Investment idea generation.

Blog

Our thoughts.

RESI Shareholders Group Letter to Altisource Residential $RESI

It is clear that RESI’s Board and management’s attempt to justify your current value-destroying strategy during the earnings call on Monday was a resounding failure. In the face of shareholder opposition, sell-side analyst criticism and negative market reaction, management has redoubled its commitment to pursuing a failed and discredited strategy of acquiring single-family rentals (“SFR”).

On the call, Jade Rahmani, a research analyst at Keefe, Bruyette & Woods, encapsulated shareholder concerns with this strategy when he said:

RESI CEO, George Ellison has displayed a frightening inability to explain why his strategy will work.  Clearly, investors and analysts are unable to understand how purchasing homes could be a better opportunity than buying back RESI shares at less than 50% of tangible book value or liquidating RESI completely. CEO Ellison effectively threatened shareholders by citing friction costs and timing in the event of a liquidation, although he is already undertaking a full liquidation of the legacy assets anyway. Pushed further, however, about the true NAV given these purported friction costs, he reiterated that the stated book value of $20.73 does indeed represent fair value, almost double the current share price.

Shareholder confidence in this management has been further eroded by CEO Ellison’s irrational commitment to Altisource Portfolio Solutions S.A. (“ASPS”). Since the call, ASPS is now trading down 35% on recent news. RESI’s Board must recognize the futility and harm of propping up the Erbey complex of formerly related entities and must focus strictly on their fiduciary duty to RESI shareholders alone.

Since the date of CEO Ellison’s appointment, RESI’s share price has declined by approximately 40%. It is clear to us this represents an unequivocal vote of no-confidence in the Company’s current strategy and its management. Shareholders will have a chance to express their views when they decide on the makeup of the post-Erbey Board at the next Annual Meeting, which we expect will be held in May.

Mr. Reiner, you are a fiduciary to RESI shareholders, not Mr. Ellison, AAMC, ASPS or any other conflicted group. We demand you act in the best interest of all shareholders and pursue the best risk-adjusted outcome for RESI by halting the SFR strategy.