Rithm Capital Corp. (NYSE: RITM; “Rithm Capital” or the “Company”) today reported the following information for the second quarter ended June 30, 2023:
Second Quarter 2023 Financial Highlights:
- GAAP net income of $357.4 million, or $0.74 per diluted common share(1)
- Earnings available for distribution of $297.9 million, or $0.62 per diluted common share(1)(2)
- Common dividend of $120.8 million, or $0.25 per common share
- Book value per common share of $12.16(1)
Q2 2023 | Q1 2023 | |||||
Summary Operating Results: | ||||||
GAAP Net Income per Diluted Common Share(1) | $ | 0.74 | $ | 0.14 | ||
GAAP Net Income | $ | 357.4 | million | $ | 68.9 | million |
Non-GAAP Results: | ||||||
Earnings Available for Distribution per Diluted Common Share(1)(2) | $ | 0.62 | $ | 0.35 | ||
Earnings Available for Distribution(2) | $ | 297.9 | million | $ | 171.1 | million |
Common Dividend: | ||||||
Common Dividend per Share | $ | 0.25 | $ | 0.25 | ||
Common Dividend | $ | 120.8 | million | $ | 120.8 | million |
“Rithm had one of its best quarters ever,” said Michael Nierenberg, Chairman, Chief Executive Officer and President of Rithm Capital. “We had near record earnings, grew book value, acquired $1.4 billion of consumer loans and grew our SFR business with the acquisition of 371 units. Subsequent to quarter end, we announced the acquisition of Sculptor Capital Management. This acquisition helps accelerate our growth in the alternative asset management space, as Sculptor’s $34 billion of AUM complements Rithm’s $7bn of permanent equity capital and $30+ billion balance sheet. With the introduction of new capital rules being instituted on banks and the highest level of rates seen in 20+ years, the investing environment has not been this good in years.”
Second Quarter 2023 Company Highlights:
- Origination & Servicing (Mortgage Company)
- Combined segment pre-tax income of $326.9 million(3)
- Quarterly origination funded production volume of $9.9 billion
- Estimated Q3’23 funded origination volume of approximately $8 to $10 billion
- Total Rithm MSR Portfolio Summary
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MSR portfolio totaled $598 billion in unpaid principal balance (“UPB”) at June 30, 2023 compared to $603 billion UPB at March 31, 2023(4)
- Portfolio average CPR of approximately 6%
- Servicer advance balances of $2.9 billion as of June 30, 2023, relatively flat compared to balances as of March 31, 2023
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MSR portfolio totaled $598 billion in unpaid principal balance (“UPB”) at June 30, 2023 compared to $603 billion UPB at March 31, 2023(4)
- Mortgage Loans Receivable
- Quarterly origination funded production volume of $905 million through Genesis Capital LLC
- Consumer
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In June 2023, invested $145 million to purchase interest in a $1.4 billion UPB prime unsecured consumer loan portfolio
- The pool represents a portion of the broader Marcus portfolio that was previously owned and held on balance sheet by Goldman Sachs
- The pool is comprised of 100% fixed-rate closed-end installment loans, in which ~95% of the pool was originated between 2021 Q4 and 2022 Q4 from the post-COVID demand boost
- Acquiring these consumer loans allows for an opportunity to add discounted, short duration and high yielding prime credit consumer assets
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In June 2023, invested $145 million to purchase interest in a $1.4 billion UPB prime unsecured consumer loan portfolio
- Third Quarter 2023 Commentary(5)
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Rithm Capital is acquiring Sculptor Capital Management, Inc. (NYSE: SCU) and its operating subsidiaries (together, “Sculptor”)
- Alternative asset manager with ~$34bn under management as of July 1, 2023
- Strategies include opportunistic credit, institutional credit, real estate and multi-strategy
- Transaction valued at $639 million(6), including $11.15 per Class A Share of Sculptor
- Closing of acquisition targeted for Q4 2023, subject to customary closing conditions and approvals
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Rithm Capital is acquiring Sculptor Capital Management, Inc. (NYSE: SCU) and its operating subsidiaries (together, “Sculptor”)
(1) | Per common share calculations for both GAAP Net Income and Earnings Available for Distribution are based on 483,376,961 and 482,846,911 weighted average diluted shares for the quarters ended June 30, 2023 and March 31, 2023, respectively. Per share calculations of Book Value are based on 483,320,606 common shares outstanding as of June 30, 2023. | |
(2) | Earnings Available for Distribution is a non-GAAP financial measure. For a reconciliation of Earnings Available for Distribution to GAAP Net Income, as well as an explanation of this measure, please refer to Non-GAAP Financial Measures and Reconciliation to GAAP Net Income below. | |
(3) | Includes noncontrolling interests. | |
(4) | Includes excess and full MSRs. | |
(5) | Based on management’s current views and estimates, and actual results may vary materially. | |
(6) | Total transaction value includes upfront equity purchase price, assumption of certain unvested securities and repayment of Sculptor term loan and warrants. |
ADDITIONAL INFORMATION
For additional information that management believes to be useful for investors, please refer to the latest presentation posted on the Investors section of the Company’s website, www.rithmcap.com. For consolidated investment portfolio information, please refer to the Company’s most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K, which are available on the Company’s website, www.rithmcap.com. Information on, or accessible through, our website is not a part of, and is not incorporated into, this press release.
EARNINGS CONFERENCE CALL
Rithm Capital’s management will host a conference call on Wednesday, August 2, 2023 at 8:00 A.M. Eastern Time. A copy of the earnings release will be posted to the Investors section of Rithm Capital’s website, www.rithmcap.com.
All interested parties are welcome to participate on the live call. The conference call may be accessed by dialing 1-833-974-2382 (from within the U.S.) or 1-412-317-5787 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference “Rithm Capital Second Quarter 2023 Earnings Call.” In addition, participants are encouraged to pre-register for the conference call at https://dpregister.com/sreg/10181285/fa0718414a.
A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.rithmcap.com. Please allow extra time prior to the call to visit the website and download any necessary software required to listen to the internet broadcast.
A telephonic replay of the conference call will also be available two hours following the call’s completion through 11:59 P.M. Eastern Time on Wednesday, August 9, 2023 by dialing 1-877-344-7529 (from within the U.S.) or 1-412-317-0088 (from outside of the U.S.); please reference access code “6092343.”
Consolidated Statements of Operations (Unaudited) ($ in thousands, except share and per share data) | ||||||
Three Months Ended | ||||||
June 30, 2023 | March 31, 2023 | |||||
Revenues | ||||||
Servicing fee revenue, net and interest income from MSR financing receivables | $ | 465,562 | $ | 469,839 | ||
Change in fair value of MSRs and MSR financing receivables (includes realization of cash flows of $(139,410), and $(105,691), respectively) | 22,032 | (142,304 | ) | |||
Servicing revenue, net | 487,594 | 327,535 | ||||
Interest income | 398,786 | 346,614 | ||||
Gain on originated residential mortgage loans, held-for-sale, net | 151,822 | 109,268 | ||||
1,038,202 | 783,417 | |||||
Expenses | ||||||
Interest expense and warehouse line fees | 329,158 | 309,068 | ||||
General and administrative | 181,508 | 167,155 | ||||
Compensation and benefits | 189,606 | 188,880 | ||||
700,272 | 665,103 | |||||
Other income (loss) | ||||||
Realized and unrealized gains (losses) on investments, net | 89,425 | (75,649 | ) | |||
Other income (loss), net | 15,860 | 30,478 | ||||
105,285 | (45,171 | ) | ||||
Income before income taxes | 443,215 | 73,143 | ||||
Income tax expense (benefit) | 56,530 | (16,806 | ) | |||
Net income | $ | 386,685 | $ | 89,949 | ||
Noncontrolling interests in income (loss) of consolidated subsidiaries | 6,889 | (1,300 | ) | |||
Dividends on preferred stock | 22,395 | 22,395 | ||||
Net income attributable to common stockholders | $ | 357,401 | $ | 68,854 | ||
Net income per share of common stock | ||||||
Basic | $ | 0.74 | $ | 0.14 | ||
Diluted | $ | 0.74 | $ | 0.14 | ||
Weighted average number of shares of common stock outstanding | ||||||
Basic | 483,091,792 | 478,167,178 | ||||
Diluted | 483,376,961 | 482,846,911 | ||||
Dividends declared per share of common stock | $ | 0.25 | $ | 0.25 | ||
Consolidated Balance Sheets ($ in thousands, except share data) | |||||||
June 30, 2023 (Unaudited) | March 31, 2023 (Unaudited) | ||||||
Assets | |||||||
Mortgage servicing rights and mortgage servicing rights financing receivables, at fair value | $ | 8,688,556 | $ | 8,886,209 | |||
Real estate and other securities ($8,722,018 and $8,987,572 at fair value, respectively) | 9,701,000 | 8,987,572 | |||||
Residential loans held-for-investment, at fair value | 400,206 | 426,259 | |||||
Residential mortgage loans, held-for-sale ($3,008,722 and $2,743,809 at fair value, respectively) | 3,092,667 | 2,841,320 | |||||
Consumer loans held-for-investment, at fair value | 1,602,571 | 340,525 | |||||
Single-family rental properties | 965,194 | 968,987 | |||||
Mortgage loans receivable, at fair value | 1,939,499 | 1,946,422 | |||||
Residential mortgage loans subject to repurchase | 1,296,097 | 1,189,907 | |||||
Cash and cash equivalents | 1,369,025 | 1,434,697 | |||||
Restricted cash | 319,765 | 365,649 | |||||
Servicer advances receivable | 2,447,918 | 2,594,271 | |||||
Other assets | 2,035,581 | 1,836,833 | |||||
$ | 33,858,079 | $ | 31,818,651 | ||||
Liabilities and Equity | |||||||
Liabilities | |||||||
Secured financing agreements | $ | 12,757,428 | $ | 11,760,930 | |||
Secured notes and bonds payable ($574,120 and $598,070 at fair value, respectively) | 10,315,006 | 9,728,605 | |||||
Residential mortgage loan repurchase liability | 1,296,097 | 1,189,907 | |||||
Unsecured senior notes, net of issuance costs | 545,930 | 545,490 | |||||
Dividends payable | 134,188 | 131,941 | |||||
Accrued expenses and other liabilities | 1,614,746 | 1,507,235 | |||||
26,663,395 | 24,864,108 | ||||||
Commitments and Contingencies | |||||||
Equity | |||||||
Preferred stock, $0.01 par value, 100,000,000 shares authorized, 51,964,122 and 51,964,122 issued and outstanding, $1,299,104 and $1,299,104 aggregate liquidation preference, respectively | 1,257,254 | 1,257,254 | |||||
Common stock, $0.01 par value, 2,000,000,000 shares authorized, 483,320,606 and 483,017,747 issued and outstanding, respectively | 4,834 | 4,832 | |||||
Additional paid-in capital | 6,068,613 | 6,062,051 | |||||
Retained earnings (accumulated deficit) | (236,222 | ) | (470,562 | ) | |||
Accumulated other comprehensive income | 39,954 | 40,631 | |||||
Total Rithm Capital stockholders’ equity | 7,134,433 | 6,894,206 | |||||
Noncontrolling interests in equity of consolidated subsidiaries | 60,251 | 60,337 | |||||
Total equity | 7,194,684 | 6,954,543 | |||||
$ | 33,858,079 | $ | 31,818,651 | ||||
NON-GAAP FINANCIAL MEASURES AND RECONCILIATION TO GAAP NET INCOME
The Company has five primary variables that impact its operating performance: (i) the current yield earned on the Company’s investments, (ii) the interest expense under the debt incurred to finance the Company’s investments, (iii) the Company’s operating expenses and taxes, (iv) the Company’s realized and unrealized gains or losses on investments, including any impairment or reserve for expected credit losses and (v) income from the Company’s origination and servicing businesses. “Earnings available for distribution” is a non-GAAP financial measure of the Company’s operating performance, excluding the fourth variable above and adjusts the earnings from the consumer loan investment to a level yield basis. Earnings available for distribution is used by management to evaluate the Company’s performance without taking into account: (i) realized and unrealized gains and losses, which although they represent a part of the Company’s recurring operations, are subject to significant variability and are generally limited to a potential indicator of future economic performance; (ii) termination fee to affiliate; (iii) non-cash deferred compensation expense; (iv) non-capitalized transaction-related expenses; and (v) deferred taxes, which are not representative of current operations.
The Company’s definition of earnings available for distribution includes accretion on held-for-sale loans as if they continued to be held-for-investment. Although the Company intends to sell such loans, there is no guarantee that such loans will be sold or that they will be sold within any expected timeframe. During the period prior to sale, the Company continues to receive cash flows from such loans and believes that it is appropriate to record a yield thereon. In addition, the Company’s definition of earnings available for distribution excludes all deferred taxes, rather than just deferred taxes related to unrealized gains or losses, because the Company believes deferred taxes are not representative of current operations. The Company’s definition of earnings available for distribution also limits accreted interest income on RMBS where the Company receives par upon the exercise of associated call rights based on the estimated value of the underlying collateral, net of related costs including advances. The Company created this limit in order to be able to accrete to the lower of par or the net value of the underlying collateral,
