NEW YORK--(BUSINESS WIRE)--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.
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.