value of pre and post-substitution portfolios is comparable. Also, the geographic distribution in the post-substitution portfolio remains diversified despite a marginal increase in the concentration. The property substitutions lower the number of metropolitan statistical areas ("MSA") from 54 to 43, with the largest MSA (8.73% of the total property count) now in Jacksonville, FL. The monthly contractual rent for the portfolio witnessed an increase of 13%, from $0.55 million to $0.62 million post-substitution. Overall, the substitution is not expected to materially alter the cash flow profile of the properties and Moody's did not make additional adjustments to its assumptions.

Home price appreciation bolsters LTV and expected recovery

The transaction has benefited from weighted average home price appreciation of 23% since issuance (based on Moody's Value), reducing Moody's LTV to 65.2% from 86.9% at deal closing. Accordingly, Moody's expected recovery value has increased to $815 million from $636 million at deal closing. The recovery value represents the funds expected to be generated by liquidation of the underlying rental properties in the event that the borrower is unable to secure refinancing before the anticipated repayment date of the loan in 2025. If the borrower is able to refinance, the certificates would need to be repaid. We calculate Moody's Value by applying the home price appreciation to each property's assigned Moody's Value at deal closing. The increase in property values is calculated based on home price appreciation at the MSA level, based on the data reported by Moody's Analytics.

Additional considerations

Repair & maintenance ("R&M"), turnover, leasing & marketing ("L&M") costs are higher than underwritten assumptions, but still within Moody's initial expectations. The nine-month annualized R&M, turnover and L&M costs per property for the first three quarters of 2018 increased to $4,261 from $3,714 for 2017 and $3,201 for 2016. The underwritten assumption of R&M, turnover and L&M costs was $1,350 at deal closing; the Moody's stressed value for expected R&M, turnover and L&M costs is $2,070 per property, excluding tenant charge-back at deal closing.

Offsetting the above listed costs, the vacancy and delinquency rates on the portfolio's properties have been lower than Moody's initial expectations due to strong rental demand and limited supply of single family rental properties. As of November 2018, the transaction had a trailing twelve month vacancy rate of 5.0%, compared to Moody's long-term vacancy rate assumption of 11% for the transaction. In addition, the delinquency rate has remained very low at an average of 0.4% over the last twelve months.

In addition, contractual rents on the underlying properties have increased by around 6.5% since deal closing. As a result, the transaction's net operating income (NOI) and net cash flow (NCF) are above Moody's original expectations. The NCF margin is 52.8% for the first nine months of 2018, compared with Moody's expected NCF margin of 49.9% at deal closing. Net cash flow of $51.2 million normalized for the first nine months of 2018 is 44% higher than Moody's expected NCF of $35.6 million at deal closing. The debt yield has been stable around 9.6% since deal closing. The debt service coverage ratio (DSCR) is 1.81 as of September 2018, 46.6% higher than our initial expected DSCR of 1.24.

The principal methodology used in these ratings was "Moody's Approach to Rating Single-Family Rental Securitizations" published in November 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the ratings:

UP

Moody's would consider upgrading the transaction or some of its tranches if, for example, properties underlying the portfolio were to appreciate substantially and the property conditions were to remain well maintained.

DOWN

Moody's would consider downgrading the transaction if the transaction was to breach their debt yield triggers or DSCR triggers. Additionally, breaches of certain loan covenants could lead to an event of default in the transaction and, if unremedied, a downgrade. Moody's will also monitor the transaction's portfolio mix for any unexpected changes. Unexpected negative changes could result from unusual patterns in the properties that are released by a sponsor as contemplated by the transaction documents. Also, where available, changes in rent renewal and lease turnover rates and time to re-rent could indicate performance issues.

A list of these actions including CUSIP identifiers may be found at:

Excel: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF478186

For more information please see www.moodys.com.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Wenzhao Wu
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Karandeep Bains
VP - Sr Credit Officer/ Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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