Executive Summary / Key Takeaways

• Rithm Capital Corp. is actively transforming from a traditional mortgage REIT into a diversified global asset manager, leveraging its integrated operating platforms and strategic acquisitions to drive Fee-Related Earnings (FRE) and unlock shareholder value.
• The company's unique asset manufacturing and servicing capabilities, powered by advanced AI initiatives like ReziAI, provide a significant competitive edge in underwriting, origination, and efficient loan servicing, contributing to robust financial performance.
• Recent strategic acquisitions of Sculptor Capital Management , Crestline Management, L.P., and Paramount Group, Inc. are pivotal to expanding Rithm's product offerings across credit, real estate, and asset-based finance (ABF), significantly growing its Assets Under Management (AUM).
• Despite consistently strong financial results, including an 18% Return on Equity (ROE) in Q3 2025 and 24 consecutive quarters of Earnings Available for Distribution (EAD) exceeding common dividends, Rithm Capital's equity is perceived as "severely undervalued" by management compared to asset management peers.
• The company's future outlook focuses on organic growth, strategic partnerships, and potential capital structure optimization to achieve a re-rating and realize its full valuation potential, with no plans to increase its $0.25 per share quarterly dividend, prioritizing capital reinvestment for growth.

The Evolution of an Integrated Financial Powerhouse

Rithm Capital Corp. has undergone a profound transformation, evolving from its origins in 2013 as a mortgage REIT focused on acquiring Mortgage Servicing Rights (MSRs) from banks into a diversified global asset manager. This strategic pivot, formalized with its name change and internalized management in August 2022, positions Rithm Capital at the intersection of real estate, credit, and financial services. The company's overarching strategy is clear: to generate long-term value by identifying, managing, and investing in a broad spectrum of financial assets, while simultaneously building a world-class asset management platform fueled by third-party capital. This approach emphasizes "performance first," ensuring that growth is always underpinned by strong investment results.

Rithm Capital's foundational strength lies in its integrated operating platforms, primarily Newrez and Genesis Capital. These wholly-owned subsidiaries provide a unique "asset manufacturing" capability, allowing the company to underwrite, originate, and service assets from inception to maturity. This end-to-end control is a critical differentiator, particularly in the asset-based finance (ABF) sector, where Rithm Capital boasts extensive experience. The company's ability to create its own assets, rather than solely relying on third-party sourcing, enhances its control over asset quality and yield, directly supporting its investment strategies.

Technological Edge: ReziAI and Operational Efficiency

A cornerstone of Rithm Capital's competitive advantage is its significant investment in technological differentiation and innovation, particularly within its Origination and Servicing segment. The company's proprietary ReziAI stack is a prime example, driving tangible and quantifiable benefits across its operations. This suite of AI-powered tools, including ReziChat and ReziAssist, is designed to enhance customer experience, streamline operational workflows, and power predictive analytics.

The benefits are clear and directly impact financial performance. ReziAI initiatives contribute to cost leadership, with Newrez achieving a fully loaded $140 cost per loan, a figure that management states "significantly outperforms the industry." This efficiency is a direct result of increased underwriting capacity and improved turn times driven by technology. For investors, this translates into higher profitability margins and a more resilient operating model, especially in competitive or volatile market conditions. Furthermore, Rithm's recapture investments, supported by these digital tools, focus on delivering "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." The company's commitment to R&D is evident in its strategic hires, such as Brian Woodring (formerly CTO at Rocket (RKT)) to lead technology and AI, and Leslie Gillin (formerly CMO at JPMorgan (JPM)) to focus on origination growth. These investments aim to continually lower costs, improve customer retention, and expand market share by leveraging technological superiority.

Competitive Landscape and Strategic Positioning

Rithm Capital operates within a dynamic and competitive landscape, facing both direct and indirect rivals. In the mortgage REIT sector, direct competitors like Annaly Capital Management (NLY), AGNC Investment Corp. (AGNC), and Two Harbors Investment Corp. (TWO) primarily focus on mortgage-backed securities and related assets. While these peers often demonstrate strong cash flow generation and profitability in their specialized niches, Rithm Capital differentiates itself through its integrated model that combines asset management with robust origination and servicing platforms.

Rithm's position as a top-tier mortgage servicer (ranked #3 in the U.S.) and originator (ranked #5) provides a significant operational moat. This allows it to control the entire lifecycle of many assets, from underwriting to servicing, a capability few asset managers possess. This integrated approach contrasts with NLY's more established presence in mortgage-backed securities and AGNC's specialization in agency securities, which, while offering streamlined models, lack Rithm's comprehensive service offerings. Against Two Harbors, which also focuses on mortgage servicing, Rithm's broader real estate and credit portfolio provides greater diversification.

The company's technological advancements, particularly ReziAI, further enhance its competitive standing by driving efficiency and superior customer experience, which are critical in a market where "mortgage credit availability overall is probably going to stay in its current state," as noted by management. This technological edge helps Rithm maintain profitability even as market competition drives margin pressures in origination. The recent partnership with Wells Fargo (WFC), validating Rithm's non-agency servicing leadership, underscores its strong competitive position.

Indirect competitors include fintech companies like Rocket Mortgage and traditional banks. These players can offer digital-first lending, potentially impacting market share. However, Rithm's deep underwriting expertise and integrated servicing capabilities, particularly in the ABF space, provide a buffer against these threats. Management emphasizes "underwriting first" to mitigate risks seen in some consumer lenders, where "Tricolor was classic fraud" and "First Brands, it's a liquidity issue," highlighting Rithm's disciplined approach. The company's strategic partnerships, such as the one with a large institutional investor for residential transitional loans, further solidify its market presence and ability to raise third-party capital.

Strategic Evolution and Diversification Fueling Growth

Rithm Capital's strategic narrative is one of continuous evolution and diversification, aimed at building a world-class asset management platform. The acquisition of Sculptor Capital Management in November 2023 was a pivotal step, significantly expanding Rithm's Assets Under Management (AUM) and product offerings across credit, real estate, and multi-strategy platforms. Sculptor's Real Estate Fund V, for instance, has garnered $3.2 billion in commitments, becoming its largest real estate fund, and the Sculptor Tactical Credit Fund closed $900 million in AUM.

Further cementing this strategy, Rithm Capital announced two significant acquisitions in September 2025, both expected to close in Q4 2025:

• Crestline Management, L.P.: Acquired for an upfront cash consideration of $300 million, Crestline is an alternative asset manager with an estimated $18 billion to $20 billion in AUM. This acquisition expands Rithm's capabilities into direct lending, NAV lending, and credit products, and notably introduces an insurance and reinsurance business, a new vertical Rithm intends to grow.
• Paramount Group, Inc. : Acquired for approximately $1.60 billion, Paramount is a Class A office REIT with properties in New York and San Francisco. This move is predicated on management's thesis of a dislocated office market, with expectations of growing Net Operating Income (NOI) and driving rents higher, particularly in New York's highly leased market and a recovering San Francisco. Management noted that Rithm and its affiliates alone require 100,000 square feet of new office space, highlighting the demand.

These acquisitions are strategically funded through a combination of Rithm's balance sheet and third-party Limited Partner (LP) capital, with management explicitly stating that no new equity will be raised for these transactions. This approach underscores Rithm's commitment to maximizing economics for shareholders while growing its asset management footprint.

Beyond acquisitions, Rithm is actively pursuing organic growth and new ventures. The company sponsored the $230 million IPO of Rithm Acquisition Corp. (a SPAC) in Q1 2025, targeting off-balance sheet acquisitions in financial services, real estate, and infrastructure. It also took over the management of Great Ajax (AJX), rebranding it as Rithm Property Trust, and successfully turned it into a profitable entity by the end of 2024, with plans to grow this vehicle into a multi-billion-dollar entity. A forward flow agreement with Upgrade, Inc. to acquire $1 billion in home improvement loans and a strategic financing partnership to fund up to $1.5 billion in residential transitional loans further illustrate Rithm's diversified growth strategy. The company is also launching a global energy infrastructure platform, partnering with experienced professionals to address the "huge shortage of power" globally.

Robust Financial Performance and Liquidity

Rithm Capital has consistently demonstrated robust financial performance, reflecting the effectiveness of its diversified strategy and operational execution. For the third quarter of 2025, the company generated approximately $300 million in earnings for shareholders, resulting in an impressive 18% Return on Equity (ROE). This marks the 24th consecutive quarter where Earnings Available for Distribution (EAD) exceeded common dividends paid, underscoring the sustainability of its payout. GAAP net income for Q3 2025 was $193.7 million, or $0.35 per diluted share, with an 11% ROE.

Looking at the nine months ended September 30, 2025, Rithm Capital reported net income attributable to the company of $612.07 million. Servicing revenue, net, increased by $0.50 million, driven by a $55.90 billion increase in servicing UPB. Gain on originated residential mortgage loans, held-for-sale, net, rose by $44.90 million, fueled by increased pull-through adjusted lock volume. Asset management revenues also saw a $6.10 million increase, primarily from AUM growth. These gains were partially offset by a $90.70 million decrease in interest income due to a reduced securities portfolio and elevated consumer loan default rates, and a $39.33 million decrease in total other income/loss, impacted by derivative and hedging instruments and the absence of a 2024 bargain purchase gain from the Computershare (CMSQY) acquisition.

Operational efficiency is evident in the financial results. Interest expense and warehouse line fees decreased by $146.30 million, primarily due to a reduction in average SOFR and lower debt balances on government-backed securities. While general and administrative expenses increased by $79.40 million (due to reclassification of servicing costs and asset management fees), and compensation and benefits rose by $93 million (due to the Computershare acquisition and performance-based compensation), these are largely tied to strategic growth and operational scaling.

Rithm Capital maintains a strong liquidity position. As of September 30, 2025, the company held $2.2 billion in cash and liquidity. Pro forma for the Crestline and Paramount acquisitions, cash and cash equivalents are expected to be $1.3 billion, which management asserts is "well north of our regulatory requirements as well as working capital and what we hold for margin requirements."

The company's total borrowing capacity under secured financing arrangements stands at $25 billion, with $9 billion of available financing. This robust liquidity and financing capacity are crucial for funding ongoing operations, managing its $32.50 billion in total outstanding debt, and supporting future strategic initiatives.

Management has explicitly stated no plans to increase the $0.25 per share quarterly common dividend, preferring to reinvest capital at its targeted 15% to 20% ROE to drive earnings growth and enhance shareholder value.

Outlook, Risks, and the Path to Revaluation

Rithm Capital's outlook is characterized by cautious optimism and a clear strategic roadmap. Management anticipates continued economic resilience, with median projections pointing to two more Federal Reserve rate cuts in 2025. This environment is expected to support a larger purchase market and continued growth in home equity and cash-out loans. The company projects its non-QM business to double its origination volume to $4 billion this year, driven by new channels and strong relative value. Genesis Capital's EBITDA is expected to reach $120 million, a threefold increase since its acquisition, with its "credit first" mantra keeping delinquencies low.

The asset management business is poised for significant expansion. Michael Nierenberg projects that the $4.5 billion to $5 billion capital raise achieved in 2025 is "absolutely" repeatable in 2026, driven by strong fund performance and the integration of Crestline. The company expects to close its first evergreen ABF fund on a wealth management platform in Q4 2025 and is actively pursuing strategic partnerships to bring in third-party capital, moving more assets off-balance sheet to grow Fee-Related Earnings (FRE).

However, this ambitious growth trajectory is not without risks. The integration of major acquisitions like Paramount and Crestline presents challenges, including potential undisclosed liabilities, diversion of management attention, and the need to retain key personnel. The Paramount acquisition significantly increases Rithm's exposure to commercial real estate risks, such as tenant defaults and changes in market rental rates. The asset management business faces competitive pressures on fund performance and increasing regulatory scrutiny. Furthermore, Rithm's substantial MSR portfolio and debt financing expose it to interest rate sensitivity and margin call risks, although the company actively hedges these exposures and maintains ample liquidity. The company's REIT status also imposes distribution requirements, limiting capital retention, which management aims to address through asset management growth and potential capital structure changes.

Despite these considerations, Rithm Capital's management firmly believes its equity is "severely undervalued." The company currently trades at approximately 0.71 times book value and around 6-7 times EBITDA, while asset management peers often trade at 20-30 times Fee-Related Earnings. Management envisions a path to a valuation between $16 and $23 per share, driven by the growth of its asset management business and a proper market re-rating. This revaluation is expected to be catalyzed by consistent performance, strategic partnerships, and potential capital actions, including a possible shift in its corporate structure to better reflect its diversified asset management identity.

Conclusion

Rithm Capital Corp. stands at a pivotal juncture, actively executing a strategic transformation from a mortgage REIT to a diversified global asset manager. This evolution is underpinned by its unique integrated operating platforms, Newrez and Genesis Capital, which provide a distinct advantage in asset origination, underwriting, and servicing, further enhanced by advanced AI technologies like ReziAI. The company's aggressive yet disciplined M&A strategy, exemplified by the acquisitions of Sculptor (SCU), Crestline, and Paramount (PGRE), is rapidly expanding its AUM and product offerings across high-demand sectors like credit, real estate, and asset-based finance.

While Rithm Capital consistently delivers robust financial performance, marked by strong earnings and dividend coverage, its equity remains "severely undervalued" in the public markets. The company's strategic focus on driving Fee-Related Earnings, cultivating strategic partnerships, and optimizing its capital structure is designed to bridge this valuation gap. With a clear vision for growth, a proven track record of performance, and a commitment to technological leadership, Rithm Capital presents a compelling investment thesis for discerning investors seeking exposure to a dynamic and evolving financial services powerhouse poised for a significant re-rating.