Annual report pursuant to Section 13 and 15(d)

EQUITY AND EARNINGS PER SHARE

v3.19.3.a.u2
EQUITY AND EARNINGS PER SHARE
12 Months Ended
Dec. 31, 2019
Earnings Per Share [Abstract]  
EQUITY AND EARNINGS PER SHARE EQUITY AND EARNINGS PER SHARE

Equity and Dividends

New Residential’s certificate of incorporation authorizes 2,000,000,000 shares of common stock, par value $0.01 per share, and 100,000,000 shares of preferred stock, par value $0.01 per share.

In February 2017, New Residential issued 56.5 million shares of its common stock in a public offering at a price to the public of $15.00 per share for net proceeds of approximately $834.5 million. One of New Residential’s executive officers participated in this offering and purchased 18,600 shares at the public offering price. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 5.7 million shares of New Residential’s common stock at the public offering price, which had a fair value of approximately $8.1 million as of the grant date. The assumptions used in valuing the options were: a 2.38% risk-free rate, a 10.82% dividend yield, 28.64% volatility and a 10-year term.

In January 2018, New Residential issued 28.8 million shares of its common stock in a public offering at a price to the public of $17.10 per share for net proceeds of approximately $482.3 million. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 2.9 million shares of New Residential’s common stock at the public offering price, which had a fair value of approximately $3.8 million as of the grant date. The assumptions used in valuing the options were: a 2.58% risk-free rate, a 9.86% dividend yield, 23.16% volatility and a 10-year term.

On July 30, 2018, New Residential entered into a Distribution Agreement to sell shares of its common stock, par value $0.01 per share (the “ATM Shares”), having an aggregate offering price of up to $500.0 million, from time to time, through an “at-the-market” equity offering program (the “ATM Program”). During the year ended December 31, 2018, New Residential sold 0.5
million ATM Shares for aggregate proceeds of $9.1 million. In connection with the shares sold under the ATM program, New Residential granted options to the Manager relating to 0.05 million shares of New Residential’s common stock at the offering prices, which had fair value of approximately $0.1 million as of the grant dates. On August 1, 2019, the Distribution Agreement was amended to, among other things, (i) add additional sales agents under the ATM Program, and (ii) restore the aggregate offering price under the ATM Program to the original amount of $500.0 million. During the year ended December 31, 2019, New Residential did not sell any ATM Shares.

In November 2018, New Residential issued 28.8 million shares of its common stock in a public offering at a price to the public of $17.32 per share for net proceeds of approximately $489.2 million. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 2.9 million shares of New Residential’s common stock at the public offering price, which had a fair value of approximately $3.8 million as of the grant date. The assumptions used in valuing the options were: a 3.25% risk-free rate, a 8.61% dividend yield, 17.50% volatility and a 10-year term.

In February 2019, New Residential issued 46.0 million shares of its common stock in a public offering at a price to the public of $16.50 per share for net proceeds of approximately $751.7 million. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 4.6 million shares of New Residential’s common stock at the public offering price, which had a fair value of approximately $3.8 million as of the grant date. The assumptions used in valuing the options were: a 2.40% risk-free rate, a 9.30% dividend yield, 19.26% volatility and a 10-year term.

On July 2, 2019, in a public offering, New Residential issued 6.2 million shares of its 7.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Preferred Series A”), par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $150.0 million. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 0.6 million shares of New Residential’s common stock at the closing price per share of common stock on the pricing date, which had a fair value of approximately $0.5 million as of the grant date. The assumptions used in valuing the options were: a 1.91% risk-free rate, a 9.73% dividend yield, 17.95% volatility and a 10-year term.

On August 15, 2019, in a public offering, New Residential issued 11.3 million shares of its 7.125% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Preferred Series B”), par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $273.4 million. To compensate the Manager for its successful efforts in raising capital for New Residential, in connection with this offering, New Residential granted options to the Manager relating to 1.1 million shares of New Residential’s common stock at the closing price per share of common stock on the pricing date, which had a fair value of approximately $0.7 million as of the grant date. The assumptions used in valuing the options were: a 1.56% risk-free rate, a 11.20% dividend yield, 18.23% volatility and a 10-year term.

On September 23, 2019, New Residential’s board of directors declared third quarter 2019 preferred dividends of $0.69 per share of Preferred Series A and $0.45 per share of Preferred Series B, or $4.3 million and $5.0 million, respectively.

On December 16, 2019, New Residential’s board of directors declared fourth quarter 2019 preferred dividends of $0.47 per share of Preferred Series A and $0.45 per share of Preferred Series B, or $2.9 million and $5.0 million, respectively.

Common dividends have been declared as follows:
 
 
 
 
Per Share
 
 
Declaration Date
 
Payment Date
 
Quarterly Dividend
 
Total Amounts Distributed (millions)
January 26, 2017
 
April 2017
 
0.48

 
147.5

June 21, 2017
 
July 2017
 
0.50

 
153.7

September 22, 2017
 
October 2017
 
0.50

 
153.7

December 18, 2017
 
January 2018
 
0.50

 
153.7

March 22, 2018
 
April 2018
 
0.50

 
168.1

June 21, 2018
 
July 2018
 
0.50

 
169.9

September 20, 2018
 
October 2018
 
0.50

 
170.2

December 20, 2018
 
January 2019
 
0.50

 
184.6

March 25, 2019
 
April 2019
 
0.50

 
207.7

June 18, 2019
 
July 2019
 
0.50

 
207.8

September 23, 2019
 
October 2019
 
0.50

 
207.8

December 16, 2019
 
January 2020
 
0.50

 
207.8



Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, and its principals at December 31, 2019.

On August 20, 2019, New Residential announced that its board of directors had authorized the repurchase of up to $200.0 million of its common stock through December 31, 2020. Repurchases may be made from time to time through open market purchases or privately negotiated transactions, pursuant to one or more plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934 or by means of one or more tender offers, in each case, as permitted by securities laws and other legal requirements. The amount and timing of the purchases will depend on a number of factors including the price and availability of New Residential’s shares, trading volume, capital availability, New Residential’s performance and general economic and market conditions. The share repurchase program may be suspended or discontinued at any time. No share repurchases have been made as of the date of issuance of these Consolidated Financial Statements.

Option Plan

New Residential has a Nonqualified Stock Option and Incentive Award Plan, as amended (the “Plan”) which provides for the grant of equity-based awards, including restricted stock, options, stock appreciation rights, performance awards, tandem awards and other equity-based and non-equity based awards, in each case to the Manager, and to the directors, officers, employees, service providers, consultants and advisor of the Manager who perform services for New Residential, and to New Residential’s directors, officers, service providers, consultants and advisors. New Residential initially reserved 15,000,000 shares of its common stock for issuance under the Plan; on the first day of each fiscal year beginning during the 10-year term of the Plan in and after calendar year 2014, that number will be increased by a number of shares of New Residential’s common stock equal to 10% of the number of shares of common stock newly issued by New Residential during the immediately preceding fiscal year (and, in the case of fiscal year 2013, after the effective date of the Plan). No adjustment was made on January 1, 2014. Increases of 4,600,000, 5,799,166, 5,654,578 and 2,000,000 were made on January 1, 2020, 2019, 2018 and 2017, respectively. New Residential’s board of directors may also determine to issue options to the Manager that are not subject to the Plan, provided that the number of shares underlying any options granted to the Manager in connection with capital raising efforts would not exceed 10% of the shares sold in such offering and would be subject to NYSE rules. Upon exercise, all options will be settled in an amount of cash equal to the excess of the fair market value of a share of common stock on the date of exercise over the exercise price per share unless advance approval is made to settle options in shares of common stock.

Upon joining the board, non-employee directors were, in accordance with the Plan, granted options relating to an aggregate of 7,000 shares of common stock. The fair value of such options was not material at the date of grant.

New Residential’s outstanding options were summarized as follows:
 
December 31,
 
2019
 
2018
Held by the Manager
10,511,167

 
6,961,222

Issued to the Manager and subsequently assigned to certain of the Manager’s employees
2,290,749

 
1,530,916

Issued to the independent directors
7,000

 
6,000

Total
12,808,916

 
8,498,138


The following table summarizes New Residential’s outstanding options as of December 31, 2019. The last sales price on the New York Stock Exchange for New Residential’s common stock in the year ended December 31, 2019 was $16.11per share.
Recipient
Date of
Grant/
Exercise(A)
 
Number of Unexercised Options
 
Options
Exercisable
as of
December 31,
2019
 
Weighted
Average
Exercise
Price(B)
 
Intrinsic Value of Exercisable Options as of December 31, 2019
(millions)
Directors
Various
 
7,000

 
7,000

 
$
13.61

 
$

Manager(C)
2017
 
1,130,916

 

 
14.09

 
2.3

Manager(C)
2018
 
5,320,000

 
2,996,715

 
16.79

 

Manager(C)
2019
 
6,351,000

 
1,787,500

 
16.35

 

Outstanding
 
 
12,808,916

 
4,791,215

 
 
 
 
 
(A)
Options expire on the tenth anniversary from date of grant.
(B)
The exercise prices are subject to adjustment in connection with return of capital dividends. A portion of New Residential’s 2018 dividends was deemed to be a return of capital and the exercise prices were adjusted accordingly.
(C)
The Manager assigned certain of its options to its employees as follows:
Date of Grant to Manager
 
Range of Exercise Prices
 
Total Unexercised
Inception to Date
2017
 
$14.09
 
1,130,916

2018
 
$16.68 to $18.15
 
1,159,833

Total
 
 
 
2,290,749


 
The following table summarizes activity in New Residential’s outstanding options:
 
 
Amount
 
Weighted Average Exercise Price
December 31, 2017 outstanding options
 
18,502,188

 
 
Options granted
 
5,799,166

 
$
17.23

Options exercised
 
(15,803,216
)
 
$
14.30

Options expired unexercised
 

 
 
December 31, 2018 outstanding options
 
8,498,138

 
 
Options granted
 
6,352,000

 
$
16.20

Options exercised
 
(2,041,222
)
 
$
13.88

Options expired unexercised
 

 
 
December 31, 2019 outstanding options
 
12,808,916

 
See table above


Income and Earnings Per Share

New Residential is required to present both basic and diluted earnings per share (“EPS”). Basic EPS is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted EPS is computed by dividing net income by the weighted average number of shares of common stock outstanding plus the additional dilutive effect, if any, of common stock equivalents during each period. New Residential’s common stock equivalents are its outstanding options. During the years ended December 31, 2019, 2018 and 2017, based on the treasury stock method, New Residential had 200,465, 1,868,438 and 2,143,323 dilutive common stock equivalents, respectively, outstanding.

Noncontrolling Interests

Noncontrolling interests is comprised of the interests held by third parties in consolidated entities that hold New Residential’s Servicer Advance Investments (Note 7), Shelter JVs (Note 9) and Consumer Loans (Note 10).