Kelly Residential & Apartment Real Estate ETF
Q1 2017 Earnings Call Transcript

Published: 9 May 2017

[Operator:]

Good day, ladies and gentlemen. Welcome to the Altisource Residential Corporation Q1 2017 Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to introduce host for your today's conference, Mr. Robin Lowe, Chief Financial Officer. Sir, you may begin.

[Robin Lowe:]

Thank you, Britney. 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 a slide presentation is available to accompany our remarks. To access the slides, please log on to our Web site 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 that 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 statements in our earnings release, as well as the company's filings with the Securities and Exchange Commission, including our year-end December 31, 2016, Form 10-K, and the first quarter 2017 Form 10-Q 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 Web site using the e-mail alerts button. Joining me for today's presentation is George Ellison, Chief Executive Officer of RESI. I'd now like to turn the call over to George.

[George Ellison:]

Thanks, Robin, and good morning, everyone. The team at RESI is happy to report another quarter of successfully executing on our stated goals, growing our portfolio of high-yielding single family rental homes, achieving first-class rental operating metrics, disposing of legacy assets. As you see on page three, we closed the first stage of our most recent Amherst acquisition that, when completed, should result in an additional 3,000 to 3,500 homes. As stated, when this second transaction is complete, our rental portfolios should reach approximately 12,000 homes. In addition to growing our portfolio, we maintain our focus in hitting excellent operating metrics. Occupancy increased to 95%. Stabilized rental NOI margin hit a normalized 61% for the quarter, and stabilized rental core FFO $0.11 [ph] per share. As stated on our last call, we have been on a mission to aggressively dispose of our legacy assets, both loans and REO. We announced on the last call that we had awarded the final large [indiscernible]. Today, we're pleased to announce that this transaction is scheduled to close next week. We maintained our dividend at $0.15 per share for the fifth quarter in a row, and continue with our stock buybacks. We also added a new term loan agreement that we'll discuss later; all in all, another very strong quarter. Now, let's turn to page four and get into the details. Rental revenue increased 5% from the last quarter. Keep in mind, the first tranche of the Amherst trade closed at the end of March, so, these new stabilized homes that are immediately cash flowing will not be fully reflected in our results until the second quarter is complete. Stabilized rental FFO remained at $0.11 per share. We repurchased about 170,000 shares spending $2.3 million, which now takes us up to $48.9 million spent on share buybacks. Again, a dividend of $0.15 per share was declared and paid. On our portfolio, the total rental portfolio ended the first quarter at 9,320 homes, of which 95% are now stabilized. Leased homes increased 8,385, a 15% increase from the fourth quarter. As mentioned, we closed the first wave of homes from the second Amherst transaction that we announced on the last call. As reported, these are the first to close as part of the larger transaction, that when completed should total 3,000 to 3,500 homes. On our last call we announced that we had awarded our last major NPL sales. This trade is scheduled to close next week. After that deal closes, we will hold something in the vicinity of only 500 loans. We're scheduled to move this small amount out later this summer. On the REO disposition front, we again had strong sales of over 400 homes during the typically quite winter months. The remaining REO count stands at 1,753, and we're still on track to be out of this asset class by the end of the year. On the operations front, stabilized rental portfolio NOI margin was 61% in the first quarter. The team improved the occupancy this quarter, with 95% of stabilized rentals leased at quarter end. Our lease renewal rate for the quarter was 69%, with a turnover rate of 7%; rents on renewals increased by 5%, and re-leases increased by 2%. On the funding front, Rob and his team continue to push out the duration of our liabilities. The first Amherst transaction, to remind everyone, is backed by a five-year loan. The second Amherst transaction will also be backed by five-year term financing. As we mentioned last quarter, Rob has been working on more term financings, and we're pleased to announce the Ennis team closed a $100 million five-year term loan. Good news and great job by Rob and the team. As we continue to sell legacy assets our liquidity position continues to improve. As mentioned before, when all the legacy assets are sold we have modeled the final count of somewhere between 15,000 and 20,000 rental homes, without needed to raise any additional equity capital. Obviously, this number moves around depending on the average home price we pay. As you look at the map on page five, the question must be asked, where will the growth come from after we hit 15,000 to 20,000 homes. And the answer is simple, once the second Amherst trade is completed, later this year; we plan to continue to use Amherst as a conduit originator to provide rental homes to RESI on a go-forward flow basis. ASPS is also going to compete for this business. It's too early to predict the amounts of forward purchases by these two or any other vendors who join this origination group. But hopefully, we will be adding these origination projections to our calls [ph] sometime later this year, or in 2018. Amherst and ASPS are leading this effort, and have already begun to contribute stabilized rental homes that fit our requirements. We are also currently exploring several pilot programs with other originators of stabilized homes for RESI. Where will the next 15,000 to 20,000 homes come from in the future years? As we build these critical origination relationships we'll begin to get transparency into the answer to this very important question. But we want to be clear; growth is a major objective at RESI. On page six, you see our current leasing scorecard. For the quarter, renewal rate, 69%, turnover, 7%, average rent increase on renewals, 5%, and our new leases up 2%. We are starting to see the positive effects of the high leasing season, and will be closely watching all our markets to determine where we can maximize rent increases while maintaining our occupancy. I'll now turn it back to Rob.

[Robin Lowe:]

Thank you, George. Today, we are reporting a GAAP net loss of $49.4 million for the first quarter 2017, an improvement of 19% over the fourth quarter 2016. First quarter 2017 revenues were $29.3 million, an increase of 143% over the fourth quarter. Rental revenues increased by 5% to $25.6 million, and the legacy asset revenue lines returned a positive $3.6 million as dispositions continued. At the end of the first quarter 2017, there were 442 mortgage loans held at fair value of approximately $71 million. Of the two NPL sales we announced last quarter, we closed the sale of 556 loans during the first quarter, and expect to close the second sale of approximately 2,190 loans held for sale, in May. In addition to the NPL sales, we resolved 78 mortgage loans in the quarter, and sold 413 non-renal REOs. Expenses for the quarter were $78.7 million. As we continue the disposition of legacy assets we expect to see significant reductions in certain expense lines. For example, with the disposition of NPLs we expect a significant reduction and eventual elimination of mortgage loan servicing costs, which were $6.2 million this quarter. Likewise, as we continue the disposition of non-rental REOs, we expect a reduction in the average property operating cost as non-rental REOs are more expensive to maintain than our rental homes. Selling costs and impairment should also reduce significantly once we close out the non-rental REO inventory. This quarter's selling costs and impairment were $14.2 million, with the increase over the last quarter mainly due to the contribution of 552 properties for sale, versus 242 last quarter. Core FFO on the stabilized portfolio was $0.11, flat to last quarter, and NOI was 61%, 1 percent lower than last quarter mainly due to timing and seasonality as approximately 200 properties that had completed renovation and were added to the stabilized portfolio were not leased until late in the quarter. On slide 13, compared to the first quarter 2016, NOI margin has improved by 5%, from 56%, mainly driven by expense reductions in repairs and maintenance and insurance. Going forward, we are targeting further savings in repairs and maintenance, and insurance that we expect will be partly offset by property taxes increase in the range of 5% to 7%. We saw strong leasing activities towards the end of the quarter, and 95% of stabilized rentals were leased compared to 93% at the end of last quarter. As shown on slide seven, at the end of the year, we held a total of 11,073 properties, of which 9,320 were in the rental portfolio, and 793 were held for sale. The remaining 960 were under evaluation for rental or sale. The total number of REOs under evaluation or held for sale reduced by 9% compared to the prior quarter. As shown on slide eight, our loan and REO disposition plan remains on track, 413 REOs were sold in the first quarter, and NPLs held at fair value reduced to 442, an 85% reduction compared to the prior quarter. With regard to liquidity and funding capacity, on slide nine, we had $61.7 million of cash and cash equivalents at the end of the quarter, and $125 million of unused funding capacity, for a total of $186.7 million of available financing. In early April, we closed on a $100 million five-year 5% fixed rate loan with a new accounts party, American Money Management, and renewed the Nomura loan agreement with a maximum borrowing capacity of $250 million. Additionally, in connection with the purchase of 757 homes from Amherst at the end of the first quarter, we added $79.9 million of five-year seller financing at one-month LIBOR plus 2.75%, 50 basis points lower than the spread of the first Amherst transaction financing. Further seller financing on the same terms will be added as we continue to acquire more homes from Amherst under the recent agreement to purchase up to 3,500 homes. We continue to work on extending financing duration as strategies to hedge potential interest rate risk. I'll now turn the call back over to George.

[George Ellison:]

Thanks, Rob. Occupancy up, revenues up, numbers of homes rented up. Turnover remains low, legacy assets almost gone. Another high-yield-asset broad purchase closed within a much larger tray, and continued maturation of our funding strategies; to sum it up, another strong quarter at RESI. For two years we've discussed our three major objectives, one, grow our high-yield portfolio, two, hit excellent operating metrics, three, dispose of all legacy assets. As we now get into the thick of 2017 and look forward to 2018, the story of RESI has become even more simplified. With this last large loan sale about to close, a cleanup loan sale this summer, and all remaining REO projected to be sold by year-end. Number three on the list, disposing of legacy assets is about to go away. What remains are our two major objectives, growth and operational excellence. Management is spending an enormous amount of time and energy on growth initiatives. So, whether it be flow arrangements with multiple originators that I mentioned, packages purchased from other smaller participants or larger strategic transactions, we're committed to growing RESI well beyond our current target of 15,000 to 20,000 homes. As to operational excellence, that's simply a job that will never be finished. Continued cost containment, use of technology to become more efficient, while at the same time providing a satisfying living experience to the customers we serve are tasks that we commit to work on every single day. We look forward to discussing our company with all of you, and answering any questions you may have. I'll now turn it back to the operator.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from Anthony Paolone from JP Morgan. Your line is open.

[Anthony Paolone:]

Hi, thanks, and good morning. And appreciate all the added disclosure you guys continue to provide. My first question is maybe for Robin, can you walk through sources and uses over the balance of the year just to make sure I understand actual dollars coming in from the pending cleanup sales. And then just kind of what's left to spend on the Amherst deal.

[Robin Lowe:]

Sure. So, I think, Tony, as we said last quarter, we roughly had $400 million of kind of equity embedded in the legacy assets. We released some of that through the sales in the first quarter. So there's probably around $350 million plus or minus. It obviously does finally depend on the final sales prices of things, but let's take that number, and so…

[Anthony Paolone:]

And is that equity or…

[Robin Lowe:]

That's equity. Yes, that's equity. So obviously we can lever that out, but there's still going to be a little drag from operating costs, but let's…

[Anthony Paolone:]

Relative to -- like just on a gross basis to tie it the balance sheet, like [indiscernible] mortgage loans for sale and loans at fair value and real estate, like, what's the gross sales price of stuff that's teed up to go?

[Robin Lowe:]

You mean what's coming or what we've done in the first quarter?

[Anthony Paolone:]

No, what's coming.

[Robin Lowe:]

Yes, so the final sales price of the 3,500 Amherst trade is to be determined. There's a formula there. And so we won't know that final price. You can assume, I don't know, an average of $130,000 to $135,000 per home, something like that. And that will be at a 75% LTV, 75% leverage. And then, as I say, we've got enough equity depending on the leverage you assume and the average house price that you pay to purchase additionally to that, I guess another 3,000, 4,000, 5,000 homes as we release the equity that's embedded in the legacy assets. So, that's really the story for the rest of the year.

[Anthony Paolone:]

If I look at the balance sheet and you have mortgage loans held for sale, the $354 million, and then you have another $71 million at loans at fair value. If I think about the pending cleanup trades to get those to zero, is that a good number? Are those two numbers combined a good number for gross proceeds. Or can we expect further -- like those numbers to come down. Because if I look at your income statement in the quarter, you had the roughly $52 million in change in value, so just trying to figure out if the 425, if that's representative of what's going to be coming back, or will those have to come down further at this point?

[Robin Lowe:]

Yes, so the mortgage is at fair value, the $71 million are marked at fair value, so that's what we believe the gross proceeds should be. And the bigger number, the $354 million is marked to bid. So that also is the number we expect to receive. Obviously, [indiscernible] we're expecting that to close next week. We're still sort of in the final stages of due diligence. There are potentially kick-outs, and all the usual things that go along with that. But we mark those mortgages where we think our gross proceeds are going to be.

[Anthony Paolone:]

Okay. So basically by the end of the third quarter, just from the clean-up of the mortgage book you'll bring in $425 million basically, is the way…

[Robin Lowe:]

That's right. And honestly, the debts paid down on those.

[Anthony Paolone:]

Right. Okay, and then in terms of -- you mentioned those avenues of growth with some of these originators. Now that you guys will pivot more to really forming the rental portfolio now that you're out of the loan business almost, will you change any of the criteria whether it's price point or geographies or how you would want this 15,000 to 20,000 home portfolio to look over time?

[George Ellison:]

No, I don't think we will. Obviously, we're not in all the cities we want to be in yet. The first Amherst trade got us into Tennessee, which we were very interested. That's right in our sweet spot, so more cities will obviously be added. But I think we still need to go a lot deeper into each city that we're in. But the buy-box, if you will, that we're giving to our originators to, and hopefully growing, really looks almost exactly the same. It's distinctly different than our competitors, as you know, and really focused on getting a much higher yield. So that really drives the business, higher yield which will lead to a higher dividend for RESI shareholders. And it'll look pretty much like what we've purchased so far.

[Anthony Paolone:]

Okay, great. Thank you, guys.

[George Ellison:]

Thanks, Tony.

[Operator:]

And our next question comes from Jade Rahmani with KBW. Your line is open.

[Jade Rahmani:]

Thanks very much. On that last point, can you just remind us what your target going-in yields are, and on a levered basis what kind of dividend or ROE you expect to generate?

[George Ellison:]

Yes, we -- the answer I'm going to give, you, remember, is where things will end up over time. So -- but when we purchase, whether it's five homes or 500, or 5,000, we use the exact same methodology. And so the team shows the investment committee the straight up real yield. Some people leave some things out of that. You know we don't. And we still shoot, as we always have, for that 6% area. Could we dip into the high fives initially when you buy something, sure, because just as we bought that pool in '15 we might've reached down to 5.8% or 5.9%, and it's already rewarding us well over 6%. So you can clean things up, and do some things there to make it improve pretty quickly. So we start with the 6% center of gravity, but that's not really the focus. Then you want to look at the leverage, and that'll take you up somewhere between 11% and 13% depending on the deal. And then what you really want to look at and we do this on, literally, if we're buying only five homes, what is the return for the RESI shareholder once we're -- when the money is spent and we're fully stabilized, and that we shoot for high eights to low nines for RESI stockholders. So those three numbers -- obviously there's more, but those are the three we look at every single time we buy.

[Jade Rahmani:]

And are you seeing a decent amount of acquisition opportunities meaningfully above the 6% range? Because the other players do talk about something in mid fives, or 5% to 5.5%, so I guess I would've expected a little bit higher than 6%.

[George Ellison:]

Well, obviously we -- I'd say we buy from the high fives or the high sixes. I was just trying to be conservative and peg 6%. And remember where you buy it and where it is in a year is a different number, and where it is in two years is a better number, and so on. So, yes, I think the folks who are -- again, I don't really view us as competing with some of the other public companies. If you look at price of their homes, they're pretty significantly above where we are. So I think at least they report that they buy on the fives, so I get that. But, yes, I would say 6% is our target. And I wouldn't say there's -- you have to work, obviously, to make sure you get that. But there's an enormous amount of product out there. And remember, we talked about this in the past. The marketplace of whatever people estimate SFR homeowners to be is somewhere in the 15 million, 16 million, 17 million families. The institutional touch on that, as you know, is only 1% to 2%. I would argue, and I think the numbers support, that the bulk of that market, those 15 million families, 16 million families look like us. And so these origination channels that we're working on will tap into that. And it'll be just a constant purchasing and rollup of this entire mom-and-pop industry. And I think the ability to find $250,000 and up is going to be a struggle. And I think finding 150, and down where we are has an enormous runway.

[Jade Rahmani:]

And in terms of operating expense performance, can you just say what you're seeing in terms of per property annual or monthly, however you want to describe it, repairs and maintenance term costs, and CapEx?

[Robin Lowe:]

Yes, repairs and maintenance is [indiscernible] annual cost, Jade, of just over $1,000, maybe closer to $1,100. The annual term cost or the annual cost is about $300 00

[Jade Rahmani:]

And are there any categories of items that have negatively surprised you? Were there lessons learned? You mentioned flooring, but anything on the HVAC or roofing, any other items?

[Robin Lowe:]

I think we continue to learn as we go along. As I say, the portfolio is staring to season now, and we're starting to put houses through terms, often for the first time. And so, it's a learning process, particularly on the repairs and maintenance side, and the type of materials we put in sort of last long-term, like HAVCs and whatever. So, well, I wouldn't say we really had any particular surprises, but just that we're sort of getting better incrementally as we go along.

[George Ellison:]

Yes, I think that, Jade, the whole thing, and you hear everyone on these calls talk about it, and I said it at the end, this never ends. The repairs and maintenance thing is just something you have to sit on every day. And the more data you can get the better. But it's a -- when people talk about this industry versus multi-family, this is the [indiscernible]. Repairs and maintenance is the whole deal. And sitting on top of it, and monitoring it, so having the right data feeds to see what's going on per home, and knowing what's going on, and then knowing how to correct it, knowing it by region, by city, by home. All of us are getting to the point where you can see an NOI per house. So it's a lot of data, and then it's acting on it. So repairs and maintenance is the one we knew would be an issue, and it's just one you have to just -- if NOIs swing around I would wager the lion's share of what swings it, if you double-click on it, will be repairs and maintenance. There's some other stuff, people talk about taxes, HOA [ph], insurance, those are all great around the edges. But repairs and maintenance can kill you, and so you got sit on top of it, and drive that with efficiency and technology, and just -- it'll never end. And that's how this business will catch, and I think pass multi-family.

[Jade Rahmani:]

Just on the M&A side, would you say the opportunity following the [indiscernible] transaction, the opportunity is increasing or decreasing in terms of pipeline, volume of conversations, interested parties, all of that stuff?

[George Ellison:]

Yes, obviously we're always careful around that topic. Typically, when people as that question they mean big things. I don't think there's anything big going on. I don't know of anything big going on other than that trade than happened. I will tell you though, as I said, we have MDAs stacked up six or seven deep on 200 homes to 3,000 homes. It has been an incredibly busy quarter, back to your first question about what you can find the 6% or above. Obviously you got to be very, very tough. And we are very difficult negotiators with people to get the yield we want. I say that respectfully. But there's an enormous amount of product out there. So we have this origination channel, we'll build that. But the sort of 200 to 3,000 packages, we're probably looking at, I don't know, three or four of them right now. Will it turn into anything? Don't know. We try not the count on that. But there's an enormous amount of flow that's starting to go both ways in this business.

[Jade Rahmani:]

Turning to ASPS, can you comment on management's view of counterparty risk, operating risk with them as a provider, and if, on a go-forward basis, your new acquisitions, you would expect to use them to the same extent as a property manager?

[George Ellison:]

We try to stay away from commenting on other peoples' issues, whether it's litigation or regulatory. That's not our business. What is our business, as you alluded to, is to protect RESI shareholders, that's our job. And as you know, we diversified property managers last year. That wasn't -- let's just leave that there. That obviously was an important thing that we were able to arrange. ASPS does a tremendous job, and I think they'll be fine. But if you overlaid the two portfolios, the two property managers, what you'd see, because remember we're -- this isn't the legacy business where we're loan packages diversified across the whole country. We have been prudent and very focused, as you know, on where we want to go and how big we want to be when we get there, starting with Georgia. And so, now we're moving around the country with both of them. So, if you overlaid the two portfolios the correlation between the two is somewhere conservatively 75%, could be as high as 85% or 90% where they are both in the same place. And so if there were to be something that our shareholders would be concerned about, they do not need to be concerned. We are completely protected and hedged. I'm not concerned about it, nor should they be. That's what they pay us to do. And we made that change, and we're -- I think it was a wise thing to do. As I said, I don't think much will come of this -- I hope doesn't it, but if it does, our RESI shareholders are in good stat.

[Jade Rahmani:]

And in terms of operating performance, how does the ASPS is compared with Main Streets in terms of occupancy rank growth and NOI margins?

[Robin Lowe:]

Yes, we get that question a lot; we don't really break them out that way and still the major thing I would say between the two is rather who else more -- who does turn how many days versus the other who has higher age or whatever, I don't think that's critical right now that the real difference between the two portfolios as we were very determined to buy the Amherst package because it was very, very seasoned. And as covering this whole industry with things or season it's just a much, much better situation five things stabilized you see we've moved through a lot much better situation much less risk for us our shareholders. The ASPS job is still bringing homes through the pipeline from loans and turning them into homes and deciding whether to sell them deciding whether to rent them and fixing them and lifting them and releasing them. So it's still probably going to be one more year before the ASPS portfolio is sort of a stay same store sales kind of a environment, so it's a little early because the break that Rob said in the numbers will still bring an enormous amount of homes online for the first time out of that legacy business and so we're you read out at the first time versus after the first turn usually there is something the ASPS ramp have been able to grow up higher. So you can still break that out ASPS pushing rents further and Amherst is pushing rents less or Amherst's homes are one of the five years old. ASPS homes are ready for the first stat and maybe on a first turn you maybe 950 you could actually get a level 57 I could pick that number and show you that they might be higher, it's a very different maturation so that's kind of how we look at it is the numbers are little bit different they both do great job there will be a bit of a different business model. But it's probably one more year before you can really put the two side by side to be fair to broke out you would want to be unfair that. Amherst have youpushed rents up and up and ASPS I just pointed out the maturation of the portfolio totally different so the both fine job we're very happy with both of them.

[Jade Rahmani:]

Thanks. And then lastly do you have current NAV estimate pro-forma for the expected NPL and REO disposition?

[Robin Lowe:]

And it for the dispositions, it is talking about NAV in general we didn't put a number in that this time. Most of our competitors and there are so many different ways it seems of calculating that number by methodology we still think that's in that range 19 to 20 NAV but we just thought it was people seen the prefer to calculated themselves and use our methodology so we don't put that number in. How to get into more details of the one that but we think we're in the $19 to $20 range.

[Jade Rahmani:]

Thanks very much. Congrats on the quarter.

[Robin Lowe:]

Thanks, Jade.

[Operator:]

And our next question comes from Fred Small with Compass Point. Your line is open.

[Fred Small:]

Hi, good morning thanks for taking my questions just to follow up on a couple of things where I think Jade left off. The sort of remove all of Core FFO guidance and NAV from the deck, I guess starting with the Core FFO guidance. So are you still comfortable with $0.60 at 10,000 homes and $70 at 20,000 homes?

[George Ellison:]

Yes, absolutely we were just, we put on the headline page I think three times or four times on row and which are just keep things a little or why we are no change on that the only thing I would add which we would also say lock three or four times we said it. It was also we'll catch it we first modeled it Fred two homes and obviously with the house price is moving around the first Amherst will pricier so it might not be 10,000 or 20,000, but the equity to purchase that number of homes well it's 10 or 20 or 30 in the numbers are we still stand by those numbers.

[Fred Small:]

So you can something out to a $70 with no additional equity?

[George Ellison:]

That's absolutely it's just like as I said it might have a 20,000 homes might be.

[Fred Small:]

Right.

[George Ellison:]

As I said it might be 20,000 homes, it might be 17,383 or something. It's a same equity that I spend on 20, I will spend on 17 and that is just critical to that number.

[Fred Small:]

Got it, understood, and then on the NAV number, you still think you're in 19 to 20 range pro forma for the NPA sales?

[George Ellison:]

Yes, just as Rob said, we try to watch what the industry is doing, I think we wanted to be really clear about NAV but it was still so heavily transitioning, so we wanted to put something out there as we move into [indiscernible] putting the mouth there and leaving it to your side of the street and to equity holders to we still do it and Rob can walk you through when we chat with all of you later today still things between 19 and 20 but again that was a choice of sort of how we want to present things but how do you discuss things.

[Fred Small:]

That's fine, and on gone too long about it. I think it's a bad idea to be a whole industry not report any of these but then on the deterioration of book value how should we think about you know how much more deterioration of book value will come from the second part of the NPL sale, if that closed at March 31 mark?

[George Ellison:]

If the NPL book closes that type of value then won't there be any deterioration because of the sale whatsoever because we've marked where we [indiscernible] so we are all putting estimate in from where we actually sold it or awarded it. You know, on top of that, we are pretty confident it will be somewhere right around there.

[Fred Small:]

Okay. So, just wanted to understand the majority -- if I look at the $52 million change in our -- negative change in unrealized on the P&L offset by whatever net realized gains on mortgage loans held-for-sale is there, that includes all the marks that are currently on the book for -- on the book for the contemplated sale?

[Robin Lowe:]

That's right, that's right. The only thing I would say, Fred, when we discussed this last time in terms of NAV, it's the OROEs that are held-for-use, which is that 960 that's under evaluation right now. Obviously there are selling costs associated with those. And so that when we contribute the sale we take the selling cost provision. So, to be safe you could -- if you think probably two-thirds of those -- that 960 will probably go to sales, then you should probably cut that number by -- I don't know, 7%-8%-9%, something like that, maybe 10?% to be conservative. That's the only change to the balance sheet I would make.

[Fred Small:]

And that's just in response to just the 193 million?

[Robin Lowe:]

That's right. That's right.

[Fred Small:]

The OREO held-for-use, there is no land associated with that, it's just that 193?

[Robin Lowe:]

It's only in that line, yes.

[Fred Small:]

Okay. Sorry, I interrupted you George.

[George Ellison:]

No, I was just going to say what we are trying to back in to is dry powder which is the way we think about it. As Rob said on one oh his -- I think it was on Tony's question, we are modelling depending on the house price obviously, we think after this quarter if you call it that as filled with Amherst, we were telling both those folks and others we have another order for somewhere between 4,000 and 5,000 homes before we have to -- before we need any more equities. So that's why we think you finished second Amherst trade, you are somewhere around 12, and then after that with the remaining equity you can obviously leverage you can get somewhere between 15,000 and 20,000. So when we are talking to people, I think we have enough powder for 4,000 to 5,000 more homes after the 12,000.

[Fred Small:]

Okay, got it. And then, how much have you paid to date for stabilized rental homes from either Amherst or ASPS?

[George Ellison:]

When you say paid, you mean how much total dollars?

[Fred Small:]

Yes, and how many homes would be purchased from them?

[George Ellison:]

On the second Amherst trade, or on the flow program?

[Fred Small:]

The stabilized flow program you are talking about.

[George Ellison:]

Okay. Yes, all right. So the way the Amherst trade which is why -- remember the first one they had those home, I think they want to fund and they close -- I can't remember; so those are they have in their portfolio. The second trade which we tried to amplify last call was the first way was mainly things they had. The real power of this trade is this flow nature. So they are going to use their flow program to fill the rest of the order up to 3 to 3500. So that -- in essence that flow program already exist. What we are negotiating with them is what will go on after that trade is done. But that's not negotiated yet, but obviously they are interested and so are we. ASPS was really doing one by one with us as you remember. And that's really morphed into a more of us pressing our providers, our originators to show us stabilized homes. So we are looking at packages literally right now with them. We are targeting cities. And obviously they know us well, and we [indiscernible] we get something like 700 we bought with them. So we really just transitioned OREO into ASPS' platform, and we are now reaching out as I mentioned to probably three other folks that have -- some have national reach. Some have more regional touch. And so we'll start small. I want to get up in front of our show to be able to start small and make sure people understand our buy blocks, 5, 10, 15, 20 homes and do that a few times so people get comfortable. And the goal is in '18, we have these pipes, these origination pipes coming in just like a mortgage conduit. And so, we will be able to as I said in my comments, we can actually once these pilots start working, again they have to. They are not there yet. I want to be clear. Once those start working, then we can start showing people here is what our forward counter looks like. In addition, obviously there can be trades and portfolio traders. But I think that flow program to tap into these 15 or 16 million homes, I think can be just as it was in mortgage origination, I think it can be very, very powerful.

[Fred Small:]

Got it. And so how many homes have your purchased? And how much are you selling them just from ASPS on the flow program so far?

[George Ellison:]

Well, ASPS as I said, we brought 724 to the old program, but one by one. We transitioned that to this. So we're just starting it right now. And so the first pilot we have with them is probably 10 or 12 homes we are looking at right now. But remember, Fred, this is -- they are going out and they are buying them. They are fixing them. They are listing them. They are renting them. That's different than what they were doing. And so, 10 is the answer of the pilot; have not bought them yet. The Amherst trade is actually live. So your flow program there is the 757 we bought and whatever we are going to close this quarter, which hopefully will be even a bigger number. So that flow program is the trade. What I am saying is once that trade is over, the day they close that 3500 whatever it is. Obviously we have to work on the details with them. I am pretty sure they are interested. The day they close that trade, we'll just keep going. And we will have them keep buying homes. So I don't know if you want to know the dollars we spent so far on the Amherst trades, 757. Rob can give you that number. We don't know it's going to be in the second quarter. And with the ASPS, we have 10 under this new program that's copying what Amherst is doing and that we are just looking at the homes right now. We stopped OREO the way it was. We restarted it under this. Ten are being looked at. And zero have been purchased under this methodology.

[Robin Lowe:]

On the 757, Fred, the purchase price, the initial purchase price anyway is a potential true-up is $106.5 million. The LCB was 75%. So, the extra was just under $27 million.

[Fred Small:]

Got it. Thanks. Last one just if -- so you continue to the trade at a big discount to peers if I look at adjusted book, any sort of metric like that? We don't really know the earnings power yet once you are fully transitioned. But as you continue to trade at a big discount to peers once the NPL and non-rental REO get cleaned up, would you potentially look at adjusting the external management structure?

[George Ellison:]

I wouldn't answer the question as specifically as you asked, that we are motivated and driven to get that stock price up. We started as you know a massive transition in the summer '15 and the start reacted to that as people change as the whole stock change hand. There is a lot of serious long-term holders that are support of the business model. The stock is up, I don't know screen in front of me it's been up as much as 25% to 40% this year. So I think significantly ahead of its peers, but to your point it's been a deeper discount. But my point is, it's moving in the right direction. The moment is there and we are going to continue to be open-minded to anything that pushes that stock price up, so the question you are asking specifically, we will always be open-minded to anything, if we think it's holding back our stock. But we've been aggressive around buying shares back $15 million of buybacks, we gave up 2000 homes, if you figure out the price and the leverage somewhere between 1500 to 2000 homes, we sacrificed because we felt that was the right thing to do. We diversify the property manager because we thought that was the only thing to do. We are continuing to dispose the legacy assets, which was the right thing to do. So I think when all those things are done, we wake up every day and say how do we get higher and then we will continue to do that.

[Fred Small:]

Great. Thanks.

[George Ellison:]

Thank you, Fred.

[Operator:]

And our next question comes from Mike Grondahl of Northland Securities. Your line is open.

[Mike Grondahl:]

Hi, thanks guys for taking my call. Two quick questions; one, the tone of your comments George towards future supply seem to sound more positive, more optimistic than I've heard in a long while you've mentioned Amherst, you've mentioned ASPS and maybe three others your beginning the work with. Am I interpreting that right that you feel pretty good looking out its supply over the next couple of years?

[George Ellison:]

Yes, I mean - I think the all of you have been with us through this transition we started, it was you are changing the model that won't work then it was you can't get rid of the assets, which we have. You can't buy the homes, which we have. You can't operate them at great metrics, which we are. So you kind of you got to just put your head down and execute and get through every part of this transition. I'm just really focusing on the team obviously has to finish the sale next week. We got a small one in the summer; we have to spend the money we just talk to the others about. We have 3000, 4000, 5000 homes approaches. What I really wanted to just start to get people understand, is that once that money is spent, we should be focusing on growth now and so I personally and a smaller team are focused on. I'm assuming that the team will know to how to buy 3000 to 5000 homes. They've brought 12,000. I'm pretty sure they know what they are doing and the team Randall Mason knows how to run them and he is continuing to get better with the two property manage. So those things are starting to become much more dependable and I'm much more confident that now we are - the assets are gone, the homes are being brought, we know how to run? How can we grow? And so what I'm trying to focus on particularly Rob has different narrative answer to you but mine is where we are going in '18, '19 and '20 and so I think there is plentiful still out there in the short-term. I don't think there is any big company that fit us or the people in the space are very, very different from you. They are not high yielding place or it's really to focus down and roll up mom and pop and I think that has a very, very long runway. As I said, I think the mom and pop market. Everybody knows somebody has rent home, they look like us, they look high yield and so I think the one way to buy from that group is very, very long. What I'm working on is trying to figure out, tap into it. And so, I think about it just like we did in mortgage origination with loans. We are going to have a conduit, we are going to have a big portfolio of homes and we are going to have people originating into it every day and the serving piece of it is translate into property management. So I think if we focus on those pipes and we get them build, which I - we do not have them build, I want to be clear. But what I'm focused on is building them for '18 and '19 and a longer way there will be pools and 3000 here and there. But I think this is the future and there is a lot of already out there, but I think this is the future and there's a lot of OREO out them, like the ton of OREO and lot of big places. I don't want to go all the way back to REO but something's going on in there and I think there might be something to do. I think there's an enormous amount of opportunity in the space we're in.

[Mike Grondahl:]

Yes, I know that sounds really good. Rob and maybe for you quick you mentioned you were making a little bit of progress on repairs and maintenance and insurance fees is that just you're getting better, you're getting more efficient a little bit of scale, what's the one or two things driving those two improvements?

[Robin Lowe:]

Yes, scale is definitely part of it maintenance side and the indeed the insurance site Mike obviously you get better supply deals if when you can leverage scale and so we were working very hard on that. Also I think on the repairs and maintenance side just as assure to saying just as you kind of get more experience a start learning some lessons you know you get more efficient on the stuff you figure out exactly what we need to do. And so you know it's kind of that experience things plus the scale side and repair the maintenance. On the insurance side, definitely as you achieve scale. You get better leverage, I can't say too much about it but we're working on something right now which I think, might have a significant impacts improvement our insurance close this year but again not largely because we're leveraging scale so you're right the combination of experience and scale.

[Mike Grondahl:]

Got it. And then hey maybe just lastly, most your markets look very strong Oklahoma City looks like you know it's a tiny market for you guys but the average blended rent was down what's going on there?

[George Ellison:]

Because there's two sore spot Indianapolis and Oklahoma City and we first notice that probably last year was just watching occupancies so around at least watch the stuff pretty much every day I sit on top of it and get reported to weekly So, we're watching the stuff daily and weekly. There has been some changes already made in Oklahoma City to the personnel changes to tighten it up and I think it's also and again Randall could say better than I but, but there's a lot of competition there, lot of folks are there in a small market and so that, that makes pushing rents frustrating but I think we're going to start to see Oklahoma City turnaround last month or so and indeed. Those only two spots that, the cut on my radar screen and so we're watching pretty closely we're talking both the property manager about them weekly. But it's we're going to be a lot of cities and there's always going to be hotspot's and cooler spots just get an important thing is as I said in my comments you know this is a business with pennies in the couch. We don't sit on top of it every day, every week it'll get away from you. So, we're on it.

[Mike Grondahl:]

Got it. Great, thanks guys.

[George Ellison:]

Thank you, Mike.

[Operator:]

And we do have a follow-up question from Anthony Paolone. Your line is open.

[Anthony Paolone:]

Thanks. I am just wondering the hearing and statement between share based comp, G&A and the AMC, you -- it's about $9 million in the first quarter, give a sense as to what that as going to be for the full year 2017?

[George Ellison:]

Share based comp [indiscernible] is a GAAP accounting on this one are that you get mark-to-market. So that's going to sort of go up and down unfortunately. It's hard to predict where that's going to go. I guess obviously we hope it's actually going to go up because I mean to share price is going to go up. G&A is probably slight high this quarter just because of you know legal costs or whatever, that kind of number around $2 million is probably right and management fees as you know it calculates it according to the asset management agreement. So we expect consistency there.

[Anthony Paolone:]

Okay, that is all I had. Thanks.

[George Ellison:]

Thanks, Tony.

[Operator:]

There are no further questions. I would now like to turn the call back over to the company for any closing remarks.

[George Ellison:]

Thanks Britney, and thanks everyone for dialing in, we will chat with everyone throughout the day, and if anybody else has any questions or issues feel free to come or email. Thanks everybody for your attention and your interest.

[Operator:]

This does conclude the program. You may all disconnect. Everyone have a great day.