U.S. Markets closed

Edited Transcript of RESI earnings conference call or presentation 1-Mar-17 1:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Altisource Residential Corp Earnings Call

Frederiksted Mar 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Altisource Residential Corp earnings conference call or presentation Wednesday, March 1, 2017 at 1:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Robin Lowe

Altisource Residential Corporation - CFO

* George Ellison

Altisource Residential Corporation - CEO

================================================================================

Conference Call Participants

================================================================================

* Doug Carter

Credit Suisse - Analyst

* Jade Rahmani

Keefe, Bruyette & Woods - Analyst

* Mike Grondahl

Northland Securities - Analyst

* Emil Shalmiyev

JPMorgan - Analyst

* Fred Small

Compass Point - Analyst

* Brock Vandervliet

Nomura Securities - Analyst

* Ryan Lynch

Keefe, Bruyette & Woods - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the Altisource Residential Corporation Q4 2016 conference call.

(Operator Instructions)

I would now like to introduce your host for today's conference call, Mr. Robin Lowe, Chief Financial Officer. You may begin.

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [2]

--------------------------------------------------------------------------------

Thank you, Kevin. Good morning, everyone, and thank you for joining us today. My name is Robin Lowe, and I'm the Chief Financial Officer of Altisource Residential Corporation, which we refer to as RESI. Before we begin, I want to remind you that the slide presentation is available to accompany our remarks. To access the slides, please log onto our website at www.altisourceresi.com. These slides provide additional information investors may find useful.

As indicated on slide 1, 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. It 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, 2015 Form 10-K, our first, second, and third quarter 2016 Form 10-Qs, and our December 31, 2016 Form 10-K that we have filed today. If you would like to receive our news releases, SEC filings, and other materials via email, please register on the shareholders page of our website using the email alerts button.

Joining me for today's presentation is George Ellison, Chief Executive Officer of RESI. I'd now like to turn over to George.

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [3]

--------------------------------------------------------------------------------

Thanks, Robin, and good morning, everyone. The team at RESI is excited to announce another quarter of successfully executing our business strategies. This story remains the same: grow our Company's single-family rental portfolio, get first-class rental operating metrics, and continue to dispose of legacy assets.

As you see on page 3, we are announcing another material acquisition from Amherst that when completed will include up to 3,500 stabilized homes. These stabilized homes will again be in locations we desire, and at prices in line with our return targets. When completed, this acquisition will increase our rental portfolio to approximately 12,000 homes.

We continue to maintain our core FFO assumptions of $0.60 per share at 10,000 homes, and $1.70 when we reach 20,000 stabilized homes. In addition to continuing to grow our portfolio, we are keenly focused on, and are currently hitting, excellent operating metrics. Stabilized rental NOI margin increased to a normalized 62%. Stabilized rental core FFO increased to $0.11 per share.

In 2015, we committed to aggressive disposition of non-rental assets, both loans and REOs, and that this would be completed by the end of 2017. We are currently on target to achieve this goal. We have maintained our dividend at $0.15 per share for the fourth quarter in a row, and continue stock buybacks. In sum, another very strong quarter.

Now let's turn to page 4 and get into the details. Rental revenue increased about 150% from last quarter because of our recent large acquisition. Stabilized rental core FFO increased 140% to $0.11 per share. NAV now is estimated at $19.91 per share. We repurchased 230,000 shares, spending $2.8 million, which now puts us at $46.5 million spent against our announced buyback plan of $100 million. Again, a dividend of $0.15 per share was declared and paid.

For some portfolio detail, the total rental portfolio ended the year at 8,600 homes, a 215% increase year-over-year, with 91% of the homes stabilized. Leased homes increased to 7,293, a 244% increase year-over-year. As mentioned in my opening comments, we are very pleased to announce another game changing, single-family rental acquisition. We have signed a letter of intent to purchase approximately 900 stabilized homes from Amherst; we will close this quarter. This will be immediately followed by purchasing an additional portfolio of homes from the same seller. When combined with the first 900, we expect the total purchase to be somewhere between 3,000 and 3,500 stabilized homes.

Just as in last quarter's purchase from the same seller, the homes will be managed by Main Street Renewal. The homes are, again, in locations we desire, with prices in line with our return targets. When completed, our rental portfolio, as I mentioned, should be somewhere close to 12,000 homes, an excellent start to the year.

On our last call, we announced that we would be launching two loan sales. One has already closed in January, and the more critical trade was awarded in February. The February trade is the final NPL sale that we discussed last quarter. If you'll recall, during that discussion, we noted that there was a possibility of combining all remaining NPLs with the residual loans from other sales, as well as loans that didn't quite fit standard NPL transactions. The possibility of selling all these loans was a hope of ours, but not a certainty.

I'm happy to announce this morning that with this final portfolio sale of NPLs, we were able to include these residual loans. This transaction should close in the second quarter of this year. After this last sale closes, all that remains in the loan portfolio is a cleanup sale of loans scheduled for this summer, a truly excellent outcome.

On the REO disposition front, we had a goal of 400 homes to be sold during the slow winter months. We're pleased to report that we have sold closer to 500 homes. This pace should start picking up now that winter is almost over. Non-rented REO now stands at just over 1,900 homes, approximately a 50% decrease year-over-year.

As previously stated, just as with other actions promised and delivered upon, these homes should all be sold by the end of this year. On the operations front, stabilized rental portfolio NOI margin was 62% in the fourth quarter, up from 59% last quarter. 93% of stabilized rentals were leased at quarter end.

Our lease renewal rate for the quarter was 71%, with an average rent increase of 5% on renewals and 3% on re-lease rentals. On the funding front, as always, Rob and his team continue to keep our liquidity at high levels, and as mentioned last quarter, have been working on pushing the duration of our debt out to longer maturities. As we also mentioned last quarter, the 4,300 homes purchased from Amherst last year were financed with a five-year loan. Rob is continuing to work on finding other term funding for our portfolio, and hopefully we can announce a transaction of this type in the near future.

As loans and REOs continue to be liquidated, much of the capital from these sales will get recycled into buying stabilized, high-yielding, single-family rental units. As mentioned before, we feel we have enough capital to eventually purchase somewhere between 15,000 and 20,000 homes. Page 5 shows this next wave of purchasing in the announced transaction with Amherst. The shaded states where we currently have stabilized rental homes, and the highlighted states or cities with stars indicate our targeted locations for this next wave of growth.

Page 6, as always, we show our report card. As we say every quarter, buying homes right is important, but running them efficiently and profitably is just as critical. Here are this quarter's operating metrics. As you can see, we were successfully starting to hit our long-term targets. Most importantly, stabilized NOI margin hit 62% in the fourth quarter and 60% for all of 2016. Targets were set and targets were hit.

Finally, if you please turn to page 7, we show some important renewal, retention, and turn data. Renewal rate is 71%; retention rate, 66%; turnover, 7%. Average rent increase on renewals, 5%; and on new leases, up 3%.

As we clearly pointed out on last quarter's call, although these same metrics from the third quarter were outstanding, we predicted they would normalize to lower numbers in the future. This quarter's numbers reflect that normalization, but also have clearly been affected by the winter months with multiple holidays. I will now turn the call back to Rob.

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [4]

--------------------------------------------------------------------------------

Thank you, George. Today we are reporting a GAAP net loss of $61.2 million for the fourth quarter 2016, $228 million for the full year. Fourth-quarter revenues were $12.1 million, an increase of $7.7 million over the last quarter, driven by 154% increase in rental revenue, as we saw the first full-quarter benefit of revenues from the home end of our portfolio. Change in net unrealized gain on mortgage loans of negative $40.6 million for the quarter includes a reclass on the sale of NPLs and REOs of $34 million, leaving a net reduction of $6.6 million and evaluation of our mortgage loan portfolio compared to the carrying value at the end of the third quarter. This evaluation reflects bids received on two sales with a total of 2,940 mortgage loans, at about 97% of [third] quarter 2016 carrying value. We closed one of the two sales in January, 556 loans, and expect to close the other 2,384 loans in the second quarter of 2017.

In addition to the NPL sales, we resolved 75 mortgage loans in the quarter, and sold 468 non-rental REOs for net proceeds of approximately $69 million. Full-year 2016 revenues were $56.8 million, including rental revenues of $48.6 million, an increase of 267% over 2015. We sold or resolved 2,450 NPLs and sold 2,668 non-rental REOs during the year, up from 1,551 NPLs and 1,321 non-rental REOs in 2015. Fourth-quarter expenses were $11.2 million higher than the prior quarter, reflecting the operating costs, depreciation and interest expense associated with the HOME SFR portfolio. The increase in property operating expenses was offset by a reduction due to the sale of 468 non-rental REOs in the quarter, which are significantly more expensive than rental properties to hold.

The percentage of rental properties to totaling properties improved from 42% at the end of 2015 to 82% at the end of 2016. Full-year 2016 expenses were 4.6% lower than 2015, mainly driven by lower selling costs and impairment, and lower mortgage loan servicing costs, as we sold legacy assets, offset by higher depreciation and amortization, and property operating expenses, due to the growth of the rental portfolio during 2016. Stabilized portfolio NOI margin improved to 62% from 59% last quarter, reflecting continued improvement in operating efficiency.

Core FFO on the stabilized portfolio increased to $0.11 from $0.04 last quarter, reflecting a full quarter's impact of the HOME SFR portfolio, as well as the NOI margin improvement. As shown on slide 8, at the end of the year, we held a total of 10,533 properties, of which 8,603 were in the rental portfolio and 594 were held for sale. The remaining 1,336 were under evaluation for rental or sale. The total number of REOs under evaluation or held for sale reduced by 12% compared to the prior quarter.

As shown on slide 9, our loan and REO disposition plan remains on track. 468 REOs were sold in the fourth quarter, less than the third quarter due to seasonality, and NPLs reduced to 2,891, a 22% reduction compared to the prior quarter. After the completion of the second loan sale of a further 2,384 NPLs that we expect to close in the second quarter of 2017, we anticipate that there will be approximately 550 loans remaining on our books that we plan to divesture in 2017. Likewise, we plan to have sold virtually all non-rental REOs by the end of 2017. With regard to liquidity and funding capacity, on slide 10, we had $106.3 million of available cash at the end of 2016, and $112.3 million of unused funding capacity, for a total of $219 million of available financing. We continue to focus on adding longer-term financing, and are in active discussions with potential long-term lenders.

The purchase of up to 3,500 homes from Amherst will be seller-financed, with a potential term for approximately five years, on broadly similar terms to the Amherst transaction we closed in September 2016, but with an expected lower interest spread. On slide 14, we estimate our NAV to be $19.91 per share as of the end of 2016. A full description of the NAV calculation methodology is included on slide 26. I'll now turn the call back over to George.

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [5]

--------------------------------------------------------------------------------

Thanks, Rob. In conclusion, RESI had another quarter of executing the plan we set forth in 2015. At that time, we stated that our transition to a straight forward single-family rental story would take about three years. We have just started that third year, and are right on track, or maybe even a bit ahead of schedule.

So let's recap. In 2015, we stated our three major objectives. One, grow the number of high-yielding, single-family rental homes. We had 300 to 400 homes in our portfolio coming into 2015. That number is now on track to soon hit 12,000, and we have enough capital to hit between 15,000 and 20,000 homes.

Two, hit first-class operating metrics. When we first reported stabilized NOI margin, it was in the mid-50% range. We put forward our own goal to hit between 60% and 65%. We just hit 62% in the fourth quarter; another goal reached.

And three, dispose of all non-rental legacy assets, both REOs and loans. Probably the most exciting news today is that the nonperforming loan portfolio sale has been awarded, it's been awarded at a very good price, and it includes most of our remaining residual loans. When that deal closes, we will essentially be free of any legacy loan discussions and associated issues. The cleanup sale that remains the summer will be a mere rounding error. And just as promised, the REO story is about to end as well.

As these legacy issues fade, our story continues to transition into one of simplicity, transparency, and growth, buying high-yielding assets to pay a strong dividend to our owners. We established goals in 2015, and now almost all of them have been hit. Now we can start to look to the future. We must continue to grow and be vigilant about hitting best-in-class operating metrics.

These two issues will be the next chapter in RESI's story of growth and operational excellence. If we continue to successfully do these two things, we will drive our expansion into dozens of markets around the country, grow our portfolio, and in turn, grow our dividend. We look forward to discussing our results and our aspirations with all of you. Kevin, I will now turn it back to you to open up for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions)

Doug Carter, Credit Suisse.

--------------------------------------------------------------------------------

Doug Carter, Credit Suisse - Analyst [2]

--------------------------------------------------------------------------------

Thanks. I was hoping you could talk about that the net impact to liquidity of the loan sale and the home portfolio purchase.

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [3]

--------------------------------------------------------------------------------

Yes, thanks, Doug. So there were to sales. Obviously, the NPL sale that we closed in January and then we've got the second quarter larger scale, and I think between those two it should generate summer between $150 million, $200 million of net financing nets of cash.

I think tied up in our balance sheet is a whole in the legacy assets, we probably have somewhere north of $300 million. If you add that to the cash that we have on hand, I said earlier, we have $106 million of cash on hand. So we are somewhere I guess over $400 million of free cash, if you like, that we can recycle into our business. So, you know, you can make various assumptions about home prices and leverage and all that, but that equals somewhere between I'd say 8 to 10,000 homes that we can buy from where we are today.

--------------------------------------------------------------------------------

Doug Carter, Credit Suisse - Analyst [4]

--------------------------------------------------------------------------------

Got it. And in addition to the cash that's freed up from the runoff of the REO portfolio?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [5]

--------------------------------------------------------------------------------

Yes, I'm including that when I say legacy assets.

--------------------------------------------------------------------------------

Doug Carter, Credit Suisse - Analyst [6]

--------------------------------------------------------------------------------

Got it. That's included in the 300?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [7]

--------------------------------------------------------------------------------

That's right. But as I said, we have another hundred or so cash on hand on our balance sheet already. So we're looking at 400+ cash free to recycle in to homes.

--------------------------------------------------------------------------------

Doug Carter, Credit Suisse - Analyst [8]

--------------------------------------------------------------------------------

Got it. And then looking at the occupancy rate on the stabilized portfolio, how should we think that trends over the course of 2017? What's your expectation?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [9]

--------------------------------------------------------------------------------

Yes, it's 93%. It's slightly on the low side, but obviously there's seasonality involved there. I think -- so you're seeing that across the board right now this time of year. You know, we would expect occupancy to sort of go up. I think we should be targeting at least mid-90s, 95, possibly slightly higher but around that level.

--------------------------------------------------------------------------------

Doug Carter, Credit Suisse - Analyst [10]

--------------------------------------------------------------------------------

Great, thank you.

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [11]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Jade Rahmani, KBW.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [13]

--------------------------------------------------------------------------------

Thanks very much and congratulations on moving the company forward toward becoming a pure play single-family rental REIT. Just on the additional Amherst purchases, I guess pro forma for the close, what percentage of the portfolio will Main Street Renewal manage?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [14]

--------------------------------------------------------------------------------

Well, if you add the other 3,000 homes, let's say, or so, they are going to be at something like seven, seven and half thousand homes in total. So as we stand today, you know, the other half of the portfolio, the legacy portfolio is just over 4,000. But obviously, once those homes are bought and any other homes that we buy will go into the ASPS portfolio. So that's really, you know -- it will kind of evolve over time, Jade.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [15]

--------------------------------------------------------------------------------

And are there any additional waivers or contingencies or other fees you need to provide to Altisource to close the transaction?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [16]

--------------------------------------------------------------------------------

No, nothing else.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [17]

--------------------------------------------------------------------------------

And what do you anticipate as the timing for the close to be?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [18]

--------------------------------------------------------------------------------

Jade, it's George. As we said, the 900 will close this quarter, and then the remainder that takes it up to 3,000 or 3.500, probably will be a flow program that will be in closing in stages. So we are not exactly sure. Those guys buy homes every week, every month. So things they bought in January won't be stabilized until March or April.

So it will flow for several months out until we get to that amount. So we can't say exactly when we will close it, it will probably close in maybe this closing and maybe two more stages, but we will have to see how fast they get them.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [19]

--------------------------------------------------------------------------------

So these are homes that they are acquiring and stabilizing rather than already operating?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [20]

--------------------------------------------------------------------------------

It is sort of a continuum. So these 900 -- the 4,200 we bought that we closed on September 30, 2016, they had. So these 900, think of those just like that trade. They have them. But they are buying -- they buy every week. And so we're looking at things that they bought at the end of last year that we'll probably do in the second quarter closing. So it takes them a couple months to stabilize them.

So some of them they already own, and they are stabilizing. Some they just bought, and so they have to refurb them and get them rented, and some they probably haven't bought yet. That's how I would think about it.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [21]

--------------------------------------------------------------------------------

And what are the target cap rates that you were looking at?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [22]

--------------------------------------------------------------------------------

Nothing has changed from what we have said in the past. So we look at three numbers in addition to the one that you bring up. So we prefer -- because there's some noise the way people report it, but we try to view the net rental yield inclusive of everything. We've always said we shoot for that 6% level, and then with leverage, we should for an 11% to 13% ROE. And then once we are stabilized and have the number of homes that we've targeted, that we've mentioned, we are shooting for a dividend yield for owners of RESI stock to be in the high 8%s to mid 9%s. So we use that -- those three metrics every day, whether we're buying 5 houses or 5,000. We use other ones, but those are the three main metrics that the team shows us and that we go to investment committee with to buy every single day.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [23]

--------------------------------------------------------------------------------

And in terms of the relationship with Main Street Renewal, is there any possibility of a broader strategic involvement, a combination of some kind?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [24]

--------------------------------------------------------------------------------

We are always open to listening to all ideas, and we have a lot of bright people that talk to us about things; but there's nothing currently contemplated of that nature.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [25]

--------------------------------------------------------------------------------

And looking across your portfolio, we have seen a lot of the single-family rental companies look to cull assets. You do have a lot of markets with under 100 homes, for example. I was wondering if it's too early in the stage of evolution to consider a market such as, say, Arkansas or Connecticut were you may want to exit or sell assets, redeploy that capital? How do you look at that in terms of portfolio management?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [26]

--------------------------------------------------------------------------------

No, you are spot on. Obviously, we had a few other things, as I just detailed that we were focused on. So the culling, to use your word, homes that are currently providing yield, but might not fit the broader picture is exactly the way we think about it. So I would anticipate us -- we've already done the analysis. We've been working on it for several months.

Again, I never liked selling things that are making us money, but this thing, it is time to start optimizing the portfolio. So we are stack ranking every single home we own, and we probably use, you know, 20 or 30 different variables. And we stack rank best to worst, and so we will be looking to cull in certain places. I can't really say where or how many yet, but the question is spot on. We are doing that analysis right now, and I think we'll probably do a pilot to sell some homes and see how that goes probably later this quarter that we are in, and then to blossom right into the key selling season.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [27]

--------------------------------------------------------------------------------

Just on the current M&A environment, we saw sizable transaction announced earlier in the week. Are you seeing an increase in M&A discussions amongst the various players, or would you say that's debated somewhat as some of the mergers of a larger kind have already been consummated?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [28]

--------------------------------------------------------------------------------

Yes, I wouldn't say there's -- obviously, that was an important trade. I think it was an important trade for the industry, just as IH's IPO is incredibly important and added continuing credibility to the SFR space. So that transaction, I think, is great and continues to show how serious the space is and how it's not going away. It's actually growing.

There are 17 million families that rent these homes and growing, and they look a lot like us. They look probably more like us, those 17 million, than some of our competitors. So I wouldn't say the activities heated up. The number of players are still quite small, but I think everybody has pretty much found their niche. Everyone knows that transaction of the folks that are selling or merging -- that folks have been working on that for some transaction around that company for some time. So I don't think the fact that it's traded is indicative of some larger M&A situation.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [29]

--------------------------------------------------------------------------------

Just in terms of rental operations, was wondering if you could provide per property, annual R&M cost to turn -- maybe the cost of each turn rather than annual since you're running at around -- below 30%? And then just annual recurring maintenance CapEx, what you're seeing in those kind of three drivers.

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [30]

--------------------------------------------------------------------------------

Yes, annual CapEx right now, Jade, we're running about 1,200. Annual R&M, slightly less than that, about 1,100. And the turn cost, on average, we've seen so far is kind of in the 300 range.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [31]

--------------------------------------------------------------------------------

So the turn cost, the 300 is an annual? So that would be around 900 to turn the property?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [32]

--------------------------------------------------------------------------------

Yes. The 300 is the annual number.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [33]

--------------------------------------------------------------------------------

So the cost of the actual turn --

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [34]

--------------------------------------------------------------------------------

A three-year term.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [35]

--------------------------------------------------------------------------------

Okay.

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [36]

--------------------------------------------------------------------------------

Yes. At year end, yes. I see what you're saying, yes.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [37]

--------------------------------------------------------------------------------

And just lastly, since I always ask this and bother you guys about it, the corporate structure with both AMC and ASPS, has the board given any consideration to potentially changing that or looking at internalization of any kind?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [38]

--------------------------------------------------------------------------------

No, the answer remains the same. There's nothing being contemplated to change the structure.

--------------------------------------------------------------------------------

Jade Rahmani, Keefe, Bruyette & Woods - Analyst [39]

--------------------------------------------------------------------------------

Great. Well, thanks for taking the questions.

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [40]

--------------------------------------------------------------------------------

Thanks, Jade.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

Mike Grondahl, Northland Securities.

--------------------------------------------------------------------------------

Mike Grondahl, Northland Securities - Analyst [42]

--------------------------------------------------------------------------------

Hey, George and Robin. Congratulations on the additional 3,500 LOI. Question for you, you know, the 4,200 was great. The 3,500 is more progress.

What does it look like -- you kind of mentioned growth and execution. Post the 3,500, any ideas kind of on the pacing that you guys hope for or expect as we look at the second half of the year in terms of acquiring rentals?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [43]

--------------------------------------------------------------------------------

Sure, good morning, Mike. We started working on that transaction very quickly after the last one closed on September 30. So that's an important trade. I would say you can never say exactly how the year will play out. We have the liquidity to react to anything.

You continue to see, as Jade mentioned, some of the other competitors optimize their portfolios. And just as when we bought the 1,300 homes from IH two years ago, I think you will continue to see some of that. And so there's homes that are in other folks platforms that can be sizable, 500s and maybe even 1,000 or more. So I think that is one source.

We've tapped the brakes a little on OBO as we publicly said because these other transactions have, frankly, been larger than we had anticipated, but OBO is still cycling in the background. So we can bring that forward, and that can represent an enormous amount of growth. As I said, we had it on idle for a while. So I think there are still some funds out there that we have mentioned that have sizable thousands of homes, and those can come out at any time. So I think it will be a combination of small purchases as there has always been, then you will see pools of twos and 300s. You could see 1,000 or more from a competitor. You could see 1,000 or more coming from funds.

Several have 3,000 or more, as I mentioned. So I think it will be -- as it always is, I think it will be several fronts. The good news is that Rob has us, particularly with this last sale, we have a very strong liquidity position, and now he's terming out the funding, which is awesome. So we have the capital. I think the homes are out there. We just have to get them at the right price.

--------------------------------------------------------------------------------

Mike Grondahl, Northland Securities - Analyst [44]

--------------------------------------------------------------------------------

With the capital that Rob's generated or this approximate $400 million to recycle, do you anticipate that you will be able to do that efficiently?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [45]

--------------------------------------------------------------------------------

What do you mean, efficiently?

--------------------------------------------------------------------------------

Mike Grondahl, Northland Securities - Analyst [46]

--------------------------------------------------------------------------------

Well you know, we just don't see a big balance of cash sitting on the balance sheet, that you will be able to put to work -- as Rob brings the capital back in, you'll be able to put its work in rentals or something else?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [47]

--------------------------------------------------------------------------------

Oh, yes. The only time I think we really ran cash up was when we were -- Rob was preparing for the first Amherst trade. So that was an anomaly. So, yes, I think it will be pretty balanced coming in and going right back out.

--------------------------------------------------------------------------------

Mike Grondahl, Northland Securities - Analyst [48]

--------------------------------------------------------------------------------

Got you. What would a range of rentals at year-end 2017 be to start thinking about?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [49]

--------------------------------------------------------------------------------

Wow. I think there's a possibility we could spend the liquidity that we've mentioned in the plans that we have detailed. So we can get to 15,000 [units] to 17 000 [units], 18,000 [units]. I think it obviously it depends on the price you pay and the number can come down, the actual units can come down, but I think -- you know we could we hit 16.500 [units] by the end of the year? Yes. It won't be stabilized. You know, all the numbers that we put forth in terms of dividends and FFO, remember, those are stabilized just to be completely crisp.

Yes, I think there's a possibility we can get to 16.500 [units]. If you're modeling it, maybe dial that a bit just to be conservative. But something big could come along, and it could jump up pretty dramatically. So it's very hard to say this early in the year. We can talk about it off-line as to how to model it, but I think there's a chance we could spend money to get the 15,000 units or 16,000 units this year. I'd say that's 50-50, maybe even 70-30 chance.

--------------------------------------------------------------------------------

Mike Grondahl, Northland Securities - Analyst [50]

--------------------------------------------------------------------------------

Got you. And then your second comment about sort of execution optimization, what is the one or two priorities you're still sort of working on that to drive that and make that a success?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [51]

--------------------------------------------------------------------------------

I think the legacy business, which we're still, as we mentioned on this call, winding down, that portfolio is in a different position. The MSR stabilized homes is a very mature portfolio, and so that's much more of just keeping an eye on expenses, watching turns, watching listings, et cetera.

Remember, we are still sort of bringing homes through the pipeline from the legacy loan into REO, into refurbished, into rent. So there's still a construction repair piece that will go away, just as all these other issues will go away. So Randall Mason and I and others focus an enormous amount on harvesting all the great homes that came through that business. But it is still -- I would think of the ASP driven portfolio as maybe a year behind the Amherst portfolio.

So we spent a ton of time on that. And then obviously, the other question you asked, growth is really where Eruzione, Gurhan, and I are spending a lot of time trying to figure out new sources and new pipes to feed into the portfolio. So that's how I would answer that.

--------------------------------------------------------------------------------

Mike Grondahl, Northland Securities - Analyst [52]

--------------------------------------------------------------------------------

Okay. Hey, thanks a lot, guys.

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [53]

--------------------------------------------------------------------------------

Thanks, Mike.

--------------------------------------------------------------------------------

Operator [54]

--------------------------------------------------------------------------------

Emil Shalmiyev, JPMorgan.

--------------------------------------------------------------------------------

Emil Shalmiyev, JPMorgan - Analyst [55]

--------------------------------------------------------------------------------

Hey, good morning, guys. So we saw with the Tricon-Silver Bay merger that the new company plans to become an aggregator of these middle-market, single-family rentals that are about $1,200 to $1,300 a month. You're at a similar price point. Would you describe that as being your strategy as well? Are you unbiased in terms of the price point as long as they have a good yield?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [56]

--------------------------------------------------------------------------------

They have a pyramid towards the end of that one presentation that I thought was excellent, and we actually were -- Randall and I were looking at it last night. I think that's a fair way to think about it.

If you have that there, you know, I think they're probably a little bit above where we are. But the second half of your question is right. At the end of the day, the first thing we do is yield. It really comes down to yield. But because we are so focused on yield to drive the dividend, it mathematically pushes you out of -- as you know, Emil, it pushes you out of certain places.

Because our yield is higher than others and we want to pay that high dividend, it pushes you out of California, because of the house price in California, vis-a-vis Chattanooga, is so dramatically different. And the rents, as you know, are a little more balanced. So you can get the same house in Atlanta or Memphis or Houston for half the price or less than you can get in California or Seattle of any of those states. So it is really yield-driven, which sort of answers the first part of your question. That drives you to that $125,000 price point.

Remember, the homes we ought from IH were an average price of $85,000. That's obviously a little low. So I would say 75 to maybe 150, the last Amherst transaction was 153 average. This one I think will be 125 to 131. We're still playing around with it as it sorts out. So I would agree that we are in a similar price point, maybe a touch below of that new combination.

--------------------------------------------------------------------------------

Emil Shalmiyev, JPMorgan - Analyst [57]

--------------------------------------------------------------------------------

All right, got you. And I'm wondering if you can give a high-level walk through of just sources and uses of funds in 2017? It looks like the NPL proceeds are about $700 million, and then if you sell the plan, the remainder of the REOs takes you to $1 billion, and I'm sure there's some debt pay-down associated with that. So are you planning -- would you hope to deploy just the net amount of that into acquisitions and just keep it leverage neutral?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [58]

--------------------------------------------------------------------------------

Yes, Emil, that's roughly right. As I said in answer to Doug's questions earlier on this call, I think the net cash that we will generate, free cash to reimburse will be kind of in the region of $400 million. So that's what we'll be reinvesting, probably a slightly higher leverage than the legacy assets. The Amherst deal, the first one, as you know, we got 75% term leverage. So there's probably a little bit of leverage advantage there as we reinvest that capital.

--------------------------------------------------------------------------------

Emil Shalmiyev, JPMorgan - Analyst [59]

--------------------------------------------------------------------------------

Okay. So like next year, as you transition to a more conventional looking REIT, so getting out of the NPL business, do you have a view on leverage in terms of net debt to EBITDA?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [60]

--------------------------------------------------------------------------------

Well, I mean, we're -- I'm not sure that's next year. That's sort of happening right now this year. Obviously, it will be completed as we move into next year. But as I said, NPLs will pretty much -- this next trade will be 500 loans or less. So the loan thing, in our mind, is just about done.

So when that's all done and the REO are sold and the homes are purchased, Rob's been running it between 50% and 60% of the Company. Obviously, as he said, Amherst pulled it up. This next trade, we're not ready to talk yet about the details, but as Rob said earlier, it will be similar. So I think the company will probably run between 60% and 70%. Particularly, I think we'll run it a little higher while we're in such a rapid growth phase, and then we'll probably, as we mature, dial it back down. That's how we think about it.

--------------------------------------------------------------------------------

Emil Shalmiyev, JPMorgan - Analyst [61]

--------------------------------------------------------------------------------

Okay. And just last question on this -- on the NPL sale. Can you disclose what type of buyer it is, and then if there's any substantial risks to it not closing?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [62]

--------------------------------------------------------------------------------

There are a -- you know, when you open up a file room for NPLs, having done this for a while, 20 to 25 people actually sign up and sign NDAs to go into the room. And I've seen that number go up and down around that number. But, Emil, the same 5 to 10 folks, maybe 12 at the outside. It's a very small group with an enormous amount of capital. As you know, there's a lot of really big players in that space. So what sort of rotates as to who just bought something, who's digesting something, who hasn't bought in a while, who just raised money.

So it's one of the very reliable, excellent, well-funded known names in the NPL space. So you can never say never, but we are not concerned at all that it will close. It will take a little bit longer because, as I mentioned and we talked about this on the last call, the important part of that trade, the pure NPL piece of it is great. The most important part of it, as I said, I'm not sure what to call them. We have jargon for what to call these sort of tag ends. Some people refer to them as cats and dogs or the rock pile.

It's that which remains from the kick outs and other just heavy litigation, all sorts of documentation. It's really a hodgepodge of things. I think the Starwood guys did a trade that was similar to this when they merged with Colony. If you'll remember, they did a cleanup trade. That's exactly what this was so. Neil Patel was able to get -- we were hoping we could get the cats and dogs into the larger trade, and we did. And so what remains when that one closes is becoming de minimus. So that's really the great news about that trade.

--------------------------------------------------------------------------------

Emil Shalmiyev, JPMorgan - Analyst [63]

--------------------------------------------------------------------------------

All right, thank you.

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [64]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [65]

--------------------------------------------------------------------------------

Fred Small, Compass Point.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [66]

--------------------------------------------------------------------------------

Hey, good morning, thanks for taking the question. Just starting off on the NPL sales, two questions. How much additional unrealized loss do you expect to run through the P&L when you sell the bulk of what you've signed up for, the 42?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [67]

--------------------------------------------------------------------------------

Yes, Fred, the way the GAAP accounting works on this is that once you've got a bid, really you have to map that portfolio to the bid plus what you think you're likely to get for basically. So we marked that portfolio to our bid at the end the fourth quarter. So the number's are already embedded on the balance sheet evaluation. And actually as I said in my prepared remarks earlier, that the net overall reduction in NPL evaluation this quarter was less than $7 million. So it was not a big number.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [68]

--------------------------------------------------------------------------------

Okay. That's fine. And so that's all the -- maybe I missed just the beginning when you were talking about that, but there's only $7 million in that. What was the total number of the unrealized?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [69]

--------------------------------------------------------------------------------

What I'm saying is that in the change in unrealized gain on mortgage loans which is negative 40.6, if we sell stuff. So the net valuation chang in the mortgage portfolio between the third and the fourth quarter was $7 million, and that includes the marks that we've taken based on the bids for these NPLs that we're selling.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [70]

--------------------------------------------------------------------------------

Okay, got it. And then how much -- I think you said maybe how many you expected to have left after these two sales, just a number. Was it 5,500 or something like that or 550? That's right, 550. And then maybe some kick outs from the other trade -- from one of those trades, but sort of net-net 550. So relatively insignificant amount, as George said, will be substantial out of the NPL. And I guess there's 568 now -- $568 million on the Q4 balance sheet in terms of held for sale and fair value mortgage loans. How much do you expect to be remaining after the sales?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [71]

--------------------------------------------------------------------------------

I think the carrying value will be the region of sort of $80 million, $85 million.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [72]

--------------------------------------------------------------------------------

Great, thanks. And then on the REO, sort of the same question, you know, from where we are now on the balance sheet to sort of realized on the sale, how much loss do you think there will be? I know there are net gains that run through the P&L, but just --

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [73]

--------------------------------------------------------------------------------

You mean of the REOs we still have to sell?

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [74]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [75]

--------------------------------------------------------------------------------

Yes, you know, obviously you get the sales cost and the frictions cost. When we calculate NAV -- when I calculate that number, I take the 10% haircuts for all the REOs on my balance sheet. So we try to be conservative.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [76]

--------------------------------------------------------------------------------

All right, so 10% is probably the right number there to assume?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [77]

--------------------------------------------------------------------------------

Yes. As I say, for modeling purposes, that's a good number. That's the number I used for NAV, but we try to be conservative.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [78]

--------------------------------------------------------------------------------

Okay. Awesome, thanks. And on the targeted dividend, I guess what is the basis for that? Because you said -- maybe I just don't understand what you're sort of going for, but you said you are targeting an 8% to 9% dividend yield when the rest of the space is trading low single digits. What is the basis for the -- is that off of NAV or -- you know, why would you just not target a lower yield if it's just a function of stock price?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [79]

--------------------------------------------------------------------------------

That's a great question. Obviously, dividend policy is something we will have to think very carefully about based on kind of opportunities available to us, but what we're saying it's really that's going to be the cash available for distribution, right, whether at the end of the day we decide we are better off -- it's better for the shareholders if we reinvest some of that. That's another matter I guess. But that should be the cash that we model to be available for distribution.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [80]

--------------------------------------------------------------------------------

I'm sorry, just on the --

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [81]

--------------------------------------------------------------------------------

If I'm getting your point, Fred, it's also -- sort of your question is the answer. We've said from the beginning that we wanted to go into the high-yielding space and that we think the rental market of these 16 or 17 million folks that Green Street writes about look much more -- so they say it's 95% mom-and-pop, and that institutional hands have only touched 2% or 3%. I think that is true.

The rest of the population, that other 95%, is mom-and-pop to save the research analysts. That looks more like us. They do high-yielding homes, and that's what we do. And so we are going to continue to buy from those people and roll those people up and play in the high-yield space. And so that's actually what we're trying to offer to people is that we will be giving you a much higher dividend yield. That's the point of why we are in high-yield, if I'm understanding your question.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [82]

--------------------------------------------------------------------------------

Yes, maybe it's a question of knowing. When you're talking about a dividend -- a dividend yield is a function of your dividend and the stock price. So I'm assuming you want the stock price to be higher?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [83]

--------------------------------------------------------------------------------

Correct.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [84]

--------------------------------------------------------------------------------

Which would imply a lower dividend yield. So I'm just trying to understand what the base for the 8% to 9% target is,

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [85]

--------------------------------------------------------------------------------

Yes, I'm not saying we're going to hit that high percent yield because the stock price is trading at a discount. When we talk about that, we're talking about moving through book and beyond and paying 8% to 9%. We are not assuming this current -- obviously, the discount was worse, and I think we got in to the 40s of discount, and now we're into the 60s, approaching 70. So the discount's slowly going away. I'm assuming when we use those numbers, we spent the money, we have the 15 to 20,000 homes, they are stabilized, and the stock price is somewhere around NAV.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [86]

--------------------------------------------------------------------------------

Okay. So NAV is sort of the rough number you are assuming for your 8% to 9% target?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [87]

--------------------------------------------------------------------------------

I think I understand what you are asking now, Fred. It's really an ROE number.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [88]

--------------------------------------------------------------------------------

Okay. Got it. And then last one I think or it just slipped my head, on the -- there was a dividend yield -- no, that's it. I'll jump back in the queue if I remember. Thanks.

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [89]

--------------------------------------------------------------------------------

Thanks, Fred.

--------------------------------------------------------------------------------

Operator [90]

--------------------------------------------------------------------------------

Brock Vandervliet, Nomura Securities.

--------------------------------------------------------------------------------

Brock Vandervliet, Nomura Securities - Analyst [91]

--------------------------------------------------------------------------------

Thanks. Just taking another crack at the NAV change. So that was down 3.5% sequentially. I understand the Delta of $7 million, but what else was occurring there to drive that lower?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [92]

--------------------------------------------------------------------------------

Yes, so obviously we reported a GAAP net less in the quarter as well, Fred. So it's a question of -- it's operating results. Sorry, Brock. It's operating results plus the dividend that we pay out plus, say, the mark on the portfolio.

--------------------------------------------------------------------------------

Brock Vandervliet, Nomura Securities - Analyst [93]

--------------------------------------------------------------------------------

Okay. And to clarify, since you've received the bid, you can already mark that portfolio. So that was marked at the end of Q4, so there's not another mark, coming there for that sale?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [94]

--------------------------------------------------------------------------------

Yes. What we do is we try to be as conservative so we get the bid, and then we look through our history of our NPL sales and figure out how much that price might fade. So the mark that we have taken is the faded price, what we expect it to come in at the end. So we don't expect any substantial further mark on that portfolio.

--------------------------------------------------------------------------------

Brock Vandervliet, Nomura Securities - Analyst [95]

--------------------------------------------------------------------------------

Okay. So that's down to kind of tag ends after this transaction. You've already marked for the transaction. So I know you are not giving specific guidance on GAAP earnings, but it would seem like which have been very negative should change pretty materially here as this noise abates.

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [96]

--------------------------------------------------------------------------------

I think that is exactly what we would expect. Obviously, the goal, Brock, is to get rid of all the noise around the NPL and the realized gains and the realized losses. So really the only rental number -- sorry, the only revenue number left is the rental number. So, yes, I would agree.

--------------------------------------------------------------------------------

Brock Vandervliet, Nomura Securities - Analyst [97]

--------------------------------------------------------------------------------

Okay. And separately on the dividend, just looking at it from a different angle, you are now at $0.11 FFO per share, shy of the dividend. How do you look at the dividend payout in terms of, you know, once you -- presumably later this year, you're going to be well above your dividend rate in rental earnings.

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [98]

--------------------------------------------------------------------------------

Yes, that's right. So as you said, we are already at $0.11 here, so we're getting very close to that $0.15 a quarter. You know, as we go through the year and increase the portfolio, you know, it's very possible that FFO number is going to go above 15, and so that gives us some flexibly on dividends. Obviously, I can't give you an exact course or exact timing, but clearly that is the direction we are going in.

--------------------------------------------------------------------------------

Brock Vandervliet, Nomura Securities - Analyst [99]

--------------------------------------------------------------------------------

Okay. And lastly, whether it's ASPS or Amherst, that category of renovation in turn, that's growing with the acquisition, of course. How are you feeling about those firms in terms of their operational capacity to chew through that category and get these homes rented as soon as possible?

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [100]

--------------------------------------------------------------------------------

As I said, the Amherst trade was initiated, probably, 4 plus years ago. That doesn't mean all of it's that old But it's a very -- I would think of that as we bought a very seasoned portfolio. So the metrics, as I mentioned, are very -- just a very mature portfolio.

So when you look at your P&L, you look at your evictions, you look at that people that haven't moved yet, you look at turns, you look at probably three or four different subtractions from your revenues. And so when you look at Amherst portfolio, it's very quiet because it's just sort of the natural flow.

Your question was who has the capacity to keep fixing up homes, that's really what's going on over in ASPS, and we think they have plenty of capacity. Speaking of capacity, I think, obviously, we have always said ASPS can go to a lot of places. Brock, we probably have 40 to 45 cities staked out on our wish list, and I think both of them can handle that.

Remember, that after this transaction with MSR -- or with Amherst, that is the end of what MSR will manage for us. ASPS will do the rest. So we grow to 50,000 homes, the lion's share with that will be with ASPS. And we are very confident that they can handle that.

--------------------------------------------------------------------------------

Brock Vandervliet, Nomura Securities - Analyst [101]

--------------------------------------------------------------------------------

Great, thank you.

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [102]

--------------------------------------------------------------------------------

Thanks.

--------------------------------------------------------------------------------

Operator [103]

--------------------------------------------------------------------------------

Jade Rahmani, KBW.

--------------------------------------------------------------------------------

Ryan Lynch, Keefe, Bruyette & Woods - Analyst [104]

--------------------------------------------------------------------------------

Good morning, this is actually Ryan on for Jade. Thanks for taking the follow-up. I was hoping you can provide a bit of color on the assumptions in your NAV estimate. Robin, you mentioned the 10% haircut to the REOs, but can you give us some color on your Cap rate and NOI margin assumptions that you're using for the SFR portfolio?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [105]

--------------------------------------------------------------------------------

Sure, Ryan. So the biggest change, obviously, is the assumptions we make on the evaluation of the rental portfolio. It's a 12-month discounted cash flow NOI, so a month forward NOI. And we discount that at a nominal cap rate of 5.25%.

--------------------------------------------------------------------------------

Ryan Lynch, Keefe, Bruyette & Woods - Analyst [106]

--------------------------------------------------------------------------------

And is there a specific reason you are using that 5.25% based on public comps or just review of the market sharing?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [107]

--------------------------------------------------------------------------------

Yes, it is both of those things. It's comps and it's also what we feel is most appropriate.

--------------------------------------------------------------------------------

Ryan Lynch, Keefe, Bruyette & Woods - Analyst [108]

--------------------------------------------------------------------------------

And are there any other specific assumptions that are going into the NAV aside from the REO haircuts and the cap rate assumptions for the SFR portfolio that we should --

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [109]

--------------------------------------------------------------------------------

No, those are the big things, I think. I wanted to make sure everyone understood that we are taking a 10% haircut for the REOs. I think that's an important point to make.

--------------------------------------------------------------------------------

Ryan Lynch, Keefe, Bruyette & Woods - Analyst [110]

--------------------------------------------------------------------------------

Great. Thanks for taking the follow-up.

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [111]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [112]

--------------------------------------------------------------------------------

Fred Small, Compass Point.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [113]

--------------------------------------------------------------------------------

Hey, sorry, I remembered what it was. On the equity base and thinking about the purchase, the purchase potential, when you were running through it before, I don't know. It sounded like you were saying, okay, there is $300 million or $400 million of capital you re going to get back to redeploy, and that puts you at -- I think, George, maybe said if you really gun it, you can get to 18,000 by the end of the year. Does that assume deploying all that capital? Or, you know, when I look back at from the old slides, the low end of the amount of homes you thought you could purchase on the current capital base was mid-20,000s. Is that still the case?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [114]

--------------------------------------------------------------------------------

You know, the major thing that has changed since those slides, Fred, is the value of the home. So we assumed, I think, at that time $110,000. And the average carrying value of our properties today on our books is closer to $140,000. So, obviously, in terms of number of units, that actually reduces the number somewhat, which is why we're saying now 16,000, 17,000, 18,000 depending on the number of units that we buy.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [115]

--------------------------------------------------------------------------------

So below 20 on the current capital base?

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [116]

--------------------------------------------------------------------------------

That's right.

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [117]

--------------------------------------------------------------------------------

Yes, we think we'll end up between 15 and 20,000.

--------------------------------------------------------------------------------

Fred Small, Compass Point - Analyst [118]

--------------------------------------------------------------------------------

Okay, great. Thanks a lot.

--------------------------------------------------------------------------------

George Ellison, Altisource Residential Corporation - CEO [119]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [120]

--------------------------------------------------------------------------------

Ladies and gentlemen, this does conclude the Q&A portion of today's call. I'd like to turn the conference back over to the company for closing remarks.

--------------------------------------------------------------------------------

Robin Lowe, Altisource Residential Corporation - CFO [121]

--------------------------------------------------------------------------------

Thank you very much, everyone, for joining the call today. Have a great day. Thank you.

--------------------------------------------------------------------------------

Operator [122]

--------------------------------------------------------------------------------

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.