Quarterly report pursuant to Section 13 or 15(d)

EQUITY AND EARNINGS PER SHARE

v3.20.1
EQUITY AND EARNINGS PER SHARE
3 Months Ended
Mar. 31, 2020
Equity and Earnings Per Share [Abstract]  
EQUITY AND EARNINGS PER SHARE
EQUITY AND EARNINGS PER SHARE
 
Equity and Dividends

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”). 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 three months ended March 31, 2020, New Residential sold 0.1 million ATM Shares for an aggregate proceeds of $1.6 million. 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.

The following table summarizes the Company’s ATM Program activity:
Month

Number of Common shares

Average price per share

Gross Proceeds

Fees

Net Proceeds
January 1, 2020 - March 31, 2020

97,394


$
17.06


$
1,662


$
12


$
1,650



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 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 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.

The table below summarizes Preferred Shares:
 
 
 
 
 
 
 
 
 
 
Three Months Ended 
 March 31, 2020
Series
 
Number of Shares
 
Liquidation Preference
 
Issuance Discount
 
Carrying Value
 
Dividend
Fixed-to-floating rate cumulative redeemable preferred:
 
 
 
 
 
 
 
 
 
 
Preferred Series A, 7.50% Issued July 2019
 
6,210

 
$
155,250

 
3.15
%
 
$
150,026

 
$
0.47

Preferred Series B, 7.125% Issued August 2019
 
11,300

 
282,500

 
3.15
%
 
273,418

 
$
0.45

Preferred Series C, 6.375% Issued February 2020
 
16,100

 
402,500

 
3.15
%
 
389,548

 
$
0.40

Total
 
33,610

 
$
840,250

 
 
 
$
812,992

 
 


On March 23, 2020, New Residential’s board of directors declared a first quarter 2020 preferred dividends of $0.47 per share of Preferred Series A, $0.45 per share of Preferred Series B, and $0.40 of Preferred Series C or $2.9 million, $5.1 million, and $6.4 million respectively.

Approximately 2.4 million shares of New Residential’s common stock were held by Fortress, through its affiliates, at March 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. No share repurchases have been made as of the date of issuance of these condensed consolidated financial statements. The share repurchase program may be suspended or discontinued at any time.

Option Plan

As of March 31, 2020, New Residential’s outstanding options were summarized as follows:
Held by the Manager
10,860,706

Issued to the Manager and subsequently assigned to certain of the Manager’s employees
3,560,949

Issued to the independent directors
7,000

Total
14,428,655



The following table summarizes New Residential’s outstanding options as of March 31, 2020. The last sales price on the New York Stock Exchange for New Residential’s common stock in the quarter ended March 31, 2020 was $5.01 per share.
Recipient
Date of
Grant/
Exercise(A)
 
Number of Unexercised
Options
 
Options
Exercisable as of
March 31, 2020
 
Weighted
Average
Exercise
Price(B)
 
Intrinsic Value of Exercisable Options as of
March 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

 
3,576,631

 
16.65

 

Manager(C)
2019
 
6,351,000

 
2,422,600

 
16.17

 

Manager(C)
2020
 
1,619,739

 
53,991

 
17.41

 

Outstanding
 
 
14,428,655

 
7,191,138

 
 
 
 
 
(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
 
$13.95
 
1,130,916

2018
 
$16.54 to $18.01
 
1,159,833

2019
 
$15.13 to $16.67
 
1,270,200

Total
 
 
 
3,560,949


 
The following table summarizes activity in New Residential’s outstanding options:
 
 
Amount
 
Weighted Average Exercise Price
December 31, 2019 outstanding options
 
12,808,916

 
 
Options granted
 
1,619,739

 
$
17.41

Options exercised
 

 
$

Options expired unexercised
 

 
 
March 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. New Residential recorded a net loss during the three months ended March 31, 2020, as such the outstanding stock options, under the treasury method, would be anti-dilutive. During the three months ended March 31, 2019, based on the treasury stock method, New Residential had 321,144 dilutive common stock equivalents outstanding.

The following table summarizes the basic and diluted earnings per share calculations:
 
 
Three Months Ended  
 March 31,
 
 
2020
 
2019
Net income (loss)
 
$
(1,607,255
)
 
$
155,912

Noncontrolling interests in income of consolidated subsidiaries
 
(16,162
)
 
10,318

Dividends on preferred stock
 
11,222

 

Net income (loss) attributable to common stockholders
 
$
(1,602,315
)
 
$
145,594

 
 
 
 
 
Basic weighted average shares of common stock outstanding
 
415,589,155

 
388,279,931

Dilutive effect of stock options(A)
 

 
321,144

Diluted weighted average shares of common stock outstanding
 
415,589,155

 
388,601,075

 
 
 
 
 
Basic earnings per share attributable to common stockholders
 
$
(3.86
)
 
$
0.37

Diluted earnings per share attributable to common stockholders
 
$
(3.86
)
 
$
0.37


(A)
Stock options 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.

Noncontrolling Interests

Noncontrolling interests is composed of the interests held by third parties in consolidated entities that hold New Residential’s Servicer Advance Investments (Note 6), Shelter JVs (Note 8) and Consumer Loans (Note 9).