Rithm Capital Corp. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Business Overview: Had a strong quarter across all business lines. Equity considered cheap vs peers, $300 million equity raise deployed into growth initiatives since 2021.
• Newrez and Genesis: Newrez had strong origination and servicing performance; Genesis had a record Q3 with low delinquency and high sponsor growth.
• Sculptor: Acquired ~1 year ago, performance excellent, with the real estate fund oversubscribed and AUM inflows starting.
• Commercial Real Estate: Repositioning residential assets, changing name, and looking for commercial opportunities.
• Financial Metrics: GAAP net income was $97 million, $0.20 diluted share; Earnings available for distribution was $270 million, $0.54 diluted share, 18% ROE, book value $6.4 billion, $12.31 per share.

Segment Performance

• Lending Businesses (Newrez and Genesis):
  • Newrez: Pre-tax income excluding mark-to-market on owned MSR portfolio was ~$246 million, up 8% QoQ, with 24% return on equity. Origination volume YTD was $41 billion, and servicing portfolio was ~$875 billion.
  • Genesis: Had a record Q3, EBITDA expected to be ~$90 million, production up from $2 billion to ~$3.5-$4 billion YTD, with low delinquency and high sponsor growth.
• Asset Management (Sculptor): Acquired in November 2023, performance excellent across verticals. The real estate group closed a $1.3 billion fund, expected to be oversubscribed, and AUM starting to grow.
• Commercial Real Estate (Great Ajax): Repositioned residential assets, changing name to Rithm Property Trust in Q4, and looking for opportunistic commercial investments.

Guidance

• Management expects to continue growing AUM with focus on performance, expand direct lending, grow private capital business, and expand into new investment verticals.
• No immediate need for additional capital, but aiming to raise more in private capital business.
• Anticipate performance fees in Sculptor's fourth quarter, but specific quantification not provided.

Risks

• Multiple wars, contested election, potential market volatility, and uncertainties in economic policies (tariffs, immigration) affecting the economy and interest rates.
• Credit risk transfer activities, consumer credit health, and market conditions impacting portfolio performance.

Q: Thoughts on potentially listing part of Newrez?

A: Likely a 2025 event.

Q: Book value in October?

A: Roughly $12.5.

Q: Refinance volume trending?

A: Market normalized, direct lending channels improving.

Q: Sculptor performance fees in Q4?

A: Performance fees expected, but specific quantification not given.

Q: Flexibility to repurpose capital if rates rise?

A: Yes, capital can be redeployed.

Q: Consumer credit outlook?

A: Consumers in reasonable shape, delinquencies low in servicing portfolio.

Q: Sculptor net flows and organic growth?

A: AUM growing, private credit and real estate funds key growth areas.

Q: Operating ROEs and election impact?

A: Mid-teens ROEs expected, election uncertainties may affect policies but divided government likely.

Q: Dividend payout and moderation?

A: Dividend policy board-driven, no immediate raise planned.

Q: Newrez wholesale channel growth?

A: Focus on technology, disciplined growth in wholesale with non-agency products.