Front Yard Residential Corporation (“Front Yard” or the “Company”)
(NYSE: RESI) today announced its financial and operating results
for the third quarter of 2020.
Third Quarter 2020 Highlights and Recent
Developments
- On October 19, 2020, Front Yard entered into a definitive
merger agreement whereby a partnership led by Pretium and including
funds managed by the real estate equity and alternative credit
strategies of Ares Management Corporation will acquire Front Yard
for $13.50 per share in a transaction valued at approximately $2.4
billion, including debt to be assumed or refinanced. The
transaction is expected to close in the first quarter of 2021.
- Rental revenues increased to $56.9 million for the third
quarter of 2020, up 3.3% over the second quarter of 2020 and up
12.2% year on year.
- Core Funds from Operations (“FFO”) was $0.19 per diluted share,
up $0.01 from the second quarter of 2020 and up $0.19 year on
year.¹
- Adjusted FFO was $0.09 per diluted share for the third quarter
of 2020, in line with the second quarter of 2020.¹
- Stabilized Rental leased percentage was 98.8%, up from 98.3% as
of June 30, 2020 and 94.3% as of September 30, 2019.
- Blended rent growth was 4.7%, with renewal rent growth of 4.0%
and re-lease rent growth of 6.4%.
- Stabilized Rental Core Net Operating Income (“NOI”) Margin was
60.9%, down from 61.5% in the second quarter of 2020, reflecting
seasonally higher operating costs, and up from 54.1% in the third
quarter of 2019.¹
- Sold 37 non-core homes for proceeds of $5.0 million and a gain
of $0.5 million over carrying value.
- As previously announced, agreed to terminate the existing asset
management agreement with Altisource Asset Management Corporation
(“AAMC”), facilitating Front Yard's transition from an externally
managed REIT to an internally managed REIT. Front Yard will pay an
aggregate termination fee of $46.0 million to AAMC, and Front Yard
has agreed to acquire certain assets and operations from AAMC for
an aggregate purchase price of $8.2 million.
“Our operating metrics remained very strong during the third
quarter, which due to seasonality is typically a more challenging
period. Improving occupancy levels and blended rent growth are
reinforcing our operating results,” said George Ellison, Chief
Executive Officer. “The merger agreement with Pretium provides the
opportunity for our stockholders to realize immediate value while
we continue to focus on a high quality experience for our
residents.”________________¹ Stabilized Rental Core NOI Margin,
Core FFO and Adjusted FFO are non-GAAP measures. Refer to the
Reconciliation of Non-GAAP Financial Measures section for further
information and reconciliation to GAAP net income.
Third Quarter 2020 Financial Results
GAAP net loss for the third quarter of 2020 was $63.2 million,
or $1.08 per diluted share, compared to a net loss of $36.4
million, or $0.68 per diluted share, for the third quarter of
2019.
GAAP net loss for the nine months ended September 30, 2020 was
$79.4 million, or $1.41 per diluted share, compared to a net loss
of $79.9 million, or $1.49 per diluted share, for the nine months
ended September 30, 2019.
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. These risks and uncertainties include:
the occurrence of any event, change or other circumstances that
could give rise to the termination of the merger agreement; our
ability to complete the proposed merger due to the failure to
obtain stockholder approval or satisfy other conditions to
completion of the proposed merger; risks related to disruption of
management’s attention from the Company’s ongoing business
operations due to the transaction; the effect of the announcement
of the proposed merger on the Company’s relationships with its
customers and employees, and the potential effect on operating
results and business generally; the risk that the proposed merger
will not be consummated in a timely manner; the risk of exceeding
the expected costs of the merger; our ability to successfully
complete the transition plan contemplated in connection with the
termination of our asset management agreement with AAMC, our
external asset manager, pursuant to the Termination and Transition
Agreement dated August 13, 2020 (the “Termination Agreement”); our
ability to successfully internalize our asset management function
under the Termination Agreement; our ability to successfully
implement our strategic initiatives and achieve their anticipated
impact; our ability to implement our business strategy; risks and
uncertainties related to the COVID-19 pandemic, including the
potential adverse impact on our real-estate related assets,
financing arrangements, operations, business prospects, customers,
employees and third-party service providers; the effect of
management’s attention being diverted from our ongoing business
operations and costs associated with shareholder activism; the
impact of defending any litigation; our ability to make
distributions to stockholders; our ability to integrate newly
acquired rental assets into the portfolio; the ability to
successfully perform property management services at the level
and/or the cost that we anticipate; difficulties in identifying
single-family properties to acquire; the failure to identify
unforeseen expenses or material liabilities associated with our
acquisitions of assets through the due diligence process prior to
such acquisitions; the impact of changes to the supply of, value of
and the returns on single-family rental properties; our ability to
acquire single-family rental properties generating attractive
returns; our ability to sell non-core assets on favorable terms or
at all; our ability to predict costs; our ability to effectively
compete with competitors; changes in interest rates; changes in the
market value of single-family properties; our ability to maintain,
obtain or access financing arrangements on favorable terms or at
all; our ability to deploy the net proceeds from financings or
asset sales to acquire assets in a timely manner or at all; our
ability to maintain adequate liquidity and meet the requirements
under our financing arrangements; risks related to our engagement
of AAMC as our asset manager; the failure of our third party
vendors to effectively perform their obligations under their
respective agreements with us; our failure to qualify or maintain
qualification as a REIT; our failure to maintain our exemption from
registration under the Investment Company Act of 1940, as amended;
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 the Company’s current and
future filings with the Securities and Exchange Commission (“SEC”).
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.
Forward-looking statements speak only as of the date hereof and,
except as required by law, we undertake no obligation to update or
revise these forward-looking statements. For additional information
regarding these and other risks faced by us, refer to our public
filings with the SEC, available on the Investors section of our
website at www.frontyardresidential.com and on the SEC’s website at
www.sec.gov.
Front Yard Residential
CorporationCondensed Consolidated Statements of
Operations(In thousands, except share and per
share amounts)(Unaudited)
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
Revenues: |
|
|
|
|
|
|
|
|
Rental revenues |
|
$ |
56,944 |
|
|
$ |
50,768 |
|
|
$ |
166,400 |
|
|
$ |
154,946 |
|
Total revenues |
|
56,944 |
|
|
50,768 |
|
|
166,400 |
|
|
154,946 |
|
Expenses: |
|
|
|
|
|
|
|
|
Residential property operating
expenses |
|
20,048 |
|
|
20,775 |
|
|
57,735 |
|
|
58,180 |
|
Property management
expenses |
|
3,569 |
|
|
4,187 |
|
|
11,367 |
|
|
11,400 |
|
Depreciation and
amortization |
|
20,229 |
|
|
19,662 |
|
|
60,837 |
|
|
61,983 |
|
Acquisition and integration
costs |
|
771 |
|
|
202 |
|
|
913 |
|
|
3,064 |
|
Impairment |
|
105 |
|
|
495 |
|
|
994 |
|
|
3,091 |
|
Mortgage loan servicing
costs |
|
— |
|
|
246 |
|
|
— |
|
|
827 |
|
Interest expense |
|
17,378 |
|
|
21,135 |
|
|
55,790 |
|
|
63,810 |
|
Share-based compensation |
|
1,616 |
|
|
1,457 |
|
|
4,039 |
|
|
4,387 |
|
General and
administrative |
|
6,637 |
|
|
5,519 |
|
|
23,280 |
|
|
19,277 |
|
Management fees to AAMC |
|
3,584 |
|
|
3,584 |
|
|
10,752 |
|
|
10,715 |
|
Termination fee to AAMC |
|
46,000 |
|
|
— |
|
|
46,000 |
|
|
— |
|
Total expenses |
|
119,937 |
|
|
77,262 |
|
|
271,707 |
|
|
236,734 |
|
Net gain on real estate and
mortgage loans |
|
176 |
|
|
354 |
|
|
1,546 |
|
|
12,973 |
|
Operating loss |
|
(62,817 |
) |
|
(26,140 |
) |
|
(103,761 |
) |
|
(68,815 |
) |
Casualty losses |
|
(292 |
) |
|
(287 |
) |
|
(924 |
) |
|
(864 |
) |
Insurance recoveries |
|
10 |
|
|
48 |
|
|
85 |
|
|
586 |
|
Other (loss) income |
|
(78 |
) |
|
(9,989 |
) |
|
25,231 |
|
|
(10,786 |
) |
Net loss before income taxes |
|
(63,177 |
) |
|
(36,368 |
) |
|
(79,369 |
) |
|
(79,879 |
) |
Income tax expense |
|
— |
|
|
— |
|
|
28 |
|
|
14 |
|
Net loss |
|
$ |
(63,177 |
) |
|
$ |
(36,368 |
) |
|
$ |
(79,397 |
) |
|
$ |
(79,893 |
) |
|
|
|
|
|
|
|
|
|
Loss per share of
common stock - basic: |
|
|
|
|
|
|
|
|
Loss per basic share |
|
$ |
(1.08 |
) |
|
$ |
(0.68 |
) |
|
$ |
(1.41 |
) |
|
$ |
(1.49 |
) |
Weighted average common stock
outstanding - basic |
|
58,747,146 |
|
|
53,857,616 |
|
|
56,329,863 |
|
|
53,735,106 |
|
Loss per share of
common stock - diluted: |
|
|
|
|
|
|
|
|
Loss per diluted share |
|
$ |
(1.08 |
) |
|
$ |
(0.68 |
) |
|
$ |
(1.41 |
) |
|
$ |
(1.49 |
) |
Weighted average common stock
outstanding - diluted |
|
58,747,146 |
|
|
53,857,616 |
|
|
56,329,863 |
|
|
53,735,106 |
|
|
|
|
|
|
|
|
|
|
Dividends declared per common
share |
|
$ |
— |
|
|
$ |
0.15 |
|
|
$ |
0.15 |
|
|
$ |
0.45 |
|
Front Yard Residential
CorporationCondensed Consolidated Balance
Sheets(In thousands, except share and per share
amounts)
|
|
September 30, 2020 |
|
December 31, 2019 |
|
|
(unaudited) |
|
|
Assets: |
|
|
|
|
Real estate held for use: |
|
|
|
|
Land |
|
$ |
397,375 |
|
|
$ |
398,840 |
|
Rental residential properties |
|
1,724,133 |
|
|
1,707,043 |
|
Real estate owned |
|
8,886 |
|
|
16,328 |
|
Total real estate held for use |
|
2,130,394 |
|
|
2,122,211 |
|
Less: accumulated
depreciation |
|
(262,776 |
) |
|
(206,464 |
) |
Total real estate held for use, net |
|
1,867,618 |
|
|
1,915,747 |
|
Real estate assets held for
sale |
|
5,454 |
|
|
14,395 |
|
Cash and cash equivalents |
|
84,418 |
|
|
43,727 |
|
Restricted cash |
|
32,191 |
|
|
34,282 |
|
Accounts receivable |
|
5,525 |
|
|
9,235 |
|
Goodwill |
|
13,376 |
|
|
13,376 |
|
Prepaid expenses and other
assets |
|
32,221 |
|
|
22,360 |
|
Total assets |
|
$ |
2,040,803 |
|
|
$ |
2,053,122 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Repurchase and loan
agreements |
|
$ |
1,620,968 |
|
|
$ |
1,644,230 |
|
Accounts payable and accrued
liabilities |
|
73,124 |
|
|
64,619 |
|
Payable to AAMC |
|
34,967 |
|
|
5,014 |
|
Total liabilities |
|
1,729,059 |
|
|
1,713,863 |
|
|
|
|
|
|
Commitments and
contingencies |
|
— |
|
|
— |
|
|
|
|
|
|
Equity: |
|
|
|
|
Common stock, $0.01 par value,
200,000,000 authorized shares; 58,747,146 shares issued and
outstanding as of September 30, 2020 and 53,933,575 shares
issued and outstanding as of December 31, 2019 |
|
587 |
|
|
539 |
|
Additional paid-in
capital |
|
1,247,109 |
|
|
1,189,236 |
|
Accumulated deficit |
|
(918,262 |
) |
|
(830,602 |
) |
Accumulated other
comprehensive loss |
|
(17,690 |
) |
|
(19,914 |
) |
Total equity |
|
311,744 |
|
|
339,259 |
|
Total liabilities and equity |
|
$ |
2,040,803 |
|
|
$ |
2,053,122 |
|
Front Yard Residential
Corporation Regulation 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”) , Adjusted Funds from Operations (“Adjusted 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,
Adjusted FFO, Stabilized Rental NOI, Stabilized Rental NOI Margin
and Stabilized Rental Core NOI Margin for the periods
presented:
FFO, Core FFO and Adjusted 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.
Our Adjusted FFO begins with Core FFO and is adjusted for cash
paid for leasing commissions and recurring capital expenditures. We
believe that Adjusted 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 Core FFO and is further helpful as it provides a consistent
measurement of the costs to maintain the condition of our
properties as well as costs to obtain residents. Because Adjusted
FFO, similar to FFO and Core FFO, does not capture the changes in
the value of the homes, the utility of Adjusted FFO as a measure of
our performance is limited.
Although management believes that FFO, Core FFO and Adjusted FFO
increase our comparability with other companies, these measures may
not be comparable to the FFO, Core FFO or Adjusted 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 and/or Adjusted FFO or may utilize metrics
other than or in addition to Core FFO or Adjusted FFO.
The following table provides a reconciliation of net loss as
determined in accordance with U.S. GAAP to FFO, Core FFO and
Adjusted FFO:
|
|
Three months ended September 30, 2020 |
Net loss |
|
$ |
(63,177 |
) |
|
|
|
Adjustments to
determine FFO: |
|
|
Depreciation and
amortization |
|
20,229 |
|
Impairment |
|
105 |
|
Net gain on real estate and
mortgage loans |
|
(176 |
) |
FFO |
|
(43,019 |
) |
|
|
|
Adjustments to
determine Core FFO: |
|
|
Acquisition and integration
costs |
|
771 |
|
Non-cash interest expense |
|
2,779 |
|
Share-based compensation |
|
1,616 |
|
Non-ordinary legal and
professional fees (1) |
|
2,585 |
|
Termination fee to AAMC |
|
46,000 |
|
Other adjustments (2) |
|
282 |
|
Core FFO |
|
11,014 |
|
|
|
|
Adjustments to
determine Adjusted FFO: |
|
|
Recurring capital
expenditures |
|
(5,126 |
) |
Leasing commissions |
|
(535 |
) |
Adjusted FFO |
|
$ |
5,353 |
|
|
|
|
Weighted average common stock
outstanding - basic and diluted |
|
58,747,146 |
|
FFO per share - basic and
diluted |
|
$ |
(0.73 |
) |
Core FFO per share - basic and
diluted |
|
$ |
0.19 |
|
Adjusted FFO per share - basic
and diluted |
|
$ |
0.09 |
|
_____________
(1) Relates to non-operational and non-ordinary
legal fees, such as costs associated with Front Yard's strategic
review initiative, shareholder activism, negotiation of the asset
management agreement or similar matters.(2) Includes casualty
losses, insurance recoveries and other non-recurring income and
expense items that management has determined are not representative
of Front Yard's core ongoing operations.
Stabilized Rental: A home is
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 may become
non-stabilized due to a first-time renovation subsequent to
acquisition, casualty event that makes it unsafe or uninhabitable,
or because the home has been identified for sale and no longer
leased.
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 income as
determined in accordance with U.S. GAAP to Stabilized Rental NOI,
Stabilized Rental NOI Margin and Stabilized Rental Core NOI
Margin:
|
|
Three months ended September 30, 2020 |
Net income |
|
$ |
(63,177 |
) |
|
|
|
Adjustments: |
|
|
Revenues from non-stabilized
properties |
|
13 |
|
Net gain on real estate and
mortgage loans |
|
(176 |
) |
Operating expenses on
non-stabilized properties |
|
308 |
|
Depreciation and
amortization |
|
20,229 |
|
Acquisition and integration
costs |
|
771 |
|
Impairment |
|
105 |
|
Interest expense |
|
17,378 |
|
Share-based compensation |
|
1,616 |
|
General and
administrative |
|
6,637 |
|
Management fees to AAMC |
|
3,584 |
|
Termination fee to AAMC |
|
46,000 |
|
Other loss |
|
360 |
|
Stabilized Rental NOI |
|
$ |
33,648 |
|
|
|
|
Rental revenues |
|
$ |
56,944 |
|
Less: rental revenues from
non-stabilized properties |
|
13 |
|
Rental revenues from Stabilized Rentals |
|
56,957 |
|
Less: tenant charge-back
revenues from Stabilized Rentals |
|
(1,746 |
) |
Core rental revenues from Stabilized Rentals |
|
$ |
55,211 |
|
|
|
|
Stabilized Rental NOI
Margin |
|
59.1 |
|
Stabilized Rental Core NOI
Margin |
|
60.9 |
|
FOR FURTHER
INFORMATION CONTACT: |
Investor Relations |
T: 1-704-558-3068 |
E: IR@fyrhomes.com |
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