Front Yard Residential Corporation Reports Third Quarter 2019 Results

Front Yard Residential Corporation Reports Third Quarter 2019 Results

CHRISTIANSTED, U.S. Virgin Islands, Nov. 06, 2019 (GLOBE NEWSWIRE) -- Front Yard Residential Corporation (“Front Yard” or the “Company”) (NYSE: RESI) today announced its financial and operating results for the third quarter of 2019.

Third Quarter 2019 Highlights and Recent Developments

  • Increased revenues by 5% to $50.8 million compared to the third quarter of 2018.
  • 94.3% of stabilized rentals were leased at September 30, 2019.
  • Stabilized Rental Core Net Operating Income Margin at 54.1% and Core Funds from Operations of $69,000, reflecting the operational challenges of transferring approximately 12,000 homes onto our internal platform.1
  • Operational initiatives already showing significant improvement in October operating results.
  • General and administrative costs reduced by $2.5 million compared to the second quarter of 2019.
  • Sold 126 non-core homes for proceeds of $22.6 million and a $2.1 million gain over carrying value.
  • Settled the last remaining significant litigation outstanding for $10 million after insurance proceeds.
  • Results of the Board's Strategic Review Committee expected to be announced shortly.

“During the third quarter of 2019, we focused on addressing the operational challenges that we encountered following the internalization of property management earlier in the year in which we quintupled the number of properties on our internal platform,” stated George Ellison, Chief Executive Officer. “This impacted our operating results in the third quarter, but we are seeing improved metrics in October that we expect will drive stronger results in the fourth quarter.”
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1          Stabilized Rental Core Net Operating Income Margin and Core Funds from Operations are non-GAAP measures. Refer to the Reconciliation of Non-GAAP Financial Measures section for further information and reconciliation to GAAP net loss.

Third Quarter 2019 Financial Results

GAAP net loss for the third quarter of 2019 was $36.4 million, or $0.68 per diluted share, compared to a net loss of $47.9 million, or $0.89 per diluted share, for the third quarter of 2018. GAAP net loss for the nine months ended September 30, 2019 was $79.9 million, or $1.49 per diluted share, compared to a net loss of $96.6 million, or $1.81 per diluted share, for the nine months ended September 30, 2018.

Webcast and Conference Call

The Company will host a webcast and conference call on Wednesday, November 6, 2019, at 8:30 a.m. Eastern Time to discuss its financial results for the third quarter of 2019. The live audio webcast of the conference call and an accompanying supplemental investor presentation can be accessed on Front Yard’s website at www.frontyardresidential.com by clicking on the “Investors” link.

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. Factors that could cause the Company's 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; our ability to complete potential transactions in accordance with anticipated terms and on a timely basis or at all; the Company's 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; the failure to identify unforeseen expenses or material liabilities associated with acquisitions through the due diligence process prior to such acquisitions; difficulties in identifying single-family properties to acquire; the impact of changes to the supply of, value of and the returns on single-family rental properties; the Company’s ability to acquire single-family rental properties generating attractive returns; the Company’s ability to sell non-core assets on favorable terms or at all; the Company’s ability to predict costs; the Company’s ability to effectively compete with competitors; changes in interest rates; changes in the market value of single-family properties; the Company’s ability to obtain and access financing arrangements on favorable terms or at all; the Company’s ability to deploy the net proceeds from financings or asset sales to acquire assets in a timely manner or at all; the Company's ability to maintain adequate liquidity and meet the requirements under its financing arrangements; the Company’s ability to retain the exclusive engagement of Altisource Asset Management Corporation; the failure of our third party vendors to effectively perform their obligations under their respective agreements with us; the Company's failure to qualify or maintain qualification as a REIT; the Company’s failure to maintain its exemption from registration under the Investment Company Act of 1940, as amended; the results of our strategic alternatives review and risks related thereto; 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. 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.

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, except as required by law.

Front Yard Residential Corporation
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)

  Three months ended
September 30,
  Nine months ended
September 30,
  2019   2018   2019   2018
Revenues:              
Rental revenues $ 50,768     $ 48,313     $ 154,946     $ 128,984  
Total revenues 50,768     48,313     154,946     128,984  
Expenses:              
Residential property operating expenses 20,775     17,269     58,180     45,372  
Property management expenses 4,187     3,400     11,400     9,286  
Depreciation and amortization 19,662     21,100     61,983     59,051  
Acquisition and integration costs 202     25,220     3,064     26,012  
Impairment 495     1,276     3,091     10,994  
Mortgage loan servicing costs 246     479     827     1,153  
Interest expense 21,135     20,142     63,810     52,543  
Share-based compensation 1,457     1,200     4,387     1,880  
General and administrative 5,519     3,483     19,277     8,633  
Management fees to AAMC 3,584     3,648     10,715     11,135  
Total expenses 77,262     97,217     236,734     226,059  
Net gain (loss) on real estate and mortgage loans 354     1,177     12,973     (763 )
Operating loss (26,140 )   (47,727 )   (68,815 )   (97,838 )
Casualty (losses) loss reversals, net (287 )   (461 )   (864 )   59  
Insurance recoveries 48     133     586     248  
Other (expense) income (9,989 )   128     (10,786 )   918  
Loss before income taxes (36,368 )   (47,927 )   (79,879 )   (96,613 )
Income tax expense     6     14     6  
Net loss $ (36,368 )   $ (47,933 )   $ (79,893 )   $ (96,619 )
               
Loss per share of common stock - basic:              
Loss per basic share $ (0.68 )   $ (0.89 )   $ (1.49 )   $ (1.81 )
Weighted average common stock outstanding - basic 53,857,616     53,601,208     53,735,106     53,525,792  
Loss per share of common stock - diluted:              
Loss per diluted share $ (0.68 )   $ (0.89 )   $ (1.49 )   $ (1.81 )
Weighted average common stock outstanding - diluted 53,857,616     53,601,208     53,735,106     53,525,792  
               
Dividends declared per common share $ 0.15     $ 0.15     $ 0.45     $ 0.45  


Front Yard Residential Corporation
Condensed Consolidated Balance Sheets
(In thousands, except share and per share amounts)

  September 30, 2019   December 31, 2018
  (unaudited)    
Assets:      
Real estate held for use:      
Land $ 392,153     $ 395,532  
Rental residential properties 1,671,809     1,667,939  
Real estate owned 27,344     40,496  
Total real estate held for use 2,091,306     2,103,967  
Less: accumulated depreciation (188,426 )   (137,881 )
Total real estate held for use, net 1,902,880     1,966,086  
Real estate assets held for sale 22,817     146,921  
Mortgage loans at fair value 3,613     8,072  
Cash and cash equivalents 46,776     44,186  
Restricted cash 34,343     36,974  
Accounts receivable 10,712     11,591  
Goodwill 13,376     13,376  
Prepaid expenses and other assets 42,232     43,045  
    Total assets $ 2,076,749     $ 2,270,251  
       
Liabilities:      
Repurchase and loan agreements $ 1,617,457     $ 1,722,219  
Accounts payable and accrued liabilities 93,258     72,672  
Payable to AAMC 4,168     3,968  
Total liabilities 1,714,883     1,798,859  
       
Commitments and contingencies      
       
Equity:      
Common stock, $0.01 par value, 200,000,000 authorized shares;
53,880,544 shares issued and outstanding as of September 30, 2019
and 53,630,204 shares issued and outstanding as of December 31, 2018
539     536  
Additional paid-in capital 1,187,973     1,184,132  
Accumulated deficit (805,104 )   (700,623 )
Accumulated other comprehensive loss (21,542 )   (12,653 )
Total equity 361,866     471,392  
    Total liabilities and equity $ 2,076,749     $ 2,270,251  


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”), 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, Stabilized Rental NOI, Stabilized Rental NOI Margin and Stabilized Rental Core NOI Margin for the periods presented:

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 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.

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 U.S. GAAP to FFO and Core FFO:


    Three months ended
September 30, 2019
GAAP net loss   $ (36,368 )
     
Adjustments to determine FFO:    
Depreciation and amortization   19,662  
Impairment   495  
Net gain on real estate and mortgage loans   (354 )
FFO   (16,565 )
     
Adjustments to determine Core FFO:    
Acquisition and integration costs   202  
Non-cash interest expense   2,833  
Share-based compensation   1,457  
Other adjustments   12,142  
Core FFO   $ 69  
     
Weighted average common stock outstanding - basic and diluted   53,857,616  
FFO per share - basic and diluted   $ (0.31 )
Core FFO per share - basic and diluted   $ 0.00  


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 U.S. GAAP to Stabilized Rental NOI, Stabilized Rental NOI Margin and Stabilized Rental Core NOI Margin:


    Three months ended
September 30, 2019
GAAP net loss   $ (36,368 )
     
Adjustments:    
Revenues from non-stabilized properties   107  
Net gain on real estate and mortgage loans   (354 )
Operating expenses on non-stabilized properties   1,010  
Depreciation and amortization   19,662  
Acquisition and integration costs   202  
Impairment   495  
Mortgage loan servicing costs   246  
Interest expense   21,135  
Share-based compensation   1,457  
General and administrative   5,519  
Management fees to AAMC   3,584  
Other expense   10,228  
Stabilized Rental NOI   $ 26,923  
     
Rental revenues   $ 50,768  
Less: rental revenues from non-stabilized properties   107  
Rental revenues from Stabilized Rentals   50,875  
Less: tenant charge-back revenues from Stabilized Rentals   (1,097 )
Core rental revenues from Stabilized Rentals   $ 49,778  
     
Stabilized Rental NOI Margin   52.9 %
Stabilized Rental Core NOI Margin   54.1 %


FOR FURTHER INFORMATION CONTACT:
Investor Relations
T: 1-704-558-3068
E: InvestorRelations@AltisourceAMC.com

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Source: Front Yard Residential Corporation