Front Yard Residential Corporation Reports Fourth Quarter and Full Year 2019 Results
CHRISTIANSTED,
Fourth Quarter 2019 Highlights and Recent Developments
- Entered into definitive merger agreement on
February 17, 2020 with affiliates ofAmherst Residential, LLC (“Amherst”) whereby Amherst will acquire Front Yard for$12.50 per share in a transaction valued at approximately$2.3 billion , including debt to be assumed or refinanced. - Increased rental revenue by 2.6% over third quarter 2019 to
$52.1 million . - Full-company Core Funds from Operations was
$0.05 per diluted share.¹ - Stabilized Rental Core Net Operating Income Margin was 57.6%.¹
- 95.0% of stabilized rentals were leased at
December 31, 2019 . - Fully divested all remaining mortgage loans.
- Sold 92 non-core homes, resulting in a net gain of
$1.5 million over carrying value. - 91% of debt had fixed or capped rates at
December 31, 2019 compared to 87% atDecember 31, 2018 . - Weighted average debt maturity was 4.7 years at
December 31, 2019 .
“Our fourth quarter numbers reflect the team's continued focus on improving the operating metrics and financial performance of our rental portfolio,” said Chief Executive Officer,
________________
¹ Core Funds from Operations and Stabilized Rental Core Net Operating Income Margin are non-GAAP measures. Refer to the Reconciliation of Non-GAAP Financial Measures section for further information and reconciliation to GAAP net loss.
Fourth Quarter and Full Year 2019 GAAP Financial Results
Net loss for the fourth quarter of 2019 improved to
About
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. Factors that could cause our actual results to differ materially from these forward-looking statements may include, without limitation, our ability to implement our business strategy; our ability to make distributions to stockholders; the occurrence of any event, change or other circumstances that could give rise to the termination of the Agreement and Plan of Merger with affiliates of Amherst; the inability to complete the proposed merger due to the failure to obtain stockholder approval for the proposed merger or the failure to satisfy other conditions to completion of the proposed merger; risks related to disruption of management’s attention from our ongoing business operations due to the merger transaction; the effect of the announcement of the proposed merger on our relationships with our customers, operating results and business generally; the risk that the proposed merger will not be consummated in a timely manner; exceeding the expected costs of the merger; our ability to successfully implement our strategic initiatives and achieve their anticipated impact; our ability to manage changes in our management team and changes resulting from our workforce reduction and office closures; our ability to acquire single-family rental (“SFR”) assets for our portfolio, including difficulties in identifying assets to acquire; the impact of changes to the supply of, value of and the returns on SFR assets; our ability to successfully integrate newly acquired properties into our portfolio of SFR properties; our ability to successfully operate
The statements made in this press release are current as of the date of this press release only. The Company undertakes no obligation to publicly update or revise any forward-looking statements or any other information contained herein, whether as a result of new information, future events or otherwise.
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
Three Months Ended |
Year Ended |
||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(unaudited) | (unaudited) | ||||||||||||||
Revenues: | |||||||||||||||
Rental revenues | $ | 52,064 | $ | 54,029 | $ | 207,010 | $ | 183,013 | |||||||
Total revenues | 52,064 | 54,029 | 207,010 | 183,013 | |||||||||||
Expenses: | |||||||||||||||
Residential property operating expenses | 19,595 | 18,615 | 77,775 | 63,987 | |||||||||||
Property management expenses | 3,964 | 3,903 | 15,364 | 13,189 | |||||||||||
Depreciation and amortization | 20,266 | 21,910 | 82,249 | 80,961 | |||||||||||
Acquisition and integration costs | 67 | 7,595 | 3,131 | 33,607 | |||||||||||
Impairment | 1,367 | 1,740 | 4,458 | 12,734 | |||||||||||
Mortgage loan servicing costs | 75 | 368 | 902 | 1,521 | |||||||||||
Interest expense | 20,327 | 24,492 | 84,137 | 77,035 | |||||||||||
Share-based compensation | 1,539 | 1,144 | 5,926 | 3,024 | |||||||||||
General and administrative | 6,552 | 5,184 | 25,829 | 13,817 | |||||||||||
Management fees to AAMC | 3,584 | 3,608 | 14,299 | 14,743 | |||||||||||
Total expenses | 77,336 | 88,559 | 314,070 | 314,618 | |||||||||||
Net (loss) gain on real estate and mortgage loans | (117 | ) | 618 | 12,856 | (145 | ) | |||||||||
Operating loss | (25,389 | ) | (33,912 | ) | (94,204 | ) | (131,750 | ) | |||||||
Casualty losses, net | (114 | ) | (611 | ) | (978 | ) | (552 | ) | |||||||
Insurance recoveries | 144 | 340 | 730 | 588 | |||||||||||
Other income (expense) | 14 | 7 | (10,772 | ) | 925 | ||||||||||
Loss before income taxes | (25,345 | ) | (34,176 | ) | (105,224 | ) | (130,789 | ) | |||||||
Income tax expense | 153 | 40 | 167 | 46 | |||||||||||
Net loss | $ | (25,498 | ) | $ | (34,216 | ) | $ | (105,391 | ) | $ | (130,835 | ) | |||
Loss per share of common stock – basic: | |||||||||||||||
Loss per basic share | $ | (0.47 | ) | $ | (0.64 | ) | $ | (1.96 | ) | $ | (2.44 | ) | |||
Weighted average common stock outstanding – basic | 53,881,854 | 53,630,204 | 53,772,094 | 53,552,109 | |||||||||||
Loss per share of common stock – diluted: | |||||||||||||||
Loss per diluted share | $ | (0.47 | ) | $ | (0.64 | ) | $ | (1.96 | ) | $ | (2.44 | ) | |||
Weighted average common stock outstanding – diluted | 53,881,854 | 53,630,204 | 53,772,094 | 53,552,109 | |||||||||||
Dividends declared per common share | $ | — | $ | 0.15 | $ | 0.45 | $ | 0.60 |
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
Assets: | |||||||
Real estate held for use: | |||||||
Land | $ | 398,840 | $ | 395,532 | |||
Rental residential properties | 1,707,043 | 1,667,939 | |||||
Real estate owned | 16,328 | 40,496 | |||||
Total real estate held for use | 2,122,211 | 2,103,967 | |||||
Less: accumulated depreciation | (206,464 | ) | (137,881 | ) | |||
Total real estate held for use, net | 1,915,747 | 1,966,086 | |||||
Real estate assets held for sale | 14,395 | 146,921 | |||||
Mortgage loans at fair value | — | 8,072 | |||||
Cash and cash equivalents | 43,727 | 44,186 | |||||
Restricted cash | 34,282 | 36,974 | |||||
Accounts receivable, net | 9,235 | 11,591 | |||||
13,376 | 13,376 | ||||||
Prepaid expenses and other assets | 22,360 | 43,045 | |||||
Total assets | $ | 2,053,122 | $ | 2,270,251 | |||
Liabilities: | |||||||
Repurchase and loan agreements | $ | 1,644,230 | $ | 1,722,219 | |||
Accounts payable and accrued liabilities | 64,619 | 72,672 | |||||
Payable to AAMC | 5,014 | 3,968 | |||||
Total liabilities | 1,713,863 | 1,798,859 | |||||
Commitments and contingencies | — | — | |||||
Equity: | |||||||
Common stock, |
539 | 536 | |||||
Additional paid-in capital | 1,189,236 | 1,184,132 | |||||
Accumulated deficit | (830,602 | ) | (700,623 | ) | |||
Accumulated other comprehensive loss | (19,914 | ) | (12,653 | ) | |||
Total equity | 339,259 | 471,392 | |||||
Total liabilities and equity | $ | 2,053,122 | $ | 2,270,251 |
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”), 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
The following provides related definitions of, and a reconciliation of Front Yard’s
FFO and Core 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
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.
Although management believes that FFO and Core FFO increase our comparability with other companies, these measures may not be comparable to the FFO or Core 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 or may utilize metrics other than or in addition to Core FFO.
The following table provides a reconciliation of net loss as determined in accordance with
Three months ended |
||||
GAAP net loss | $ | (25,498 | ) | |
Adjustments to determine FFO: | ||||
Depreciation and amortization | 20,266 | |||
Impairment | 1,367 | |||
Net loss on real estate and mortgage loans | 117 | |||
FFO | (3,748 | ) | ||
Adjustments to determine Core FFO: | ||||
Acquisition and integration costs | 67 | |||
Non-cash interest expense | 2,793 | |||
Share-based compensation | 1,539 | |||
Other adjustments | 2,130 | |||
Core FFO | $ | 2,781 | ||
Weighted average common stock outstanding - basic and diluted | 53,881,854 | |||
FFO per share - basic and diluted | $ | (0.07 | ) | |
Core FFO per share - basic and diluted | $ | 0.05 |
Stabilized Rental: We define a property as 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 are considered stabilized even after subsequent resident turnover. However, homes may be removed from the stabilized home portfolio and placed in the non-stabilized home portfolio due to renovation during the home lifecycle or because they are identified for sale.
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 loss as determined in accordance with
Three months ended |
||||
GAAP net loss | $ | (25,498 | ) | |
Adjustments: | ||||
Rental revenues from non-stabilized properties | 50 | |||
Net loss on real estate and mortgage loans | 117 | |||
Operating expenses on non-stabilized properties | 818 | |||
Depreciation and amortization | 20,266 | |||
Acquisition and integration costs | 67 | |||
Impairment | 1,367 | |||
Mortgage loan servicing costs | 75 | |||
Interest expense | 20,327 | |||
Share-based compensation | 1,539 | |||
General and administrative | 6,552 | |||
Management fees to AAMC | 3,584 | |||
Other income, net | (44 | ) | ||
Income tax expense | 153 | |||
Stabilized Rental NOI | $ | 29,373 | ||
Rental revenues | $ | 52,064 | ||
Less: rental revenues from non-stabilized properties | 50 | |||
Rental revenues from Stabilized Rentals | 52,114 | |||
Less: tenant charge-back revenues from Stabilized Rentals | (1,146 | ) | ||
Core rental revenues from Stabilized Rentals | $ | 50,968 | ||
Stabilized Rental NOI Margin | 56.4 | % | ||
Stabilized Rental Core NOI Margin | 57.6 | % |
FOR FURTHER INFORMATION CONTACT: |
Investor Relations |
T: 1-704-558-3068 |
E: InvestorRelations@AltisourceAMC.com |
Source: Front Yard Residential Corporation