US Virgin Islands – William C. Erbey last week issued the below open letter to the Chair of the Board of Directors of Front Yard Residential Corporation (NYSE: RESI) (“Front Yard” or the “Company”).
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September 30, 2020
Front Yard Residential Corporation
c/o Altisource Asset Management Corporation
5100 Tamarind Reef
Christiansted, VI 00820
Attn: Rochelle Dobbs, Chair of the Board
Dear Chairwoman Dobbs:
I have been an investor in Front Yard Residential since its inception. And as much as I would like to see the Company continue, the time has come, in the best interests of the shareholders, to liquidate the Company. As far back as May 2018, CFO Robin Lowe stated on the Q1 Earnings call that “But we're solidly in the $18 to $19 range per share” in terms of NAV. This guidance was confirmed in the following Q2 Earnings Call in response to the following observation by an analyst: “Then lastly, just we keep seeing industry data, home prices are rising, things are -- there is a big tailwind, you guys have been obviously at the lower end of the market. Those houses seem to be going up faster than higher priced homes. Last quarter, you kind of talked about an $18 to $19 NAV. How are you thinking about that number now…?“ Mr. Lowe assured he was “absolutely convinced” that the NAV was in that range and later alluded to an independent valuation company validating the same range.
The Company has never reversed its guidance of two years ago nor subsequently disclosed anything that would call it into question. To the contrary, given the continued market increase in overall housing values since that time, it would be difficult to support a NAV of less than $20-21/share assuming the Company has professionally executed over this time period. The record is replete with management’s assertions that they have been doing an outstanding job.
The Company’s assertion that the cost of liquidating the portfolio is $6.50/share begs credulity. That cost equates to 14% of the total enterprise value of the properties at a $20/share NAV, upwards of $383 million. In my limited experience in the industry, this is way over market – more than double what a well-run firm should spend to sell homes.
Adjusting to a more reasonable cost to liquidate the homes, the net liquidation value of the Company is $16.50/share ($20/share - $3.50/share).
I call upon the Board to exercise its fiduciary duties and liquidate the Company.
Best regards,
William C. Erbeybill@billerbey.com
