Snow Park Highlights Conflicts and Flaws in Front Yard’s Amended External Management Agreement
Sends Letter to Stockholders Exposing That the Amended Agreement
Perpetuates the Same “Growth at All Costs” Strategy That Has Led to
$500+ Million in Value Destruction Since 2015
Contends That New Agreement Weakens Some of the Company’s Key
Rights and Does Not Even Contemplate Total Shareholder Returns as
a Performance Metric for Altisource Asset Management Corporation
Reminds Stockholders That George Ellison is CEO and a Director of
Both Companies, including Chairman of Altisource Asset Management
Corporation
Questions How Front Yard’s Independent Directors – Who Are Bound
by Fiduciary Duties – Could Support an Agreement That Incentivizes Front
Yard’s External Manager to Grow its Fees at the Expense of NAV
Realization
Urges Stockholders to Vote the BLUE
Proxy Card to Elect the Full Snow Park Slate, Which Will Bring
Independent Stockholder Voices to the Boardroom and Push for a Strategic
Review of All Alternatives
NEW YORK–(BUSINESS WIRE)–Snow Park Capital Partners, LP (together with its affiliates, “Snow
Park” or “we”), a significant long-term stockholder of Front Yard
Residential Corporation (NYSE: RESI) (“Front Yard” or the “Company”),
which together with the other participants in its solicitation
beneficially owns approximately 2.1% of the Company’s outstanding
shares, today sent a letter to stockholders in connection with its
nomination of three highly-qualified, independent candidates –
stockholders Leland Abrams, Lazar Nikolic and Jeffrey Pierce – for
election to the Company’s Board of Directors at the upcoming annual
meeting of stockholders. The letter focuses on what Snow Park believes
are value-destructive amendments to Front Yard’s external management
agreement with Altisource Asset Management Corporation – changes that we
feel perpetuate the same problems that led to the value erosion in the
first place.
Snow Park urges all stockholders to vote the BLUE
proxy card today. For more information and voting resources, please
visit www.RenewRESI.com.
Below is the full text of the letter.
***
May 9, 2019
Dear Fellow Stockholders,
Snow Park Capital Partners, LP (together with its affiliates, “Snow
Park” or “we”) believes that stockholders of Front Yard Residential
Corporation (“Front Yard” or the “Company”) continue to endure
indefensible underperformance and staggering value destruction that can
only be reversed by a reconstituted Board of Directors (the “Board”)
that possess the experience, expertise, independence, and will to
implement a credible strategy for realizing management’s stated Net
Asset Value (“NAV”) of $17.50 per share.1 The facts are clear
to us: Front Yard’s share price is down roughly 50% since 2015 due to
strategic lapses that include significant NAV erosion, uncontrolled
expenses and balance sheet deterioration. Now, rather than finally heed
stockholders’ call for an actionable plan to generate returns for the
first time in four years, we feel the incumbent Board has once again
misled Front Yard’s real owners in order to put management’s interests
first.
We firmly believe that Front Yard’s amended
external management agreement with Altisource Asset Management
Corporation (“AAMC”) incentivizes reckless growth and fuels the same
conflicts that have led to stockholder losses.2 We
urge all stockholders to recognize that this development is not the
ingredient of a successful strategy for realizing the tremendous real
estate value that remains trapped within Front Yard’s underperforming
shares. To the contrary, Snow Park feels the amendments actually further
misalign the interests of management and stockholders – making the need
for real ownership perspectives in the boardroom all the more important.
We Believe Front Yard’s Amended Agreement with
AAMC Perpetuates Conflicts and Benefits Management Rather Than
Stockholders
As a consequence of the amended agreement, we believe stockholders have
been forced to sacrifice valuable flexibility and leverage over AAMC.
Moreover, instead of being held to account for the poor returns it has
generated, AAMC has now been provided with an unwarranted extension for
five years, thereby perpetuating its sub-par management.
We feel stockholders must focus on what has really occurred this week
despite Front Yard’s best efforts to mischaracterize the amended
agreement as a victory: the Board and management have perversely
crystalized a flawed structure and an incentive package with its
external manager that preserves the status quo and offers zero
accountability for stockholder returns. Snow Park believes
this should be particularly disheartening to all stockholders given that
we have collectively lost more than $500 million in value since 2015 at
the hands of this manager. Meanwhile, our “independent” directors have
rewarded AAMC with a contract extension and a pat on the back to keep
going.
Unfortunately, yesterday’s development does not come as a surprise to us
given the obvious web of conflicts that exist at Front Yard and AAMC.
George Ellison is not only the chief executive at both companies, but
also the Chairman at AAMC (where he is a large stockholder) and a
director on Front Yard’s Board. Mr. Ellison is supervised by a Board
that includes his former colleagues from Bank of America and many of the
same directors that presided over the massive destruction of wealth that
stockholders have suffered since he took over in 2015.
Our view is that these facts should only reinforce to stockholders that
highly-qualified, independent and impartial voices are needed in the
boardroom to ensure that actions are taken with the best interests of
stockholders – the true owners of the Company – in mind. If elected,
Snow Park’s nominees will serve as this truly independent check on what
we consider to be the incumbent Board’s self-serving decisions and its
growth-at-all-costs business plan that does not aim to finally deliver
returns after years of stockholder suffering.
Disrupt the Status Quo: Elect Directors That
Will Prioritize Stockholder Returns and Not the Blind Growth
Incentivized Under the Amended Agreement
On the heels of the amended AAMC agreement, which appears to have
emboldened Front Yard’s leaders, we feel stockholders should be more
concerned than ever about the damage that can be done by a
poorly-supervised management team that is incentivized to overlook the
Company’s excessive leverage and high General & Administrative (“G&A”)
expenses on route to pursuing unprofitable growth. Fortunately, there is
an alternative to the status quo that can bring checks and balances to
the Board.
We urge stockholders to elect Snow Park’s slate of highly-qualified and
independent nominees – stockholders Leland Abrams, Lazar Nikolic and
Jeffrey Pierce – that possesses truly additive
experience with respect to acquisitions, operations, portfolio
management and governance in the Real Estate Investment Trust (“REIT”)
sector. Our nominees not only bring superior expertise and
understanding of the REIT landscape, but each of Snow Park’s director
candidates understands the fundamentals and
operating realities of the single-family resident market due to their
respective experiences analyzing, investing in, and overseeing the
management of individual properties across various markets. These
are the types of qualifications that Front Yard’s current independent
directors lack, in our view, as evidenced once again this week by their
capitulation on the amended AAMC agreement.
In addition to their additive abilities and perspectives, our nominees
stand for sharper strategic thinking across the business, enhanced
accountability for management, improved governance, and open-mindedness
with regard to retaining experts to help conduct a strategic review and
evaluate all alternatives. In contrast to our slate’s philosophy, we
believe the current Board is comfortable with the same
growth-at-all-costs approach that fails to consider Front Yard’s
structural limitations, including its highly-leveraged balance sheet and
industry-worst G&A expenses.
We Believe the Snow Park Slate – Unlike the
Incumbent Board – Has the Independence and Vision to Push Front Yard to
Realize the Tremendous Real Estate Value Trapped Within its Shares
As previously disclosed, if elected to the Board, our plan is to
evaluate several potential paths to realizing management’s stated NAV of
$17.50 per share3 – which represents a sizable premium
relative to Front Yard’s presently underperforming shares. These paths
include:
1. Full Sale of the Company – Given that there has
been a tremendous amount of private capital flowing into real estate
investment vehicles in recent years, we believe now is the time for
Front Yard to consider exploring a sale to a company with the operating
efficiencies and scale to realize the full value of the portfolio.
Despite yesterday’s development, we still believe this option offers
stockholders significant benefits, including realizing a sizable premium
on Front Yard’s underperforming shares. Management has only offered
growth – despite Front Yard’s valuation gap and no identifiable capital
sources – as a strategy.
2. Asset Sales to De-Lever and Grow Distributions –
The significant amount of private capital that has flowed into real
estate investment vehicles provides a tailwind for Front Yard to explore
an orderly sale process for parcels within its portfolio. We believe
this option – although secondary to an outright sale – still offers
stockholders significant benefits over time, including decreasing Front
Yard’s valuation gap and returning capital to stockholders. To the
contrary, management and the incumbent Board continue to blindly speak
about growth despite the destructive results that its leveraged-fueled
acquisition spree has led to over the past four years.
3. Cost-Cutting Initiatives to Pursue Profitability at
16,000 Home Level – If necessary, Front Yard can drastically reduce
costs across the board to try to demonstrate to stockholders that 16,000
homes can be operated profitably. Executing at this scale could possibly
enable the Company to issue more equity at reasonable levels and
increase scale. Simply put, the Company has leveraged nearly every asset
it has – it is not realistic to expect stockholders to fund growth if
management cannot maintain a reasonable fixed cost structure.
We urge Front Yard stockholders to vote FOR all three of Snow Park’s
highly-qualified, independent nominees on the BLUE
Proxy Card and to return it in your postage-paid envelope provided. If
you have already voted Front Yard’s proxy card, you can change your vote
by providing a later dated BLUE proxy.
Should you have any questions or need assistance with voting, please
contact Saratoga Proxy Consulting LLC at (888) 368-0379 or (212)
257-1311 or by email at info@saratogaproxy.com.
PROTECT YOUR INVESTMENT. PLEASE SIGN, DATE, AND MAIL THE BLUE
PROXY CARD TODAY!
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 |
A NAV of $17.50 was set forth in Front Yard Residential Corp.’s February 2019 earnings call transcript. |
|
| 2 | Front Yard Residential Corporation’s Form 8-K, Filed May 8, 2019 | |
| 3 |
A NAV of $17.50 was set forth in Front Yard Residential Corp.’s February 2019 earnings call transcript. |
Contacts
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