Rithm Capital (US:RITM)2023-10-26 13:42Financial Data and Key Metrics Changes - GAAP net income for the quarter was $193.9 million or $0.40 per diluted share, with earnings available for distribution at $280.8 million or $0.58 per diluted share, including a realized gain of $0.15 related to the sale of excess MSRs [42] - Book value increased to $12.32 from $12.16, reflecting growth despite rising interest rates [42][37] - Total equity stood at $7.2 billion, with cash and liquidity at $1.9 billion at the end of the quarter [42] Business Line Data and Key Metrics Changes - The acquisition of SLS, a mortgage company with $135 billion in servicing, is expected to enhance the servicing business and increase earnings [18] - The total servicing portfolio is projected to grow to $840 billion upon the settlement of the SLS deal, which includes various types of MSRs [18] - The company aims for a return on equity (ROE) of approximately 30% on an annual basis, with a quarterly ROE around 15% [8] Market Data and Key Metrics Changes - The company is focusing on the commercial real estate debt space, which is seen as attractive due to no legacy assets and favorable valuations [27] - The current macroeconomic environment is viewed as highly favorable for capital deployment, with expected unlevered returns between 8% and 12% on senior cash flow [44] Company Strategy and Development Direction - The company is transitioning towards becoming a leading global alternative asset manager, with ambitions to reach $50 billion in assets under management (AUM) by year-end [6][17] - The Sculptor transaction is considered a significant step in expanding the asset management business, adding investment talent and capabilities [17][43] - The focus will be on private capital markets due to the current trading environment of REIT stocks, which are perceived as undervalued [6][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing a strong macro backdrop for investing and the potential for continued earnings growth [25] - The origination business is expected to face challenges due to high mortgage rates, but the servicing business is anticipated to benefit from lower prepayment rates [41] - The company is committed to reducing expenses, particularly in the origination segment, while focusing on generating more capital [8][41] Other Important Information - The company has a robust pipeline for acquisitions and is actively seeking opportunities in the private capital space [19][20] - The management team emphasized the importance of partnerships and strategic capital deployment to enhance revenue and earnings [40] Q&A Session Summary Question: Plans for Sculptor and capital allocation - Management indicated that the Sculptor transaction is crucial for growing the asset management business and that they are evaluating how much capital will remain in the mortgage company [4][5] Question: MSR valuations and market opportunities - Management noted modest movement in MSR valuations and indicated they remain buyers in the market, with a focus on achieving returns of 15% to 20% on capital [50][33] Question: Financial headroom for borrowing - The company reported approximately $2 billion in cash and liquidity, with sufficient headroom for additional borrowing as they explore private capital opportunities [52][51] Question: Current book value status - The book value was reported at $12.32, reflecting an increase from the previous quarter [54][37]