Rithm Capital (US:RITM)2024-10-29 14:01Financial Data and Key Metrics Changes - For Q3 2024, GAAP net income was $97 million, or $0.20 per diluted share, while earnings available for distribution were $270 million, or $0.54 per diluted share, reflecting a return on equity of 18% [17] - Book value increased by 8% since 2021, closing the quarter at $6.4 billion, or $12.31 per common share, with current estimates around $12.5 [16][17] - The company has $2 billion in cash and liquidity on its balance sheet as of the end of the quarter [17] Business Line Data and Key Metrics Changes - Newrez maintained its position as the second largest non-bank servicer with over $755 billion in notional UPB serviced and was the fifth largest lender with a 3.4% market share [33] - Genesis Capital reported a record quarter, with production numbers expected to close the year between $3.5 billion and $4 billion, up from $2 billion [23] - Sculptor, acquired less than a year ago, is seeing strong performance across its verticals, with significant fundraising efforts underway [11] Market Data and Key Metrics Changes - The company manages $80 billion in assets and has a servicing portfolio of approximately $875 billion [13] - The origination business reported $41 billion in origination through Q3, higher than all of 2023 [23] - The company noted low delinquency rates and high sponsor growth within its portfolio [24] Company Strategy and Development Direction - The company aims to grow assets under management (AUM) while prioritizing performance across all business lines [14] - There is a focus on expanding direct lending capabilities and exploring new market opportunities, particularly in private capital [15][21] - The company is strategically repositioning Great Ajax to focus on opportunistic investments in commercial real estate [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of consumer credit, noting no significant deterioration despite mixed signals in the market [30][56] - The company is closely monitoring macroeconomic factors, including inflation and potential impacts from the upcoming election, while maintaining a cautious approach to capital deployment [27][72] - Management believes that current capital deployment in real estate will yield significant rewards in the future [26] Other Important Information - The company raised $300 million in equity to support growth and M&A activities, having deployed $5.8 billion since 2021 without raising equity prior [8][20] - The company is focused on maintaining operational efficiency and flexibility in its origination and servicing operations [38] Q&A Session Summary Question: Thoughts on potentially listing part of Newrez - Management indicated that a potential public listing of Newrez could occur in 2025, depending on market conditions and equity pricing [46] Question: Update on book value in October - Book value is approximately $12.5 [47] Question: Residential volume refinance activity - Refinance volume was close to 30% of overall production, with expectations to normalize [48] Question: Performance fees in Q4 for Sculptor - Management expects to see performance fees in Q4, with potential lumpiness in earnings as AUM grows [49][50] Question: Flexibility to repurpose capital from Newrez - Management confirmed the ability to redeploy capital across segments as needed [52] Question: Perspectives on consumer credit - The servicing portfolio remains in good shape, with manageable delinquency rates [56] Question: Recent net flow picture for Sculptor - AUM has increased to approximately $34 billion, with strong performance across various strategies [60] Question: Direct lending expansion - The company is exploring partnerships and opportunities in direct lending, particularly in the credit space [65] Question: Expectations for sustainable operating ROEs - Management aims for mid-teens returns, consistent with historical performance [68] Question: Election implications for Rithm - Management anticipates potential volatility but believes a divided government may mitigate extreme policy changes [70][72] Question: Dividend payout considerations - Management is cautious about raising dividends, focusing on long-term capital deployment for growth [78] Question: Operational flexibility in origination - The company has significant operational headroom to manage varying origination volumes [81] Question: Growth opportunities in the wholesale channel - Management sees potential for growth in the wholesale channel through technology upgrades and disciplined capital deployment [84]