DBRS Morningstar Assigns Provisional Ratings to AMSR 2020-SFR2 Trust

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following Single-Family Rental Pass-Through Certificates (the Certificates) to be issued by AMSR 2020-SFR2 Trust (the Issuer):

-- $159.0 million Class A at AAA (sf)
-- $43.5 million Class B at AAA (sf)
-- $31.3 million Class C at AA (high) (sf)
-- $32.6 million Class D at AA (low) (sf)
-- $27.2 million Class E1 at A (low) (sf)
-- $59.8 million Class E2 at BBB (low) (sf)
-- $27.2 million Class F at BB (high) (sf)
-- $25.8 million Class G at BB (low) (sf)

The AAA (sf) rating on the Certificates reflects 69.2% and 60.8% of credit enhancement respectively provided by subordinated notes in the pool. The AA (high) (sf), AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (high) (sf), and BB (low) (sf) ratings reflect 54.7%, 43.2%, 31.6%, 31.6%, 26.3%, and 21.3% of credit enhancement, respectively.

Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.

The Certificates are supported by the income streams and values from 2,759 rental properties. The properties are distributed across 15 states and 38 metropolitan statistical areas (MSAs) in the United States. DBRS Morningstar maps an MSA based on the ZIP code provided in the data tape, which may result in different MSA stratifications than those provided in offering documents. As measured by broker price opinion (BPO) value, 63.2% of the portfolio is concentrated in three states: Florida (21.4%), Georgia (21.1%), and Texas (20.8%). The average postrenovation price per property that the securitization asset company paid to acquire the properties is $186,166 and the average value is $197,059. The average age of the properties is roughly 30 years. The majority of the properties have three or more bedrooms. The certificates represent a beneficial ownership in an approximately five-year fixed-rate, interest-only loan with an initial aggregate principal balance of approximately $406.4 million.

As in typical single-borrower, single-family rental transactions, the waterfall has straight sequential payments with reverse sequential losses.

DBRS Morningstar’s assumed base-case net cash flow (NCF) is approximately $15.4 million, which is 41.7% lower than the Issuer-underwritten NCF of about $26.4 million. Stressing the NCF during the term of the loan and at the maturity date reflects worsening economic conditions that are consistent with DBRS Morningstar’s rating stresses.

Vacancy data in the single-family rental space is relatively limited. In general, based on performance data in existing securitizations as well as information gathered in annual property-manager reviews, vacancy is considered low in the single-family rental market. DBRS Morningstar applied a base vacancy rate of 11.0%, an additional base vacancy adjustment related to the impact of the Coronavirus Disease (COVID-19) pandemic, plus a qualitative adjustment to account for structural and documentation weakness in the transaction. The loan agreement lacks credit measures, such as the income-to-rent ratio, in the eligible tenant provision. DBRS Morningstar accounted for this potential impact by reducing the DBRS Morningstar gross rent by 1.0%. DBRS Morningstar also accounted for the current delinquency levels and vacancy levels by further stressing the vacancy assumption, bringing the DBRS Morningstar vacancy rate to 17.3%, which is more conservative than the underwritten economic vacancy rate of 7.9% of the Issuer’s gross income.

Additionally, DBRS Morningstar applied a stress to the BPOs because, in general, a valuation based on a BPO may be less comprehensive than a valuation based on a full appraisal. In addition to the BPO stress, DBRS Morningstar recently adjusted that stress upward due to the impact of the coronavirus pandemic.

For more information regarding rating methodologies and the coronavirus, please see the following DBRS Morningstar publications: “DBRS Morningstar Provides Update on Rating Methodologies in Light of Measures to Contain Coronavirus Disease (COVID-19),” dated March 12, 2020; “DBRS Morningstar Global Structured Finance Rating Methodologies and Coronavirus Disease (COVID-19),” dated March 20, 2020; and “Global Macroeconomic Scenarios: June Update,” dated June 1, 2020.

The transaction allows for discretionary substitutions of up to 5.0% of the number of properties as of the closing date, as long as certain restrictions are met.

The Sponsor intends to satisfy its risk retention obligations under the U.S. Risk Retention Rules by holding at least 5.0% of the initial certificate balance of each Class of Certificates, either directly or through a majority-owned affiliate.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is U.S. Single-Family Rental Securitization Ratings Methodology (May 28, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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