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TDE Middle Market: Snow Park Gives Front Yard Ultimatum

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Published: July 31st, 2020
Jeffrey Pierce discusses why the rental property REIT should sell itself or face a proxy contest, and more, during The Deal Economy: Middle Market Week.

Front Yard Residential Corp. (RESI) should auction itself off or the REIT will face a director contest in 2021, according to Snow Park Capital Partners LP’s Jeffrey Pierce.

“My hope is that they sell it,” said Pierce, speaking on a panel of activists at The Deal Economy: Middle Market Week digital conference on Monday, July 27, adding that his firm would launch a director contest if the Maryland-incorporated rental home company wasn’t sold first.

“We obviously put two directors on the board last year,” Pierce explained.

“The nice thing about that situation is that there are a lot of buyers, a number of private market participants, some of which participated in the first process and also new ones have reached out to us,” he added.

The comments emerged after the REIT decided in May to cancel a $2.3 billion sale to privately held Amherst Residential LLC, a deal first announced in February. Instead of taking the initial $48 million termination fee, Front Yard agreed to take a $25 million termination fee in addition to a loan from Amherst and the sale of 4.4 million shares, or about $55 million.

Luxembourg-based Altisource Portfolio Solutions, a service provider for the real estate and mortgage industries and former Front Yard parent company, said in a securities filing in May that it questioned Front Yard’s decision to terminate its Amherst deal without seeking the full $48 million termination fee that was included in the merger agreement. The 5.9% shareholder said it no longer supported the REIT in its current strategy.

Altisource and Snow Park launched a “vote no” campaign against Front Yard director George McDowell and board chairman Rochelle Dobbs at the REIT’s 2020 annual meeting in June.

About 32% of voting shares opposed McDowell and 30% voted against CEO pay. However, the percentage opposed is larger, when considering that Amherst pledged its 4.4 million shares — about 7.5% — to back the incumbent board.

Front Yard, previously named Altisource Residential Corp., was spun off from Altisource Portfolio in 2012.

Pierce said Snow Park vowed to vote against the two director nominees and also raised concerns before the June meeting about Front Yard’s executive compensation plans, general and administrative costs and move to eliminate its dividend.

“A lot of REITs, especially the hotel REITs and some of the triple net REITs, have cut [C-suite] pay, along with cutting their dividend,” Pierce said at the Middle Market conference. “Front Yard Residential, ironically, was one of the few REITs that did cut their dividend to zero and did not actually at least show some pain [in the C-suite] alongside shareholders.”

Front Yard did not return a request for comment.

The collapsed Amherst-Front Yard deal, which was struck in February, followed agitation by Snow Park in 2018 and 2019.

Amherst had offered $12 a share to buy the Maryland-incorporated REIT in 2018, but the target’s board rejected the bid and declined to consider a sale of the business until it reached a settlement with Pierce in May 2019.

As part of that settlement, Front Yard set up a strategic review board subcommittee to consider alternatives such as a sale and it installed two new directors, one of which received a seat on the review panel.

Pierce had submitted a five-person, majority dissident slate of director candidates in 2019 but agreed to withdraw candidates as part of the agreement. A review of Snow Park’s portfolio reports suggests the activist liquidated its Front Yard stake in the third quarter of 2019, shortly after the deal was struck.

The Wall Street Journal reported May 11 that Amherst canceled its acquisition of Front Yard over the “difficulties of integrating the two companies during the pandemic, including back-office functions in locked-down India.”

Expect that Snow Park is keeping a close eye on a Jan. 28 deadline for nominating directors at Front Yard’s 2021 annual meeting, expected in June.

Editor’s note: The original version of this article was published earlier on The Deal’s premium subscription website. For access, log in to TheDeal.com or use the form below to request a free trial.

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