The Businesses Behind the Spin-Off
Founded in 1999, Altisource Portfolio Solutions is an all-purpose real estate services company that provides property management services, title insurance and buyer services to a variety of institutional and retail customers in North America. The company also operates an asset recovery operation and is known as a major buyer of distressed and sub-prime mortgages. Altisource Portfolio Solutions is growing quickly, especially when compared to competitors like Lender Processing Services (NYSE:LPS) . LPS has seen growth flatten in the last year while ASPS has seen a revenue gain of 31%. Both firms are becoming more profitable though with income growth for LPS nearing 45% and for ASPS around 57%. Under the terms of the spin-off, the company owns a majority stake in NewSource and continues to receive regular revenues from AAMC and RESI.
Altisource Residential is structured as a holding company that purchases sub-prime residential asset portfolios and either manages them as rent-producing properties or disposes of them on the foreclosure market. Although there is significant demand for such services in the wake of the collapse of the U.S. housing market, such a business model is inherently risky. However, Altisource Residential’s business model enjoys a modicum of stability due to the company’s relationship with NewSource. Under the current terms of their partnership, Altisource Residential is entitled to receive 12 percent of NewSource’s net income. Again, it appears possible that Altisource Residential will forward at least some of these earnings to its Class B shareholders.
Altisource Asset Management is widely considered to be the most dynamic of the three Altisource companies. Its principal interest is to manage the non-disposable properties that Altisource Residential purchases. In turn, it receives rent and other payments. In this manner, it is somewhat insulated from the tricky sub-prime and non-performing mortgage markets and offers the least risk of the three Altisource properties.
Although the implications of the complex Altisource spin-off have yet to be realized in full, the deal may produce solid value for intrepid shareholders. Over the next two quarters, ASPS shareholders who received AAMC and RESI shares must carefully watch the price action in each stock. If things go as many observers expect, AAMC may turn out to offer the best medium-term value of the three.
The article High Growth Likely For These Real Estate Stocks originally appeared on Fool.com.
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