Good day and welcome to the Rithm Capital Third Quarter 2024 Earnings Conference Call. All participants are in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Emma Bolla, Associate General Counsel. Please go ahead.

Thank you and good morning everyone. I would like to thank you for joining us today for Rithm Capital's third quarter 2024 earnings call. Joining me today are Michael Nierenberg, Chairman, CEO and President of Rithm Capital; Nick Santoro, Chief Financial Officer of Rithm 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 Rithm Capital website www.rithmcap.com. If you've not already done so, I'd encourage you to download the presentation now. 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. And with that I will turn the call over to Michael.

Thanks, Emma. Good morning, everyone. And thanks for joining us. So during the quarter, we had a very strong quarter across all of our business lines. Before I get into the -- what I would call the meat of our business. I wanted to point out a couple things before we go into the deck. First of all, you'll see a value slide depicting the sum of the parts analysis, which we put in last quarter, and again, we put it in this quarter. Quite Frankly, I believe our equity is very cheap when you look at peers in the business and our actual results. We have a best-in-class lending business, a large balance sheet, and an asset management business with huge upside. Last quarter, I got a couple questions on our equity raise and I just wanted to address that as well. We raised $300 million. I got asked what are you going to do with the money, so you understand our thought process. Since 2021 we have deployed $5.8 billion. We haven't raised any equity while growing our earnings by approximately 60%. I would say that's pretty impressive. We have funded our growth with our operating businesses, balance sheet, and a little bit of high yield debt. As we think about risk, there are multiple wars going on. We're in the middle of what could be a highly contested election and as many of you know we were always engaged in activity to grow our platform through M&A. So I would say all of these factors are good reasons why we want to have more capital. Now back to our operating companies, Newrez and Genesis. Our lending businesses produced excellent results. Genesis has a record quarter, and we cannot be more thrilled with that platform. As banks pull…

Thank you, Michael. Good morning. I'm going to start on slide 16. And we delivered another strong quarter with pre-tax income, excluding mark-to-market on the owned MSR portfolio of approximately $246 million, which is an increase of 8% quarter-over-quarter, and delivering a 24% return on equity. Key drivers included a strong performance in our originations platform as we're able to remain disciplined in growing our production, while also increasing margins overall and maintaining our market share. While on the servicing side we saw continued growth in our third-party franchise, you know, coupled with our best-in-class operational efficiency, you know, which is also highlighted by the completion of the SLS integration, which we did three months post-acquisition in the second quarter. And these results overall just continue to present the foundation Michael talked about that we've built over the last few years, driven by our industry-leading servicing capabilities, our robust client franchise, best-in-class customer experience, and our proprietary technology. Turning to slide 17, and you can see there that we just remain in growth mode, right? In the third quarter, as Michael mentioned, Newrez maintained our position as the second largest non-bank servicer with over $755 billion notional UPB that we directly service and the fifth largest lender in the industry with a 3.4% market share. We remain well positioned to continue to take market share through our organic and inorganic growth, while maximizing performance for our shareholders. Moving to slide 18, the scale of our MSR portfolio affords us significant opportunities for portfolio recapture and customer growth through future cross-sell strategies, right? And the customer retention overall is driven by market events, but also by our consumer connections, whether they're realtor referrals or local sales relationships or other connectivity. As part of our strategy, we're making significant investments in building…

Thanks, Baron. Just a couple of last slides, and then we'll go to Q&A. On Genesis, I mentioned Q3, effectively a record quarter when we look at P&L and return on equity. The team does a great job there continuing to grow that business. I would be very surprised if it doesn't get significantly scaled up here over the next couple of years. Obviously, a lot of it is demand-based, but overall performance has been great there. We couldn't be happier with [Clint] (ph) and his team and the overall performance of the business. On the Sculptor side, I mentioned earlier, the real estate team is out. They're out with a large multi-billion dollar fund. They closed the $1.3 billion. Be very surprised if that doesn't get oversubscribed. The team, candidly, is truly best-in-class at what they do. And it's really one of the crown jewels in our overall franchise. During the quarter, closed a new CLO for $400 million. The CLO business will continue to grow for Sculptor and for us as we look at this business going forward, not only here in the U.S., but also overseas in the U.K. From an overall performance standpoint, I mentioned before the teams are doing a great job, performance is the number one thing that matters. And obviously in the asset management business, we lead with performance, AUM is going to follow. We're starting to see more AUM come back on the platform. So again, really, really excited with the prospects of Sculptor and the overall team. And then finally on Adoor, this is our single family rental business. We have 4,200 units. What I would say there is cap rates are, when you look at real cap rates, no matter what -- how people advertise it, whether it be in the built to rent space or in the scattered lot space. Typical cap rates are really in what I would say the low-5s. When you think about Rithm or Sculptor or any of our other investment platforms, we look to seek what the best opportunity is for overall capital. So when you think about growth there, we're not just going to grow a business if we think we could deploy capital better in another area to increase enterprise value for the overall franchise. So in this period of time where if cap rates don't get higher or we're not able to acquire units at much higher cap rates, we have to evaluate what we're doing there. And I think it’s -- that business is better served in a third-party vehicle than it is on our balance sheet. So that's it. So overall, you know, things, we had a very, very good quarter across all of our platforms, and now we'll turn it back to the operator for Q&A.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Bose George with KBW. Please go ahead.

Hey everyone, good morning. So Michael, you noted that some of the parts, you know, valuation potential. What are your latest thoughts on potentially listing part of Newrez as a way to potentially sort of realize some of that difference?

You know, I think here's what I would say. When we put in the slide that talks about how much capital we've deployed since 2021 without raising equity, one of the things that gives us the ability to do that is being that Rithm, you know, has all these wholly-owned subs and all the capital stays in one bucket. While saying that, you know, we have to -- I mean, candidly, we have to figure out a way to get our equity price to trade where it should trade. So it's probably, my guess is it'll be a ‘25 event if and when we take it, you know, this company public and, you know, we'll evaluate that. There's obviously other things we're thinking about in the M&A or from an M&A landscape perspective, but I think it's more likely going to be a ‘25 event as we think about the mortgage company.

Okay, great. Thanks. And then, actually, could we get an update on book value in October?

It's roughly $12.5, Bose.

Okay, great. Thank you.

Thank you.

The next question comes from Stephen Laws with Raymond James. Please go ahead.

Hi, good morning. Baron, quick question around the residential volume refinance activity [Technical Difficulty] we talked about that. Was that rate-driven? Was it a function of the increased recapture opportunity? And kind of how do you see that trending, you know, October, maybe if you look forward with where we are?

Kind of broke up a little bit.

I don't know. You kind of broke up a little bit there. I continue to offer the markets rallied a fair amount in the third quarter and then it's obviously given back all of those gains. We certainly saw refinance volume basically all in, get closer to say 30% of overall production. I think we're going to get ourselves more to a, you know, what I'll say is the market on a normalized basis. That said, you know, we see our direct lending channels, you know, as we continue to basically give momentum, you know, through our recapture investments to continue to improve and increase.

Great. And then switching gears over to Sculptor, Michael, as the performance is going through, I believe we typically get some annual performance fees that hit in Q4. Can you maybe try to quantify that and maybe what type of earnings impact that may have as far as [Technical Difficulty] on those performance fees in the fourth quarter?

I don't think I can give you forward-looking performance fees. I would say, as you know, in the asset management business, and particularly in the Sculptor business, you should see some performance fees come in the fourth quarter. I think when you, just going back to when we first acquired the company in November of last year, as you know in asset management, you assume a certain multiple of where these trade versus earnings or DE. And I would say that if you look at where we are today from an acquisition perspective and you think about the actual multiple it's really something in the -- I would call it the high-single-digits right now based on ’24. And I think that number obviously gets lower as we go forward. So when you think about true value creation here, I personally believe this will be one of our better partnership/slash investments that we've made in many, many years as this platform continues to grow. So you're going to see more lumpiness, I think, you know, particularly going into the fourth quarter, but that's when you're going to see the bulk of the earnings hit as we see monetization. And we see more AUM come on the platform.

Great. Well, it's certainly nice to see the AUM growth and the business, the $34 billion. Look forward to continue watch that to grow. Thanks, Michael.

Thanks, Stephen.

The next question comes from Eric Hagen with BTIG. Please go ahead.

Hey, thanks, good morning. Maybe first off, I mean, in a scenario where rates continue rising, if you were to grow book value because of a write-up in the MSRs. Do you feel like you have the flexibility to effectively take the capital from Newrez and repurpose it to other segments of the portfolio?

Yes. I mean, it's, you know, this goes back to Bose question. Everything sits in effectively one pot, and that's given us the ability to grow earnings from call it low-30s and ‘21 to $0.54 where we are today. So the answer is, again, Eric, going back, you know, I used the example on the single family rental business. We don't have to be in a business to be in a business. We want to think about the best ways to deploy capital. If we thought MSRs were rich, we would just, potentially you could just turn around and sell them. It's a great cash flowing asset that's unlevered and the way that we see it, something between 8% and 10%. So I don't see any change there. Just one other caveat there when we look at book value and where we are today, from an over a hedge perspective, one of the reasons our balance sheet looks grossed up is because we're, for the most part, fully hedged against our entire business to take out any kind of book value volatility. While saying that, we reported 12/31. Today we're about $12.5, so we feel like we're in really good shape, both book value, the ability to redeploy capital away from the mortgage company if, in fact, we wanted to do that. But I think it's more growth across the entire platform.

Yes, that's really helpful. Okay, so what are your -- sorry about that. What are your perspectives on the mixed messaging around consumer credit that we seem to be picking up through earnings here. I mean, some indications that consumers are a little over-leveraged and struggling? At the same time, you know, rates are coming down, unemployment is low. What's the right read-through to the portfolio when we think about the servicing on one side and then the rest of the portfolio, if you will, on the other?

We have, if you look at the servicing portfolio, $8.78 billion. I think $235 billion of that is third-party servicing. The rest is own servicing. Thinking back in time, we have a bunch of legacy, anybody that refied in ‘20 or ‘21 that has two and changed coupon mortgages, I think those folks are in very good shape. You might see a tad higher in delinquencies, but overall it still seems to us that the consumer is in reasonable shape. You know, I think a good telling, you know, if you look at some of the bank earnings, I mean, I think that would probably be a good place to look. You know, we're not in subprime autos. Subprime autos have rolled over a little bit here when you look at overall delinquencies, but overall our portfolios look like they're in pretty good shape.

Got you. I think we're looking at slide six. It looks like maybe you bought some excess MSRs in the quarter. Can you talk through that purchase? Is that an investment in the Newrez segment or is that the investment portfolio?

It's in the investment portfolio. It's something that we owned already. And there was a liquidation of an MSR fund that actually we used to manage. And we bought some of those MSRs or the excess MSRs.

Got you. Thank you guys very much.

Thanks, Eric.

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

Hey, good morning. Thanks for taking my question. Just one on Sculptor, I wonder if you could just give us a rough sense of what the recent net flow picture has been there? And then as you look across the various strategies within credit, real estate, and multi-strategy, which areas could be the most attractive areas for potential organic growth opportunities as you look forward over the next few years? Thanks.

So the growth in the platform, I think the last time we reported, I think we showed a number roughly $32 billion of AUM, so you could assume it's up a few billion, you know, between what we're doing and what's happening in the CLO business. The real estate fund just grows at a $1.3 billion. I think they're expecting another close here shortly start, you know, the performance overall on the platform when you look at actual real numbers, has been excellent. So you're going to see some natural AUM growth as a result of the overall performance. But I think it's across all of the platforms. Obviously, every asset manager keeps talking about private credit, private credit. You know, we'd like to scale up our private credit business. The real estate team, you know, like I said, is out with a multi-billion dollar fund that it's likely gets oversubscribed, and I think there'll be more funds beyond that. And then, you know, on the multi-strat side, as long as performance is good, I see no reason why they're not going to see more flows coming back. So I think it's across the entire platform. You know, one area that, you know, and I'll speak from the Rithm perspective for a second, when you look at the large asset managers, there's been huge asset growth in the insurance space. Obviously, we're not there right now and would love to get there. It's a valuation thing and finding the right asset to help you grow. But when you look at where we sit as an organization in our direct lending, we manufacture, when you look at our funds and the things that we do, at the Rithm level in all of our business lines. We manufacture assets. It's like we are in so-called direct lending and we want to continue to grow that in the event that we're able to acquire some kind of insurance liability structure or something that could help us grow, I think that's really where you're going to see real growth at the overall platform. But on the Sculptor side, it's more of the same. We've distanced, or not we have, but you're almost a year into the close. It gets better every day. Performance is great. I see no reason why all the verticals at the Sculptor level won't continue to grow.

Got it. Very helpful there. And just one follow-up, if I may, just in terms of the direct lending expansion, and you talked a little bit more about that. What kind of form could this expansion look like? It sounds like you already got some capabilities around it. And are you talking about, for example, like middle markets, direct lending, things of that nature? Thanks.

Yes, the direct lending, like obviously we have a large mortgage company that makes a ton of money. We have the Genesis business that makes a lot of money. We are under-scaled, I would say, in credit at the Rithm level. So when we look at direct lending and think about ways to partner with Sculptor and things that we could do on the direct lending side. We are looking hard at that space. We don't want to pay dumb multiples. If you think about real asset growth over the course of the past 20-years, you've been in a cyclical, more than cyclical. You've been in a bull market where equities have gone up, credits done extremely well. But with the banks, when you think about the banks and you've heard it from all the other asset managers, with the banks pulling back in certain areas, we think there is room for us to find or grow the right platform around direct lending. So it's definitely a space we're very keenly focused on.

Got it, very helpful there. Thanks again.

Thank you.

The Next question comes from Crispin Love with Piper Sandler. Please go ahead.

Thanks, and good morning everyone. Just on operating ROEs across the business, you had 18% operating ROEs in the quarter, that improved. But just curious on your expectations for sustainable operating ROEs over the intermediate to long-term as we hopefully come out of a trough mortgage environment here? Is it high-teens? Is it low-20s? Just curious on if you have any thoughts there?

I think on everything we do we measure risk returns. We're not going to shoot for the stores unless we think we have an edge. Obviously, the -- you look at our mortgage business and you can compare it to other friends and peers out there. I think we perform as good as anybody, quite frankly. You know, when you look at the ROE, the Genesis business continues to do well. We just got, you know, we just spoke about direct lending. You look at the portfolio of assets we have. You know, we're going to try to put up mid-teens type returns. I don't think that's anything different than you've heard from us over the years. And when you actually look at the real performance going back since the company was started, it's probably something in and around a mid-teens type of return in all environments. And this goes back to [13%] (ph). So -- and I think those are realistic numbers. Obviously, it's overweight mortgage, and the mortgage company has done its job. But I think as we grow the asset management business in our platforms, you're going to continue to see those type of numbers.

Great. Thanks, Michael. Appreciate that. And then, Michael, also in your prepared remarks, you mentioned the election. I was just wondering if you could share your thoughts on election implications for Rithm. We could see great moves, potential volatility, housing implications. Just curious on how you're thinking about it near an intermediate term on potential impacts of Rithm? Thank you.

Yes, I think when we look at some of the messaging that's coming out of both parties, you know, I mean, Kamala Harris is talking about giving people money, you know, first-time homeowners to buy things, to buy homes. You're looking at Kamala Harris going after, you know, what I would call the SFR space around corporates going out and buying housing. I think what's going to end up happening, and I think it would be the best outcome probably for the country, I don't care what party you're thinking about, is if you have a divided government. So I think a lot of the so-called rhetoric that you have coming out of both candidates is going to, it's going to be hard for them to pass a lot of the things that are going on. Irregardless of that, whether Trump comes up with tariffs, if he gets in or Harris comes up with her stuff, I think a lot of this stuff is going to be harder to pass. One of the biggest challenges and you hear it from some of the very smart people in our business, is the deficit. The deficit is going to grow no matter what. The government needs to continue to issue tons and tons of debt. So how do we think about that from an overall rate perspective. While saying that, you have to think about the uncertainties that could be created. If, you know, if Trump got in and, for example, you had tariffs, what does that really do to the economy? How do we think about that? How do you think about the immigration policies? And do you start seeing wage inflation? So I think the way that we're positioned now is to have an abundance of cash and liquidity. We are extremely close to home from an overall rate perspective. And that's the way we're going to run until we get some, you know, other kind of tea leaves that may rear their heads. But we're close to home. We feel good about, you know, our risk profile. I mentioned before, you know, book values up again, you know, quarter-over-quarter, obviously, because of the rate sell-offs. But we are going to be extremely close to home from a duration standpoint. Our financing is extremely, you know, buttoned up. So we feel good about where we are.

Great. Thank you, Michael, and I appreciate you taking my questions.

Thanks.

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

Thanks, good morning. Hey Michael, I think you mentioned during your prepared remarks, it had been something like 20 quarters that you've overrun your dividend on EAD, considering that ROE that you're throwing off right now, and maybe contextualize with what's likely to happen in the next couple months and beyond that? What do you think about the level of the dividend payout here, and if that could possibly be moderated upwards?

You know, the dividend policy is driven by, obviously, our board. You know, I've been pretty clear, you know, about the dividend based on our board discussions, that we weren't raising our dividend, because you're just giving back the capital to redeploy it. While saying that, with hedge funds having shorts out there, would I love to raise the dividend significantly and drive it? The answer is yes, but I don't, you know, again, it's a board decision. I don't see us raising the dividend today, because, you know, with the thought process, if you trade at an 8% to 9% dividend yield, and let's assume that our equity does right itself, you know, effectively we could deploy the capital, if we could deploy the capital to mid-teens, it's only going to create more earnings for shareholders and effectively it should drive the valuation of our overall enterprise significantly higher. Little frustrated obviously with where our equity trades, but I do think over time it'll write itself both as about the mortgage company. We're looking at a lot of other things. And while we want to manage quarter-to-quarter and I think we do a very good job and try to put up consistent earnings we're in it for the long game and you know I see no reason why our equity shouldn't be significantly higher down the road you know, you look at a lot of the large asset managers, I look where they were a few years back and you look where they are now, if we stay true to our knitting and where we think we're going to go here, I think that our company has tremendous upside. So for now to give back to capital, I don't think makes worth -- makes sense. Again, a little frustrating, but I think it's more, you know, based on board decisions, it probably stayed the course.

Got it, thank you for that, color. And then maybe one for Baron. Curious about how you think about the operational footprint given what could be wildly different sort of origination volume scenarios going forward? And how you can maintain that flexibility?

When you ask about footprint, you're talking about like our, how we manage our ops on origination and servicing I'm not really sure what you're asking.

Your originator capacity there to be able to you know handle additional volume or even lighter volume?

Yes, so look it's been an absolute focus I think for the industry overall. We feel and we continue to believe that we have significant headroom from an operational perspective. We've actually moved a fair amount of our operations from an offshore perspective, as well to give us that added flexibility. But from where we stand today, we believe we do have significant headroom from any kind of rate environment that we will see coming in the future.

Got it. Okay. Thank you very much.

Thank you.

The next question comes from Trevor Cranston with Citizens JMP. Please go ahead.

Hey, thanks. Good morning.

Good morning.

Most of my questions have been addressed. I guess one more on Newrez. Can you maybe spend a minute talking about the wholesale channel, obviously kind of dominated by the top two players there, but you guys have had some growth over the course of 2024. I was curious if you could just talk about, you know, how you see your positioning within wholesale and the growth opportunity there? Thanks.

So, you know, like you mentioned, it's dominated by, you know, really the one company, and then there's a second larger one. I think there's room for a lot of players in there where we can continue to position. We've certainly positioned from a non-agency perspective, which is part of our original DNA. We've also did a pretty significant technology upgrade and we're continuing to work on our technology to basically deliver downstream to our wholesale broker partners. You know, the industry has changed pretty significantly overall. You know, as brokers have grown multi-fold and they've added a lot of what I'll say as loan officers throughout their entire ecosystem. So we're really, you know, basically just coming up to, you know, looking at our technology is really going to continue to drive our growth. I would also just say Michael's been really clear about, you know, how we're putting out, you know, our capital. You know, so we remain very disciplined in wholesale to the extent that the market allows us to take advantage of putting capital in wholesale, we'll do that, right? And the last couple of quarters, there's been some room for us to take market share, but we're going to remain disciplined in the sector. And technology for us is really going to be the way that we're going to drive, you know, further earnings growth. And as I mentioned, we focused on wholesale a lot on our non-agency products and to the extent that we can pick up, added volume where we think it's attractive, we'll do that.

Got it. Okay, that's helpful, thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Nierenberg for any closing remarks. Please go ahead.

Thank you. Appreciate everybody. Appreciate all the questions everybody dialing in this morning. Obviously, you know, where to find us if you have any follow-up. Have a great week. Stay safe. Speak to you next quarter. Thanks everyone.

This concludes today's conference call. Thank you for attending today's presentation. You may now disconnect.