Rithm Capital's Updated Sector Comparative Analysis - Part 1 (Includes Recommendation For 19 Peers As Of 9/2/2024)

Core Insights - The article focuses on analyzing Rithm Capital Corp.'s (NYSE:RITM) recent performance and comparing its metrics with 19 mortgage real estate investment trust (mREIT) peers, highlighting the importance of understanding investment and derivatives portfolios in projecting future results [2][3]. Investment Composition and Performance - As of June 30, 2024, RITM's investment portfolio consisted of 25% fixed-rate agency MBS, 0% variable-rate agency MBS, and 34% allocated to MSR investments, with 41% in non-agency MBS and non-MBS holdings [8]. - RITM's on-balance sheet leverage ratio was 2.5x, while the at-risk leverage ratio was 1.8x, indicating a slight decrease in leverage during Q2 2024 [8]. - RITM's book value (BV) per share increased from $12.19 at the end of Q1 2024 to $12.39 at the end of Q2 2024, resulting in a quarterly economic return of 3.69% [8]. Economic Return and Valuation - RITM's trailing 24-month economic return of 17.18% was the highest among the covered mREIT peers, significantly outperforming the average returns of other classifications [21]. - As of September 2, 2024, RITM's stock price was $11.94, trading at a 2.93% discount to the estimated current BV of $12.30 [18]. Hedging and Risk Management - RITM's hedging coverage ratio was below the originator + servicer mREIT average as of June 30, 2024, indicating a strategy that typically outperforms in rising interest rate environments [23]. - The company has diversified its investment portfolio, which includes MSR and MSR-related assets, providing natural hedges against interest rate fluctuations [9][11]. Recent Acquisitions and Strategic Moves - RITM's acquisition of Sculptor Capital Management Inc. brought approximately $32 billion of investments under management, enhancing its diversification and asset management capabilities [10]. - The company has also taken over managerial duties for Great Ajax Corp., transitioning it towards commercial loans, which will provide additional exposure to commercial real estate [24].