8-K: Rithm Capital Reports Q3 2024 Results, Appoints New Board Members

Rithm Capital announced its third quarter 2024 financial results, along with the appointment of two new independent directors and the resignation of a director.

Summary

• Rithm Capital reported a GAAP net income of $97.0 million, or $0.20 per diluted common share, for the third quarter of 2024.
• Earnings available for distribution were $270.3 million, or $0.54 per diluted common share.
• The company declared a common dividend of $129.9 million, or $0.25 per common share.
• Book value per common share was $12.31.
• Rithm sold 30 million shares of common stock for gross proceeds of approximately $340 million.
• The total servicing portfolio reached $878 billion in unpaid principal balance (UPB).
• Newrez, the origination and servicing segment, generated a pre-tax income of $245.9 million, excluding a $558.2 million MSR mark-to-market loss adjustment.
• Newrez achieved a 24% pre-tax return on equity (ROE) on $4.3 billion of equity.
• Genesis, the mortgage loans receivable segment, reported a pre-tax income of $35.1 million and an 18% pre-tax ROE on $743 million of equity.
• Sculptor had approximately $34 billion of assets under management (AUM) at the end of the quarter.
• The company appointed William D. Addas and Ranjit M. Kripalani as independent directors, effective November 1, 2024.
• Andrew Sloves resigned from his position as a director, effective November 1, 2024, to become a Managing Director of the company.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to the decrease in GAAP net income and the significant MSR mark-to-market loss, although the company shows strength in other areas such as earnings available for distribution and growth in servicing and origination volumes.

Positives

• Earnings available for distribution increased from $231.1 million in Q2 2024 to $270.3 million in Q3 2024.
• Newrez's servicing UPB increased by 34% year-over-year, including a 116% increase in third-party servicing.
• Origination volume at Newrez increased by 9% quarter-over-quarter and 43% year-over-year.
• Genesis's origination volume increased by 26% year-over-year.
• The company successfully issued a $450 million residential transitional loan securitization.
• Sculptor closed a US CLO for a total of ~$400 million of AUM.
• The first closing of Real Estate Fund V reached $1.3 billion.

Negatives

• GAAP net income decreased from $213.2 million in Q2 2024 to $97.0 million in Q3 2024.
• The company experienced a significant $558.2 million MSR mark-to-market loss adjustment in the Newrez segment.
• The change in fair value of MSRs and MSR financing receivables resulted in a loss of $747.3 million.
• Net income attributable to common stockholders decreased from $213.2 million to $97.0 million.

Risks

• The company is exposed to fluctuations in the fair value of mortgage servicing rights (MSRs), as evidenced by the significant mark-to-market loss adjustment.
• Changes in interest rates and market conditions could impact the performance of the company's various segments.
• The company's reliance on non-GAAP measures like earnings available for distribution may obscure the full picture of its financial performance.
• The company's performance is subject to the risks associated with the real estate, credit, and financial services markets.

Future Outlook

The company aims to continue executing its strategy, diversifying its business, and driving growth across its various segments to enhance value for stakeholders.

Management Comments

• Michael Nierenberg, Chairman, Chief Executive Officer and President of Rithm Capital, stated that the company had another terrific quarter with the entire business demonstrating both operational resilience and earnings durability.
• He also noted that the core businesses are consistently creating value for shareholders through earnings, which is either distributed as dividends or reinvested back into compounding growth.

Industry Context

The results reflect the challenges and opportunities in the mortgage and asset management sectors, with the company navigating interest rate fluctuations and market volatility. The company's focus on diversification and growth across its various businesses is in line with industry trends.

Comparison to Industry Standards

• Rithm's performance in the mortgage origination and servicing sector can be compared to companies like PennyMac Financial Services (PFSI) and Mr. Cooper Group (COOP), which also operate in the mortgage servicing and origination space.
• The 24% pre-tax ROE for Newrez is a strong result compared to industry averages, but the MSR mark-to-market loss highlights the volatility in this sector.
• Sculptor's AUM of $34 billion places it among mid-sized alternative asset managers, with competitors including Ares Management (ARES) and Apollo Global Management (APO).
• The company's dividend yield is a key metric for REIT investors, and its performance should be compared to other REITs with similar investment strategies.

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders will be impacted by the decrease in GAAP net income and the MSR mark-to-market loss, but also by the continued dividend payments and growth in certain segments.
• Employees may be affected by any strategic shifts or restructuring resulting from the financial results.
• Customers of Newrez and Genesis will be impacted by the company's performance in mortgage origination and servicing.
• LPs of Sculptor will be impacted by the performance of the assets under management.

Next Steps

• The company will continue to execute its strategy, diversify its business, and drive growth across its various segments.
• Management will host a conference call to discuss the results on October 29, 2024.

Key Dates

Keywords

Rithm Capital, Mortgage Servicing Rights, MSR, Real Estate Investment Trust, REIT, Financial Results, Earnings, Dividends, Board of Directors, Asset Management, Mortgage Origination, Servicing, Newrez, Genesis, Sculptor, AUM, Return on Equity, ROE