Snow Park Calls on Front Yard’s Board to Return Capital to Stockholders via an Orderly Liquidation
18 Juin 2020 - 3:00PM
Business Wire
Letter Issued by Snow Park Makes Clear That
the Market for Rental Home Sales Remains Strong, Even as Front Yard
Refuses the Most Logical Path to Returning Capital to Stockholders
at Net Asset Value
Despite the Message Sent by Snow Park Last
Year Regarding Front Yard’s Bloated G&A Structure, Board Fees
and Expenses Inexplicably Grew Along With G&A
Will Consider Nominating Director Candidates
in 2021 if the Board Does Not Take the Proper Action to Protect and
Enhance Stockholder Value
Intends to Vote WITHHOLD on George Ellison’s Close Associates:
Chair Rochelle Dobbs and Director George McDowell
Snow Park Capital Partners, LP (together with its affiliates,
“Snow Park”) today issued the below open letter to the Board of
Directors of Front Yard Residential Corporation (NYSE: RESI)
(“Front Yard” or the “Company”). In addition, Snow Park released a
short presentation entitled “Front Yard’s Unaddressed Failings”
that can be viewed and downloaded at www.SnowParkCap.com.
***
June 18, 2020
Front Yard Residential Corporation c/o Altisource Asset
Management Corporation 5100 Tamarind Reef Christiansted, VI 00820
Attn: Board of Directors
Ladies and Gentlemen,
Last spring, Snow Park Capital Partners, LP (together with its
affiliates, “Snow Park” or “we”) invested a considerable amount of
energy, resources and time in a campaign to refresh the Board of
Directors (the “Board”) of Front Yard Residential Corporation
(“Front Yard” or the “Company”). We were encouraged when two of our
director nominees joined the Board in May 2019 and the Company
underwent a strategic review, leading to Amherst Residential’s $2.3
billion acquisition offer. Sadly, it appears we underestimated the
extent to which insiders would revert to their old habits over the
course of just a year’s time.
We feel the need to speak out now that the Board – which has
presided over years of value destruction, and more recently, a
failed sales process – is asking stockholders to sit by idly as
Front Yard’s executive management team is once again rewarded with
millions of dollars in stock and other compensation as soon as
August despite its failures, which notably include cutting the
dividend to zero.
As a reminder from our campaign last year, the Board and
management team have delivered a -47% return since 2015, destroying
more than $700 million in market value. Over the same period,
insiders at Front Yard generously awarded themselves with nearly
$18 million in compensation at the expense of stockholders. This
came on top of the advisory fees that the Company has paid
to its external manager, Altisource Asset Management Corporation
(“AAMC”). Unfortunately, the Board cannot outrun its dismal track
record and the following facts:
- From January 2015 through May 2020, the average total
stockholder returns (“TSR”) of the 14 listed companies within Front
Yard’s peer group was 28%. Front Yard has tremendously
underperformed its peers by delivering -47% returns over the same
timeframe.1
- In 2019 alone, the compensation of the Board and management
team approached 1.4% of the Company’s total equity market value
whereas peers in the single-family residential space were under 15
basis points.2
- Front Yard’s General & Administrative (“G&A”)
expenses have neared 7% of the Company’s total equity market
value, which is an unsustainable and unjustifiable level. 3 The
Company’s single-family rental peers have G&A loads amounting
to around 50 basis points of their equity market value while
delivering TSR of 45% over the past five years.4 Stunningly, Front
Yard’s G&A load actually increased substantially over the past
year.5
- To cap it all off, stockholders saw their dividend eliminated
over the past 12 months as Front Yard’s aggregate Board
compensation increased by more than 40% on a year-over-year
basis.6
We urge the Board to divert from its
value-destructive path and pivot to returning capital to
long-suffering stockholders via an orderly liquidation of Front
Yard’s portfolio. We do not see how a reasonable investor
could conclude that any other strategy will produce comparable
near-term value, particularly if the same management team,
incumbent directors and cost structure remain in place. Pivoting to
such a plan can be a gateway to a full sale of the Company should
buyers emerge, but in any case, it will finally offer stockholders
a concrete roadmap to realizing Front Yard’s Net Asset Value –
something that it has never delivered. We are optimistic that an
orderly liquidation can yield greater value than the $12.50 per
share stockholders would have received as part of the acquisition
by Amherst Residential. Further, we believe the removal of Chief
Executive Officer George Ellison, who was just recently placed on
indefinite leave at AAMC following stockholder allegations, would
only accelerate the mitigation of conflicts in the boardroom and
support efforts to enhance value.7
The status quo is inexcusable, and we intend to express our
disapproval by voting WITHHOLD
at the upcoming Annual Meeting of Stockholders with respect to the
election of Rochelle Dobbs and George McDowell. We also plan to
vote AGAINST Front Yard’s
executive compensation advisory proposal.
Snow Park is prepared to nominate a slate of director candidates
at Front Yard next year if the necessary changes are not made this
year.
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 Front Yard’s peers taken from its 2020 Proxy Statement,
including AAT, AMH, BRT, DX, HASI, INVH, IRET, IRT, LADR, RWT,
STAR, STOR, UMH, and WRE. TSR calculated from January 2, 2015
through May 29, 2020 using Bloomberg data, which assumes dividends
reinvested in stock. 2 Bloomberg and Company’s 2020 Proxy
Statement. Total equity market value as of May 29, 2020 was $406
million. Peers include INVH and AMH, where total executive team and
board compensation made up 10bps and 14bps of market cap
respectively. 3 Company filings. G&A expense calculated using
Front Yard’s trailing twelve month G&A expense, $27.7 million.
4 Bloomberg and Company filings. Citing direct peers within SFR
space, AMH and INVH. 5 Company filings. Front Yard’s Q1 2020
G&A expense was more than $7.5 million, up more than 30%
compared to the first quarter of 2019’s reported G&A expense of
$5.8 million. 6 Company’s 2019 and 2020 Proxy Filings. 7 8-K filed
by AAMC on June 9, 2020 (link).
Written materials are submitted voluntarily pursuant to Rule
14a-6(g)(1) promulgated under the Securities Exchange Act of 1934,
as amended. This is not a solicitation of authority to vote your
proxy. Snow Park Capital Partners, LP (“Snow Park”) is not asking
for your proxy card and will not accept proxy cards if sent. The
cost of this filing is being borne entirely by Snow Park.
PLEASE NOTE: Snow Park is not asking for your proxy card and
cannot accept your proxy card. Please DO NOT send us your proxy
card.
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For Media: Profile Greg Marose / Charlotte Kiaie, 347-343-2999
gmarose@profileadvisors.com / ckiaie@profileadvisors.com
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