Morningstar DBRS Finalizes Provisional Credit Ratings on Progress Residential 2024-SFR1 Trust

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the Single-Family Rental Pass-Through Certificates (the Certificates) issued by Progress Residential 2024-SFR1 Trust (PROG 2024-SFR1):

-- $314.7 million Class A at AAA (sf)
-- $65.2 million Class B at AA (high) (sf)
-- $51.6 million Class C at AA (low) (sf)
-- $72.4 million Class D at BBB (high) (sf)
-- $56.0 million Class E1 at BBB (sf)
-- $20.0 million Class E2 at BBB (low) (sf)
-- $56.0 million Class F at BB (sf)

The AAA (sf) credit rating on the Class A Certificates reflects 55.0% of credit enhancement provided by subordinated notes in the pool. The AA (high) (sf), AA (low) (sf), BBB (high) (sf), BBB (sf), BBB (low) (sf), and BB (sf) credit ratings reflect 45.7%, 38.3%, 28.0%, 20.0%, 17.1%, and 9.1% of credit enhancement, respectively.

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

The PROG 2024-SFR1 Certificates are supported by the income streams and values from 2,251 rental properties. The properties are distributed across 10 states and 22 metropolitan statistical areas (MSAs) in the United States. Morningstar DBRS 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 value, 67.5% of the portfolio is concentrated in three states: Florida (41.1%), North Carolina (15.0%), and Georgia (11.4%). The average value is $355,243. The average age of the properties is roughly 21 years. The majority of the properties have three or more bedrooms. Of the properties backing the transaction, 2,138 were previously securitized in Progress Residential 2019-SFR3 Trust. The Certificates represent a beneficial ownership in an approximately five-year, fixed-rate, interest-only loan with an initial aggregate principal balance of approximately $699.7 million.

The Sponsor intends to satisfy its risk-retention obligations under the U.S. Risk Retention Rules, EU Risk Retention Requirements, and UK Risk Retention Requirements by Class G, which is 9.1% of the initial total issuance balance, either directly or through a majority-owned affiliate.

Morningstar DBRS finalized its provisional credit ratings for each class of Certificates by performing a quantitative and qualitative collateral, structural, and legal analysis. This analysis uses Morningstar DBRS’ single-family rental subordination analytical tool and is based on Morningstar DBRS’ published criteria. (For more details, see dbrs.morningstar.com.) Morningstar DBRS developed property-level stresses for the analysis of single-family rental assets. Morningstar DBRS assigned the provisional credit ratings to each class based on the level of stresses each class can withstand and whether such stresses are commensurate with the applicable credit rating level. Morningstar DBRS’ analysis includes estimated base-case net cash flows (NCFs) by evaluating the gross rent, concession, vacancy, operating expenses, and capital expenditure data. The Morningstar DBRS NCF analysis resulted in a minimum debt service coverage ratio of more than 1.0 times. (For more details, see the Analysis section in the Morningstar DBRS presale report.)

Furthermore, Morningstar DBRS reviewed the third-party participants in the transaction, including the property manager, servicer, and special servicer. These transaction parties are acceptable to Morningstar DBRS. (For more details, see the Property Manager and Servicer Summary section in the Morningstar DBRS presale report.) Morningstar DBRS also conducted a legal review and found no material rating concerns. (For details, see the Scope of Analysis section in the Morningstar DBRS presale report.)

Morningstar DBRS’ credit ratings on the Certificates address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated Certificates are the related Interest Distribution Amounts, Deferred Interest Distribution Amounts, and Principal Distribution Amounts.

Morningstar DBRS’ credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings.

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

The principal methodology applicable to the credit ratings is Rating and Monitoring U.S. Single-Family Rental Securitizations (November 23, 2022; https://dbrs.morningstar.com/research/405662).

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

DBRS, Inc.
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New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://dbrs.morningstar.com/research/415687)
-- Legal Criteria for U.S. Structured Finance (December 7, 2023; https://dbrs.morningstar.com/research/425081)
-- Operational Risk Assessment for U.S. RMBS Originators (August 31, 2023; https://dbrs.morningstar.com/research/420106)
-- Operational Risk Assessment for U.S. RMBS Servicers (August 31, 2023; https://dbrs.morningstar.com/research/420107)
-- Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023; https://dbrs.morningstar.com/research/414076)

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