Front Yard Residential (RESI) Notes

Update – October 15, 2020

  • Last week, William Erbey called for the liquidation of Front Yard Residential (RESI).
    • Front Yard’s business model is to buy-renovate-lease real estate that it owns.
    • It was established as a spin-off of Altisource Portfolio Solutions in 2012.
    • Erbey wrote:

“I have been an investor in Front Yard Residential since its inception. And as much as I would like to see the Company continue, the time has come, in the best interests of the shareholders, to liquidate the Company.

Mr. Lowe (CFO) assured he was ‘absolutely convinced’ that the NAV was in that range of $18-19 per shares and later alluded to an independent valuation company validating the same range.  The Company has never reversed its guidance of two years nor subsequently disclosed anything that would call it into question. To the contrary, given the continued market increase in overall housing values since that time, it would be difficult to support a NAV of less than $20-21/share assuming the Company has professionally executed over this time period.

Erbey also said that Front Yard’s assertion that liquidating the portfolio would cost $6.50 per share “begs credulity.”

“That cost equates to 14% of the total enterprise values at $20/share NAV. Upwards of $383 million,” he wrote. “In my limited experience in the industry, this is way over market – more than double what a well-run firm should spend to sell homes.”

Erbey said the net liquidation value of the company should be $16.50 per share — $20 per share minus $3.50 per share.

  • In 2017, New York state regulators forced Erbey’s resignation from Ocwen over allegations that the servicer misstated its income four quarters in a row in 2013 and 2014. Shortly before his ouster from Ocwen, an investigation found that Erbey was chairing the servicer while simultaneously chairing the boards of four other companies. The probe led to a $150 million fine for Ocwen and Erbey’s ejection from all the boards he served on.
  • Erbey’s beneficial stake in Altisource is unclear. I think Erbey owns a 28% stake in Front Yard through Deer Park Road Management and Deer Park Road Corp, but I can’t confirm.
  • This week, Altisource Portfolio Solutions (ASPS), which originally spun Front Yard off in 2012, kept a 5.9% stake.
    • This week, Altisource wrote a letter to Front Yard echoing Erbey’s argument that the company should be liquidated.
  • This looks like an interesting situation. If it’s worth $16.50 as Erbey believes, there is 68% upside. The liquidation process would likely take 3 years.
  • One other thing to note: Front Yard insiders have been buying like crazy.