Altisource Residential's (RESI) CEO George Ellison on Q2 2016 Results - Earnings Call Transcript

| About: Altisource Residential (RESI)

Altisource Residential Corp. (NYSE:RESI)

Q2 2016 Earnings Conference Call

August 8, 2016 08:30 AM ET

Executives

George Ellison - Chief Executive Officer

Robin Lowe - Chief Financial Officer

Randall Mason - Vice President, Valuations

Analysts

Anthony Paolone - JP Morgan Securities, Inc.

Jade Rahmani - KBW

Fred Small - Compass Point

Brock Vandervliet - Nomura Securities

Operator

Good day ladies and gentlemen, and welcome to the Altisource Residential Corporation Q2 2016 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 like to introduce your host for today’s conference, Mr. Robin Lowe, Chief Financial Officer. Sir you may begin.

Robin Lowe

Thank you, Vince. 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 go to our website 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 statements in our earnings release as well as the company's filings with the Securities and Exchange Commission, including our year-end December 31, 2015, Form 10-K, our first quarter 2016 Form 10-Q and our second quarter 2016 Form 10-Q that we have 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 website using the e-mail alerts button.

Joining me for today's presentation are George Ellison, Chief Executive Officer of RESI and Randall Mason who is responsible for rental operations.

I will now turn the call over to George.

George Ellison

Thanks, Robin, and good morning, everyone. Altisource Residential continues to successfully execute its business strategy in the second quarter of 2016. Two of our key stated goals have been to create a significant SFR REIT with strong operating metrics and to simplify create better transparency around our company, its assets and their valuations. As you will see today, both of these goals are now within reach.

If you will turn to Page 3 please, operating performance continues to improve this quarter. NOI reached 58%, approaching our goal of 60% to 65%, this NOI should generates this distributable income of 9% to 11% on equity given our best-in-class yield. Disposition of loans on REOs continues to accelerate, we were able to sell another large pool of NPLs, which leaves only one more large sale, which hopefully will be executed by year-end.

That last sale will almost completely get us out of our NPLs. We also sold a record 910 REO properties during the quarter, which leaves us with 1174. Just as with our NPLs disposition accomplishments, we should effectively be out of all REOs, by the end of the next home selling season , second and third quarter 2017. As our rental business continues to rapidly grow, we can now see how core FFO will follow.

Once Altisource Residential acquires and stabilizes 10,000 and then 20,000 homes, the annual core FFO is estimated to be $0.60 and $1.70 respectively. We also continue to balance stock buybacks with attractive asset acquisitions. As mentioned in this morning's press release, we are close to consummating one or more significant portfolio acquisitions.

We have a signed letter of intent for one large SFR portfolio of between 4000 to 4500 properties and are actively bidding on two other sizable deals. If we successfully complete any of these deals they will be awarded or closed in the third or fourth quarter. We again restate our goals of 10,000 ounce by year-end and 20,000 by year end 2017. We are confident that, we can reach important milestones.

Now I had turned to Page 4, look at the second quarter highlights. Rental income increased 41% from last quarter, stabilized co-OFF $0.03 per share. We repurchased 250,000 shares, spending about 2.5 million during the quarter and have now completed almost 38% of our announced buyback.

We continue to balance share buybacks with attractive acquisitions. Rob will cover this later, but our cash positive at 2Q end is almost completely earmark for the acquisitions I discussed. Again, a dividend of $0.15 per share.

In our portfolio, we closed the quarter at almost 4000 rental homes and about 4000 loans. As mentioned we closed our third NPL sales, which included about 900 loans, with the sale, we have only one more large sale plan, our last, which should be executed later this year. This effectively end the NPL strategy at RESI.

The quarter shows sales is a bit disappointing as the hangover from the year’s early market disruption in equities, cascaded into structured products and the NPL market. The market also had a significant amount of product for sale in the second quarter, but our decision was to sell rather than wait for higher prices that may not materialize. As stated, we have only one more sale remaining. This will be the fourth of four and if market conditions allow we plan on selling a pool later this year.

I would like to also report an important milestone in our loan portfolio, as of August 1, we have effectively exited the Ocwen servicing relationship, there are now no Ocwen service loans at all at Altisource Residential, none. Ocwen is been a great partner, we wish them good luck in their future business affairs.

As I mentioned earlier, we sold a record 910 REO homes, up from 686 in the first quarter an improvement of 33% over our previous high mark. Again, there are some seasonality to this number and we would expect these homes sales to still be strong in the third quarter, but to be lower than this quarters 9,10. The REO asset class should be completely gone by the end of 2017.

On the operations front, net operating margin improved this quarter to 58% as we continue to push on this important metric, 97% of stabilized rentals released at quarter end. Lease renewal rates for the quarter was 73%, with an average rent increase of 6% on renewals. REO’s under evaluation decreased 11% from last quarter to 1437. And on the funding front Rob and his team continue to keep our liquidity high although the cash position you see, is almost entire earmarked for the upcoming transaction we mentioned.

If you will please turn to Page 5. We present several critical metrics that we track, and we would show some impressive results. As advertised the loan portfolio is down to 4000 loan and with the next sale along the small re-performing sale both hopefully this year. The loan count will be de minims.

On the upper right you can see, how quickly we are growing our stabilized SFR portfolio. If we are able to complete one and more the large transactions discussed earlier, this count should be around 10,000 by year-end 2016. On the lower left, you can see 97% of our stabilized REO homes will be leased and lower rate, our steadily growing revenue results, strong execution in growth and all metrics.

Page 6 is a Slide we saw each other; our target acquisitions distinguish us from others in the single family rental market place. We start with a much higher gross rental yield target. We are buying moderately priced homes that provide this higher yield, also the geographic reach of our partners of Altisource Portfolio Solutions allows us to continue to push into markets in the major MSAs where most of the other SFR companies operate as well as outside of these major markets where they don’t.

Pushing beyond the same major MSAs lower the competition to buy and operate, thus contributing again to a higher yield, as we have stated repeatedly, and the results are starting to come out. Our target net yield is 6% to 7%, which leads to a leverage 11% to 13% return, and finally when stabilized to 20,000 and more homes we expect to achieve a dividend yield of 9% to 11%.

On Page 7, we present our acquisition activity. The significant news is that we are currently considering three separate transactions, one of which is more advanced than the others. The three transactions range from around 1500 homes at the low end to 4500 homes at the high end. The deal with the signed LOY is at the high end of that range with 4000 to 4500 stabilized rental homes.

The LOY was signed a few weeks ago and as the deals homes up, we would hope to close it in September or possibly it could roll into October. I caution that none of these deals are guaranteed to close, but we wouldn’t be reporting them if we were not optimistic that RESI we close at least one of them successfully.

At the bottom at Page 7, we present the results of this quarter One-by-One buying programs. We purchased around 300 homes this quarter and are now act fully buying 10 separate cities. We continue to build this program and are optimistic about its future. We have however, tapped the breaks of it on the program to maintain liquidity to a large transactions we are concerned.

If you turn the Page 8, as we have said many times, buying homes at attractive high yield is only half about, operating them officially and profitably is the other half and just as important. Here you see this quarter's operating metrics, as stated in the opening comments, this quarters NOI has moved up, but we have already cleared that this number needs to be in the 60s before we will be satisfied.

Finally Page 9, here are some other important metrics to continue to improve as grow, renewal rate 73%, retention rate 64% average rent increase as I mentioned up six. Keep in mind there is always high turnover pre new school year, but the good news is that we are maintaining an occupancy rate of 97%.

I'll turn it back to Rob now.

Robin Lowe

Thank you, George. Today I will review our second quarter 2016 financial results and discuss the financing liquidity. I will also provide an update on progress on divesting NPLs and REOs and discuss our NAV.

We reported the GAAP net loss of $63.5 million in the second quarter 2016, with lower revenues mainly due to conditions that we saw in the NPL market during the second quarter. Expenses were lower by 26% compared to the prior quarter due to lowest selling cost in impairment, lower mortgage loan 2017 cost as we continue to divest NPLs and lower interest expense on lower debts.

Rental revenues were $8.6 million an increase of 41% over the last quarter, reflecting the positive impact to 590 homes we acquired at the end of the first quarter plus for the 13% increase in the rental portfolio in the second quarter to a total of 3977 homes at the end of the second quarter 2016.

Core FFO on the stabilized portfolio increased to $0.03 from $0.02 last quarter. We also saw progress on the stabilized portfolio NOI, which increased to 58% from 56% last quarter. The reported NOI number is in fact 60% due to the release of a bad debt reserve in the second quarter, but excluding the release, NOI for the second quarter of was 58%.

As shown on Slide 10, at the end of the second quarter, we had a total of 6,588 REOs of which 3,977 were in the rental portfolio of 1,174 were held-for-sale. The remaining 1437 were under evaluation for rental of sale, which is reduction of 11% of REO under valuation compared to the prior quarter.

We had a very strong quarter for REO sales, 910 REO was sold in the second quarter of 33% increase over the prior quarter with proceeds of approximately $128 million. The 11% reduction REO under the evaluation and the 33% increase in REO sales are both very positive metrics in terms of our capital recycling.

The bottom right-hand chart on slide 10 shows REO sales timelines from a basic contribution for sale and is based on actual data since inception. Once contributed for sale over 50% of REOs sold within five months rising to 90% within 11 months. Based on these metrics, we expect to have sold substantially all of our REOs by the end of 2017.

And on slide 11, we show our loan and REO disposition plan. By the end of 2016, we plan to have completed our fourth and last major MTL sale as well as an [RPL] (Ph) sale. Leaving approximately 1800 loans in our books that we will divest through 2017 through smaller sales or conversion. Likewise, we plan to have sold virtually all non-rental REOs by the end of 2017.

With regards to liquidity and funding capacity, on Slide 12, we had $228 million of available cash at the end of the quarter and $603 million of unused finance capacity for a total of $831 million of available financing. As George has mentioned, virtually all the cash on hand, is earmarked for one or more of the potential transactions that we anticipate closing in the third or fourth quarter.

We estimate our NAV to be $20 per share as of the end of the second quarter and showed details on Slide 16. Going into more detail, for real estate properties in the rental portfolio, we have estimated NAV using at 12 months forward estimate of NOI and applying an appropriate cap rate.

For real estate asset that we intend to sell, NAV is based on the estimated fair value using most recent BPO’s and adjusting for any imperilment less estimates selling cost for the property. Properties under evaluation for rental sale are allocated between held-for-use and held-for-sale and are valued accordingly. With those allocated to rental being adjusted for an estimated renovation and lease up period.

The fair value, of loans of fair value is estimated using our proprietary pricing model. The carrying value of cash and cash equivalents and restricted cash and other assets on liabilities are equal to or approximate fair value. A full description of the NAV calculation methodology is included on Slide 26.

I will now turn the call back over to George.

George Ellison

Thanks Rob. In conclusion Altisource Residential had another successful quarter. Acquisition through our One-by-One program continues to grow and some exciting large transformational asset purchases are on the horizon, hopefully this quarter. We continue to improve our operating metrics, high occupancy, rent increases, portfolio growth, stronger NOI. The dividend stayed steady at $0.15 and stock buybacks continue.

The journey to exist the NPL asset class will almost completely be over by year-end and REO sales as we mentioned hit an all time high and should remain strong. These sales both loan and REO continue to underscore the fact that our assets are worth their third-party marks and then we have a clear to find timeline to exist them, all-in-all a strong quarter.

The business continues to grow and we maintain our goal of 10,000 houses by the end of this year and 20,000 sometime next year. We remain committed to staying disciplined in our purchases and efficient in our operations.

Altisource Residential standalone as the own manager of high yielding affordable single-family rental homes. We believe this strategy will provide optimal returns and dividends for shareholders who are focused on long-term sustainable growth and performance.

Vince, we will now turn it back to you to open it up for questions please.

Question-and-Answer Session

Operator

[Operator Instructions] our first question is from Anthony Paolone of JP Morgan. Your line is open sir.

Anthony Paolone

Can you talk about what was achieved on the NPL and REO sales versus what the mark was in the quarter?

George Ellison

I will give you the markets answers; Rob can give you a more granular answer. It's probably mark that dollar price 65, we got around 64 so that’s 7% or 8% 5 points in price 7% or 8%, in the amount of money. Rob I don’t know if you would add anything to that.

Robin Lowe

Yes, clearly Tony we still have a lot of volatility in the NPL market in the second quarter, there was tremendous over supply. As George said, we took the decisions continue sell. In terms of dollars we missed them out by roughly $11.5 million.

Anthony Paolone

Okay and that’s for both the NPLs and the REOs combined?

Robin Lowe

No, I’m just talking about NPLs.

Anthony Paolone

Okay. What about on the REO side?

Robin Lowe

The REO is we continue to sale and you can see the gains that we have reported in the net release kind of real estate line in the financials.

Anthony Paolone

Okay so net of depreciation has came ahead off the book?

Robin Lowe

We made a gain of $60 million over purchased price.

Anthony Paolone

Okay, and then, if I look at your property management expenses in the quarter I think there were 0.5 million about or something like that or it’s fairly small number. Is the arrangement with ASPS is really a percentage or is there a fixed level of property management cost that or in that $18 million of Opex that not in sort of the 3.5 million, now our pour out of this Opex were sort of the same store if will, for lack of a better term?

George Ellison

The rental property Opex number includes all property operating expenses for both rental and both non-rental properties. So one thing I would point out that compares a lot although it’s flat although the mix of changed. What happen if the rental prices are gone up but the number non-occupied properties is intend to sale is going down, so we managed to maintain that number flat overall, because the cost of maintaining occupied rental properties, is substantially less, then non occupied properties, that just a pretty good story of it.

Anthony Paolone

Okay so, in terms like the total dollars being paid to but there is $18 million of Opex on your income statement but then when you show it as it just clearly relates for the rental properties it’s 3.5 million. So thinking about the other 14.5 million, how do we think about that break over, because there are other property management expenses there kind of fix there or?

George Ellison

Everything that we are starting in the stabilize expense, is all that relates to the stabilize properties right. So there are some rental properties that are not yet stabilize which will be included in the balance plus the expenses related to the non-occupied properties.

Anthony Paolone

Okay, at this rate casual renewal rate, when you get to whether it’s 10,000 homes or whatever, should we expect that percentage of revenue to continue to run about the same amount, it seems to be within your goal range currently?

Robin Lowe

That’s right, that’s exactly it, Tony, so once you got rid of all the non-rental properties, that percentage of operating expense through the rental properties should be very similar to the number you are seen on the stabilized portfolio. In other words, there is expense has to be made.

Anthony Paolone

Okay, and how long is it taking to renovate units and get them to market at this point?

George Ellison

Randall.

Randall Mason

It takes approximately between 30 and 90 days on average to get those renovated on.

Anthony Paolone

And given average spend, that you been running them?

Randall Mason

It’s about $21,000.

Anthony Paolone

Okay, and then just last on the deal pipeline, can you talk about just any right, contingencies or what the sticky points are to get these done?

George Ellison

The one of the NOI, as I mentioned pretty sizable deals so, it’s just a complicated deal will probably to recall for that deal assuming that in September and the other one for just billing, one will be billing this months and the other once more of a private bidding so it’s - I wouldn’t there is any particular stacking points. Just complexity of deals making sure we get it right.

Anthony Paolone

How many of these are fairly sizable even if the below and you said 1,500 homes how many types or how many deals or that nature do you feel are still out there that size level.

George Ellison

As you know, there is operator like some of major public competitors and there is other folks who have done it in more of a fund, sort of investment fund through some PE formats. And I think that’s what you are starting to see a little bit of now. So several funds that either are terminated from a time standpoint or for whatever other reason. So I think there is probably two that we are looking at that our funds and there is probably another two that are out there that have been rumored to be maybe coming out but again so.

Anthony Paolone

Okay thank you.

George Ellison

Thanks Tony.

Operator

Thank you. Our next question is from Jade Rahmani of KBW. Your line is open.

Jade Rahmani

Thank you very much. On the M&A pipeline are you seeing increased supply beyond just the PE funds but also the individual holders, mock on holders of say several hundred unit size range?

George Ellison

As we have said there are large what we call bulk purchases, I guess could even be companies and then there is smaller pools and that there is the One-by-One we mentioned. I think the boy bought 85 and 90 homes this past quarter I think from somebody who is cleaning up in the city and wanted to either exit or just trim or as you know we are more in the 150, 125 down, sometimes people ends up with that while you rid of it.

So I would say there is either the huge roll up going on, you know as we have said many time, we are not with the competing against the big public eyes, we are competing against mom and pops. So there is going to be continual roll up, every city that we go into people who are out 50 homes, 75 homes, 150 homes, they should sell their homes to us as ASP [Technical Difficulty] buyer our stock. That’s a smarter trade for them and I think that’s going to continue as far as seeing more of that I think that’s a steady flow that’s sort of above One-by-One and below bulk.

Jade Rahmani

In terms of capitalization beyond the 4000, 4500 unit acquisition, would you contemplate any equity issuance or any equity linked instrument issuance as part of the transactions. And in terms of sellers are you seeing any willingness for sellers they are attracted with the units and rally?

George Ellison

I missed the second part, although the first part is no. At this price level, we are not considering any equity type product. What was the second part?

Jade Rahmani

If you were to consider any equity linked issuance like a convert or a preferred.

George Ellison

No, we have plenty of liquidity right now, that’s why we hit on the NPLs and REOs so hard, liquidity is - we are very fortunate to have a fair amount of cash on hand. So no, we wouldn’t be issuing equity into any of those contemplated trades.

Jade Rahmani

And in terms of operating expenses is there cost per property that you expect to get to at that 10,000 unit range, in terms of deal with ASPS, can you say what that is?

Robin Lowe

Jade, I think for the moment anyway we are kind of obviously targeting the trusts as we show on slide 6 of the earnings that, that no particular special kind of arrangement with ASPS in terms of the number of properties that we have. Obviously as we achieved more scale, the fixed cost element of the whole thing will become a less and less percentage which will contributes the higher core FFO.

Jade Rahmani

And can you just remind us the terms of the relationships with ASPS, what drives there revenues, how are they paid, is it percentage of RESI’s revenues, I thought it was on the per property basis and there is a dollar amount for properties at they are paid?

Robin Lowe

That’s right Jade, there is a, we have a fixed percentage of growth rent, which is 4% and obviously there are property cost related that related to managing the properties. But there is addition to that RESI has its own G&A plus obviously management fees, which are fixed cost and obviously as we grow that fix cost percentage of the equation becomes less and less.

Jade Rahmani

All right. Thanks for taking my questions.

Robin Lowe

Thank you Jade.

George Ellison

Thanks Jade.

Operator

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

Fred Small

Okay, a couple of questions on NPL sale, where are the remaining NPL’s marked, I don’t think that we get that into it comes out in a queue?

George Ellison

NPL is the mark-to-market every quarter, so that’s kind of the point here Jade, sorry Fred.

Fred Small

I just mean in might the, there were, the one you sold were mark at 65 and you sold them at 60, I’m just wondering in aggregate, where the rest of its marked as of Q2.

George Ellison

I don't have that number in front, I think it’s something like at below 70% but it will be in the queue.

Fred Small

Okay, is there is a reason to assume that, that we shouldn’t mark those down, before doing our NAV calculations?

George Ellison

Let me just get into a little bit more detail of what we think happened I the second quarter. our model is all about mark-to-market and it’s about data point and input that we can get from the market, obviously this is a level three and observable asset.

And so when we make a sale in the market, we have to take account of that data point. There was tremendous oversupply in the market during the second quarter particularly around the time in May when we have put that deal after market.

We took a decision to go ahead with the sales as George said earlier. But we have to take a data point and put it into a model, as part of our second quarter mark-to-market.

Randall Mason

Yes So that price Fred to your point is now reflected in everything else that we have. So if things were to get stronger, which I’m not saying they will or weaker, you will find out the actual sale obviously but that price gets pushed through the model to all the marks of everything we have. So today right here they are marked exactly where they should be. But again, if we sell them in the fourth quarter last fewer things stand there but they should be marked right on the screens right now.

George Ellison

Right, exactly right.

Fred Small

Okay fair. One more there, do you expect material changes ahead those supply environment change materially, I don’t think that GSEs are still selling and isn't the FHA or HUD coming with a sale at the end of third quarter?

George Ellison

Yes, I mean as I said, I think there is a little bit of that everyone forgets, but as you go back and think about the first eight weeks of the year with equity is off like 12% and it was stunning. It didn’t hit fixed income, probably it’s on a month delay. So structure of product which were very close to and trade in that sort of genre started getting really hit hard in March and April.

So I think we felt some of that which tend us now for a coming back actually. There is also some cross occurrence inside of the NPL market if you sell it to people who are very close to it. There are certain dealers that as part of litigation are out buying certain packages and other packages they don’t fit their litigation strategy.

So there is a lot of cross occurrence, that bid won't pay us by the way that will fit the GSE bid. So I’m not sure that GSE’s selling would be as painful as you might - as you are implying, or you are asking. I think that in the broker dealers are sucking up a lot of that supply.

I think that was rough water, we talked everybody about this openly. You sell when you can, and not when you have to and we got to sell off, we got touched up a little bit. But in NPL that’s not a big deal. So where will the next one go, I would hope it will be better, I anticipate it being better, but you know the volatility out there as well as I do.

Fred Small

All right cool, I’m not implying anything, just you know I’m trying to understand.

George Ellison

I understand that’s why I tended to ask, I know you weren’t implying.

Fred Small

I know it’s okay. So on the payout ratio or on the 170 that you are talking about, how should we think about that payout ratio on that or what would you be targeting?

George Ellison

You talked on the core FFO 170?

Fred Small

Yes.

Robin Lowe

Yes that’s what we are modeling, when we started in the targets that we shown on Page 6, 20,000 properties that’s what we modeled the core FFO to be Fred.

Fred Small

Right. And I mean if I look at the other FFO already that’s out there I mean the payout ratios or the dividends are a lot lower than their core FFO guidance. So what would you be talking as a dividend or payout ratio on that 170?

Robin Lowe

Yes, look we will obviously make some decisions around that as we get there depending on opportunities of reinvestment, but we anticipate paying out a very substantial and healthy dividend.

Fred Small

Okay then on George you said something about dividend yield of 9% to 11% on the stabilized 20k I just want to understand what you meant by dividend yield in that context?

George Ellison

I think you are referring to the central distribution again on Slide 6, again where we show Fred that 9% to 11% I think I was [indiscernible].

Fred Small

Okay all right got it. And then two more. Just on the 4000, 4500 transaction any more details you can provide there on the geography or I think you get detail about the price point earlier?

George Ellison

Yes, it's obviously we can't say much about it but it's we are very excited about. It's right now we will have some terms or locations but obviously expands us into the place as we have now our list to go. So we are going to get bigger in place as where we are. We are going to get some cities that we want to get to and quite a few where as I mentioned, we are not going to have as much competition. So it’s a size and yield right in our real house and as I said, when we are allowed to a talk about that, we will obviously walk you through in great detail.

Fred Small

Okay thanks and last one, just on the decision to have ASPS take out the Activists, in the second quarter, can you walk us through the thinking there and why it makes sense to have them to that and then sort of creating a overhang on the stock talking about it. Potentials of long-term investment and them not wanting to hold it versus just buying out the Activists yourself?

George Ellison

I think we have talked about all this publically, we were not driving that the transaction, the trade that the decision. So I think that’s more of a question for ASPS that was their decision, obviously they are strategic partner, an important vendor. But that was not our decision and there was a completely separate transaction legally. We weren’t a signatory to it, we are involved in it, so it’s a obviously we are happy with the outcome of that decision and got a lot of help from lots of folks who support our strategy, but that one I think is probably to be fair more direct to them than us.

Fred Small

Okay, I mean, have you thought about how we deal if long-term or longer-term just to overhang that, there ownership creates on the stock?

George Ellison

I’m not sure are again I think you are implying with that one. I’m not sure I agree with you that it’s an overhang, I think it’s going to turn out to be - obviously we think it is going to turn out to be great investment for him. But as to whether it’s there or how long it’s there trying over stock, I’m not sure, I agree with that premise so.

Fred Small

Sorry I mean I think their CEO said is on their conference call that he didn’t view RESI as a long-term core investment?

George Ellison

Okay.

Fred Small

That was what I meant by an overhang, have you thought about, how structurally you can deal with that would you potentially look at buying back more shares or doing some sort of structural transaction with them.

George Ellison

Yes I mean we never rule out anything. How long people want to - our job is to execute, hit the numbers, as you know and get this story as I said in beginning. Hit the numbers and make the story as everyone has asked more transparent, more simple, show the value of the Company, show the assets, show what they worth, show the time line to get out and grow and hit the numbers with our vendors.

That’s our job. How people, buy, when they buy, and how long they hold. We can’t be over, because we are aware of it but we can’t run the Company day-to-day worrying about who is in or who is out and how to long they will stay. We spend very little time thinking about that. We will serve our shareholders, whoever they are and when they exit, other people replace them, then we will serve those books. So that’s how I think about it, as not lose out there for how long.

Fred Small

All right awesome. Thanks.

George Ellison

Thank you.

Operator

Thank you. Our next question is from Brock Vandervliet of Nomura Securities. Your line is open.

Brock Vandervliet

Thank you. Hey George, good morning, I was wondering if you could just touch on some of the FFO or EPS goals that you mentioned earlier in the call had to drop and I missed that.

George Ellison

Yes it's in the first page of the deck and we are [indiscernible] been working on a couple of clarity issues. So last quarter if you started being more forceful around NAV and I think the quarter before that FFO. So we were just continuing that same dialogue. I was just saying as we grow, you can start see FFO start to appear which is great.

So we talked about this quarter and then we made some projections for the first time about 10,000 homes and 20,000 homes. 10,000 being our goal for the end of this year, 20,000 end of next year or some time in next year. And then, we associated with that drop and walk you through the map if you need a core FFO of $0.60 in the first case and $1.70 in the second, and that’s what you are referring to. So that’s on the front first one page I think.

Brock Vandervliet

Okay got it, thank you. And Robin you mentioned the NAV breakdown on Slide 26 or so, what cap rate did you use mentioned using your cap rate?

Robin Lowe

Yes, we used blended nominal cap rate Brock of 5.25.

Brock Vandervliet

5.25%. Okay. Have you seen the market act for NPLs and REOs so far this quarter and I would think the market participants see you as a seller is there a level that you would decide okay we are going to forego a sale here until the market firm up. Are you seeing that firming going into the second half?

George Ellison

We were chatting about that little bit on the Q&A earlier about the sale. So it's almost exactly what you said, you know how this works. So we were looking to do the sale that we did probably on the heels of the second sale, which was a great execution, we were happy with. I think we awarded that in the second week in the year, but that was really a conversation that started at the end of 2015 and flowed into 2016.

2016 opens up obviously very treacherous equity markets as you remember and as I said, fixed income structure products followed. So we tapped the bricks, I would have liked to have done that third one right away, because the second one was so good, but market just got very, very thin.

So we actually did hold up and then as things started to calm down in structured products and loans, we pulled it back and as I said in my prepared comments you can never pick it exactly right. I said, you sell when you can, not when you have to. So I wasn’t totally excited, a little disappoint in that execution, but you know for NPLs that diff that delta on the prices is fine.

We are looking at the second half of year and things seem to firmed up. So I think we hope the launch that next one into the fall, but it will be the exactly what you said. As things get too dicey. We don’t have to sell, we have plenty of money to do the transactions that we mentioned right now with that third sale. The fourth one we can drag it into next year if the market gets weak and obviously we will buy assets accordingly.

Brock Vandervliet

Okay. Thank you.

George Ellison

Thank you Brock.

Operator

Thank you. At this time, there are no other questions is queue. I would turn it back to management for any closing remarks.

Robin Lowe

Thank you very much for joining the call. Have a great day. Thank you.

George Ellison

Thank you.

Operator

Ladies and gentleman thank you for your participation in today’s call conference. This concludes the program. You may now disconnect.

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