Rithm Capital (US:RITM)2023-08-02 14:05Financial Data and Key Metrics Changes - GAAP net income for Q2 2023 was $357 million, or $0.74 per diluted share, while earnings available for distribution were $297 million, or $0.62 per diluted share, which included a $0.20 gain from the sale of excess MSRs [5] - The company declared a dividend of $0.25, reflecting a 10.7% dividend yield as of June, with cash liquidity at quarter-end amounting to $1.8 billion and total equity at $7.1 billion [5] Business Line Data and Key Metrics Changes - The mortgage company reported a total pre-tax income of $327 million for the quarter, with a 19% pre-tax return on equity, excluding MSR mark-to-market [15] - The servicing portfolio is around $600 billion, which includes both excess and full MSRs, and the company continues to move mortgage servicing rights back in-house under the new Shellpoint brand [39][40] Market Data and Key Metrics Changes - Interest rates are at some of the highest levels seen in over 20 years, with unlevered returns on most assets between 8% and 12% [8] - The company has a strong capital base of over $7 billion in equity and a balance sheet exceeding $30 billion, positioning it well for investment opportunities [4][33] Company Strategy and Development Direction - The acquisition of Sculptor Asset Management, valued at $639 million, is expected to be transformational, broadening the company's mandate and enhancing its investment expertise [4][37] - The company aims to differentiate itself from traditional mortgage REITs by expanding into alternative asset management and raising third-party AUM [14][58] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the current investment environment, highlighting significant deal flow and attractive investment opportunities [33][84] - The company anticipates that the Sculptor acquisition will be neutral to earnings in 2024 and accretive in 2025, with expectations for strong performance from existing investments [37][84] Other Important Information - The company has executed a strategic plan since its inception in 2013, growing from $1 billion in equity to over $7 billion and distributing $4.7 billion in dividends [32] - The company is focused on maintaining a mortgage REIT structure while also exploring the establishment of a C Corp and private funds to enhance capital structure [20][86] Q&A Session Summary Question: How do you think the valuations for other mortgage originators and servicers are driving your thinking around the value you could pick up in a spin-off? - Management indicated that the timing is right for a spin-off, emphasizing the scale and performance of the new brand [44] Question: Is there any tangible equity coming with the Sculptor transaction? - Management confirmed that tangible equity is expected to be about $300 million to $350 million, with goodwill around $200 million to $250 million [73] Question: What is the time frame for additional assets to come available from banks due to regulatory changes? - Management stated that opportunities are present now, with significant capital available to partner with [53][78] Question: Can you provide more detail about the price paid for the Marcus loans? - Management noted that the price was at a discount to par, with expected returns of 15% to 20% [55] Question: Is there a focus on shifting more AUM to externally managed? - Management confirmed a strategic focus on raising third-party AUM, facilitated by the Sculptor acquisition [58]