Annual report pursuant to Section 13 and 15(d)

EQUITY AND EARNINGS PER SHARE

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EQUITY AND EARNINGS PER SHARE
12 Months Ended
Dec. 31, 2020
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.

On February 14, 2020, in a public offering, New Residential issued 16.1 million of its 6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Preferred Series C”), par value $0.01 per share, with a liquidation preference of $25.00 per share for net proceeds of approximately $389.5 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 1.6 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 $1.0 million as of the grant date. The assumptions used in valuing the options were: a 1.55% risk-free rate, a 9.00% dividend yield, 17.39% 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 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.

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 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.

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.

The following table summarizes the Company’s ATM Program activity:    
Quarter Ended Number of Common shares Average price per share Gross Proceeds Fees Net Proceeds
March 31, 2020(A)
97,394  $ —  $ 1,662  $ —  $ 1,649 
June 30, 2020 —  —  —  —  — 
September 30, 2020 —  —  —  —  — 
December 31, 2020 —  —  —  —  — 
(A)In connection with the shares sold under the ATM program, New Residential granted options to the Manager relating to 0.01 million shares of New Residential’s common stock at the offering price, which had fair value of approximately $0.2 million as of the grant date.

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.

The table below summarizes Preferred Shares:
Number of Shares
Liquidation Preference(A)
Dividends Declared per Share
December 31, Year Ended December 31,
Series 2020 2019 2020 2019 Issuance Discount Carrying Value 2020 2019 2018
Fixed-to-floating rate cumulative redeemable preferred:
Series A, 7.50% issued July 2019
6,210  6,210  $ 155,250  $ 155,250  3.15  % $ 150,026  $ 1.88  $ 1.16  $ — 
Series B, 7.125% issued August 2019
11,300  11,300  282,500  282,500  3.15  % 273,418  1.78  0.89  — 
Series C, 6.375% issued February 2020
16,100  —  402,500  —  3.15  % 389,548  1.60  —  — 
Total 33,610  17,510  $ 840,250  $ 437,750  $ 812,992  $ 5.26  $ 2.05  $ — 
(A)Each series has a liquidation preference of $25.00 per share.
On December 16, 2020, New Residential’s board of directors declared fourth quarter 2020 preferred dividends of $0.47 per share of Preferred Series A, $0.45 per share of Preferred Series B, and $0.40 per share of Preferred Series C or $2.91 million, $5.03 million, and $6.41 million, respectively.

Common dividends have been declared as follows:
Per Share
Declaration Date Payment Date Quarterly Dividend Total Amounts Distributed (millions)
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 
March 31, 2020 April 2020 0.05  20.8 
June 22, 2020 July 2020 0.10  41.6 
September 23, 2020 October 2020 0.15  62.4 
December 16, 2020 January 2021 0.20  82.9 

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, and its principals at December 31, 2020.

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 were made for the year ended December 31, 2019. The Company repurchased 1.0 million shares at an aggregate price of $7.4 million for the year ended December 31, 2020.

On November 2, 2020, New Residential announced that its board of directors had authorized the repurchase of up to $100.0 million of its preferred stock, which includes its 7.500% Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, 7.125% Series B Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock and 6.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, through December 31, 2021. 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 were made for the year ended December 31, 2020.

Common Stock Purchase Warrants

As discussed in Note 11, Debt Obligations, on May 19, 2020 and May 27, 2020 (collectively, the “Issuance Date”), in conjunction with the 2020 Term Loan, the Company issued the 2020 Warrants providing the lenders with the right to acquire, subject to anti-dilution adjustments, up to 43.4 million shares of the Company’s common stock in the aggregate. The 2020 Warrants are exercisable in cash or on a cashless basis and expire on May 19, 2023 and are exercisable, in whole or in part, at
any time or from time to time after September 19, 2020 at the following prices: approximately 24.6 million shares of common stock at $6.11 per share and approximately 18.9 million shares of common stock at $7.94 per share.

The Company recorded the value of the 2020 Term Loan and 2020 Warrants on a relative fair value basis. The 2020 Warrants were valued using a Black-Scholes option valuation model that resulted in a fair value of approximately $53.5 million on the Issuance Date and is not subject to subsequent remeasurement. The Company used the following assumptions in the application of the Black-Scholes option valuation model: an exercise price ranging between $6.11 and $7.94, a term of 3.0 years, a risk-free interest rate of 0.24%, and volatility of 35%. The 2020 Warrants met the definition of derivatives under the guidance in ASC Topic 815, Derivatives and Hedging; however, because these instruments are determined to be indexed to the Company’s own stock and met the criteria for equity classification under ASC Topic 815, the 2020 Warrants are accounted for as an equity transaction and recorded in Additional paid-in-capital. The 2020 Warrants have a dilutive effect on net income per share to the extent that the market value per share of the Company’s common stock at the time of exercise exceeds the strike price of the 2020 Warrants.

The table below summarizes the 2020 Warrants:
Number of Warrants
(in millions)
Weighted Average Exercise Price
(per share)
December 31, 2019 outstanding warrants —  $ — 
Granted 43.4  6.79 
(A)
Exercised —  — 
Expired —  — 
December 31, 2020 outstanding warrants 43.4  $ 6.79 
(A)Reflects a reduction in weighted average exercise price due to anti-dilution adjustments effective for dividends in excess of $0.10 a share.

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 9,739, 4,600,000 and 5,799,166 were made on January 1, 2021, 2020 and 2019, 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,
2020 2019
Held by the Manager 11,991,622  10,511,167 
Issued to the Manager and subsequently assigned to certain of the Manager’s employees
2,430,033  2,290,749 
Issued to the independent directors 7,000  7,000 
Total 14,428,655  12,808,916 

The following table summarizes New Residential’s outstanding options as of December 31, 2020. The last sales price on the New York Stock Exchange for New Residential’s common stock in the year ended December 31, 2020 was $9.94 per share.
Recipient
Date of
Grant/
Exercise(A)
Number of Unexercised Options Options
Exercisable
as of
December 31,
2020
Weighted
Average
Exercise
Price(B)
Intrinsic Value of Exercisable Options as of December 31, 2020
(millions)
Directors Various 7,000  7,000  $ 13.57  $ — 
Manager(C)
2017 1,130,916  1,130,916  13.95  — 
Manager(C)
2018 5,320,000  4,735,167  16.67  — 
Manager(C)
2019 6,351,000  4,327,900  16.13  — 
Manager(C)
2020 1,619,739  539,913  17.41  — 
Outstanding 14,428,655  10,740,896 
(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
2018
$16.55 to $18.02
1,159,833 
2019
$15.14 to $16.68
1,270,200 
Total 2,430,033 
 
The following table summarizes activity in New Residential’s outstanding options:
Amount Weighted Average Exercise Price
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 
Options granted 1,619,739  $ 17.41 
Options exercised —  $ — 
Options expired unexercised — 
December 31, 2020 outstanding options 14,428,655  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.

The following table summarizes the basic and diluted earnings per share calculations:
Year Ended December 31,
2020 2019 2018
Net income (loss) $ (1,357,684) $ 605,933  $ 1,004,531 
Noncontrolling interests in income of consolidated subsidiaries
52,674  42,637  40,564 
Dividends on preferred stock 54,295  13,281  — 
Net income (loss) attributable to common stockholders $ (1,464,653) $ 550,015  $ 963,967 
Basic weighted average shares of common stock outstanding 415,513,187  408,789,642  341,268,923 
Dilutive effect of stock options(A)
—  200,465  1,868,438 
Dilutive effect of common stock purchase warrants(A)
—  —  — 
Diluted weighted average shares of common stock outstanding 415,513,187  408,990,107  343,137,361 
Basic earnings per share attributable to common stockholders $ (3.52) $ 1.35  $ 2.82 
Diluted earnings per share attributable to common stockholders $ (3.52) $ 1.34  $ 2.81 
(A)Stock options and common stock purchase warrants that could potentially dilute basic earnings per share in the future were not included in the computation of diluted earnings per share for the periods where a loss has been recorded because they would have been anti-dilutive for the period presented.

The Company excluded the following weighted-average potential common shares from the calculation of diluted net income (loss) per share during the applicable periods because their inclusion would have been anti-dilutive:
Year Ended December 31,
2020 2019 2018
Stock options $ —  $ —  $ — 
Common stock purchase warrants 7,328,961  —  — 

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).