Front Yard Residential Corporation (“Front Yard” or the “Company”)
(NYSE: RESI) today announced financial and operating results for
the fourth quarter and full year of 2019.
Fourth Quarter 2019 Highlights and
Recent Developments
- Entered into definitive merger agreement on February 17, 2020
with affiliates of Amherst Residential, LLC (“Amherst”) whereby
Amherst will acquire Front Yard for $12.50 per share in a
transaction valued at approximately $2.3 billion, including debt to
be assumed or refinanced.
- Increased rental revenue by 2.6% over third quarter 2019 to
$52.1 million.
- Full-company Core Funds from Operations was $0.05 per diluted
share.¹
- Stabilized Rental Core Net Operating Income Margin was
57.6%.¹
- 95.0% of stabilized rentals were leased at December 31,
2019.
- Fully divested all remaining mortgage loans.
- Sold 92 non-core homes, resulting in a net gain of $1.5 million
over carrying value.
- 91% of debt had fixed or capped rates at December 31, 2019
compared to 87% at December 31, 2018.
- Weighted average debt maturity was 4.7 years at December 31,
2019.
“Our fourth quarter numbers reflect the team's continued focus
on improving the operating metrics and financial performance of our
rental portfolio,” said Chief Executive Officer, George Ellison.
“We believe our transaction with Amherst allows us to realize
immediate value for our shareholders and further enhance the
experience of our residents.” ________________¹ Core Funds
from Operations and Stabilized Rental Core Net Operating Income
Margin are non-GAAP measures. Refer to the Reconciliation of
Non-GAAP Financial Measures section for further information and
reconciliation to GAAP net loss.
Fourth Quarter and Full Year 2019 GAAP Financial
Results
Net loss for the fourth quarter of 2019 improved to $25.5
million, or $0.47 per diluted share, compared to a net loss of
$34.2 million, or $0.64 per diluted share, for the fourth quarter
of 2018. Net loss for the year ended December 31, 2019 improved to
$105.4 million, or $1.96 per diluted share, compared to a net loss
of $130.8 million, or $2.44 per diluted share, for the year ended
December 31, 2018.
About Front Yard Residential Corporation
Front Yard is an industry leader in providing quality,
affordable rental homes to America’s families. Our homes offer
exceptional value in a variety of suburban communities that have
easy accessibility to metropolitan areas. Front Yard's tenants
enjoy the space and comfort that is unique to single-family housing
at reasonable prices. Our mission is to provide our tenants with
houses they are proud to call home. Additional information is
available at www.frontyardresidential.com.
Forward-looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, regarding management’s beliefs, estimates, projections,
anticipations and assumptions with respect to, among other things,
the Company’s financial results, future operations, business plans
and investment strategies as well as industry and market
conditions. These statements may be identified by words such as
“anticipate,” “intend,” “expect,” “may,” “could,” “should,”
“would,” “plan,” “estimate,” “target,” “seek,” “believe” and other
expressions or words of similar meaning. We caution that
forward-looking statements are qualified by the existence of
certain risks and uncertainties that could cause actual results and
events to differ materially from what is contemplated by the
forward-looking statements. Factors that could cause our actual
results to differ materially from these forward-looking statements
may include, without limitation, our ability to implement our
business strategy; our ability to make distributions to
stockholders; the occurrence of any event, change or other
circumstances that could give rise to the termination of the
Agreement and Plan of Merger with affiliates of Amherst; the
inability to complete the proposed merger due to the failure to
obtain stockholder approval for the proposed merger or the failure
to satisfy other conditions to completion of the proposed merger;
risks related to disruption of management’s attention from our
ongoing business operations due to the merger transaction; the
effect of the announcement of the proposed merger on our
relationships with our customers, operating results and business
generally; the risk that the proposed merger will not be
consummated in a timely manner; exceeding the expected costs of the
merger; our ability to successfully implement our strategic
initiatives and achieve their anticipated impact; our ability to
manage changes in our management team and changes resulting from
our workforce reduction and office closures; our ability to acquire
single-family rental (“SFR”) assets for our portfolio, including
difficulties in identifying assets to acquire; the impact of
changes to the supply of, value of and the returns on SFR assets;
our ability to successfully integrate newly acquired properties
into our portfolio of SFR properties; our ability to successfully
operate HavenBrook Partners, LLC (“HavenBrook”) as a property
manager and perform property management services for our SFR assets
at the standard and/or the cost that we anticipate; our ability to
predict our costs; our ability to effectively compete with our
competitors; our ability to apply the proceeds from financing
activities or non-rental real estate owned asset sales to target
SFR assets in a timely manner; our ability to sell non-rental real
estate owned properties on favorable terms and on a timely basis or
at all; the failure to identify unforeseen expenses or material
liabilities associated with asset acquisitions through the due
diligence process prior to such acquisitions; changes in the market
value of our single-family rental properties and real estate owned;
changes in interest rates; our ability to obtain and access
financing arrangements on favorable terms or at all; our ability to
maintain adequate liquidity; our ability to retain our engagement
of Altisource Asset Management Corporation; the failure of our
third party vendors to effectively perform their obligations under
their respective agreements with us; our failure to maintain our
qualification as a REIT; our failure to maintain our exemption from
registration under the Investment Company Act; the impact of
adverse real estate, mortgage or housing markets; the impact of
adverse legislative, regulatory or tax changes; and other risks and
uncertainties detailed in the “Risk Factors” and other sections
described from time to time in our current and future filings with
the Securities and Exchange Commission. In addition, financial
risks such as liquidity, interest rate and credit risks could
influence future results. The foregoing list of factors should not
be construed as exhaustive.
The statements made in this press release are current as of the
date of this press release only. The Company undertakes no
obligation to publicly update or revise any forward-looking
statements or any other information contained herein, whether as a
result of new information, future events or otherwise.
Front Yard Residential
CorporationConsolidated Statements of
Operations(In thousands, except share and per
share amounts)
| |
Three Months EndedDecember 31, |
|
Year Ended December 31, |
| |
2019 |
|
2018 |
|
2019 |
|
2018 |
| |
(unaudited) |
|
(unaudited) |
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
Rental revenues |
$ |
52,064 |
|
|
$ |
54,029 |
|
|
$ |
207,010 |
|
|
$ |
183,013 |
|
|
Total revenues |
52,064 |
|
|
54,029 |
|
|
207,010 |
|
|
183,013 |
|
|
Expenses: |
|
|
|
|
|
|
|
| Residential property operating
expenses |
19,595 |
|
|
18,615 |
|
|
77,775 |
|
|
63,987 |
|
| Property management
expenses |
3,964 |
|
|
3,903 |
|
|
15,364 |
|
|
13,189 |
|
| Depreciation and
amortization |
20,266 |
|
|
21,910 |
|
|
82,249 |
|
|
80,961 |
|
| Acquisition and integration
costs |
67 |
|
|
7,595 |
|
|
3,131 |
|
|
33,607 |
|
| Impairment |
1,367 |
|
|
1,740 |
|
|
4,458 |
|
|
12,734 |
|
| Mortgage loan servicing
costs |
75 |
|
|
368 |
|
|
902 |
|
|
1,521 |
|
| Interest expense |
20,327 |
|
|
24,492 |
|
|
84,137 |
|
|
77,035 |
|
| Share-based compensation |
1,539 |
|
|
1,144 |
|
|
5,926 |
|
|
3,024 |
|
| General and
administrative |
6,552 |
|
|
5,184 |
|
|
25,829 |
|
|
13,817 |
|
| Management fees to AAMC |
3,584 |
|
|
3,608 |
|
|
14,299 |
|
|
14,743 |
|
|
Total expenses |
77,336 |
|
|
88,559 |
|
|
314,070 |
|
|
314,618 |
|
| Net (loss) gain on real estate
and mortgage loans |
(117 |
) |
|
618 |
|
|
12,856 |
|
|
(145 |
) |
|
Operating loss |
(25,389 |
) |
|
(33,912 |
) |
|
(94,204 |
) |
|
(131,750 |
) |
| Casualty losses, net |
(114 |
) |
|
(611 |
) |
|
(978 |
) |
|
(552 |
) |
| Insurance recoveries |
144 |
|
|
340 |
|
|
730 |
|
|
588 |
|
| Other income (expense) |
14 |
|
|
7 |
|
|
(10,772 |
) |
|
925 |
|
|
Loss before income taxes |
(25,345 |
) |
|
(34,176 |
) |
|
(105,224 |
) |
|
(130,789 |
) |
| Income tax expense |
153 |
|
|
40 |
|
|
167 |
|
|
46 |
|
|
Net loss |
$ |
(25,498 |
) |
|
$ |
(34,216 |
) |
|
$ |
(105,391 |
) |
|
$ |
(130,835 |
) |
| |
|
|
|
|
|
|
|
| Loss per share of
common stock – basic: |
|
|
|
|
|
|
|
| Loss per basic share |
$ |
(0.47 |
) |
|
$ |
(0.64 |
) |
|
$ |
(1.96 |
) |
|
$ |
(2.44 |
) |
| Weighted average common stock
outstanding – basic |
53,881,854 |
|
|
53,630,204 |
|
|
53,772,094 |
|
|
53,552,109 |
|
| Loss per share of
common stock – diluted: |
|
|
|
|
|
|
|
| Loss per diluted share |
$ |
(0.47 |
) |
|
$ |
(0.64 |
) |
|
$ |
(1.96 |
) |
|
$ |
(2.44 |
) |
| Weighted average common stock
outstanding – diluted |
53,881,854 |
|
|
53,630,204 |
|
|
53,772,094 |
|
|
53,552,109 |
|
| |
|
|
|
|
|
|
|
| Dividends declared per common
share |
$ |
— |
|
|
$ |
0.15 |
|
|
$ |
0.45 |
|
|
$ |
0.60 |
|
Front Yard Residential
CorporationConsolidated Balance
Sheets(In thousands, except share and per share
amounts)
|
|
December 31, 2019 |
|
December 31, 2018 |
| Assets: |
|
|
|
| Real estate held for use: |
|
|
|
|
Land |
$ |
398,840 |
|
|
$ |
395,532 |
|
|
Rental residential properties |
1,707,043 |
|
|
1,667,939 |
|
|
Real estate owned |
16,328 |
|
|
40,496 |
|
|
Total real estate held for use |
2,122,211 |
|
|
2,103,967 |
|
|
Less: accumulated depreciation |
(206,464 |
) |
|
(137,881 |
) |
|
Total real estate held for use, net |
1,915,747 |
|
|
1,966,086 |
|
| Real estate assets held for
sale |
14,395 |
|
|
146,921 |
|
| Mortgage loans at fair
value |
— |
|
|
8,072 |
|
| Cash and cash equivalents |
43,727 |
|
|
44,186 |
|
| Restricted cash |
34,282 |
|
|
36,974 |
|
| Accounts receivable, net |
9,235 |
|
|
11,591 |
|
| Goodwill |
13,376 |
|
|
13,376 |
|
| Prepaid expenses and other
assets |
22,360 |
|
|
43,045 |
|
|
Total assets |
$ |
2,053,122 |
|
|
$ |
2,270,251 |
|
|
Liabilities: |
|
|
|
| Repurchase and loan
agreements |
$ |
1,644,230 |
|
|
$ |
1,722,219 |
|
| Accounts payable and accrued
liabilities |
64,619 |
|
|
72,672 |
|
| Payable to AAMC |
5,014 |
|
|
3,968 |
|
|
Total liabilities |
1,713,863 |
|
|
1,798,859 |
|
| |
|
|
|
| Commitments and
contingencies |
— |
|
|
— |
|
| |
|
|
|
| Equity: |
|
|
|
| Common stock, $0.01 par value,
200,000,000 authorized shares; 53,933,575 and 53,630,204 shares
issued and outstanding as of December 31, 2019 and 2018,
respectively |
539 |
|
|
536 |
|
| Additional paid-in
capital |
1,189,236 |
|
|
1,184,132 |
|
| Accumulated deficit |
(830,602 |
) |
|
(700,623 |
) |
| Accumulated other
comprehensive loss |
(19,914 |
) |
|
(12,653 |
) |
|
Total equity |
339,259 |
|
|
471,392 |
|
|
Total liabilities and equity |
$ |
2,053,122 |
|
|
$ |
2,270,251 |
|
Front Yard Residential
CorporationRegulation G Requirement:
Reconciliation of Non-GAAP Financial Measures(In
thousands, except share and per share
amounts)(Unaudited)
In evaluating Front Yard’s financial performance, management
reviews Funds from Operations (“FFO”), Core Funds from Operations
(“Core FFO”), Stabilized Rental Net Operating Income (“Stabilized
Rental NOI”), Stabilized Rental Net Operating Income Margin
(“Stabilized Rental NOI Margin”) and Stabilized Rental Core Net
Operating Income Margin (“Stabilized Rental Core NOI Margin”),
which exclude certain items from Front Yard’s results under U.S.
generally accepted accounting principles (“GAAP”). These metrics
are non-GAAP performance measures that Front Yard believes are
useful to assist investors in gaining an understanding of the
trends and operating metrics for Front Yard’s core business. These
non-GAAP measures should be viewed in addition to, and not in lieu
of, Front Yard’s reported results under U.S. GAAP.
The following provides related definitions of, and a
reconciliation of Front Yard’s U.S. GAAP results to FFO, Core FFO,
Stabilized Rental NOI, Stabilized Rental NOI Margin and Stabilized
Rental Core NOI Margin for the periods presented:
FFO and Core FFO: FFO is a supplemental
performance measure of an equity real estate investment trust
(“REIT”) used by industry analysts and investors in order to
facilitate meaningful comparisons between periods and among peer
companies. FFO is defined by the National Association of Real
Estate Investment Trusts (“NAREIT”) as GAAP net income or loss
excluding gains or losses from sales of property, impairment
charges on real estate and depreciation and amortization on real
estate assets adjusted for unconsolidated partnerships and jointly
owned investments.
We believe that FFO is a meaningful supplemental measure of our
overall operating performance because historical cost accounting
for real estate assets in accordance with GAAP assumes that the
value of real estate assets diminishes predictably over time, as
reflected through depreciation. Because real estate values have
historically risen or fallen with market conditions, management
considers FFO an appropriate supplemental performance measure as it
excludes historical cost depreciation, impairment charges and gains
or losses related to sales of previously depreciated homes from
GAAP net income. By excluding depreciation, impairment and gains or
losses on sales of real estate, FFO provides a measure of our
returns on our investments in real estate assets. However, because
FFO excludes depreciation and amortization and captures neither the
changes in the value of the homes that result from use or market
conditions nor the level of capital expenditures to maintain the
operating performance of the homes, all of which have real economic
effect and could materially affect our results from operations, the
utility of FFO as a measure of our performance is limited.
Our Core FFO begins with FFO and is adjusted for share-based
compensation; acquisition and integration costs; non-cash interest
expense related to deferred debt issuance costs, amortization of
loan discounts and mark-to-market adjustments on interest rate
derivatives; and other non-comparable items, as applicable. We
believe that Core FFO, when used in conjunction with the results of
operations under GAAP, is a meaningful supplemental measure of our
operating performance for the same reasons as FFO and is further
helpful as it provides a consistent measurement of our performance
across reporting periods by removing the impact of certain items
that are not comparable from period to period. Because Core FFO,
similar to FFO, captures neither the changes in the value of the
homes nor the level of capital expenditures to maintain them, the
utility of Core FFO as a measure of our performance is limited.
Although management believes that FFO and Core FFO increase our
comparability with other companies, these measures may not be
comparable to the FFO or Core FFO of other companies because other
companies may adopt a definition of FFO other than the NAREIT
definition, may apply a different method of determining Core FFO or
may utilize metrics other than or in addition to Core FFO.
The following table provides a reconciliation of net loss as
determined in accordance with U.S. GAAP to FFO and Core FFO:
| |
|
Three months endedDecember 31, 2019 |
|
GAAP net loss |
|
$ |
(25,498 |
) |
| |
|
|
| Adjustments to
determine FFO: |
|
|
| Depreciation and
amortization |
|
20,266 |
|
| Impairment |
|
1,367 |
|
| Net loss on real estate and
mortgage loans |
|
117 |
|
|
FFO |
|
(3,748 |
) |
| |
|
|
| Adjustments to
determine Core FFO: |
|
|
| Acquisition and integration
costs |
|
67 |
|
| Non-cash interest expense |
|
2,793 |
|
| Share-based compensation |
|
1,539 |
|
| Other adjustments |
|
2,130 |
|
|
Core FFO |
|
$ |
2,781 |
|
| |
|
|
| Weighted average common stock
outstanding - basic and diluted |
|
53,881,854 |
|
| FFO per share - basic and
diluted |
|
$ |
(0.07 |
) |
| Core FFO per share - basic and
diluted |
|
$ |
0.05 |
|
Stabilized Rental: We define a property as
stabilized once it has been renovated and then initially leased or
available for rent for a period greater than 90 days. All other
homes are considered non-stabilized. Homes are considered
stabilized even after subsequent resident turnover. However, homes
may be removed from the stabilized home portfolio and placed in the
non-stabilized home portfolio due to renovation during the home
lifecycle or because they are identified for sale.
Stabilized Rental NOI, Stabilized Rental NOI Margin and
Stabilized Rental Core NOI Margin: Stabilized Rental NOI
is a non-GAAP supplemental measure that we define as rental
revenues less residential property operating expenses of the
stabilized rental properties in our rental portfolio. We define
Stabilized Rental NOI Margin as Stabilized Rental NOI divided by
rental revenues. We define Stabilized Rental Core NOI Margin as
Stabilized Rental NOI divided by core rental revenues from
Stabilized Rentals, which are rental revenues less tenant
charge-back revenues attributable to our Stabilized Rentals.
We consider Stabilized Rental NOI and Stabilized Rental NOI
Margin to be meaningful supplemental measures of operating
performance because they reflect the operating performance of our
stabilized properties without allocation of corporate level
overhead or general and administrative costs, acquisition fees and
other similar costs and provide insight to the ongoing operations
of our business. In addition, Stabilized Rental Core NOI Margin
removes the impact of tenant charge-backs that are included in both
revenues and expenses and therefore have no impact to our net
results of operations. These measures should be used only as
supplements to and not substitutes for net income or loss or net
cash flows from operating activities as determined in accordance
with GAAP. These net operating income measures should not be used
as indicators of funds available to fund cash needs, including
distributions and dividends. Although we may use these non-GAAP
measures to compare our performance to other REITs, not all REITs
may calculate these non-GAAP measures in the same way, and there is
no assurance that our calculation is comparable with that of other
REITs. While management believes that our calculations are
reasonable, there is no standard calculation methodology for
Stabilized Rental NOI, Stabilized Rental NOI Margin or Stabilized
Rental Core NOI Margin, and different methodologies could produce
materially different results.
The following table provides a reconciliation of net loss as
determined in accordance with U.S. GAAP to Stabilized Rental NOI,
Stabilized Rental NOI Margin and Stabilized Rental Core NOI
Margin:
| |
|
Three months endedDecember 31, 2019 |
|
GAAP net loss |
|
$ |
(25,498 |
) |
| |
|
|
|
Adjustments: |
|
|
| Rental revenues from
non-stabilized properties |
|
50 |
|
| Net loss on real estate and
mortgage loans |
|
117 |
|
| Operating expenses on
non-stabilized properties |
|
818 |
|
| Depreciation and
amortization |
|
20,266 |
|
| Acquisition and integration
costs |
|
67 |
|
| Impairment |
|
1,367 |
|
| Mortgage loan servicing
costs |
|
75 |
|
| Interest expense |
|
20,327 |
|
| Share-based compensation |
|
1,539 |
|
| General and
administrative |
|
6,552 |
|
| Management fees to AAMC |
|
3,584 |
|
| Other income, net |
|
(44 |
) |
| Income tax expense |
|
153 |
|
|
Stabilized Rental NOI |
|
$ |
29,373 |
|
| |
|
|
| Rental revenues |
|
$ |
52,064 |
|
| Less: rental revenues from
non-stabilized properties |
|
50 |
|
|
Rental revenues from Stabilized Rentals |
|
52,114 |
|
| Less: tenant charge-back
revenues from Stabilized Rentals |
|
(1,146 |
) |
|
Core rental revenues from Stabilized Rentals |
|
$ |
50,968 |
|
| |
|
|
| Stabilized Rental NOI
Margin |
|
56.4 |
% |
| Stabilized Rental Core NOI
Margin |
|
57.6 |
% |
|
FOR FURTHER INFORMATION CONTACT: |
| Investor Relations |
| T: 1-704-558-3068 |
| E:
InvestorRelations@AltisourceAMC.com |
| |
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