Kelly Residential & Apartment Real Estate ETF
Q3 2015 Earnings Call Transcript

Published: 9 Nov 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Altisource Residential Corporation Third Quarter 2015 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] As a reminder this conference may be recorded. I’d now like to turn the conference over to your host Robin Lowe, Chief Financial Officer. Sir, you may begin.

[Robin N. Lowe:]

Thank you, Amanda. Good morning everyone and thank you for joining us today. My name is Robin Lowe, and I am 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. They 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, 2014 Form 10-K, our first and second quarter 2015 Form 10-Qs, and our third quarter 2015 Form 10-Q that we’ve filed today. If you would like to receive our news releases, SEC filings and other materials via e-mail, 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?

[George G. Ellison:]

Thanks, Robin, and good morning, everyone. When Robin and I last spoke in August, we started to outline a clear path for where Altisource Residential was headed. We discussed our view of the NPL market, our strengthening liquidity position, our commitment to maintaining a strong dividend and not a change, but an acceleration of our company’s mission statement to become the large and profitable single family rental REIT, serving working class of American families. Today, we continue that [indiscernible] and are pleased and excited to report that this add adaptation to a changing NPL market is well underway and right on schedule. Rob and I’ll walk you through this deck and hit on four major themes that are the foundation of this new management team’s agenda and future growth plans. First, let’s restate the mission statement. Altisource Residential is committed to becoming and maintaining its position as one of the top single family rental REITs serving working class American families and their communities, while also providing consistent and robust ROEs for our investors who are interested in long-term growth. Today we will cover the following topics. We believe we will maintain a strong annual dividend, as we transition to a 100% rental REIT, but more importantly afterwards as well. We’ve proven through this quarter’s NPL sale that our assets are properly and conservatively marked. Liquidity provided by NPL and RPL sales will drive enormous single-family rental buying power. We and our partners at Altisource Solutions work to be the best-in-class at property management, both in service, geographical reach, and most importantly cost. If you turn to Page 3, you can see the quarter’s highlight, so we will hit on all of these, but at a high level on the financial front we announced the dividend as you know a week back. We executed 20% of the announced stock buyback. We sold our first NPL for the price right on top of our mark-to-market level, and for full disclosure we’re analyzing another tool to sell this quarter as well. We and our partners at Altisource Solutions executed the integration of 1,300 homes in Atlanta into our system flawlessly. We completed Phase 1 of our announced one-by-one initiative. Phase 1 with a small pilot to test our operations to buy homes one at a time. We targeted about 200 homes. Phase 2 has started and we will target about 800 homes. We are extremely pleased with this new buying channel and have very high expectations for production coming from here in 2016. Our portfolio has expanded rapidly and is now well over 2,000 homes and rising. On the operations front, 95% of our stabilized rentals were leased. It’s early days, but our first real visibility into our NOI looks to be into the mid to high 50s range, keeping in mind Atlanta’s results just came online in September, so year-end will give us a better picture on this important metric. As I stated, ASP has done an incredible job on boarding 1,300 homes in Atlanta and is fully prepared for our ambitious growth plans. Finally, Rob will discuss our success on expanding and improving our funding and financing capacity. As I mentioned, we want to drive home four key points today. These were stated on Page 4. The dividend looks to be in good shape as we transition to rentals, supported by the existing portfolio, increasing rentals and NPL sales. In a few slides, we will directly address the stabilized dividend once we have completed our transition to a 100% rental income. Confirming once asset evaluation is critical to any enterprise. Our NPL sales confirms and supports our valuations. These sales along with REOs disposition will provide enormous buying power. And finally, we and ASPS will prove that we can manage and operate a large portfolio of rentals as efficiently and as profitably as anyone in this business. The initial success in Atlanta is just the first glimpse of ASPS’s operational capacity. Turn to Slide 5 shows the details of the NPL sale executed in the third quarter and it will close next week. All of the details are listed here. We are happy to answer any questions; we will provide any detail on this sale. The bottom line is this, our NPLs are marked accurately. As long as loan demand stays strong, these NPLs represent tremendous growth capacity, which can take us to a number of homes that will make us one of the top three participants in our industry with no additional equity required. Obviously, the income from our rental homes if properly managed, will support a very stout dividend. We will discuss that in a moment. Finally, as I mentioned, we’re preparing another NPL sale for this quarter to close in the first quarter of ’16. We are also considering an RPL sale. Slide 6, dovetails into my last comments. NPL sales provide enormous rental home buying power. How much? It depends on the price of the homes that we buy and the leverage that we prudently employ. But on this slide, it gives you a clear picture of the enormous potential embedded in our business. Home purchases could easily pass 20,000 and potentially 30,000 with no new equity needed. As Rob and I’ve traveled around the U.S and soon to Europe and Asia, we hear again and again the need for transparency and honesty in this industries information and communication. Today we’re addressing head on issues we hear about when we travel, frank dividend discussion, asset evaluation, how many homes provide the proper scale. And as we address here, who has the right property management model? Who does it right? Who does it best? Which model is the most economical? Which model treats the client with the most respect and care? On Slide 7, we begin to make our case, our story, our secret sauce. The creation of our Company and its former ecosystem created the need for a real estate and mortgage portfolio manager that provides technology, asset recovery, and customer relationship services. This company is all to source portfolio solutions where on confidently and tightly by our strategic partner Bill Shepro and his very capable team. Bill has built a company as we described on Slide 7. And as story that we think sets us apart. With ASPS, we’re not new to this industry. We are not building a services platform as our competitors are still doing. We are not figuring out how to collect on a large scale, or struggling to figure out how many call centers to have or how evictions really work when done carefully and thoughtfully. We are not figuring out how to build our renovation crews in Florida or property preservation in Phoenix. We already have all that. We already have a nationwide manager. ASPS already manages homes over 40,000 in the REO business, much more intensive than rentals with families inside. ASPS is big, its technologically savvy, its already built and it already has enormous economies of scale. It already have huge home brokerage capacity, are number seven in the United States. It already has been hired by two of the top 10 banks to manage their REO. It already manages almost 9,000 vendor relationships nationwide. We have to prove this, but we believe ASPS sets us apart, both economically and operationally. And it also allows us to grow in any market where we see the right yield. Slide 8 is the beginning of our version of operating metrics and targets. I say targets, because we’re growing so rapidly that the metrics are just starting to become visible and accurate. As I mentioned, we just bought the 1,300 Atlanta homes and their income is only evident in September. That said, the slide shows our NOI looks to be in the mid to high 50s with our targets or goals to the right. Slide 9, is the topic I referenced earlier, the stabilized dividend discussion. As I stated at the outset of the call, the dividend should have some entry year volatility as we transition to this page. But with the existing portfolio income, the increasing rental income, and the regular NPL sale contribution, we believe we will maintain a strong annual dividend for the foreseeable future. This page is our attempt to show scenarios of potential dividend levels as we grow in the number of homes, and more importantly manage these homes to our REO goals. As I stated earlier, our buying power should take us well above the 20,000 level possibly about 30,000. ROE targets 10% to 14%. You can make your own conclusions about our abilities, but this chart allows all investors and analysts to model the range of possible dividends paid and actually depending on the yield one may ascribe to this industry, you can back into a stock price as well. Rob?

[Robin N. Lowe:]

Thank you, George. Starting on Page 13 of our slide presentation, you can find details of our financial results. As shown on Page 14, estimated taxable income was $10.4 million for the third quarter of 2015. Taxable income was lower than the second quarter, primarily due to lower unrealized gains mainly due to a smaller number of REO conversions, low and net realized gains on mortgage loans mainly due to the weak performing loan said in the second quarter, and lower interest income. Turning to Slide 15, on a GAAP basis we reported a net loss of $5.4 million, or $0.09 per diluted share for the third quarter. Net income was lower than the second quarter, primarily due to lower unrealized gains on REO conversions and no re-performing loan sales in the third quarter. Rental income increased by 88% to $4 million in the third quarter, reflecting approximately half a quarter’s impact of the purchase of the Invitation Homes portfolio. Expenses for the quarter was $65.3 million, up marginally from the prior quarter, but essentially flat excluding the second quarter legal provision reversal of $1.5 million. Turning to Slide 17, we show the split of our pricing income between stabilized rentals, non-stabilized rentals and other REOs and loans. We estimate that our stabilized rental portfolio is currently producing a net operating margin of approximately 56%. Stabilized rental portfolio is very new, and we’ve made some normalizing adjustments to expenses to better reflect expected ongoing operating costs. As we develop the stabilized rental portfolio, we’re targeting and believe we can achieve a net operating margin of 60% to 65%. Turning back to Slide 10, and liquidity of funding capacity, we had $83 million of cash on hand at the end of the quarter, and $388 million of funding capacity for a total of $471 million available financing. During the quarter, our repurchase facility with Wells Fargo was restructured, increasing available funding under the facility from $457.5 million to $750 million. The REO funding sub limit was increased from 10% of the facility to 40% or $300 million. And the facility termination date was extended for two years until September 2017. Our main repurchase facilities are now set up to handle the liquidation of REOs in a seamless manner, and we expect this to significantly reduce resolution timelines to non-rental REOs going forward.] As shown on Slide 11, at quarter end, we held a total of 6,270 REOs, of which 2,516 were in the rental portfolio. 747 were held for sale in the taxable REIT subsidiary and 3,007 were under evaluation for rental or sale. 357 REOs were sold in the quarter for proceeds of approximately $49 million. The bottom right chart on Slide 11 shows REO sales timelines from the date of contribution for sale and is based on actual data since inception. Once contributed for sale, over 50% of REOs are sold within five months rising to nearly 90% within 10 months. As we continue to contribute REOs for sale, we’d expect to match or improve on these timelines. With the restructured financing facilities in place, we believe we can achieve a significant reduction in the 3,007 evaluation pool in the fourth quarter. On Slide 12, we set up a pro-forma taxable income estimate based on the third quarter taxable income. We add back potential one-time items that may occur in the fourth quarter, such as the closure of the NPL sale and the potential RPL sale. Taking these items into account, we arrived a pro-forma estimated taxable income of $39.4 million or $0.70 per share. I’d now like to turn the call back over to George. George?

[George G. Ellison:]

Thanks, Rob. So let’s recap. Financial results of RESI will continue to reflect the dynamic of a declining static NPL portfolio that is slowly transitioning to one for this 100% rentals. This process will take time. I’d anticipate the prior financial metrics, primarily GAAP earnings, as well as NPL resolutions and taxable earnings from those resolutions to decline until this transition is complete and rental units exceed and eventually replace NPLs. As a matter of fact, as we move to a 100% rentals, some of these metrics such as NPL resolutions obviously will go away completely and metrics of NOI rental yield and FFO will replace them. The good news is the dividend should remain strong even through this transition period. And just as important as maintaining the dividend is the affirmation and validation of our asset values and selling at our mark value doesn’t just speed the dividend. It provides drypowder to buy assets at the proper yield without having to end through the equity markets. You might note that few of our competitors have this much buying power. If the current liquidity continues in the loan markets, our NPLs represent an enormous engine of growth as we build our SFR portfolio and long-term value for our shareholders. Finally, we have to prove this, but we believe we can operate homes just as efficiently, just as profitably, take care of our clients just as well, and operate in more markets across the United States than any of our competitors. We believe this strategy will provide a long-term sustainable value proposition for those who invest in our story. Thank you. I’ll now turn it back to Amanda.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Jade Rahmani with KBW. Your line is open.

[Jade Rahmani:]

Good morning and thanks for taking the questions. Just can you walk us through the math on capital that gets you to the 20,000 to 25,000 homes and over what time period you expect this to take place?

[George G. Ellison:]

Well, let’s go to -- I think the assumptions at the bottom of that page, aren’t they Jade? So you’re talking about -- we are estimating $100,000 -- $110,000 for home, leverage 75, debt of 3.5. And so if you take that equity -- oh I’m sorry, that’s at the bottom of nine. And the slide would be purchasing on six. Rob shows with the equity at the bottom, so you divide the house price into that equity, lever it up, and that’s how you would get to that number of homes. Before I go to timing, would you add anything to quantity?

[Robin N. Lowe:]

No, that’s basically Jade we’re saying, we expect to have at least a $1 billion of equity. We are leveraging out 75%, we’re dividing by an average value of home of 110 and that’s how we get to that kind of number.

[George G. Ellison:]

So before I go on to timing, do you follow the math on that Jade?

[Jade Rahmani:]

Yes, I mean, just the mechanics of levering, can your existing debt capacity be used to finance these acquisitions or is it going to take securitizations and/or other forms of debt to access that leverage?

[Robin N. Lowe:]

Yes, it’s a combination of existing financing and then going to securitization when we have a critical math.

[George G. Ellison:]

Yes, we kicked off -- we are exploring the SFR securitization mechanic as you know that takes sometime. So if we choose that route which is currently available, we -- it probably takes 3,000 to 3,500 homes at a minimum, so you got to think about that, as well as it probably takes the lead time on your first one conservatively would be probably six months. So we’ve just started to explore that and work on that pluming. So that’s -- that will probably be used as well, I guess, if that happens it would be sometime second quarter of mid next year. So that’s the number. Timing is really wide open. As you know, I listen to you on all the other four calls, lot of questions are being answered about what’s going on in the business strategically, obviously, people can’t talk about that. So there is big picture stuff going on that you know very well could not happen. That stuff is very low probability, but that would change things dramatically. There is still large portfolios as oppose to entire business units that could be available. And then at the end of the day, the reason why we amplify one by one is because it is still the -- I think most people would agree, it’s still the safest and you can really target individual homes. You can target very attractive yields, the space we are in. We are more in the high yield space, so you can manage net yields into the success or higher, which is great. Obviously, you got a run on there. So it could be -- if we just do one by one, it will where we’d be next year, 10,000, 15,000, something transformational would happen. We could be there, middle of the year, and then it could be obviously things in between. So it’s very, very difficult. We will deal with what comes. I think the good news as Rob pointed out, if there is a $1 billion plus of liquidity, unlevered liquidity, it does embedded in this business and we just obviously prove that it is what we say it is, nothing in the NPL pools cherry-pick. It was the straight cross section of the stuff that was BSI. The only thing we picked at four as we said on the slide was that what we thought probably wouldn’t go to rental. So that means that everything else we have is very close to where it’s marked. So well we have the equity to do it. There is enormous amount of stuff that’s available and, so we’re going to be very selective about the yield we pick.

[Jade Rahmani:]

In terms of the remaining duration on the loan book, if you were to take those loans yourself to eventual resolution, are we thinking about an 18 month remaining duration or potentially less than that?

[George G. Ellison:]

Well, it’s -- we have to be thoughtful about that question; so let’s answer it in one dimension. In one dimension it’s probably a 12 to 18 month remaining tale on that side of the portfolio. But there were loans that you and I were talking about in the second quarter in that same metric that are no longer here. So we just -- I know we’re transitioning to the rental story. We should look at those metrics and we are with ASPS managing that NPL portfolio to resolution as hard as we can. But 15% of the UPB, 10% of the loans just walked out the door. So you have to think as you model it, which you know is a bit tricky. NPL sales, if the market holds could remove all the NPLs by that same time period or sooner. So it’s just -- we’ll report on both.

[Jade Rahmani:]

And then just on the slide on dividend potential, given the -- I would say expansion misses that the other players continued to experience. What gives you confidence in both the ASPS platform which I believe is managing rental homes close to around 50,000 which would be nearly as large as invitation homes. But also on the CapEx side which is still a major uncertainty, what gives you confidence in the ability to get to these potential ROE targets?

[George G. Ellison:]

Yes, you and I’ve -- we’ve chatted about this the other day and I -- again I heard you get on this firmly as you should on the other call. I guess what I would say is at a high level we’re all adults here. We have to prove it to you. We have to prove that we and ASPS can get that done. But that said, I would also remind people who are looking at this story that we are in the higher yielding space. And so that has its pros and its cons. So you’re walking in with a much higher gross yield which gives you a lot more flexibility to get into the six’s when it’s all said and done. But as you know before you say it that has risks as well. Obviously bad debt could be a problem and R&M could bite you. But I -- I think the -- the core of the story is, as I said and one by one, you can buy right now in very, very large size, in places where people are and as you know we can go to places where people are not currently involved and build up size, and you can get very strong 6% to 7% maybe even higher net yield because you’re coming in at a much higher yield. We’re talking about -- now we used to say 150 based on what we’re seeing in Atlanta and what we’re buying one by one. Jade, I think it’s closer to 125 or 110. That’s a very different story than our competitors. And so, I think that yield is what we’re going to start with and then obviously we had to be very, very tough to hit the operating numbers. And again we have to prove that to you and that’s -- I think as I said, Atlanta was only in for a month. We have to show you that -- we have to show you that we can run it and hit the right net yields and then obviously be top on CapEx.

[Jade Rahmani:]

Thanks very much. I appreciate your comments.

[George G. Ellison:]

Thanks, Jade.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from Tony Paolone of JPMorgan. Your line is open.

[Anthony Paolone:]

Thanks and good morning. On page 12, I was just trying to understand this pro forma estimated taxable income. Is that, I mean should we take that to mean that, that should be roughly your fourth quarter dividend or just trying to understand what to take from that?

[Robin N. Lowe:]

Yes, Tony, we don’t want to give guidance, but I’m kind of trying to set out on a baseline where we were in the third quarter and potential events that could happen in the fourth quarter.

[Anthony Paolone:]

Okay. And so, then if I think about that as a coin struck the $0.18 is kind of what's -- seemed like it was going on in the third quarter and then it’s this extra stuff that gets you to the $0.52. So if you look forward, do you think you’ll continue to -- as you look out to ’16, the clear dividends quarterly based on what happens in that quarter or will you consider sort of like a more steady quarterly dividend and then have some sort of a true up at the end of the year like perhaps other REITs might do. Like how are you thinking about just positioning the dividend as either recurring or just quarterly based on episodically what happens?

[Robin N. Lowe:]

Yes, I think we know that people appreciate kind of a steady reliable dividend. So I think once you think about that going forward, having said that as George said earlier in this comments, I think we foresee for this foreseeable future a reasonably strong dividend not least because it will be reinforced by NPL sales which we’re planning probably depending on how things workout as one per quarter over the next four quarters.

[George G. Ellison:]

The way I would think about Tony is, I mean you and I chatted about this as well, its sort of three lines. You have an upper left to lower right descending income from the existing portfolio, so that will continue to glide down. You’ll have an ascending line of rental income starting to creep in. I’d say creep because this year its small, but its going to be significant as we finish this year and hopefully are able to do some other things. So rentals are much of -- well the slopes for those line are exactly the same, but one is descending, one is ascending. And then sort of straight across the middle, the NPLs I think that’s right as long as that market holds and it seems pretty strong, we had 24 -- I think I saw you before the bid was done, but we had 24 people enter the bidding, enter the data room. I’m not sure how many actually bid, so bidding still stayed strong. So let’s say that holds. We can do one a quarter and that’s going to kick off $0.30 to $0.40, we actually see where it closes out. But lets say $0.35 for an estimate, I don’t know what's its actually going to be, till we close it, but I think that’s safe. So that’s why there’s two ways to think about the dividend. There’s a transitional dividend which I actually think could stay quite strong, still high one’s; low two’s, it could be higher. It depends on where we sell things, RPL sale as I said. So I think transitionally its going to stay very strong. The page 9, is really trying to get through what we’ve all been talking about which okay, when that’s over what does it look like? Will you be at 30,000 homes at what ROE? Will you be at 20,000 homes at which ROE? And then what does that speak to in terms of the dividend stabilize long-term. But whatever that is, on that chart and you can pick whichever sell you want on that chart, that’s where its going to be at that point and then just continue to grow, because that’s a chart where we’re trying to speak to all rental income. And so that’s -- we’re trying to be as forceful and as transparent as we can be. So interim I think it looks fine, very fine, but long-term is really where we’re managing to and that’s what that page is trying to smoke out.

[Anthony Paolone:]

Okay, got you. And then on the NPL sales, it sounds like then -- I guess kind of the answer is -- a question I had teed up which was the expected pace which sounds like something every quarter, you’ll try to knock out. Do you think it will be of similar size to what's in contract right now?

[George G. Ellison:]

Yes, that size -- obviously we -- our team knows a lot about the NPL business. There is a real sweet spot around that size, that 250 to 400 is big enough to get the big guys interested and its small enough to get the folks who have less equity to play and so we were very pleased with the Wells Fargo handle that and they did a great job and I think there are more people bidding than I saw in my previous employer which had a great program. So if the demand is strong, I think we can do it once a quarter. But if something comes up that we need more, we don’t have enough NPLs to move the market, other people do. So if we did a large one to pay for something that could be done. NPLs are oddly for distressed assets have become incredibly liquid. And so if we had, if we needed an extra boost of equity to pay for something what we’re trying to show you is that its there.

[Anthony Paolone:]

Got it. And then, how should we think about -- if I look at page 23 of the supplemental, the $1.4 billion roughly carrying value relative to almost $1.9 billion in sort of the market value. It seems like a fairly wide gap if I think according to your comments on Jade’s question would realistically take you 12 to 18 months to kind of burn through it, I mean how should we tie those two together?

[Robin N. Lowe:]

I mean the $1.9 billion Tony is obviously as you appreciate -- sorry that’s the UPB -- are you talking about the market value, I guess.

[Anthony Paolone:]

The market value.

[Robin N. Lowe:]

So that’s the market value of the underlying properties, obviously to get that you’ve got to run the NPLs all the way through the pipeline and actually take title of the property and then sort of go forward with the rental or sale decision at that point. And so, although that gap is there it’s not cost free. There’s quite a few expenses that would -- execution cost and execution risk neither have to run through to realize that value or part of that value.

[Anthony Paolone:]

Okay. And then last question, the 3007 homes I guess under valuation, I guess how long does it take to figure out whether they are keepers or not I guess. Why would it take so long to figure out whether you want some -- one of these things as a rental or not it seems like your criteria is pretty well defined?

[Robin N. Lowe:]

I think part of the issue is been as I said in my comments getting the right financing facilities in place. I think you’re going to see a big acceleration in our decision making on that 3007 pool and that should start now. So we hope to have some very positive news for you in the fourth quarter on that one.

[Anthony Paolone:]

Okay. So if you decide that those are keepers for the rental program, they don’t -- they can't be kept on the sub limit for REOs, is that how it works?

[Robin N. Lowe:]

Yes, they can now -- with the new structuring facilities we can either fund them as rental properties or we can fund them as REOs for sale.

[Anthony Paolone:]

Okay. Thank you.

[George G. Ellison:]

Thank you, Tony.

[Robin N. Lowe:]

Thank you.

[Operator:]

Thank you. Our next question comes from Fred Small of Compass Point. Your line is open.

[Fred Small:]

Hi. Good morning. On the sales just how -- what's the total balance of RPLs now that you hold?

[Robin N. Lowe:]

RPLs or NPLs, Fred?

[Fred Small:]

RPLs.

[Robin N. Lowe:]

Hang on a second. Well there are two pieces; the RPLs that we actually hold for sale right now are very, very small indeed. It’s like 43 of them, so it’s a very small number, Fred. Within the NPL number that 7,611 there are some RPLs and potential RPLs that we’ve organically converted. We haven’t disclosed a separate number for that one.

[Fred Small:]

But can you give us a rough size?

[Robin N. Lowe:]

Yes, it’s kind of at the top of my head, Fred, we haven’t disclosed that number.

[Fred Small:]

Okay, got it. And then, looking at the reduction this quarter in taxable income or I mean, I guess just looking at the reduction again in the net unrealized gain flowing through the revenue side either on a gap or a taxable basis. How much of that is driven by a slowdown or continued slowdown in the resolutions versus just having a smaller portfolio?

[Robin N. Lowe:]

Yes, there is both of those things going on. I think clearly the resolution count went down this quarter, the conversion count went down. But we’ve also got this issue where we’re managing a static pool and if George, if you have any thoughts on that one?

[George G. Ellison:]

Fred, you and I’ve talked about this. If the NPL pool had been recharged, that’s the right word every quarter twice a year or four times a year whatever the plan had been, then you have this sort of constantly churning new stuff, moderate stuff and then stuff that’s challenging. This company hasn’t bought NPLs in any material size probably now for a year and a half. So you’re really grinding through an average two year’ish to resolution so some of that is six month’s and what plus six month’s equals two years, three and a half years. So now you’re getting into just this tougher stuff, so its -- I would say some states have even gotten tougher. So as I said to Jade, that pool is taking -- you’re now into the toughest part of that pool and we saw this at our previous employer you get to some of the really, really tough stuff at the end and so that’s sort of one narrative, but the other is you can sell it. And there’s plenty of people who have different business models that are very anxious and very happy to get that kind of paper. They have a very different model and trying to turn it into rental. So I think we should watch it, but as I said to Jade 15% of it or 10% of the number 15 UPB that we would have been talking about has been sold and another similar size is going to be sold assuming we can get the right price this quarter.

[Fred Small:]

Okay, got it. I mean, I guess a different -- slightly different question. But if I look at carrying value as a percentage of market value on slide 23. If you hadn’t -- if the 74.23% over on the right side was not adjusted for the sale of the -- the help for sale stuff, so we can look -- [multiple speakers] right basis.

[Robin N. Lowe:]

It’s not included in that, Fred. The 7,611 excluded the 871 which was sold.

[Fred Small:]

Understood. If it included it, what would that 74.23% look like?

[Robin N. Lowe:]

It gets quite similar.

[George G. Ellison:]

If they’re marked where [indiscernible] marked it would be roughly right around that same number.

[Robin N. Lowe:]

Yes.

[Fred Small:]

Okay. So its -- correct me if am wrong, that moved up a lot quarter-over-quarter?

[Robin N. Lowe:]

I don’t believe so.

[Fred Small:]

Okay. And then on the selling cost impairment line on the P&L, is that all driven by the $10 million or $11 million this quarter, is that all driven by properties moving into the taxable REITs hub?

[Robin N. Lowe:]

Yes. So the -- sorry go ahead, Fred.

[Fred Small:]

How many properties was that this quarter?

[Robin N. Lowe:]

We moved 285 REOs to the TRS this quarter and that 747 sitting on the TRS at the end of the quarter.

[Fred Small:]

Okay, got it. And you think you’ll be able to accelerate the timeline for selling those, you said earlier?

[Robin N. Lowe:]

Yes, that’s certainly our intention. You should see some positive moves in the fourth quarter on that one.

[George G. Ellison:]

For the first quarter -- I mean fourth quarter -- no, I think it will really blossom first quarter.

[Fred Small:]

All right. Thanks. That’s it.

[George G. Ellison:]

Thanks, Fred.

[Robin N. Lowe:]

Thank you.

[Operator:]

Thank you. This concludes our question-and-answer session. I would like to turn the call back to the company for closing remarks.

[George G. Ellison:]

Thank you everyone for joining today. I’m sure we’ll be chatting with a lot of you today and over the next few days. Thanks for your support and we look forward to seeing you in the near future. Bye.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.