Sends Letter to Stockholders Exposing That
the Amended Agreement Perpetuates the Same “Growth at All Costs”
Strategy That Has Led to $500+ Million in Value Destruction Since
2015
Contends That New Agreement Weakens Some of
the Company’s Key Rights and Does Not Even Contemplate Total
Shareholder Returns as a Performance Metric for
Altisource Asset Management Corporation
Reminds Stockholders That George Ellison is
CEO and a Director of Both Companies, including Chairman of
Altisource Asset Management Corporation
Questions How Front Yard’s Independent
Directors – Who Are Bound by Fiduciary Duties – Could Support an
Agreement That Incentivizes Front Yard’s External Manager to Grow
its Fees at the Expense of NAV Realization
Urges Stockholders to Vote the BLUE Proxy Card to Elect the Full Snow Park Slate,
Which Will Bring Independent Stockholder Voices to the Boardroom
and Push for a Strategic Review of All Alternatives
Snow Park Capital Partners, LP (together with its affiliates,
“Snow Park” or “we”), a significant long-term stockholder of Front
Yard Residential Corporation (NYSE: RESI) (“Front Yard” or the
“Company”), which together with the other participants in its
solicitation beneficially owns approximately 2.1% of the Company’s
outstanding shares, today sent a letter to stockholders in
connection with its nomination of three highly-qualified,
independent candidates – stockholders Leland Abrams, Lazar Nikolic
and Jeffrey Pierce – for election to the Company’s Board of
Directors at the upcoming annual meeting of stockholders. The
letter focuses on what Snow Park believes are value-destructive
amendments to Front Yard’s external management agreement with
Altisource Asset Management Corporation – changes that we feel
perpetuate the same problems that led to the value erosion in the
first place.
Snow Park urges all stockholders to vote the BLUE proxy card today. For more
information and voting resources, please visit
www.RenewRESI.com.
Below is the full text of the letter.
***
May 9, 2019
Dear Fellow Stockholders,
Snow Park Capital Partners, LP (together with its affiliates,
“Snow Park” or “we”) believes that stockholders of Front Yard
Residential Corporation (“Front Yard” or the “Company”) continue to
endure indefensible underperformance and staggering value
destruction that can only be reversed by a reconstituted Board of
Directors (the “Board”) that possess the experience, expertise,
independence, and will to implement a credible strategy for
realizing management’s stated Net Asset Value (“NAV”) of $17.50 per
share.1 The facts are clear to us: Front Yard’s share price is down
roughly 50% since 2015 due to strategic lapses that include
significant NAV erosion, uncontrolled expenses and balance sheet
deterioration. Now, rather than finally heed stockholders’ call for
an actionable plan to generate returns for the first time in four
years, we feel the incumbent Board has once again misled Front
Yard’s real owners in order to put management’s interests
first.
We firmly believe that Front Yard’s
amended external management agreement with Altisource Asset
Management Corporation (“AAMC”) incentivizes reckless growth and
fuels the same conflicts that have led to stockholder
losses.2 We urge all stockholders to recognize that this
development is not the ingredient of a successful strategy for
realizing the tremendous real estate value that remains trapped
within Front Yard’s underperforming shares. To the contrary, Snow
Park feels the amendments actually further misalign the interests
of management and stockholders – making the need for real ownership
perspectives in the boardroom all the more important.
We Believe Front
Yard’s Amended Agreement with AAMC Perpetuates Conflicts and
Benefits Management Rather Than Stockholders
As a consequence of the amended agreement, we believe
stockholders have been forced to sacrifice valuable flexibility and
leverage over AAMC. Moreover, instead of being held to account for
the poor returns it has generated, AAMC has now been provided with
an unwarranted extension for five years, thereby perpetuating its
sub-par management.
We feel stockholders must focus on what has really occurred this
week despite Front Yard’s best efforts to mischaracterize the
amended agreement as a victory: the Board and management have
perversely crystalized a flawed structure and an incentive package
with its external manager that preserves the status quo and offers
zero accountability for stockholder
returns. Snow Park believes this should be particularly
disheartening to all stockholders given that we have collectively
lost more than $500 million in value since 2015 at the hands of
this manager. Meanwhile, our “independent” directors have rewarded
AAMC with a contract extension and a pat on the back to keep
going.
Unfortunately, yesterday’s development does not come as a
surprise to us given the obvious web of conflicts that exist at
Front Yard and AAMC. George Ellison is not only the chief executive
at both companies, but also the Chairman at AAMC (where he is a
large stockholder) and a director on Front Yard’s Board. Mr.
Ellison is supervised by a Board that includes his former
colleagues from Bank of America and many of the same directors that
presided over the massive destruction of wealth that stockholders
have suffered since he took over in 2015.
Our view is that these facts should only reinforce to
stockholders that highly-qualified, independent and impartial
voices are needed in the boardroom to ensure that actions are taken
with the best interests of stockholders – the true owners of the
Company – in mind. If elected, Snow Park’s nominees will serve as
this truly independent check on what we consider to be the
incumbent Board’s self-serving decisions and its
growth-at-all-costs business plan that does not aim to finally
deliver returns after years of stockholder suffering.
Disrupt the Status
Quo: Elect Directors That Will Prioritize Stockholder Returns and
Not the Blind Growth Incentivized Under the Amended
Agreement
On the heels of the amended AAMC agreement, which appears to
have emboldened Front Yard’s leaders, we feel stockholders should
be more concerned than ever about the damage that can be done by a
poorly-supervised management team that is incentivized to overlook
the Company’s excessive leverage and high General &
Administrative (“G&A”) expenses on route to pursuing
unprofitable growth. Fortunately, there is an alternative to the
status quo that can bring checks and balances to the Board.
We urge stockholders to elect Snow Park’s slate of
highly-qualified and independent nominees – stockholders Leland
Abrams, Lazar Nikolic and Jeffrey Pierce – that possesses
truly additive experience with respect to
acquisitions, operations, portfolio management and governance in
the Real Estate Investment Trust (“REIT”) sector. Our
nominees not only bring superior expertise and understanding of the
REIT landscape, but each of Snow Park’s director candidates
understands the fundamentals and operating
realities of the single-family resident market due to their
respective experiences analyzing, investing in, and overseeing the
management of individual properties across various markets.
These are the types of qualifications that Front Yard’s current
independent directors lack, in our view, as evidenced once again
this week by their capitulation on the amended AAMC agreement.
In addition to their additive abilities and perspectives, our
nominees stand for sharper strategic thinking across the business,
enhanced accountability for management, improved governance, and
open-mindedness with regard to retaining experts to help conduct a
strategic review and evaluate all alternatives. In contrast to our
slate’s philosophy, we believe the current Board is comfortable
with the same growth-at-all-costs approach that fails to consider
Front Yard’s structural limitations, including its highly-leveraged
balance sheet and industry-worst G&A expenses.
We Believe the Snow
Park Slate – Unlike the Incumbent Board – Has the Independence and
Vision to Push Front Yard to Realize the Tremendous Real Estate
Value Trapped Within its Shares
As previously disclosed, if elected to the Board, our plan is to
evaluate several potential paths to realizing management’s stated
NAV of $17.50 per share3 – which represents a sizable premium
relative to Front Yard’s presently underperforming shares. These
paths include:
1. Full Sale of the Company – Given that
there has been a tremendous amount of private capital flowing into
real estate investment vehicles in recent years, we believe now is
the time for Front Yard to consider exploring a sale to a company
with the operating efficiencies and scale to realize the full value
of the portfolio. Despite yesterday’s development, we still believe
this option offers stockholders significant benefits, including
realizing a sizable premium on Front Yard’s underperforming shares.
Management has only offered growth – despite Front Yard’s valuation
gap and no identifiable capital sources – as a strategy.
2. Asset Sales to De-Lever and Grow
Distributions – The significant amount of private capital
that has flowed into real estate investment vehicles provides a
tailwind for Front Yard to explore an orderly sale process for
parcels within its portfolio. We believe this option – although
secondary to an outright sale – still offers stockholders
significant benefits over time, including decreasing Front Yard’s
valuation gap and returning capital to stockholders. To the
contrary, management and the incumbent Board continue to blindly
speak about growth despite the destructive results that its
leveraged-fueled acquisition spree has led to over the past four
years.
3. Cost-Cutting Initiatives to Pursue
Profitability at 16,000 Home Level – If necessary, Front
Yard can drastically reduce costs across the board to try to
demonstrate to stockholders that 16,000 homes can be operated
profitably. Executing at this scale could possibly enable the
Company to issue more equity at reasonable levels and increase
scale. Simply put, the Company has leveraged nearly every asset it
has – it is not realistic to expect stockholders to fund growth if
management cannot maintain a reasonable fixed cost structure.
We urge Front Yard stockholders to vote FOR
all three of Snow Park’s highly-qualified, independent nominees on
the BLUE Proxy Card and to return it
in your postage-paid envelope provided. If you have already voted
Front Yard’s proxy card, you can change your vote by providing a
later dated BLUE proxy.
Should you have any questions or need
assistance with voting, please contact Saratoga Proxy Consulting
LLC at (888) 368-0379 or (212) 257-1311 or by email at
info@saratogaproxy.com.
PROTECT YOUR INVESTMENT. PLEASE SIGN,
DATE, AND MAIL THE BLUE PROXY CARD
TODAY!
Sincerely,Jeffrey Pierce
***
About Snow Park
Snow Park Capital Partners, LP is a privately-held investment
manager that specializes in investing in publicly-traded real
estate securities across the capital structure. Based in New York
City and founded by Jeffrey Pierce, the firm focuses on producing
strong risk-adjusted returns for a diverse investor base of public
institutions, private entities and qualified individual
clients.
1 A NAV of $17.50 was set forth in Front Yard Residential
Corp.’s February 2019 earnings call transcript. 2 Front Yard
Residential Corporation’s Form 8-K, Filed May 8, 2019 3 A NAV of
$17.50 was set forth in Front Yard Residential Corp.’s February
2019 earnings call transcript.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190509005747/en/
For Investors:Saratoga Proxy Consulting LLCJohn Ferguson / Joe
Mills, 212-257-1311jferguson@saratogaproxy.com /
jmills@saratogaproxy.comFor Media:ProfileGreg Marose / Charlotte
Kiaie, 347-343-2999gmarose@profileadvisors.com /
ckiaie@profileadvisors.com
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