Rithm Capital Q1 2025 Earnings Call Transcript

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Provided by Quartr
April 25, 2025
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Operator

Good day, and welcome to the Rhythm Capital First Quarter twenty twenty five Earnings Call. All participants will be in the listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Emma Poller, Associate General Counsel. Please go ahead.

Emma Bolla
Emma Bolla
Associate General Counsel at Rithm Capital

Thank you, and good morning, everyone. I would like to thank you for joining us today for Rhythm Capital's first quarter twenty twenty five earnings call. Joining me today are Michael Nierenberg, Chairman, CEO and President of Rhythm Capital Nick Santoro, Chief Financial Officer of Rhythm Capital and Baron Silverstein, President of NewRez. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rhythm Capital website, www.rhythmcap.com. If you've not already done so, I'd encourage you to download the presentation now.

Emma Bolla
Emma Bolla
Associate General Counsel at Rithm Capital

I would like to point out that certain statements made today will be forward looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement.

Emma Bolla
Emma Bolla
Associate General Counsel at Rithm Capital

And with that, I will turn the call over to Michael.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Thanks, Emma. Good morning, everyone, and thanks for jumping on the line this morning. Another good quarter for the company despite all the market volatility we're seeing play out. All of our business lines performed extremely well. And when I think about us, the market volatility plays well into the strengths and disciplines of our organization.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Our investment teams have many years of experience. And in markets like these, you want to make sure your capital is managed by investment professionals who know how to protect the fort as well as seek opportunistic investments to grow the business. As you will hear us speak about the growth of Rhythm, I want to be clear, the number one message is our desire to earn the trust of LPs and investors and the one thing that matters is performance. Performance matters first and we will never sacrifice performance in lieu of growing our platform. When I think about our business, I like to say why us.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

And this goes back to a little bit of our comments from last quarter's earnings. Results first, we must have performance to grow our business. Two, we have the ability to manufacture assets through our different operating businesses. We underwrite, originate and service the assets from beginning to end. Servicing matters.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Our mortgage company is the third largest servicer of mortgages in The United States. Our asset management business continues to put up great results, and we look forward to growing our business in private funds. We are seeing inflows across all of our products and all of our funds. Sculptor's Real Estate Fund V now has commitments up to $3,200,000,000 so far and this is the largest real estate fund in Sculptor's history building on their twenty year track record in opportunistic real estate investing. When you look at our company from top to bottom, we have we now have funds in the following: real estate, credit, energy, infrastructure and we have cash flow based funds such as ABF, which is the new old buzzword of the day.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

This quarter, we'll be rolling out MSR funds as well. As you hear about the term ABF, which many of our peers are marketing today, this is nothing new and we've been doing this our entire career. Where can you get diversified risk with teens returns and current cash flow? ABF. So we're seeing huge demand for that product.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

So our value prop is the following. Results first again, our investment professionals and teams are best in class. Across all of our investment businesses, we have over 400 individuals and our operating business lines have approximately 7,000 people. When I look at our company and how we trade in the public markets, our equity is severely undervalued. We continue to work on our capital structure and look forward to unlocking shareholder value.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

And finally, our manufacturing engine for assets differentiates us from others. We can differentiate our product offerings again from others. So now I'll refer to the supplement, which has been posted online. I'm going to start on Page three. Similar slides of what we put up, again, number three mortgage servicer in The U.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

S, number five mortgage originator in The U. S, little under $8,000,000,000 of permanent capital. Between assets managed at both on the private side as well as the public side, there's over $80,000,000,000 of assets under management. When you look to the right side of the page, our family of operating companies, again, one of the largest mortgage companies in The U. S, NewRez, Sculptor, obviously, our asset management business Genesis Capital, one of the largest RTL lenders in again, in The U.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

S, non bank RTL lenders in The U. S. Rhythm Property Trust was the business that we took over, which we rebranded from Great Ajax, and now we're on a very good path with that business. And then finally, Adore, which is our single family rental business. Financial results, Page four.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Again, stable, very solid quarter. Earnings available for distribution, $0.05 2 per diluted share. That represents an 8% year over year growth. This is the twenty second consecutive quarter where EAD was greater than common dividends paid. GAAP net income $36,500,000 or $07 per diluted share, a 2% return on equity.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Obviously, you're going to have some mark to market volatility around the MSR business. Earnings available for distribution, $275,000,000, as I pointed out, $5.02 per diluted share or 17% return on equity. That business should continue our business overall should continue to do something between 1520% on an annual basis. Book value is 6,600,000,000 At the end of the quarter, we were trading at 12.3 I'm sorry, our book value is $12.39 When you look at where we trade, I think we closed last night at ten point four Again, I firmly believe that our equity is severely undervalued and we're doing, we will be taking measures to hopefully unlock that and get true value out of our business. Common stock dividend, 8.7% dividend yield, 0.25 per common share in dividends paid and cash and liquidity at the end of Q1 of $1,900,000,000 Looking at the quarter in review, pretty active is what I would say.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

On the Genesis Capital side, a little under $1,000,000,000 in production, 7% increase year over year. That business will continue to grow for us. We had 33 new sponsors in the quarter. Quinn Aerosmith, who runs that business, does a great job for us. And again, we're excited about the growth prospects there.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

On the asset management side, Sculptor, dollars thirty five billion of AUM, continued fundraising momentum with 1,400,000,000 of gross inflows across the platform in both real estate and credit, good performance for the first quarter. And then finally, we priced the spec in the first quarter, which gives us some, our ability to generate more fees for shareholders and do some off balance sheet, a potential acquisition that would be off balance sheet. On the investment portfolio, we did three securitizations in the first quarter totaling roughly $1,500,000,000 We did a $900,000,000 securitization on our MSR business, and we also invested roughly $1,500,000,000 in the quarter in non QM loans, residential transitional loans and both RMBS and ABS. Again, with the thought process there that diversified risk with teens returns will benefit both our shareholders and LPs. On the new res side, again, top three servicer, top five originator servicing portfolio, roughly eight fifty billion dollars that includes our third party servicing, which will continue to grow.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Obviously, Cooper and Rocket did a deal in the quarter, and I'm sure there'll be some questions on that. First quarter funded volume, a little under $12,000,000,000 and then we generated $270,000,000 of pretax income. Ex mark to market is up 14% year over year. When Page six, our foundation for growth, I feel like sometimes we're beating a dead horse here, but the ABF space is what I would say, alive and well, us and other folks in the marketplace, this is kind of the brand du jour of the day. And as I pointed out in my opening remarks, this is something we've been doing, quite frankly, for my whole career and our investment teams here have been doing it their whole career.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

So I feel like we have a real good edge there to create real value for LPs as we continue to roll out funds in that space. Where are we going? Next stage of growth, grow off balance sheet capital. What does that mean? Grow origination businesses, grow funds and take origination and put that in funds with and grow our LP base, which will enable us to not grow our balance sheet and get higher valuations on our overall company.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Expand investment verticals. I mentioned Rhythm Property Trust, which was

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

the old great Ajax business. Rhythm Acquisition Corp. Is our SPAC. Asset Based Finance, we're in

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

the markets now with funds. Energy Transition, Infrastructure, we currently have those funds up and going as well. So, and then the main theme, what I would say as you think about growth in the asset management business, it's really you need partnerships. The traditional way of raising capital in our opinion of just going out and raising a fund is great and we'll continue to do that. But having real partnerships with LPs who are part of your life is something that I think is really going to be the key for us as we go forward.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Page seven, when you look at how we trade, we trade roughly at 83% of book value. We got to get away from the so called book value metric. We should be trading, in my opinion, on a multiple of earnings. And if you look at where we trade relative to others, again, I think there's a ton of value here. So if you look at the sum of the parts on the right side of the page, we have a low estimate where we think we should be of 13.69 a high estimate of roughly $23 And these numbers are not made up.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

These are real numbers relative to peers in the marketplace where we think we should trade. So I would encourage you to have a look at that because, I do believe our equity is severely undervalued because we get lumped into, quite frankly with other no disrespect with other REITs and other mortgage companies. And as we continue our growth into the asset management world, we'd like to make sure that we get proper valuations and I think that's going to help us grow overall. Page eight, this is a slide we put in. It just shows our growth over the years since 2021, dollars '6 point '9 billion of capital deployed, earnings growth of 53%, with a CAGR of 11%.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Page nine, we wanted to put this in there because a lot of the volatility has occurred over the past few weeks. And a lot of this again plays into the strength of who we are as we think about risk and risk disciplines as well as opportunistic investing. We've been doing this for a very, very long time. And here's just a slide talking about where spreads are. You can see how high yield has blown out.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

You can see different movements in both gold, bitcoin and oil. And then if you look on the left side of the page in equities, you could have a good snapshot of what's going on there. None of this is a surprise to anybody, but we do believe wholeheartedly in the so called growth of our ABF business, and that's something that, again, we feel like we have an edge and we have expertise in. I'll spend a few minutes on a couple of our operating businesses, then I'll turn over the mortgage company stuff to Barron. On the Genesis side, again, a very, very solid quarter.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

If you look to the right side of the page here, 46% growth year over year from a commitment perspective, 7% growth from funded volume, delinquencies, which are truly the core to what I think to what we do here remain extremely low. And a lot of that is due to our underwriting and our servicing and those teams do a great job. And when you look at sponsor growth, it's up 37% year over year. Page 12, you could just have a quick look. This is just the portfolio detail.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Is 58% is construction, 32% is bridge and 10% is renovation. We are going to be looking to grow our multifamily presence. We think there's going to be opportunities, whether that be acquired companies, but we want to grow origination in multifamily, as we believe that sector. Obviously has got hit pretty hard, no different than the single family rentals space. But what we need to see is the economics make sense relative to a number of the other strategies that we do here.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Couple of minutes on asset management. Sculpture business continues to perform well during the quarter. As I pointed out, dollars 1,400,000,000.0 of inflows, $870,000,000 was due to the real estate business. That brings that to 3.2 When you look at the credit fund, just last week, there was an announcement on the close of $900,000,000 in AUM on stacks. That's the Sculptor Tactical Credit Fund.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Great performance there. We also closed the CLO in the quarter in Europe for $420,000,000 Business is performing extremely well. Returns are very good. And overall, when I look at our asset management business, very excited where we're going. On the Rhythm Property Trust, this we're doing earnings on Monday on this business.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

We took this where it was really an RPO business in the single family space, turned it into an opportunistic commercial REIT. It was losing money. Now it's breakeven. We raised $50,000,000 of a pref in the quarter. That business is sitting on a little under $100,000,000 of cash.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

We have $300,000,000 of equity there. We're going to look to grow that. And as you think about asset management, there's an asset management fee there of 1.5%. And then there's promote, all of that will lead into what we hope is going to be higher FRE for Asset Management business and just more earnings overall. And then finally for me on Page 16, just our SPAC, $230,000,000 spec just correlates to a target of something between probably $1,000,000,000 and $1,000,000,000 I think that we believe today the SPAC market is vastly different than it was back in twenty twenty onetwenty twenty two from a value standpoint.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

So we're excited as we continue to look at plenty of targets in that space. With that, I'll skip the investment portfolio side, and I'm going to turn it over to Barron, who's going to talk about new risk.

Baron Silverstein
Baron Silverstein
President of NewRez at Rithm Capital

All right. Thank you, Michael. Good morning, everybody. Starting on Slide 20. As Michael mentioned, just another great quarter as we continue to execute on our '25 strategy, focused on recapture, technology, our AI initiatives and growing our third party businesses.

Baron Silverstein
Baron Silverstein
President of NewRez at Rithm Capital

Q1 pretax income, excluding mark to market, was approximately $270,000,000 up 14% year over year and delivering a 19% ROE for the quarter, right? And with NewRez being the number three ranked servicer and the number five ranked originator, these results continue to show the power of the platform. Turning to Slide 21. Our performance over the last few years demonstrating really the strong momentum we've had on both sides of the business and as we continue to take advantage of opportunities to generate these consistent returns. And in 2025, right, our focus on building a best in class platform, focused on our homeowners, innovation through process efficiency and AI and market opportunities, whether organically or externally, that will continue to drive our returns overall.

Baron Silverstein
Baron Silverstein
President of NewRez at Rithm Capital

Moving to Slide 22. Our origination business continued also to perform well. Michael mentioned $11,800,000,000 in funded volume and $65,000,000 in pretax income. And while the MBA forecasted Q1 volumes to be flat to last year, we're up 9% in funded volume, 7% in locked volume and 54 in pretax income when compared to the first quarter in twenty twenty four. However, with expected overall lower origination volume, we saw increased competition and in turn margin compression.

Baron Silverstein
Baron Silverstein
President of NewRez at Rithm Capital

And given these conditions, we did not chase market share, remain disciplined in our pricing with a focus on our ROE. And at these origination levels, our multichannel strategy allows us to optimize opportunities in all market environments and all of our channels remain profitable in the first quarter. Turning to Slide '23. '1 of our top priorities and significant growth opportunities is our ability to retain our customers with or without a rate rally. Amplifying our brand and building great digital experience is key to our success in connecting with our 3,700,000 homeowners.

Baron Silverstein
Baron Silverstein
President of NewRez at Rithm Capital

Our recapture investments are focused on delivering great experiences to our homeowners, including seamless, easy to close refinances, fantastic white glove service for home purchases and a digital home equity offering with closing as fast as three days. Moving to Slide 24. Our servicing business also performing very well. Dollars $242,000,000 of pretax income, up 7% quarter over quarter, which is driven by our servicing portfolio of $845,000,000,000 which is $5.00 $9,000,000,000 of owned MSRs and $254,000,000,000 of third party servicing. Our third party servicing franchise also continuing last year's growth by adding four new clients in the first quarter alone.

Baron Silverstein
Baron Silverstein
President of NewRez at Rithm Capital

One of our top priority is the expansion of our ResiAI initiatives, which continue to empower our employees with real time tools that deliver a superior customer experience. In addition to the gains from our ResiAI technology, our focus on operational excellence, process efficiency and scale continue to drive our cost leadership, as evidenced by our $140 cost of service that significantly outperforms the industry. Turning to Slide 25. You see our owned MSR performance, which not surprisingly is reflective of current market conditions, including higher interest rates, low speeds and strong consumer performance. Delinquencies and associated advanced balances also improved with sixty day delinquencies down 30 basis points to 3.1%, reflecting the high quality of our overall portfolio.

Baron Silverstein
Baron Silverstein
President of NewRez at Rithm Capital

Lastly, on Slide 26, we have an incredible third party servicing client franchise. Our platform advantages allow us to deliver a differentiated value prop to our partners' success. And we've been doing this a long time. We have over 100 clients, right? And our capabilities have enabled us to retain 98% of the customers we have done business with since 2015.

Baron Silverstein
Baron Silverstein
President of NewRez at Rithm Capital

I believe our business is the best position it has ever been. We're well positioned to grow market share in our third party servicing, whether through wallet share with our existing customers, adding new clients or taking advantage of ongoing servicing dislocations. So I look forward to telling the NuRes growth story throughout 2025. Thank you. Back to you, Michael.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Thanks, Barron. Why don't we turn it back to the operator for some Q and A?

Operator

We will now begin the question and answer session. The first question comes from Bose George with KBW. Please go ahead.

Bose George
Managing Director at Keefe, Bruyette & Woods (KBW)

Hey, everyone. Good morning. Actually, first, can I let me start off with a question on the Cooper Rocket transaction? Given that, any changes in how you see the opportunities or the growth at NewRez? And then the related question, does that change anything in terms of potential listing or other ways you're looking to really show the value of NewRez a little better?

Bose George
Managing Director at Keefe, Bruyette & Woods (KBW)

Thanks.

Bose George
Managing Director at Keefe, Bruyette & Woods (KBW)

Hello?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

I'm sorry, Bose. The but I would say on the new res side, it's going to be business as usual as we go forward. While saying that, I do think as a result of the Cooper Rocket deal, there'll be an opportunity to pick up some subservicing as a result of the sheer size of the combination of those platforms. If you look where, what, dollars $850,000,000 and I think Cooper is I think the combination is what, something about $1,000,000,000,000 or so? So there'll be some stuff to do and add there.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

The main thing for us is how do we and Barron, I think hit the nail on the head. We don't want to just buy market share for the sake of market share to get bigger. What we really want to do is figure out a way to grow earnings and I think we're on the right path with the company. As it relates to listing, what I would say is we when I look at how we trade and if you look at the sum of the parts page on Page seven, these are real numbers, right? I mean, there's a print.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Cooper Rocket did the seal at two times book. So if you really look at the right side of the page on Page seven, we need to figure out a way to unlock value, whether that's taking the company public, whether that's externalizing Rhythm, whether that's C Corp, there's a number of different things that we look at daily. And I would what I would think is we I'm hopeful that we'll have some kind of capital action by the end of twenty twenty five that unlocks a lot of value here. So because I do think the equity is extremely undervalued and we're excited to actually get it to the right place, which if you take the mid range of call it '14 and '23, there's no reason we shouldn't be able to get to something like that.

Bose George
Managing Director at Keefe, Bruyette & Woods (KBW)

Okay, great. That's helpful. Thanks. And then could we just get an update on book value quarter to date just given all the volatility?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Yes, probably I think it's in and around $12.6 So it's up a bit from the end of Q1 is what I would say. In the bond markets, when you look at where we are in rate right now, I think tenure rate is give or take four thirty, the front end is in and around $3.75. We are as close to home as we've probably been in many, many years. So and I think our belief is, if the economy does slow down, we should be in a really good place. If it doesn't slow down, we'll be in a good place as well.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Risk discipline right now is something that I think we're very good at.

Bose George
Managing Director at Keefe, Bruyette & Woods (KBW)

Okay, great. Thanks.

Operator

Our next question comes from Doug Harter with UBS. Please go ahead.

Douglas Harter
Douglas Harter
Equity Research Analyst at UBS Group

Thanks. Michael, how are you thinking about potential acquisition opportunities, whether that's at the Rhythm level or Rhythm Acquisition Corp? And is the dislocation we've seen in April kind of enough shake loose some opportunities at more attractive prices?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Yes. What I would say, the hope is yes. Our M and A pipeline is extremely active and that could be whether it be in the mortgage space or in the asset management space. What I would say is valuations, when you look what's happened with the equity markets, valuations overall are lower. When you look at again the asset management business, I've been pretty vocal that I believe we are under scaled in credit and we want to and we need to get bigger in credit.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

So that's an area that we're very much focused When I again, when I look at the asset management space, now that we have an energy and infrastructure business, we're really excited about that. And hopefully, at some point in this quarter, we'll come out with some news on that business. But I expect us to be active on the M and A front, and this is not just to do deals. This is to figure out how we play on a much broader and bigger scale, because I do think you need to be bigger to compete with some of the very best asset management firms out there. So I think short long winded short answer is that we need to be we're going to be more active or we are active and we hope to get a couple of deals done here in the near future.

Douglas Harter
Douglas Harter
Equity Research Analyst at UBS Group

Got it. And it was a solid fundraising in the first quarter. Any early sense as to kind of LP appetite for continuing to invest into this volatility? Is there a pause? How should we think about fundraising activity given recent volatility?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

I would say across the platform, we are all extremely active. I believe our brand is very good and resonates with folks. As you know, before we internalized here at what we now know as Rhythm, All of our capital is raised in the public markets and it's a must that we raise our money in the private markets. And again, I think the key to success for us is going to be to have partnerships and relationships with LPs who are part of our life and not just fund investors and we look forward to that as well. So, we're I mean, I would tell you that we're extremely fired up and really excited on the prospects of where we're going with our company.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

And if we could turn where we trade like whatever five, six times EBITDA to where we should trade, which is a double digit multiple, I feel like we're going to be off to the races. So very excited.

Douglas Harter
Douglas Harter
Equity Research Analyst at UBS Group

Thank you, Michael.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Thanks, Doug.

Operator

The next sorry, go ahead.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

No, we're good.

Operator

Thank you. The next question comes from Rick Hagen with BTIG. Please go ahead.

Eric Hagen
Managing Director at BTIG

Hey, thanks. Good morning. Can you guys maybe share some of the performance that you've seen develop at Sculptor and where you've seen maybe the strongest returns, where you expect to maybe attract the most AUM from this point forward and even the segments within Sculptor where you expect the AUM to be the stickiest from this point? Thank you, guys.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Eric. Performance has been good. I mean, across the board, obviously, the credit business is doing well. When you think about the multi strat business and you look what's happened to the equity markets, they're so positive on the quarter. So, what I would say is, things are going well.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

When you look at the real estate business, mentioned before, dollars 3,200,000,000.0 of commitments, Steve Warbucks and Nick Hecker and their team have done a great job over the past twenty years, great brand. I don't quite frankly, I don't think it's easy for any real estate firm to go out and raise $3,200,000,000 And there's really very little to no legacy assets, opportunistic investing with a great track record. So we're really excited about that and it's long dated money. When you look across the so called ABF space, I do believe there's going to be a fair amount of capital that's going to come into in that part of the world. And across the platforms, we have ABF funds that we're working on.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

And then when I look at the opportunity in the so called energy and infrastructure space with our new teams that we've added here at Rhythm, I'm excited where that business is going to go. So what I would say, in general, very focused on, again, relationships, partnerships, and where we're going with the business. And I think returns overall have been very good.

Eric Hagen
Managing Director at BTIG

Great to hear good stuff. I think you mentioned rolling out third party MSR funds. Can you maybe share some of the fees that you expect to earn on that capital or those assets? And what's the total return that investors are maybe expecting from that vehicle? And finally, mean, are of the LPs in that vehicle also contributing to other sources of AUM at Sculptor?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

What I would say on the MSR funds, not out yet. We'll be out with them. They'll be typically on there will be teens returns is the way that we're viewing that business. It's an effort and an opportunity to get more stuff off balance sheet into what I would call longer dated funds. Think there's a lot of demand in the marketplace for those types of funds.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

As it relates to fees, I think it's TBD right now.

Eric Hagen
Managing Director at BTIG

Got you. If I could just ask one more here. Mean, looks like almost $400,000,000 of valuation changes for the MSR in the period. How does that maybe align with your expectations? And is the hedging offset coming from the investment portfolio?

Eric Hagen
Managing Director at BTIG

Or what's the best way to think about how that $400,000,000 was maybe offset with hedging?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

The net number, I believe, was about 185 overall and that's offset with hedges whether we're long mortgages, treasuries, we have swap receivers on. And as I pointed out earlier, we are as close to home as we've been in many, many years. So, the market volatility really, while it's looking at screens is not always fun, do believe that we're in a very good place no matter what direction the market goes right now.

Operator

The next question comes from Jason Weaver with Jones Trading. Please go ahead.

Jason Weaver
Managing Director - Equity Research at Jones Trading

First, I was wondering if you

Jason Weaver
Managing Director - Equity Research at Jones Trading

could comment broadly on any credit events or sorry, credit possible deterioration that you've seen within the Genesis portfolio into the first quarter?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

No. I mean, performance is we could here's what I would say about that business. We could chase market share and grow that business pretty significantly. We've seen others do that. And as a result, their delinquency numbers are up pretty significantly.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

When you look at our business, overall performance has been very, very steady. If you look at that, I forgot what slide it is, but delinquency numbers are in and around 2% for the portfolio. So, things are good there. Keep in mind, we also go to a different type of, what I would say, sponsor relative to others in that marketplace.

Jason Weaver
Managing Director - Equity Research at Jones Trading

Fair enough. Thank you. And then as a follow-up to that, maybe just comment broadly on what you think the implications are for the securitization bid here given the amount of market volatility out

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

There's a lot of deals getting done. I mean values right now are great. I mean if you're a buyer. You look at for example in some of the single family non QM space where there's a lot of demand both on the fund side and from the money manager side, AAAs with a couple of turns of leverage are in right now somewhere around 13% to 15% IRR. So I think one is the markets, while there's a lot of volatility are open, not everybody will like the spreads that you execute at.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

We've actually done a I think we've done a couple of deals here recently in the space. But in general, they're open wider spreads and wider spreads create opportunity for folks with capital. And we've been doing some buying ourselves for our portfolios a variety of what I would call ABF type assets that includes non QM, includes RTL, that includes, we just did some home improvement loans. So, we're very active right now in acquiring assets.

Jason Weaver
Managing Director - Equity Research at Jones Trading

All right. Thank you. Appreciate the time.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Thank you.

Operator

The next question is from Kenneth Lee with RBC Capital Markets. Please go ahead.

Kenneth Lee
Kenneth Lee
Vice President at RBC Capital Markets

Hey, thanks for taking my question. Just one on the Sculptor asset management side. Wondering if you could just give us a sense of overall targeted fundraising levels for this year or perhaps give us a little bit more color around any of the sizes of the previous or predecessor funds that are undergoing fundraising now? Thanks.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

I don't know the exact number of funds that are in the marketplace now. What I would say there's many and that includes both credit, that includes real estate, that includes ABF both at the Sculptor level and at the Rhythm level right now. So what are the targets? You need to and one of the things when you think about raising capital for funds, you need to be able to execute on the back end. And our story and we're going to stick to that knitting is performance first.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

So it's not just raising a fund, but it's actually how do we deploy capital and earn the trust and respect of LPs on that capital that they're allocating to us as a fiduciary. So while we want to raise a lot of money in our funds business and have strategic partnerships, we got to execute on the back end. I'm very, very confident that we could do that. But we'll be out with we are and we'll be out with multiple funds as long as we believe that we could raise the capital to be able to deploy it and deploy it at the proper returns. I'll give you an example going back to when I was at Fortress and we were running MSR funds at Fortress, we'd raised $1,000,000,000 for MSR funds with a specific targeted return.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

And what we took a look at and I looked at this, I said, okay, we're not going to be able to deploy the capital at those returns. So I gave $1,000,000,000 back. The point is, we're going to raise I believe we're going to raise a lot of money, but we want to make sure that we earn the returns that we're going out to market with. So I think some of it's going be market conditions, but you'll see credit, you'll see ABF, you'll see real estate and you'll see energy and infrastructure. I think those are the main funds from us now.

Kenneth Lee
Kenneth Lee
Vice President at RBC Capital Markets

Got you. Very helpful there. And one follow-up if I may just on the SPAC vehicle, the Rhythm Acquisition Corp. Wondering what was the motivation behind raising it using such a vehicle? Were there other options that were considered?

Kenneth Lee
Kenneth Lee
Vice President at RBC Capital Markets

And you mentioned it's been a it's a slightly different market than what it was back in the early 2020s. Maybe just further expand upon that. Thanks.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

It gives us the ability, one, to generate asset management fees for the house. It gives us the ability to generate an off balance sheet vehicle. And quite frankly, if we could help make shareholders more money, that's really the logic around that. I don't think it's anything more complicated than that. It's you have two years to deploy the money.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

It's a relatively low cost option in our opinion. And from a valuation point, if you look back to again 2021 or 2022 when the spec market was in this silly frenzy and we looked at ton of deals when we're at Fortress and we gave we actually gave them our spec money back because there was no deal that made any sense whatsoever. If you look at valuations today, they're actually there are some reasonable valuations on things we're looking at. And again, whether that be the either in the energy and infrastructure services space. So we're excited about being able to deploy that and create more asset management fees.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

And ultimately, there could be something that's synergistic to our business and or it could be something that's just an off balance sheet, a great investment for that vehicle.

Kenneth Lee
Kenneth Lee
Vice President at RBC Capital Markets

Great. Thank you very much.

Operator

The next question comes from Giuliano Bologna with Compass Point. Please go ahead.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

Good morning. Congrats on another great quarter. One thing I'm curious about is when you think about the topic of capital actions or the discussion around potentially listing mortgage company, is there any kind of trigger event that you think would move you closer to moving forward with a plan, whether it's externalizing the manager or trying to do a partial IPO of NewRez? Or is there anything that move that process along? Or is it really just marked conditions and perceived value from the different initiatives?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Yes. What I was what's going to move it along? We're moving it along. I mean, quite frankly, like I said, it's a little bit frustrating to see how our equity trades and the results that we continue to put up. I would also say that part of this is we want to grow the so called FRE in our asset management business.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

That is one of the keys and that's kind of held us back a little bit from where we are right now to be in a to moving forward with a different capital plan. But while saying that, I think we're at a point where we're hopeful something is going to happen in 2025.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

That sounds good. And then I realize you had touched on kind of roughly where your hedging to do this and this. But I'm curious, do you have

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

any kind of target

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

in the near term or intentions to run around certain hedge kind of ratio? Or is that still somewhat flexible where you might it will still be opportunistic around the market conditions?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Yes.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Would say we are home. We're not taking a lot of what I would call duration risk right now, just because I don't believe we have an edge. The one thing I will say is we've had a steepener on, which has worked extremely well, where you've seen the front end rally, the curves steepened out, think, what, 20 basis or 25 basis points, I think it is since the end of last quarter. So we're going to continue with the steepener with the belief that if the economy does slow down, the Fed is going to cut rates, front ends will benefit. And I'm not sure the long end rates actually go down.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

They potentially could go up because it could be inflationary. So the way that we're viewing it is against the mortgage servicing right, we have mortgages and kind of long dated receivers against the MSR book. And we have virtually no shorts on against the front end. So we feel like we're set up extremely well here.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

That's helpful. And maybe one last quick one. On the mortgage side of the platform, obviously, there's been commentary around subservicing as of the Mr. Cooper deal. I'm curious if you've seen any opportunities in the market for large subservicing wins.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

Obviously, there's a limited number of large scale subservicers out there and it seems like that could spur some movement around the industry. I'm curious if you're seeing anything from an activity perspective out there in the market?

Baron Silverstein
Baron Silverstein
President of NewRez at Rithm Capital

Yes. I mean the answer is yes. There's no question about it. There continues to be a fair amount of movement and our pipeline is active, I would say overall. Certainly, the Cooper announcement, they had a lot of sub servicing and it's a matter of those clients are obviously evaluating their alternatives and options as well.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

That sounds good. I appreciate it. And I'll jump back in the queue.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Thank you.

Operator

Our next question is from Randy Binner with B. Riley FBR. Please go ahead.

Randy Binner
Managing Director at B.Riley Securities

Hey, thanks. I have a couple. I guess the first is following up on other questions around kind of measures to unlock value, the potential spend of new resins covered. But is there are there any other structural changes that you might consider in that kind of closing the gap between where the value is now and the some of the parts that's laid out?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

The answer is yes. I mean, it's like, we this is something that's kind of a thorn in our side. We continue to look at all options. We have views. We've been working with some of our different investment banking friends at different firms.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

And we're confident that we're going to do something we're hopefully going to get something done here in 2025.

Randy Binner
Managing Director at B.Riley Securities

Okay. And so I mean, maybe it's a little bit of an obvious question or observation, but being a REIT is not would that be would that changing that be on the table?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

I mean, could be. I mean, if you look, some of the success you've seen in some of the financial services firms have been where they've changed. It doesn't mean we would give up our total REIT, but there's the possibility you could create a C Corp, you could drop things down, like for example, the REIT gets smaller down below. There is that's probably the most likely path. The one thing that's great about our business is we if you take a step back and say, okay, what is Rhythm?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Rhythm has $8,000,000,000 of permanent capital, give or take. It's got $80,000,000,000 of assets under management between the asset management business and the balance sheet. It makes $1,000,000,000 a year. So start with those three things and then you turn around and say, you trade at 5,500,000,000.0 or $6,000,000,000 of market cap or whatever that number is, it's pretty shitty to be honest. So then the question is, how do we extract value?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

The one thing that's very important I think is the all the earnings that continue to come in the company, there's a ton of cash flow that enables us to grow our business. So part of it is a patient thing, which quite frankly, I don't have But the other part is how do we get there. So I think the bones are there. We need to grow our FRE or grow our asset management business, then you're going to get a true valuation on the asset management business. And it's kind of no different than what some of the bigger and larger asset managers have done over the course of the past three to five years.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

And we want to get there as well. I do know one thing, you can't compete on the global stage unless you grow. But as I pointed out before, we need to perform before we grow and we do perform. And if you look at our returns over the course of our life when we started this company at Fortress in 2013, the returns have been great. That's the only thing we care about.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

We don't need another dollar unless we're going to make people a lot of money. And that's the most important thing in having those relationships. So I think you'll see us unlock value this year. And it's very frustrating the way that we trade and we got to figure this out.

Randy Binner
Managing Director at B.Riley Securities

All right. That's very helpful. And then if I may, just because I think I'm late enough in the order here to just throw another one in. Just GSE reform, it came up in the prior call. And I mean, in your last quarterly call, and then there's been quite a bit of activity from FHFA around personnel changes and derisking and just commentary that privatization efforts will most likely come forward.

Randy Binner
Managing Director at B.Riley Securities

So is there any update on your side of kind of what you're looking for there? And what any potential impacts to the business might be, assuming that the administration and Pulte move forward?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

It plays extremely well to our strengths. If there is a privatization, I'm not sure how much that really affects the market. But to the extent there's the ability for us to deploy capital and for example, you go more, what I would say, non government guaranteed type paper. I think that plays really, really well. And again, that feeds out the so called ABF story as well even more.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

So where we sit in that ecosystem, I think we're extremely excited. I don't think it's something that's going to happen right away. I think, obviously, there's probably a lot of talk there. Baron and I are off next week to have a bunch of meetings. So, we'll see what happens.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

I think it's something that's going to probably take a little bit of time, but it's something that my guess is that they want to focus on.

Randy Binner
Managing Director at B.Riley Securities

Yes, I agree. Okay, thank you. Appreciate it. Thank you.

Operator

The next question is from Crispin Love with Piper Sandler. Please go ahead.

Crispin Love
Crispin Love
Director at Piper Sandler Companies

Thank you. Good morning. First, with the asset management business, Michael, you talked about adding partnerships. Can you just dig a little bit deeper there? What kind of partnerships are you looking to add at over time?

Crispin Love
Crispin Love
Director at Piper Sandler Companies

And then just how is that progressing in this environment?

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

So what I would say is the past couple of years, we've done what I would say is a lot of brand building without selling anything. And I think that resonates extremely well with people. It's no different than dating or developing a relationship with somebody. So for example, if there is a large transaction or something that we'd want to do, I think it's highly likely, which is different today than going back in time that we would bring in that we would look to bring in partners for those types of transactions. The same thing on the fund side.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

When you look at traditional fundraising, there is direct fundraising into funds, but there's also folks that want to partner with you and help grow your business. So we are extremely keen to develop more partnerships and bring people into our world. A good example and this was announced yesterday publicly, Mubadala owns 70% of Fortress. Mubadala made an announcement yesterday they were putting I think $1,000,000,000 I believe into funds. Those are the kind of transactions or relationships that we want.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

And I'm hopeful that that will materialize over the course of as we continue to grow here.

Crispin Love
Crispin Love
Director at Piper Sandler Companies

Great. Thanks, Michael. That's all helpful there. And then just one second question for me on new res. How are you seeing residential volumes trend in April, just considering the significant rate fall that we've seen and just expectations as we look throughout 2025, especially with rates elevated here, but with some potential volatility ahead and episodic moves?

Baron Silverstein
Baron Silverstein
President of NewRez at Rithm Capital

I mean, certainly, it's we're seeing the spring buying coming in. So you're definitely seeing some pickup in production versus what we saw in the beginning of the first quarter. But as I mentioned, right, we remain opportunistic. It's still very competitive. But we definitely are seeing a pickup in volume overall certainly in the month of April and our expectation is going for into second quarter overall.

Crispin Love
Crispin Love
Director at Piper Sandler Companies

Great. Thank you.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Thank you.

Operator

Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Michael Nierenberg for any closing remarks.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Well, for all the thoughtful questions this morning. Appreciate the support. Any follow ups, we're here. And have a good spring. Have a good weekend.

Michael Nierenberg
Michael Nierenberg
Chairman, President & Chief Executive Officer at Rithm Capital

Thanks, everyone.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • Emma Bolla
      Emma Bolla
      Associate General Counsel
    • Michael Nierenberg
      Michael Nierenberg
      Chairman, President & Chief Executive Officer
    • Baron Silverstein
      Baron Silverstein
      President of NewRez
Analysts
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Key Takeaways

  • Performance-first ethos: Delivered 17% ROE on earnings available for distribution (EAD of $5.02 per share) in Q1 and achieved the 22nd consecutive quarter of EAD exceeding dividends, while maintaining an 8.7% dividend yield.
  • Integrated “manufacturing engine”: Manages $80 billion in assets across real estate, credit, energy, infrastructure and ABF funds, with $8 billion of permanent capital and full-cycle underwriting, origination and servicing via NewRez (3rd largest servicer, 5th largest originator).
  • Robust origination and fundraising growth: Genesis Capital grew production 7% YoY to nearly $1 billion in Q1 with 33 new sponsors; Sculptor’s AUM hit $35 billion with $1.4 billion of inflows; launching MSR funds to capture demand for teens-percent returns off-balance-sheet.
  • Resilient mortgage platform: NewRez funded $11.8 billion in Q1, generated $270 million pretax income (+14% YoY ex-mark-to-market), and leverages digital/AI (ResiAI) to drive cost-efficient servicing ($140 cost per loan) and 98% third-party client retention since 2015.
  • Unlocking shareholder value: Equity trades at ~83% of book value versus peer multiples implying a $13.70–$23.00 target, prompting exploration of REIT/C-Corp conversion, public listing options and strategic M&A to realize full value.
AI Generated. May Contain Errors.
Earnings Conference Call
Rithm Capital Q1 2025
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