Altisource Residential (RESI), Altisource Asset Management (AAMC) Enter New AMA; Appoints New President
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Altisource Residential Corporation (NYSE: RESI) announced that it has entered into a new Asset Management Agreement ("AMA") with Altisource Asset Management Corporation (NYSE: AAMC).
Highlights of the new AMA are as follows:
- Results in substantial management fee savings to Residential compared to the previous asset management agreement, and is expected to be immediately accretive to the Company's earnings. The new fee structure will replace the existing fee structure, as follows:
- An annual base management fee equal to 1.5% of Residential's invested capital, payable quarterly in arrears, potentially increasing to a base management fee of up to 2% of invested capital, based on the number of Residential's rented homes;
- A quarterly incentive management fee equal to 20% of the amount by which Residental's return on invested capital exceeds a hurdle return rate of between 7% and 8.25% (based on the 10-year treasury rate), potentially increasing to an incentive management fee of up to 25% of such amount, based on the number of Residential's rented homes; and
- A quarterly conversion fee equal to 1.5% of the market value of the single-family homes leased by Residential for the first time during the quarter.
- Provides for an initial term of 15 years with two potential five-year extensions, subject to the Company's achieving an average annual return on invested capital of at least 7%, thereby providing protection for Residential and creating a strong alignment of interests between Residential and AAMC.
- Provides Residential the flexibility to pay up to 25% of the incentive management fee to AAMC in shares of common stock, further aligning both companies' interests.
The Company also announced that its Board of Directors has declared a quarterly cash dividend of $0.55 per share of common stock. Residential will pay this quarterly dividend on April 23, 2015 to all stockholders of record as of the close of business on April 13, 2015.
In addition, the Company announced the appointment of George G. Ellison as President of the Company, effective immediately. Ashish Pandey will continue to serve as the Company's Chief Executive Officer. Mr. Ellison also serves as the Chief Executive Officer of AAMC. Prior to joining AAMC, Mr. Ellison had been employed for 19 years at Bank of America and its predecessor, Nationsbank. Mr. Ellison held several roles over his career at Bank of America, most recently being the executive leading the team that managed the valuation and disposition of Bank of America's legacy mortgage loan portfolio and a leading member of Bank of America's Special Initiatives team that worked to resolve Bank of America's representation and warranty litigation. Prior to his most recent roles, Mr. Ellison was Global Head of the Structured Products division within Bank of America's Investment Banking platform. His responsibilities involved all Structured Products including RMBS, ABS, ABCP Conduit and CMBS securities, among others.
David B. Reiner, Chairman of the Board of Residential, commented, "We are pleased to have negotiated a new asset management agreement that will provide the Company with substantial financial and structural benefits. We are also excited that George has become a part of our management team. George brings over 30 years of high-level banking and mortgage experience to our Company. We believe that his leadership qualities and the relationships he has developed over a successful career will have a very positive impact on the Company."
Robert A. Stanger & Co., Inc. provided the Board with a fairness opinion regarding the new AMA.
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