Highlights Incumbent Board’s Actions Designed to Enhance Long-Term
Stockholder Value, Track Record of Execution, and Relevant Skills and
Industry Expertise Necessary to Continue to Position Company for Success
Underscores Snow Park’s Serious Conflicts of Interest,
Misalignment with Stockholders and Nominees’ Lack of Applicable
Experience
Urges Stockholders to Vote the WHITE
Proxy Card “FOR ALL” of Front Yard’s
Director Nominees Who Are Highly Qualified and Committed to Enhancing
Long-Term Value for Stockholders
CHRISTIANSTED, U.S. Virgin Islands–(BUSINESS WIRE)–Front Yard Residential Corporation (“Front Yard” or the “Company”)
(NYSE:RESI) is today mailing a letter to stockholders in connection with
the Company’s upcoming 2019 Annual Meeting of Stockholders on May 23,
2019. Front Yard urges stockholders to protect their investment by
voting the WHITE proxy card “FOR ALL”
seven of its highly qualified director nominees: Rochelle R. Dobbs,
George G. Ellison, Michael A. Eruzione, Leslie B. Fox, Wade J.
Henderson, George “Whit” McDowell, and David B. Reiner.
Highlights from the letter include:
-
Board’s broad, diverse experience and relevant skills that have
resulted in successful execution on the Company’s strategy to build a
large, leading portfolio of affordable single-family rental homes; -
The significant progress made on the Company’s strategic growth
initiatives designed to generate long-term stockholder value, as
evidenced by improved financial and operating results for the first
quarter of 2019; -
Front Yard’s amended, simplified and stockholder-friendly asset
management agreement with Altisource Asset Management Corporation
(“AAMC”), which was well received by the market, stockholders and
analysts; -
Front Yard’s actively engaged, independent and accountable Board of
Directors (the “Board”), which is committed to strong corporate
governance practices, ensuring proper oversight and acting in the best
interests of all stockholders; -
Snow Park Capital Partners and certain of its affiliates’
(collectively “Snow Park”) significant conflicts of interest given its
substantial short position in Front Yard disclosed on page 21 of its
proxy statement, and significant ownership stake in AAMC that put
their interests at direct odds with those of Front Yard’s
stockholders; and -
Snow Park’s unqualified and unvetted director nominees, whose election
to the Board would disrupt Front Yard’s successful transformation at a
critical juncture.
Front Yard stockholders are reminded that their vote is extremely
important, no matter how many shares they own. The Front Yard Board
unanimously urges stockholders to protect the value of their investment
by using the WHITE proxy card to vote “FOR ALL” of Front
Yard’s director nominees. The Front Yard Board advises all stockholders
to simply discard any Blue proxy card received from Snow Park. Instead,
to follow the Board’s recommendation, stockholders should use the WHITE
proxy card to vote “FOR ALL” seven of Front Yard’s director
nominees.
The full text of the letter is below.
May 15, 2019
Dear Fellow Front Yard Residential Stockholder:
At our upcoming 2019 Annual Meeting of Stockholders on May 23, 2019, you
will be asked to make an important decision regarding the future of
Front Yard Residential Corporation (“Front Yard” or the “Company”), our
Board of Directors (the “Board”), and ultimately the direction of our
Company and the value of your investment.
Your Board and management team have transformed Front Yard into a
single-family rental (“SFR”) equity REIT that is just beginning to
achieve the benefits of scale in order to win in this environment and
capture the significant upside potential in the U.S. housing market over
the near- and longer-terms. This transformation is already delivering
results and positioning Front Yard to create even more value in the
future. We are confident in our prospects, and our latest quarterly
results coupled with the renegotiation of our asset management agreement
demonstrate that our Board has put Front Yard on the right path and is
acting in the best interests of all stockholders.
Stockholders should also recognize that a vote on the Blue proxy card is
a vote to replace three highly qualified, experienced directors with
three unqualified, unknown and unvetted nominees who would not bring any
new or relevant skills to the Board. Front Yard believes that the
addition of the nominees put forth by Snow Park Capital Partners and
certain of its affiliates (collectively “Snow Park”) to the Front Yard
Board could result in significant disruption to the Company’s ongoing
successful transformation. Furthermore, as discussed in greater detail
below, stockholders are encouraged to consider Snow Park’s
significant conflicts of interest given its substantial short position
in Front Yard and significant ownership stake in the Company’s external
asset manager, Altisource Asset Management Corporation (“AAMC”).
Please use the enclosed WHITE proxy
card to vote “FOR ALL” of Front Yard’s director nominees:
Rochelle R. Dobbs, George G. Ellison, Michael A. Eruzione, Leslie B.
Fox, Wade J. Henderson, George “Whit” McDowell, and David B. Reiner. We
urge you to vote by telephone, by Internet or by signing and dating the WHITE
proxy card and returning it in the postage-paid envelope provided.
FRONT YARD’S INCUMBENT BOARD HAS A TRACK RECORD OF EXECUTION,
PRESIDING OVER THE SUCCESSFUL PORTFOLIO TRANSFORMATION AND RENEGOTIATION
OF OUR ASSET MANAGEMENT AGREEMENT
Repositioning an entire company takes conviction, confidence and
patience. Just over three years ago, Front Yard’s Board identified an
untapped opportunity in the affordable SFR market and developed a clear
plan to accelerate rental portfolio growth and become the leading
provider of quality housing to working class families across the United
States. In fact, as a result of the Company’s focus on affordable
housing, Front Yard was able to obtain $508.7 million of 10-year, fixed
rate financing as part of the largest loan under Freddie Mac’s
affordable SFR pilot program, a strong government-sponsored lender
affirmation of the Company’s portfolio transformation strategy.
Under the stewardship of our current Board, Front Yard has established
its position as a market leader in this attractive, growing space and is
now poised to reap the benefits and expects to deliver improved
financial and operating performance. Since May 2016, our Directors have
taken decisive steps to solidify the Company’s future:
-
Built Critical Mass of 15,000 Rental Homes – Acquired more than
11,000 additional revenue-generating SFRs since March 31, 2016 without
raising additional equity capital, allowing the Company to achieve
scale in several key target markets; -
Exponentially Grew Rental Revenue from Long Term, Core Rental
Portfolio – Increased first quarter rental revenues from $6.1
million as of March 31, 2016 to $52.6 million as of March 31, 2019; -
Disposed of Nonstrategic Legacy Assets – Sold approximately
9,000 mortgage loans and non-rental real estate owned properties since
March 31, 2016, to complete the transition from a mortgage REIT into a
pure SFR equity REIT; -
Internalized Property Management – Gained additional control
over operating costs and resident relations by acquiring an internal
property management platform and transitioning approximately 11,000
rental homes away from its external property management vendors; -
Improved Asset Management Agreement – Negotiated a new,
simplified and stockholder-friendly asset management agreement (the
“Amended AMA”) with AAMC that creates a foundation for sustainable
growth and includes a flexible market-based termination right; and -
Strengthened Balance Sheet – Optimized financing arrangements
by transitioning away from repurchase facilities into term loan
facilities with significantly longer maturities, lower interest rates
and less interest rate volatility, resulting in a weighted average
debt maturity of 5.5 years as of the first quarter of 2019 with 92% of
all debt having fixed or capped interest rate exposure.
Although these improvements have not materialized in stock price
appreciation to date, these achievements are already generating results.
The Company’s financial and operating results for the first quarter of
2019 are evidence of this progress:
-
Increased revenues by 32% to $52.6 million compared to the first
quarter of 2018. -
Core Funds from Operations per diluted share were $0.07 for the first
quarter of 2019, up 47% compared to Q1 2018.1 - Stabilized Rental Core Net Operating Income Margin was 62.7%.1
- 95.7% of stabilized rentals were leased at March 31, 2019.
-
Sold 576 non-core assets for proceeds of $125.3 million and a $7.5
million gain over carrying value during the first quarter of 2019.
Now that the internalization of property management and new fee
structure under the Amended AMA are complete, these items should
translate into growing returns and cash flows that will support stock
price appreciation and improve total shareholder return (“TSR”).
The Amended AMA is the most recent example of the current Board’s
proactivity, strategic vision, independence and focus on providing
long-term stockholder value. The Amended AMA provides an improved fee
structure that further aligns interests and incentivizes performance and
disciplined growth while prioritizing near-term profitability targets,
as well as ensuring that expenses as a percentage of real estate assets
fall as we grow. The Board worked extensively with independent financial
and legal advisors to ensure that the Amended AMA would meet or exceed
market standards. Specifically, the Amended AMA:
-
Does NOT increase fees paid to
AAMC until Front Yard reaches its stated target of $0.15 per share of
quarterly Adjusted Funds from Operations (“AFFO”); -
Decreases the management fees as a percentage of gross real estate
assets as Front Yard grows to bring Front Yard’s G&A in line with
larger industry peers; -
Provides that no Incentive Fee is payable to AAMC until Front Yard
achieves $0.60 per share of annual AFFO; -
Employs an “Aggregate Fee Cap” to further ensure that G&A remains in
line with market; -
Further aligns interests with stockholders by incentivizing the
manager to grow cash flow; -
Unlike the former asset management agreement, provides Front Yard with
the option to terminate the Amended AMA at any time for a reasonable,
market-based termination fee; and - Reduces cost of raising new capital.
These important changes in the AMA were all designed to further
improve Front Yard’s operating metrics, enable Front Yard to generate
dividend-covering cash flows and improve TSR. In fact, the announcement
of the Amended AMA on May 8, 2019 was well received by the market, our
stockholders and the analysts that understand our business best.
Front Yard’s stock price rose approximately 10% following the
announcement of the Amended AMA.
We are confident that the Amended AMA, coupled with the completion of
our internalization of property management well ahead of schedule and
continued improvement in our operating metrics, position Front Yard to
deliver long-term value to its stockholders, further increase scale and
take advantage of the exceptional opportunity in the affordable SFR
sector.
SNOW PARK IS HIGHLY CONFLICTED GIVEN ITS SUBSTANTIAL SHORT POSITION
IN FRONT YARD AND SIGNIFICANT OWNERSHIP STAKE IN AAMC
Snow Park is a highly conflicted hedge fund composed of short-term
traders and is not a “true owner” of Front Yard given its significant
stake in AAMC and substantial short position in Front Yard. On page 21
of its proxy statement, Snow Park states that it “has a short
interest in 450,000 shares” of Front Yard, meaning that Snow Park’s
economic exposure in the Company is less than 0.5%. In addition, Snow
Park’s disclosed option positions further erode any true ownership
interest in Front Yard.
Conversely, Snow Park owns more than a 5% interest in AAMC and
discloses the following possible conflict of interest in its proxy
statement: “Snow Park does not presently believe that its ownership of
AAMC securities creates a conflict of interest; however, it acknowledges
that in the future conflicts of interest could arise due to potential
competing economic interests between AAMC and Front Yard.”
Moreover, we believe the trader mentality that led Snow Park to sell
Front Yard shares no fewer than 75 times in the last two years is
fundamentally inconsistent with the current Board’s substantial efforts
to build long-term stockholder value.
Snow Park’s public criticism of the Amended AMA is troubling in light of
its acknowledged potential conflict of interest. The Company regularly
engages with its stockholders, including Snow Park, and Snow Park has
been a vocal advocate for several changes to the prior asset management
agreement that were not in the best interests of Front Yard’s
stockholders. Most notably, in a presentation to management, Snow Park
recommended a new asset management agreement with a 20-year initial term
and a termination for convenience fee “equal to the sum of the present
values of Monthly Future Fees payable for the Remaining Term determined
by assuming […] the present value of that fee by applying a discount
rate to that fee equal to one-twelfth (1/12) the sum of the applicable
Treasury Rate plus 300 basis points.”
If the Front Yard Board had ignored their fiduciary duties and instead
accepted the Snow Park proposal, a termination for convenience exercised
by the Company today would have resulted in a $175 million
termination fee being payable to AAMC (approximately 12 times the
2018 aggregated management fees paid to AAMC), an industry-worst
termination right for Front Yard, but an industry-best for AAMC.
Instead, the Front Yard Board negotiated a termination for
convenience fee of approximately $51 million (3 times the average
aggregate fees actually paid to AAMC in the 3 prior years) if exercised
today, in line with established industry norms. This is further evidence
that the Board is focused on what is best for Front Yard’s stockholders,
not AAMC’s.
SNOW PARK’S UNQUALIFIED NOMINEES WILL DISRUPT OUR PROGRESS AND
PROCESS WE HAVE IN PLACE TO EXECUTE ON OUR STRATEGIC INITIATIVES
Furthermore, Snow Park’s nominees have little to no experience in the
ownership and management of SFR homes and possess repetitive,
finance-related backgrounds in business lines that Front Yard
transitioned away from years ago. Moreover, Snow Park’s recent
ill-informed and misleading assertions related to the Amended AMA
demonstrate a fundamental lack of understanding of Front Yard’s
business, how external management agreements are structured, and the
broader SFR sector.
Based on its nominees’ credentials, Snow Park appears to erroneously
equate experience in trading securities related to real estate with
experience in business operations and the ownership and management of
actual residential properties. Snow Park’s nominees also have limited
public company board or management experience, and do not include a
single female nominee. Accordingly, Snow Park’s
nominees do not meet the standards Front Yard expects and stockholders
deserve. Snow Park’s failure to present constructive plans to
improve Front Yard’s performance and create long-term stockholder value
serves as further evidence of their misunderstanding of the Company
today and where it is headed.
This conflicted interest and lack of alignment with Front Yard
stockholders, along with the Snow Park nominees’ lack of oversight
experience, would drastically alter the composition of Front Yard’s
boardroom to the detriment of all stockholders.
Replacing key Front Yard directors with Snow
Park’s unqualified, unknown and unvetted nominees at this critical time
would risk derailing Front Yard’s continued path toward growth and
enhancing stockholder value. Snow Park’s nominees simply do not possess
the skills required to help us execute on our transformation.
FRONT YARD’S BOARD HAS THE RIGHT EXPERIENCE AND NECESSARY SKILLS TO
DRIVE LONG-TERM STOCKHOLDER VALUE
Looking ahead, Front Yard’s strategy is to build long-term stockholder
value through the creation of a large SFR portfolio that we target
operating at a best-in-class yield. As in years past, the Board’s active
oversight and involvement in the execution of this strategy will be
instrumental to its success, and we are confident that we have the right
directors in place.
The Front Yard Board possesses the right combination of broad, diverse
experience and skills pertinent to the Company’s direction and goals,
including extensive experience in real estate management and investing,
accounting, asset finance and transactions, and structured products.
Below please find additional background information on Front Yard’s
seven highly-qualified director nominees.
-
Rochelle R. Dobbs, Chair of the Board of Directors, has
extensive mortgage, real estate, structured products and transactional
experience. She is currently President of R Dobbs Partners LLC, a New
York-based consulting firm focused on commercial real estate
transactions, including debt restructures, distressed debt purchases,
and debt/equity originations. Previously, Ms. Dobbs served as a
Managing Director and Head of Real Estate Structured Finance (US) and
Head of CMBS Capital Markets at Bank of America Merrill Lynch, and
before that, she was a Managing Director and Head of Loan Origination
at Chase Manhattan Bank where she managed a nationwide origination
group for Chase’s newly created commercial mortgage backed securities
business. -
George G. Ellison, CEO of Front Yard and AAMC, has extensive
mortgage, real estate, structured products and transactional
experience. Prior to joining Front Yard and AAMC, Mr. Ellison spent
nearly twenty years at Bank of America and its predecessor,
NationsBank, where he most recently led the team that managed the
valuation and disposition of Bank of America’s legacy mortgage loan
portfolio and worked to resolve Bank of America’s representation and
warranty litigation. Previously, he served as Global Head of the
Structured Products division within Bank of America’s Investment
Banking platform. -
Michael A. Eruzione, who has a diverse background and
experience in brand development and management and in representing
major corporations as a spokesperson and motivational speaker,
provides insight to the Board, particularly with respect to the
development of the Company’s brand and strategic relationships. Mr.
Eruzione was captain of the 1980 United States Olympic Hockey Team
that won the gold medal in Lake Placid, NY. -
Leslie B. Fox, who has been nominated to serve on the Board
following the 2019 Annual Meeting, has extensive SFR and REIT
experience. She most recently served as Chief Operating Officer and
Executive Vice President of Invitation Homes LP, the largest
owner/operator of single-family housing rentals in the United States,
from March 2014 to March 2016, when she retired. Prior to joining
Invitation Homes, Ms. Fox served as Chief Operating Officer of
American Residential Communities LLC, one of the largest operators of
manufactured housing communities in the country, and as the President
of the affordable housing division at Equity Residential. -
Wade J. Henderson, whose vast experience with social justice
issues, commitment to equality and experience with legislative
advocacy, provides the Company with valuable insight into the needs of
our prospective tenants and strategies for socially responsible
growth. For more than two decades, Mr. Henderson has served as the
President and CEO of The Leadership Conference on Civil and Human
Rights and The Leadership Conference Education Fund. He engages in
legislative advocacy on behalf of more than 200 national organizations
to promote and protect the civil and human rights of all persons in
the United States. -
George Whitfield (“Whit”) McDowell, Chair of the Company’s
Audit Committee and member of the Compensation Committee, has
extensive asset finance experience and provides valuable insight to
the Board in relation to the financing of the Company’s portfolio of
SFR properties. In 2017, Mr. McDowell retired from his role as a
Managing Director at Bank of America Merrill Lynch in Charlotte, NC,
where he ran the Securitization Finance business for more than 20
years and was responsible for the Subscription Finance business at his
retirement. Mr. McDowell is a Certified Public Accountant and member
of the American Institute of Certified Public Accountants. -
David B. Reiner has significant real estate investment
expertise, particularly with respect to capital market activities,
investment strategies and funding operations. Mr. Reiner served as a
Managing Director with Regional Real Estate Investment Corporation
(“RREIC”), a registered investment advisor that manages private
investment funds that make opportunistic real estate investments.
Previously, he served as a Managing Director of Grosvenor Investment
Management US Inc. (“GIM”), a real estate investment fund, where he
was responsible for the development and implementation of business
strategy, capital markets activities, fund and investment development,
fund-raising, fund operations and investor relations. He also was a
member of the Management and Investment Committees for GIM’s
Investment Funds business and served on the Capital Markets Committee
of Grosvenor Fund Management Ltd. Prior to that, Mr. Reiner was a
Co-founder and Managing Director of Legg Mason Real Estate Investors,
Inc., a specialty real estate lender that provided mezzanine and
bridge loans to the commercial real estate industry.
The addition of a seasoned real estate veteran such as Ms. Fox,
alongside our existing experienced directors, would further bolster the
Company’s deep-bench of Board talent, diverse experience and independent
perspectives. Her background and relevant SFR industry knowledge will
prove invaluable as Front Yard continues to grow.
FRONT YARD’S BOARD IS COMMITTED TO ACTING IN THE BEST INTERESTS OF
ALL STOCKHOLDERS
The Front Yard Board is tailored to provide
independent leadership and oversight. Importantly, the Company
has separate Chair and CEO roles, all directors aside from the CEO are
independent, and all of the Board’s committees are chaired by and
consist of independent directors. The median tenure of our Board members
is 3.5 years, and four new, independent directors have been added to our
Board since 2015, ensuring fresh, diverse perspectives are consistently
brought to the table.
Furthermore, Front Yard has robust Board oversight processes and
procedures set in place. Board approval is required for a range of
matters, including business performance, capital expenditures,
employee/director matters and corporate governance, among others. The
Board also regularly monitors and manages risk exposure throughout the
business and the Company’s Investment Policy is reviewed by the Board
annually.
The Front Yard Board has a consistent history of
proactive and ongoing stockholder engagement. The Board welcomes
and encourages open dialogue with stockholders and is highly responsive
to your feedback. Over the past year, members of the Board and
management have met with stockholders representing more than 50% of the
Company’s outstanding stock. Initiatives undertaken based on stockholder
feedback include internalization of property management, company
rebranding, sales of non-performing loans, share buybacks and nomination
of independent directors with accounting and SFR experience.
The Front Yard Board fosters a
Contacts
Investors:
Robin N. Lowe
Chief Financial Officer
(345)
815-9919
[email protected]
Media:
Jonathan Gasthalter/Nathaniel Garnick
Gasthalter & Co.
(212)
257-4170
[email protected]
