Altisource Residential

Buy Price
Holding Type
Investment Theme
Trade Date
August 31, 2016

I have been purchasing this stock at $10.50-$11.00 per share in late August. The biggest factor here is the discount to assets. Book value is $18.50/share (0.6x p/b) and NAV is estimated at $20/share (per management).

The company has 2 sets of assets right now: 1) mortgages, and 2) rental homes. Originally the business model was to purchase distressed mortgages and foreclose them into rental properties. This proved difficult and the company set out to liquidate the mortgage portfolio and convert the assets into rental properties.

The stated goal is 10k rental homes by yearend 2016 and 20k rental homes by yearend 2017 which should generate $0.60/share and $1.70/share in FFO (per management). As of 2Q16, the company has 4k rental homes and is closing in on an acquisition of 4-4.5k additional homes with another 2 deals in the pipeline at ~1.5k apiece. Mortgages should be fully liquidated going into 2017 which will give the market a chance to price this as a real operating company.

Single-family rental peers (SBY, SFR, AMH) each trade at 20x+ FFO and 1.3-1.6x BV. Even at a deep haircut of 1x book for RESI and the stock has nearly 70% upside. (One caveat is that book value will come down until scale is achieved so call it ~$15/share in pro-forma book value.)

My intention is to hold this for 1-3 years as the strategy plays out. Not only do I think the valuation gap should close, but future dividends could be $1-2/share once scale is achieved which would give me a 10-20% dividend yield on my cost basis.

UPDATE: So much for holding on for the long run… This stock quickly moved to $15+ per share as management continued to execute on the plan. The company isn’t quite at 10k homes (equates to $1.50/sh in earnings) and the discount to book value has narrowed (0.92x). Sold out of my position at $15 for a 42% gain.