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Edited Transcript of RESI earnings conference call or presentation 7-Nov-18 1:30pm GMT

Q3 2018 Front Yard Residential Corp Earnings Call

Frederiksted Nov 20, 2018 (Thomson StreetEvents) -- Edited Transcript of Front Yard Residential Corp earnings conference call or presentation Wednesday, November 7, 2018 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* George G. Ellison

Front Yard Residential Corporation - CEO & Director

* Robin Neil Lowe

Front Yard Residential Corporation - CFO

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Conference Call Participants

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* Anthony Paolone

JP Morgan Chase & Co, Research Division - Senior Analyst

* Douglas Michael Harter

Crédit Suisse AG, Research Division - Director

* Jade Joseph Rahmani

Keefe, Bruyette, & Woods, Inc., Research Division - Director

* Michael John Grondahl

Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Front Yard Residential Corporation Third Quarter 2018 Call (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Robin Lowe, Chief Financial Officer of Front Yard Residential Corporation. Sir, you may begin.

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [2]

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Thank you, Armani. Good morning, everyone, and thank you for joining us today. My name is Robin Lowe, and I'm the Chief Financial Officer of Front Yard Residential Corporation.

Before we begin, I would like to remind you that a slide presentation is available to accompany our remarks. To access the slides, please log onto our website at www.frontyardresidential.com. These slides provide additional information investors may find useful.

As indicated on Slide 2, our presentation may contain certain forward-looking statements pursuant to the safe harbor provisions of the Federal Securities Laws. These forward-looking statements may be identified by reference to a future period or by use of forward-looking terminology. They may involve risks and uncertainties that could cause the company's actual results to differ materially from the results discussed in the forward-looking statements.

For an elaboration of the factors that may cause such a difference, please refer to the risk disclosure statement in our earnings release, as well as the company's filings with the Securities and Exchange Commission, including our year-end December 31, 2017, Form 10-K, our first and second quarter 2018 Forms 10-Q and our third quarter Form 10-Q that we filed today. If you would like to receive our news releases, SEC filings and other materials via e-mail, please register on the Investor page of our website using the e-mail alert button.

Joining me for today's presentation is George Ellison, Chief Executive Officer of Front Yard Residential. I'll now turn the call over to George.

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George G. Ellison, Front Yard Residential Corporation - CEO & Director [3]

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Thanks, Robin, and good morning, everyone. It's been a very productive quarter at Front Yard Residential. Today's most important update is that the integration of HavenBrook is going extremely well and the movement of customers onto our internal platform is ahead of schedule and gaining momentum.

The operating results, although a bit noisy, were all in all quite good for a quarter where we undertook such a transformational acquisition. Rob will talk about the continued progress we're making on the funding front as we keep reducing interest rate risk. We also want to share with you how we see Front Yard Residential's performance once property manager has been internalized for all homes and remaining cash has been deployed.

Will you please turn to Page 4, you can see the results of the quarter. Rental revenue increased 47% versus the third quarter of last year. Stabilized rental core NOI margin, which in this quarter is one of the noisiest numbers we're reporting, came in at a solid 63%.

Keep in mind, we're carrying 3 property managers. And there will be overlap as we ramp-up our internal operations, while the external charges decrease. This effect will continue into the fourth quarter and should be significantly reduced in Q1 of next year.

Core FFO was $0.05 per share. Blended rent increases were strong at 4.3% for the third quarter. 94% of stabilized rentals were leased at quarter-end.

Turnover for the stabilized portfolio was 7.2%. Over 5,000 homes are now internally managed. 88% of funding was fixed or capped and had a weighted average maturity of over 5 years. The portfolio data in the lower right of the slide shows our acquisition of 3,200 homes, which brings our stabilized rental portfolio up to around 14,500 homes. We've identified 763 homes as non-core. Those were up for sale and 72 homes were sold in the quarter.

Will you please turn to Page 5, we show some important company data over the last 5 quarters. It continues to be strong trends here. Our portfolio of rental homes is growing, and our non-core REOs are falling away. Turnover continues to run very low, while blended rent increases are holding steady at the higher end of our 3.5% to 4.5% target.

If you'll turn to Page 6, you see an update on the property management internalization that begin with our HavenBrook acquisition. Our stated goal was to move roughly 4,000 homes from ASPS onto our platform by year-end. I'm pleased to announce that we're ahead of schedule and should be finished moving these homes by the end of November or sooner. This is tremendous progress. And we thank Miles Dave -- Miles Adams and his team for their round-the-clock focus on this #1 priority.

Once this transition is complete, we'll start to move the MSR portfolio of 8,000 homes on to our platform as well. We have recently planned to have these families move to our platform by year-end 2019, but we work diligently to accomplish this sooner. Keeping a strong handle on operations is critical. And so far, our new HavenBrook teammates have risen to this challenge.

I'll turn it back to Rob.

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [4]

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Thank you, George. This quarter's financial results include the impact of our acquisition and integration of the HavenBrook property manager and the transition of homes away from external property management. GAAP loss for the quarter was $26.6 million higher than last quarter due to onetime nonrecurring acquisition fees and costs of $25.2 million, including the $18 million exit fee payable to ASPS and higher initial operating and G&A expenses as we onboarded the HavenBrook operating platform.

Core NOI Margin and Core FFO for the quarter were also impacted at 62.8% and $0.05, respectively. Excluding the impacts of the HavenBrook transaction and property transfers, we estimate that NOI margin would have been approximately flat to last quarter and the Core FFO would have been in the range of $0.07 to $0.08. The HavenBrook property manager is scaled for a larger number of homes than it was managing at acquisition. This is good news in that we need to add less resources going forward as we transfer homes from third-party property managers, but its expense base has a negative impact this quarter.

We expect that the fourth quarter numbers will also be impacted as we hire additional resources to operate properties in areas where HavenBrook was not previously present.

Clearly, internal resources have to be in place before properties can be transferred. And this creates cost duplication as we continue to pay external managers for managing properties until our internal platform is ready.

We believe that once the transition is complete, we will have created a scalable internal property management platform that will enable us to reach the targets set out on Slide 7 by the fourth quarter of 2019.

By the end of this month, we expect to have completed the transfer of all properties away from ASPS. Initial results post onboarding are very encouraging. We have seen strong leasing demand and our occupancy rate on the HavenBrook platform, including the 2,245 homes already transferred was about 94% at the end of October.

We expect this trend to continue and sets us up start 2019 in a very strong position. We have also made good progress on strengthening our balance sheet.

As part of the HavenBrook transaction, we executed a $508.7 million loan from Freddie Mac, with collateral of 2,798 homes from HavenBrook and 2,015 existing homes, mostly funded on warehouse lines.

The loan is 10-year, non-amortizing at a fixed rate of 4.65%. The advanced rate was 68.5%. 431 HavenBrook homes were funded on our Crédit Suisse warehouse line as we expect to sell these homes that do not fit our long-term portfolio profile.

This transaction resulted in a net reduction of approximately $42 million of more expensive warehouse line debt, bringing down our weighted average interest cost from 4.82% last quarter to 4.73% this quarter.

Additionally, on October 16, we capped the LIBOR rate on the home SFR2 and home SFR3 loan agreements for the duration of the loans at 2.3%, meaning that the maximum rate on these loans will be 4.4%. Should credit spread narrow, we have an option to refinance these loans in November 2019, 2020 and 2021.

In summary, approximately 88% of our debt is now fixed or capped with a weighted average maturity of 5.1 years. We believe this positions us extremely well should further expected rate rises occur.

I'll now turn the call back over to George.

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George G. Ellison, Front Yard Residential Corporation - CEO & Director [5]

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Thanks, Rob. Page 7 illustrates how we see the performance of the company once property management for all homes has been internalized and it assumes we meet our investment goal of 16,000 homes by the fourth quarter of 2019.

Let me walk you through the different components. Revenue growth assumes approximately 16,000 homes, with occupancy in the 95% to 96% range and 3% to 4% annual rent growth.

I would also point out that the internalization of property management will give us access to additional revenue streams, such as late fees, which previously we shared with the external managers.

On the expense side, we expect savings as the direct expense for our internal property management staff will be lower than what we pay our external managers.

There will be additional savings by self-performing routine maintenance jobs and by not paying a markup when we engage third-party vendors.

We targeted NOI margin of 66%, which with revenues in the $240 million to $250 million range translates into annual net operating income of around $160 million.

Taking into account interest expenses, which Rob mentioned, are to a very large degree now fixed, along with G&A, we expect annualized Core FFO between $47 million and $54 million and annualized AFFO between $27 million and $34 million.

On a quarterly basis, we're targeting Core FFO between $0.22 and $0.25 and AFFO of between $0.13 and $0.16 per share.

These are annualized run rates that we're targeting to hit by the end of next year. As you can appreciate, there's a lot of variables that go into to building these targets, especially given the fact that we're in the early stages of transitioning all the homes to our platform, however our track record of reaching our stated goal should give confidence that we will do so again.

We presented the slide on Page 8 back in the first quarter of this year. We wanted to show it again because it underscores the continuing excellent macro tailwinds of our business model.

Everything on this page is a positive for the single-family rental business, but even more pronounced for the working-class housing, affordable housing strategy that's at the heart of Front Yard Residential. As we predicted, inflation continues to rise, unemployment is plummeting, wage growth is up, interest rates continue to rise, rent growth continues, home price appreciation also continues at a solid pace. Housing Starts, although volatile, are down quarter-over-quarter and year-over-year and finally and most important is the fact that U.S. household formation growth continues.

There is positive growth in household formation, and the rate of that growth is increasing as well. This backdrop makes a strong case for our business model. The macro trends are all in our favor.

Workforce housing is in alarmingly short supply. The families who live there are becoming financially stronger, but mortgage credit still remains out of reach. And this is made worse by the fact that rates continue to rise. Homebuilding is not keeping up as the number of these families grow, the supply is not meeting the demand and little to no affordable housing is being built.

And this is where Front Yard comes in. We provide an important alternative, affordable rental properties that all residents are proud to call home. Combine these facts with the target financials from the previous page and you can clearly see why we're so optimistic about the future of Front Yard Residential.

All in all it was a solid quarter. We made tremendous progress on transitioning the ASPS homes to our internal platform. And the early indicators of how these homes will perform going forward are very encouraging. Some variability is to be expected in certain operating metrics as we digest this large acquisition. We expect further impact in Q4, but this noise should mostly be gone by the end of the year.

2019 will be a story of continued and significant improvement in NOI and FFO with the ultimate target of covering the dividend by year-end 2019.

We have a proven track record of reaching our publicly stated goals, and we're working diligently to hit these new goals as well.

I'll now turn it back to the operator, and we can open up for questions, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Douglas Harter with Crédit Suisse.

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Douglas Michael Harter, Crédit Suisse AG, Research Division - Director [2]

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Just a little bit more detail around kind the duplicative costs of kind of running the 3 platforms. Anyway you can size that and, sort of, help us think about how those start to, kind of, run off and, kind of, when we'll start to see the benefits of the internalization to achieve kind of that 66% NOI margin you laid out on that slide?

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [3]

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Yes. Thanks, Doug. So firstly, I'd say is, as I said in my prepared remarks, I think if that -- those duplicative costs hadn't been this quarter i.e. excluding the transaction, the NOI would have been very similar to last quarter and FFO would have been a couple of cents up instead of $0.01 down. So I think that gives you a sense of the quantum if you like. The noise will continue into the fourth quarter as we continue to ramp-up resources to take away the other -- nearly 8,000 homes managed by our second property manager. But as I said in my remarks, we have to ramp-up those resources at the same time as paying the property manager, we have to be ready before we can actually transfer the properties. So fourth quarter will definitely be noisy. The time we go to the first quarter, that should be a basing and our plan is to transfer the properties as quickly as we can as we get into the new year. Certainly, by mid-year, we should be done, but we're shooting for earlier than that if possible.

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Douglas Michael Harter, Crédit Suisse AG, Research Division - Director [4]

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Great. Thanks, Robin. And then just thinking about kind of getting to 16,000 homes, does that require additional capital? Or do you feel like you have the liquidity ability to get there today?

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [5]

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Yes, we definitely have the liquidity to get there today. So a combination of recycling what's left of the legacy assets plus selling the 763 homes that George mentioned earlier. Some of those homes are at a much higher price point than sort of our average price of 145. So you know it's not sort of a one-for-one thing, sort of 1.5, or almost 2 for one thing in many cases. So I think that the 16,000 homes is very achievable. We may actually slightly overshoot that with the existing equity.

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Operator [6]

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Our next question comes from Anthony Paolone with JPMorgan.

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Anthony Paolone, JP Morgan Chase & Co, Research Division - Senior Analyst [7]

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My first question is just on the integration and operation and bringing property management in-house. Anything changing in terms of strategy as it relates to things like setting price or occupancy or anything like that, that you need to adjust to with all of these 3 different platforms effectively coming together?

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George G. Ellison, Front Yard Residential Corporation - CEO & Director [8]

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No. I mean, the basic fact that we are doing it now, so before a lot of those decisions, we had outsourced, as you know. And so as we talked about in the last call, we wanted to be closer to the customer, closer to the families because this is at the end of the day going to be driven by how well we do in customer service. And so when we can control the voice that goes to those folks in those homes and we can be speaking to them about what they need and responding to them. You don't want anybody between -- as you grow, you don't want anybody between us and the families in our homes. So I'll go to financials in a second. The customer service component is this -- the guy who is going to win this is the guy who does the best at keeping these families happy for a fair price. That's who's going to win. So that's the human, the customer side of it. And so getting folks out of that dialogue between us and our families was something that we as a team wanted to do. We found the folks at HavenBrook, we like them. They have a great process. They have a very high touch with the families. We liked everything we saw. So that's -- so that -- we're going to use their platform, pull it, as we said, into ours and grow that, but they have a great process. And so they'll really -- we'll drive it with our -- with what we want obviously and what -- and some of the things they've learned. So -- and getting into the financials, obviously, we want to do it because, as I stated in my comments, there's a lot of ways to cut cost that drop right to the bottom line, again when there's less hands reaching into the process to make their margin. So no, I don't anticipate a ton of change because ASPS is effectively gone as of next week, if I'm wrong, then at end of the month. And so that process whatever they use, we obviously hired some people from there, but it will be more our process than HavenBrook's process. And MSR will soon work with those guys to figure out a -- an exit and again, we'll pull it into doing things our way with our -- with the way we want to do it.

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Anthony Paolone, JP Morgan Chase & Co, Research Division - Senior Analyst [9]

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Okay. And then on the held-for-sale properties, can you give us a sense as to what the current yield looks on that bucket of assets versus maybe what the yield on redeploying the capital is, like is that dilutive, accretive or wash?

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [10]

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Yes, it should be accretive, Tony. Particularly some of the homes we've bought from HavenBrook, there's about 400-or-so homes. They are mostly in South Florida where the yield wasn't that high. The price point was a little higher than our price point 1 and 2. I guess, follows -- the yield wasn't so good. So by swapping these properties out for homes at our price point, we believe that we can improve the yield there and so there should be accretive deal.

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Anthony Paolone, JP Morgan Chase & Co, Research Division - Senior Analyst [11]

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Okay. And then can you talk about just on the financing side. I think you all were contemplating the refinancing of the MSR loan that's opened up, I think, now in November?

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [12]

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Yes. Our first opportunity to refi that is November the 9th, and then we can refinance it on the same date of every month as we go forward. So we're looking very carefully at that, yes.

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Anthony Paolone, JP Morgan Chase & Co, Research Division - Senior Analyst [13]

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Okay. And then just last question on the G&A, you guys outlined the number there. I guess, that excludes the noncash comp piece of overhead, is that fair?

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [14]

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Yes, that's fair.

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Anthony Paolone, JP Morgan Chase & Co, Research Division - Senior Analyst [15]

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So fully loaded for that, is that the noncash piece still kind of in that $4 million, $5 million a year range?

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [16]

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Yes, share-based comp this quarter was $1,200,000. So I guess, that's $4,800,000 for per year, yes.

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Operator [17]

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(Operator Instructions) Our next question comes from Jade Rahmani with KBW.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [18]

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I was wondering if you could give some color around the 66% target Core NOI Margin for next year. It's meaningfully above peers. I think for Invitation Homes, including property management, we estimate around 60%, for AMH around 63% to 64% and their portfolio age is on average about 15 years. And for Tricon around 62%. So wondering if it relates to the low turnover, potentially real estate taxes, lack of HOA or if there is something else that gives you confidence in those margins?

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [19]

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Yes, I'd say it's all of those things, Jade. And also if you look at the history and the results that we've achieved on our portfolio, last quarter, we were at 64.5. And as George outlined in his remarks, we believe that as upside here, there's a lot of expense savings and vendor marksup -- markups and other things that we were paying to external -- excuse me, external property managers, which we'll get to keep now. So we -- frankly, we'll be very disappointed if we didn't hit 66% NOI margin by the end of next year. We think imminently achievable with our portfolio.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [20]

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Okay. It just seems like an aggressive target considering that peers who've been doing this for several years are nowhere close to 66%.

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [21]

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Yes. So as I say, we've achieved 64% to 65% historically with this portfolio, already. And as I say, that's with what we consider less financially efficient external property managers. So I can only say that we think 66% is imminently achievable. And in fact, our internal targets are higher than that.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [22]

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Okay. In terms of the CapEx, your AFFO guidance also implies, I think, only $650 of recurring CapEx per property. I think that for most of the companies we're estimating about $1,000 per property per year.

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [23]

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Yes, that's what we have in that slide where we're assuming $1,000 of CapEx.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [24]

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Okay. $1,000 of CapEx?

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [25]

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Yes.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [26]

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Okay. In terms of NAV, in the past, you've said it's in the $18 to $19 range, is that still an accurate ballpark?

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [27]

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Yes, that's an accurate ballpark. And as -- I'd say few things on that. First, as we said last quarter, we did hire evaluation company Duff & Phelps to validate that for us. And they came up with a range of between -- all the cap rate at use somewhere at mid-16s to 20. And so that's the range they came up with using a cash flow basis. We think we're somewhere in the middle of that. We provided on that Slide 7 our expected NOI. So I think that gives people enough information to [slope] their own cap rates in and calculate it for themselves. What we've also done this quarter is provided a history of our purchases by quarter and a history of HPI indexes by MSA. So I think, everybody can now calculate our NAV just based on BPO regardless of cash flows and regardless of cap rates which we can all debate. And I think if you run through that calculation, certainly, using the numbers that we've given, it goes to about $17.5 per share, but again, everybody's will do their own calculation, I'm sure.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [28]

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So as you think about the earnings implications of the 2019 targets you've put in place and covering the dividend by year-end, that's around $0.60 of earnings. This NAV number, it's only about 3% return. And yet, stock price is meaningfully below NAV. So how do you think about the best path to maximizing shareholder value since RESI is trading at $9.36? And you say that NAV is $17.50, so it's at 53% of NAV.

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George G. Ellison, Front Yard Residential Corporation - CEO & Director [29]

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Well, I mean, the -- we watch the stock price, obviously, every day, but we can't, as you know, we can't -- management team can't effect the stock price hour-to-hour, day-to-day, particularly in a small-cap company that's has a limited amount of flow. It can be a very technical stock. So we can't really run the business based on what you see on the screen every day. But what you can do is make the right long-term decisions. And as you know, we have -- we were very clear about what we wanted to do in '15. We stated at the beginning of this year, we went over those goals and we hit them all. We established a new list of goals for the next year or 2. We're about halfway through that list. Property manager was on that list. And so let's just use that as an example. It's an incredibly strategic acquisition, changes the whole dynamic of the company, pulls the whole function that we didn't have into the company. And it's going to drive numbers that are pretty attractive. So today, we're showing you our first look at what we think it will look like. I think people wanted to know what the new company going to look like. People who believe in the stock or didn't. And so what we're showing you today is we're confident that we can hit these numbers. I think that drives the answer to your question. Some people can believe that or not, I'm not sure I agree with your NOI comment. I'm not sure we're -- we can talk about off-line, sort of, what I think I saw other companies hitting. I was pretty sure most of the industry was pushing for 65% or 66%. And I think, actually, we should push it to 67%. I thought that was a pretty common dialogue, but I could be wrong. I know that's what we're pushing it for. And again, this is -- we show you 66%, you can only imagine what Miles Adams is being given for his budget. So it's not 66%, trust me, it's higher. So I think those things like that, people can say that's aggressive or not, we think we can hit these numbers. And so what we're saying to you is that we can hit on an annualized basis $0.60 on an annualized basis per share. And past '19, that continues to go up. So it begs the question, it's not a $9 and whatever, $0.36 stock, it's not. And so the only way you can get people to believe that is to be transparent, which we try very hard to do when we can see things. And now we're starting to see how this looks. And so we're showing it to you. So we want to have that dialogue with people and have them press us on our assumptions. We're happy to talk about all of them. And we think we're going to hit these numbers. And so I actually agree with you. It's not a $9.36 stock. It's much, much higher. And -- but the only way you can prove that to people is to show earnings. And we're showing you that we can hit those targets.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [30]

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Okay. Just looking at the comps and where everyone's trading. You've got Invitation Homes and American homes rent at about 17.5x -- 17 to 17.5x FFO. And you've got the apartment REITs on 2019 at about 18.5x. So if you just use 18x, the $0.60, that's $10.80, still about 60% of NAV. So I'm just curious how -- what do you think is, ultimately, the catalyst to unlock shareholder value? Is it going to be some kind of M&A transaction to add additional scale beyond what you have done with HavenBrook? Is it some kind of restructuring of the AAMC agreement removing that overhang? What do you think is the path to maximizing NAV?

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George G. Ellison, Front Yard Residential Corporation - CEO & Director [31]

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Well, I think the -- it's a lot of things, as you know and as you allude to, but I think the most important thing is long-term growth in earnings. That's what people care about. And so the first 3 years was a lot of changing the model and getting rid of assets. In the beginning of this year we announced that, that was over. And as you see, there's a lot less -- obviously, this quarter is different because of the acquisition, but all of those noisy things have gone away. We made an acquisition that we think strategically positioned us to do the 2 things I've said over and over. We wanted to touch the customers, we wanted to be much, much closer to them because there's an enormous amount of customer service, that I think we can distinguish ourselves with in the affordable housing space. And I think we can control the bottom line better. So I think the most important thing is earnings. You have to show people you can make the money. So what's the first thing you can do? Cover the dividend. So what do we -- did we just discuss? Here's the way. You and others have said, you have to show it to me. So the first step is to do it. And now we're communicating that to our boards, to the public, to shareholders. Now we're going to hit that number, but that's at the end of '19. We think even with 16,000 homes, that $0.60 will keep on going up. We don't need any more homes. And so that's the first dialogue we need to have. These guys are going to print money now, when before a year or 2 ago we couldn't say that. So that's an incredibly powerful statement. The other things you mention are always -- we didn't know until we're buying the 3,200 homes that we're going to end up buying a property manager. You don't do these things when you have to. You do them when you can. That was a great opportunity. Miles and the team were impressive immediately. And so we said let's do that right now. So that gets into your more strategic things. You asked are there any other ones, obviously, we can't talk about other ones, but I think what we're trying to say to you is we have always been open to all ideas. We've tried to be as transparent and as willing to listen to all people and all ideas. I hope people feel that way. You said your question you mentioned the AMA, you can't really pick up the AMA in the middle of an acquisition when Rob and his team did an enormous amount of modeling with Ercan Gurhan as to what we're buying. Now you buy it, you got to get under the hood to see what you brought and make sure that, that what you modeled is exactly what you thought it was. So you almost have to do the whole thing all over again. That's not the time you sit down with the 2 companies and start talking about fees and expenses and people and whose where, but now it is the time. And just as I stated earlier about our goals, we put on our goal sheet at the beginning of the year to revisit the AMA. I hope people believe that we don't say things unless we're going to go after them. And we really don't say things unless we know we're going to do them. We try to under promise and over deliver. We said we're going to go after the AMA, to be perfectly blunt the acquisition came first. That's now starting to -- Miles and the team are starting to get that where we wanted. Now it's time to bring up the AMA. Both boards are committed to it. We've talked to both of them about in the last meetings. We'll talk to them about it again. It'll be very high -- the management agreement will be very high on the agenda items when we sit down with both boards in the next cycle.

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Jade Joseph Rahmani, Keefe, Bruyette, & Woods, Inc., Research Division - Director [32]

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I think that's really refreshing to hear because I would urge you to act quickly on it because when stocks trade at this level of discount to NAV, we see a lot of shareholder activism and outcry for change. One company that is affiliated with a firm I covered, NorthStar Realty Europe, just announced the termination of its management agreement with Colony Capital for about $70 million, which is around 4x the management fees they were receiving. On what RESI is paying AAMC that would be a value of about $56 million-or-so addition to transaction just announced today. So I definitely think it's refreshing that you commented about revisiting the management agreement.

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George G. Ellison, Front Yard Residential Corporation - CEO & Director [33]

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I appreciate that. And I'll look at that transaction, we can speak about it later. Thank you.

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Operator [34]

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Our next question comes from Mike Grondahl with Northland Securities.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [35]

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To go from about 14,500 to 16,000, how do you sort of see that playing out? Do you think you can do that in the first half of the year next year or kind of, what does the pipeline look like?

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George G. Ellison, Front Yard Residential Corporation - CEO & Director [36]

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Yes, it's -- I mean, that's the rub. When we -- as you can appreciate Mike, putting that page together, Page 7 took an enormous amount of work. And it's a tough thing to do, but we thought it was important to put this dividend conversation at front and center. It took an enormous amount of modeling and work by both the Capital Markets teams, Rob's team, Miles team. So there's assumptions behind that page. Dozens of assumptions. One of the things that affects that is 16,000 homes when, which is what you're asking. So Rob would like me to have those bought later this afternoon. So the sooner we get those done, the better. There's an enormous amount of liquidity, which has, you cover the space and all of you who are on the phone talk to everybody. There's an enormous amount of liquidity. I listened to both of the other 2 calls, the other AMH and INVH. People are buying and selling. And I think Dallas talked about a sale they got off. There's an enormous amount of liquidity. And then those guys did a great trade and got great execution. So we're looking at pools all the time of 500 to 2,500. So we have to get to the right price, the market's frothy. So Ercan Gurhan who handles all of our buying is a tough guy, and he doesn't buy things too rich. So we trust him to put the right price on things. So we see a lot. But until he sees the price he likes, I'm not going to be able to appease Robin, [at least here]. But I would say my hope, hope is not a strategy, but my hope is that we get something done the first half. I think that's possible. I wanted to do by year-end. Now that's running out of time. We might be able to get a handshake or a letter of intent in the next month or so, but then Randall's going have to go do due diligence for 2 months and Michael and Steve are going to have to pay for it. And so that kind of puts you in the first half of the year. So we'll keep you posted on that, but I would conservatively say by year-end, but I'm telling you our internal goal is to get it done by first half of the year.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [37]

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Got it. And then we're in a really strong economy. You're [in NAVs] lower end homes, turnover. What's the #1 or #2 reason that you see for turnover?

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [38]

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For us, Mike, I mean, one of the statistics, I'd like to quote for you is the number of people in our homes who move out because of they're getting a mortgage. And so George spoke about our competitive cause. I'm not sure what numbers they quoted but traditionally, I think that is sort of in the 30s -- 30% of that move out is because people are getting mortgages. Our number year-to-date is under the 12. And so I think one important thing to note is generally people in our properties are not moving out to buy homes. They're not getting mortgages. And so there are plenty of other reasons why people move out, of course. But I think our turnover percentage this quarter was 7.2% or something like that -- nearly 4 years.

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George G. Ellison, Front Yard Residential Corporation - CEO & Director [39]

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It's always credit issues. Everybody has credit issues. So let's put credit issues aside because it's very hard to track that because people were in the business of keeping people in the home. So you hear people talk about eviction and -- but a huge percent -- over 50% of eviction notices don't turn into eviction. So that's a whole separate conversation about credit and credit worthiness and underwriting. So after you get through that, it's -- we have a lot of military in our homes. Military deployment has been a big issue. People get transferred as Rob brings up, mortgages is one of our highest, but these are the other people, it's incredibly low. So it's -- the good thing about being in workforce housing is it's incredibly sticky. And so unless people are getting transferred, you're talking about healthcare workers, first responders, teachers, it's not as mobile as some other careers maybe, more technology or whatever pharmaceutical all over the world. So it's a very, very -- they find a home, they find a community, they find a school system, they can't afford a house, Mike. So this is their home. And we're seeing these turnover numbers are starting to approach, people stay in these houses 4 years, not quite there yet, but it's getting to 4 years. I mean, other people are probably between 2 and 3. I think it's going to get longer. And with rates going up, I think, it's going -- as I said on that page, all of these things are good for us. They're not building workforce housing. Well you can read that every day and every city in this country. Affordable housing is in incredibly, as I said, alarmingly short supply. We're the solution.

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Operator [40]

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Thank you. This concludes today's Q&A session. I would now like to turn the call back over to the company for closing remarks.

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Robin Neil Lowe, Front Yard Residential Corporation - CFO [41]

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Thank you, everyone, and have a great day. Thank you.

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George G. Ellison, Front Yard Residential Corporation - CEO & Director [42]

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Thanks to everyone.

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Operator [43]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.