Michael Nierenberg

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After high-profile acquisitions and purchases over the past month, Rithm Capital emphasized its pivot toward business diversification but offered few details regarding a potential spinoff of its mortgage operations in an earnings call Wednesday. 

“While we are a mortgage REIT I like to think of us as an asset manager operating as a REIT,” said Michael Nierenberg, CEO and president of the New York-based real estate investment trust, in its second-quarter earnings call.

The company’s recent focus on new additions to the business is helping to fuel speculation about whether a separation of its home lending businesses into a new entity might be in the offing. Nierenberg’s plans to grow Rithm as an alternative asset manager was underscored in July with a deal that brought Sculptor Capital Management as a fully owned subsidiary. 

In its previous earnings call, Nierenberg said Rithm had filed a confidential S-1 registration form, typically used by companies before an intended public listing, with the Securities and Exchange Commission. But Nierenberg gave no further clues on if, or when, a change might occur on Wednesday.  

In 2020, the company, which was previously known as New Residential Investment Corp., filed the same form as it considered a public offering of its Newrez home lending business. Plans ended following New Residential’s acquisition of Caliber Home Loans. 

While saying that no mortgage lending company is trading at a significant premium currently, Nierenberg added that “the timing is right,” based on the work done at Rithm to develop Newrez and Caliber “to bring this company out.” Earlier this year, Nierenberg had also suggested that the mortgage business’ headwinds were weighing down on its overall trading value. 

“I don’t necessarily think that we’re going to turn around and just sell down the entire thing. I think it’s more to give us flexibility,” he said on Wednesday’s call.

In a post-earnings note, research analysts Eric Hagen and Jake Katsikas of BTIG noted that the timing of a spinoff “looks more optimal considering the run we’ve seen in other originator/servicers over the last three months.”

While Rithm Capital focused on diversification outside of home lending and a possible company split, its mortgage origination and servicing operations still accounted for the majority of profits in the second quarter, particularly through loan servicing. 

The REIT posted company-wide net income of $357.4 million, equaling 74 cents per share, in the second quarter. The number represented a 418% increase from the $68.9 million bottom line number in the first quarter. One year ago, Rithm lost $3.3 million over the same three-month period. 

The servicing unit generated $285.8 million in net income offsetting an $8.9 million loss in originations, as the mortgage industry continued to face depressed volumes and interest rate challenges. But numbers improved from the first quarter’s $192.1 million servicing gain and $24.4 originations loss. Between April and June of 2022, servicing income came in at $427.2 million, while the loss in originations settled at $21.1 million.  

Meanwhile, Rithm’s mortgage-servicing rights related investments garnered it $52.5 million in profit in the most recent quarter, compared to a $29.7 million loss three months earlier. In the second quarter last year, net income from the MSR investments unit totaled $32.1 million. 

Nierenberg noted the performance of Rithm’s MSR portfolios during the past quarter in helping the company grow its book value. A new mortgage spinoff would likely include a majority of that portfolio, in addition to originations and most of the servicing units, Nierenberg said.

“Some MSRs may stay back,” he said. “It’s one of these TBD things as we continue to work through it.”

Overall revenue across all segments of the company grew 27.6% to just over $1 billion     from $783.4 quarter to quarter. But on an annual basis, revenue was off 21.5% from $1.3 billion.

Within its mortgage operations, funded originations grew 41% to $9.9 billion from $7 billion between first and second quarters. Rithm’s correspondent lending channel accounted for close to 63% of the volume following recent disruption within the segment.

“We think it’s likely benefited around the margins from Wells Fargo’s exit from the correspondent channel this year,” wrote BTIG’s researchers. 

Gain-on-sale margins, though, shrank to 125 basis points compared to 161 bp in the first quarter and were down from 195 bp a year ago. 

Unpaid balance in the mortgage company’s servicing portfolio inched up to $506 billion from $504 billion in the prior quarter.

While discussion revolves around Rithm’s near-term business moves, Nierenberg made efforts to emphasize that mortgage would still have a large presence in the company’s strategy.

“We’re still going to have a mortgage REIT. If you look at some of the some of the best run and larger alternative asset managers, they have REITs,” he said. “I think you should think of us in the same light.” 

Source: nationalmortgagenews.com

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Rithm Capital Corp., the real estate investment trust that operates NewRez, Caliber and several other businesses, entered into a definitive agreement to acquire Sculptor Capital Management Inc. for $639 million, the company announced on Monday. 

The deal, if approved by regulators, will bring to Rithm Sculptor’s $34 billion of assets under management, including real estate, credit and multi-strategy investing spectrum. To Sculptor, Rithm will provide capital to accelerate growth across sectors and seed new funds and strategies. 

Rithm is paying $11.15 per Class A share of Sculptor – a premium of 18% over the closing price on July 21 – with cash on hand and available liquidity. The transaction is expected to be neutral to Rithm earnings in 2024 and accretive in 2025. 

In the first quarter of 2023, Rithm had a GAAP net income of $68.9 million, compared to $81.8 million in the previous quarter. The company had $1.4 billion in cash. Rithm is scheduled to release second-quarter earnings on August 2. 

Michael Nierenberg, chairman, CEO and president of Rithm Capital, said in a statement that the transaction is “transformational.”

“Sculptor’s $34 billion of AUM coupled with Rithm’s $7bn of permanent equity capital and $30+ billion balance sheet creates a world-class asset management business,” Nierenberg said. 

Sculptor will operate as a subsidiary of Rithm, led by Jimmy Levin as CIO and executive managing partner, who will report to Nierenberg. Sculptors’ investment and leadership teams will continue in their roles. 

“We have long sought a partner with the stable capital structure, culture and vision to help unlock the potential for our platform to deliver more and greater value to our fund investors,” Levin said in a statement. 

Sculptor formed on November 17 a special committee of independent directors to explore potential transactions. Sculptor’s leadership has agreed to vote their shares, representing about 26% of the outstanding voting shares, in favor of the transaction. The board of directors of Rithm and Sculptor have approved the deal.

The transaction, subject to customary closing conditions, is expected to close in the fourth quarter of 2023.

The deal with Sculptor comes four days after Rithm’s acquisition of $1.4 billion worth of unsecured personal loans from Goldman Sachs‘ Marcus business unit. Rithm bought the portfolio at a discount, Nierenberg told Bloomberg. 

“This purchase is extremely attractive to us building off our past and current expertise in consumer finance,” Nierenberg said in a statement.

In another potential transaction, Rithm said in May that it was considering spinning off the mortgage division to aid its flagging stock, which company executives described as “extremely undervalued.”

Source: housingwire.com

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While Rithm Capital’s purchase of $1.4 billion of consumer loans from Goldman Sachs will assist with its diversification efforts, it can also help its mortgage lending business, a BTIG report said.

The price paid was not disclosed. The portfolio consists of loans originated by Goldman Sachs’ Marcus unit, and held on the parent company’s balance sheet.

“To a degree we think the acquisition of Marcus loans could pair nicely with its origination efforts on the mortgage financing side of the business, especially if there’s some first-time homebuyers in the mix,” the BTIG report, authored by Eric Hagen and Jake Katsikas said. “However, we think the deeper objective is to flex its capabilities as a diversified investor and lender, including the ability to toggle between putting assets on its own balance sheet and generating fees from managing and servicing on behalf of third parties.”

These are fixed-rate closed-end installment loans, with about 95% of the pool originated between the fourth quarter of 2021 and the same period in 2022. BTIG provides “cursory details” on the portfolio, namely an average credit score of 735 and a projected loss range of between 8% and 10%.

Goldman Sachs is in the process of reorganizing Marcus. Furthermore, in the second quarter, Goldman Sachs recorded a $1.15 billion hit to its earnings because of commercial real estate issues.

At the end of the first quarter, Goldman Sachs had $2.9 billion of Marcus loans on its books, net of a $470 million write-off. During the period it sold a $1 billion portfolio to Varde Partners and provided $830 million of seller financing, BTIG and Bloomberg said.

“This purchase is extremely attractive to us building off our past and current expertise in consumer finance,” said Michael Nierenberg, chairman, CEO and president of Rithm, in a press release. “Consistent with our investment approach, we continue to look for opportunities to grow shareholder value and believe this transaction will be an excellent addition.”

Rithm could move into direct consumer lending given the changing landscape in the banking business, a Keefe, Bruyette & Woods flash note on the deal said, citing Nierenberg’s comments in a Bloomberg article.

“We view the transaction positively, as Rithm has a history of making opportunistic investments that generate attractive returns,” Bose George, an analyst at KBW said in a flash note.

This deal compliments a prior Rithm investment in what BTIG termed the SpringCastle portfolio, a small, but high-yielding package of lower credit score unsecured consumer loans originated and serviced by OneMain.

“The acquisition also aligns with Rithm’s objective of widening its stance to incorporate a comprehensive list of target credit investments, along with developing third party asset management capabilities,” BTIG said.

Rithm wants to flex its capabilities as a diversified investor and lender, with the ability to toggle between putting assets on its balance sheet and generating fees from managing and servicing them on the behalf of third parties, the report continued.

BTIG’s bottom line on this transaction is it continues to see Rithm’s diversification of capital as a source of value for investors, “especially if the objective is to eventually spin off the [mortgage] origination and servicing segments of the business, as it could help certain tangential strategies with strong returns become more visible earnings drivers.”

Source: nationalmortgagenews.com

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Rithm Capital, the Michael Nierenberg-headed real estate investment trust, appears to be getting into direct lending. The REIT bought $1.4 billion worth of unsecured personal loans from Goldman Sachs‘ Marcus business unit, Bloomberg reported Thursday.

Rithm bought the loans at a discount, Nierenberg told the outlet. The portfolio of loans Rithm purchased were to borrowers with an average FICO score of 735 and Nierenberg said he’s assuming losses between 8% and 10%.

“They’re pretty healthy borrowers who were just consolidating debt,” said Nierenberg. “It’s an opportunistic acquisition; we don’t see pools like this come across very often.”

Nierenberg told Bloomberg that Rithm is also looking to move into the direct lending space as banks face tightening regulations from Basel III.

“If the regional banks continue to pull back, it could be an opportunity,” he said.

Rithm, the REIT that operates mortgage lenders and servicers NewRez, Caliber and several other businesses, said in May that it was considering spinning off the mortgage division to aid its flagging stock, which company executives described as “extremely undervalued.”

Meanwhile, Goldman Sachs has had to eat hundreds of millions of dollars on its consumer unit Marcus. A week ago the bank sold $1 billion of personal loans to alternative investment firm Varde Partners. Goldman also sold a $1 billion tranche in the first quarter, the investment bank disclosed in regulatory filings.

If it does get into direct consumer lending, Rithm will find some familiar faces in the independent mortgage bank world. Guaranteed Rate last year announced that it would be offering unsecured personal loans to qualifying customers at competitive rates.

Source: housingwire.com

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Investors haven’t exactly treated publicly traded mortgage companies very kindly over the past 12 months. To that end, Rithm Capital, the real estate investment trust that operates NewRez, Caliber and several other businesses, is considering spinning off the mortgage division to aid its flagging stock, which company executives described as “extremely undervalued.”

“Our third-party fund business continues to be a major focus as we transition to growing our business as an alternative asset manager,” President and CEO Michael Nierenberg said during the REIT’s Thursday earnings call. “With that in mind, we are evaluating alternatives for our mortgage company and will likely file an S1 in the coming month. This will allow us to create other pools of liquidity to the extent we create a public entity and further diversify our business model.”

He added: “So what we’re doing now is when I look at the way our stock trades or how poorly our stock trades, I should say. I think for us, when I look at the mortgage company and the business that’s been created there, we will likely explore, there’s no guarantee which way we’re going to take this thing, but we’re likely going to file an S1 [a prelude to taking a company public]. We’ll look at the possibility creating a public entity out of it, which, over time, could allow us to really further diversify our business model.”

Rithm, one of the largest originators and services in the mortgage industry, saw net income drop 15% from the fourth quarter to $89.9 million. Those profits were propelled by the company’s significant servicing portfolio, which, while down 1% from the end of 2022, tallied an unpaid principal balance of $603.0 billion at the end of the first quarter. Rithm has 3 million customers through its servicing portfolio.

The company’s originations business lost $24.4 million in the first quarter, and gain-on-sale margins fell to 1.61% from 1.81% at the end of the fourth quarter. Nierenberg said originations were down in January and February largely due to seasonality, but were at a “breakeven” in March.

Nick Santoro, the company’s chief financial officer, told analysts that they expect Wells Fargo’s exit from correspondent lending to help them boost margins in future quarters.

The company remains opportunistic given the challenging economic landscape and its cash position, which remains strong at $1.43 billion.

“When we look at the space today, and we look at the opportunities around potential M&A or potential assets, there’s plenty of activity going on,” Nierenberg said. “So I think the look of the company today won’t be the look of the company as we go forward down the road.”

Source: housingwire.com

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