Rithm Capital Corp. (RITM) is a global asset manager focused on real estate, credit, and financial services. With a diverse portfolio spanning mortgage origination, servicing, and asset management, Rithm Capital has established itself as a leading player in the alternative investment landscape.
Business Overview and History
Rithm Capital was formed in September 2011 as a limited liability company and commenced operations in December of that year. Prior to June 2022, the company operated under a management agreement with FIG LLC, an affiliate of Fortress Investment Group LLC. In June 2022, Rithm Capital internalized its management functions by entering into an internalization agreement with FIG LLC, which terminated the management agreement and transformed Rithm Capital into an internally managed real estate investment trust (REIT).
The company’s investment strategy involves opportunistically pursuing acquisitions and establishing strategic partnerships to maximize the value of its investments. Rithm Capital’s real estate-related assets include equity interests in operating companies such as its wholly-owned subsidiaries, Newrez LLC and Genesis Capital LLC, as well as investments in single-family rental properties, title, appraisal, and property preservation businesses.
In November 2023, Rithm Capital expanded its asset management capabilities through the acquisition of Sculptor Capital Management, Inc., a leading global alternative asset manager. This acquisition has provided Rithm Capital with a diverse platform across credit, real estate, and multi-strategy investment products.
Over the years, Rithm Capital has faced various challenges in navigating the mortgage and financial sectors. The company has had to adapt to market volatility, heightened interest rates, and inflationary pressures that have affected the broader industry. Rithm Capital has also had to comply with evolving regulatory requirements, including changes to capital and liquidity standards imposed by the Federal Housing Finance Agency and Ginnie Mae on loan sellers and servicers.
Despite these challenges, Rithm Capital has demonstrated resilience and an ability to generate consistent earnings and book value growth for its shareholders. The company has strategically deployed over $5.8 billion in capital since 2021 to expand its origination, servicing, and asset management capabilities through a mix of organic growth and targeted acquisitions. This disciplined approach has enabled Rithm Capital to maintain its position as a leading player in the real estate, credit, and financial services sectors.
Financial Performance and Ratios
As of September 30, 2024, Rithm Capital reported total assets of $42.28 billion and total equity of $7.75 billion, reflecting a debt-to-equity ratio of 3.87. The company’s annualized return on equity for the third quarter of 2024 was 18%.
For the nine months ended September 30, 2024, Rithm Capital reported net income of $649.59 million and earnings available for distribution of $571.83 million, or $1.16 per diluted share. The company’s annualized dividend yield as of September 30, 2024, was 8.8%.
For the fiscal year 2023, Rithm Capital reported revenue of $2.08 billion, net income of $622.26 million, operating cash flow of $693.60 million, and free cash flow of $693.60 million. In the most recent quarter (Q3 2024), the company reported revenue of $619.51 million, net income of $121.74 million, operating cash flow of $768.10 million, and free cash flow of $767.75 million.
Liquidity
Rithm Capital’s liquidity position remains strong, with approximately $2 billion in cash and cash equivalents as of the end of the third quarter. The company’s operating cash flow for the nine months ended September 30, 2024, was $431.84 million, with free cash flow of $306.32 million.
As of September 30, 2024, the company had $1.64 billion in cash and an available credit line of $9.35 billion. The current ratio and quick ratio both stood at 7.34, indicating a strong ability to meet short-term obligations.
Segmental Performance
Rithm Capital’s business is organized into five reportable segments: Origination and Servicing, Investment Portfolio, Mortgage Loans Receivable, Asset Management, and Corporate.
The Origination and Servicing segment, which includes the company’s Newrez and New Residential Mortgage subsidiaries, reported pre-tax income of $343.62 million for the nine months ended September 30, 2024. This segment has maintained its position as the second-largest non-bank servicer, with a servicing portfolio of over $755 billion in unpaid principal balance (UPB) and the fifth-largest lender in the industry, with a 3.4% market share.
As of September 30, 2024, Newrez and NRM serviced a total portfolio of $754.66 billion in UPB of loans, an increase of $13.10 billion from the prior quarter. For the three months ended September 30, 2024, the segment reported $178.31 million in gain on originated residential mortgage loans, held-for-sale, net, an increase of $24.98 million compared to the prior quarter. Refinance originations comprised 19% of funded loans for the three months ended September 30, 2024, higher than 13% for the prior quarter.
The Investment Portfolio segment, which includes the company’s mortgage-related investments, such as mortgage-backed securities and residential mortgage loans, reported pre-tax income of $383.20 million for the nine months ended September 30, 2024. The segment’s MSRs and MSR financing receivables had a carrying value of $9.30 billion, secured by $588.87 billion in UPB of underlying residential mortgage loans. The government and government-backed securities portfolio totaled $10.13 billion at fair value, generating $550.73 million in interest income for the third quarter.
The Mortgage Loans Receivable segment, which focuses on the company’s business purpose lending activities through Genesis Capital, reported pre-tax income of $107.91 million for the nine months ended September 30, 2024. This segment has seen significant growth, with Genesis Capital’s origination volume expected to reach $3.5 billion to $4 billion by the end of 2024, up from $2 billion in 2023. As of September 30, 2024, the segment’s mortgage loans receivable portfolio had a fair value of $1.87 billion, secured by $1.84 billion in unpaid principal balance.
The Asset Management segment, which includes the recently acquired Sculptor platform, reported pre-tax income of $10.06 million for the nine months ended September 30, 2024. As of the end of the third quarter, Rithm Capital’s asset management business had approximately $34.3 billion in assets under management. For the nine months ended September 30, 2024, the Asset Management segment reported $266.33 million in revenues, driven primarily by management fees and incentive income.
Risks and Challenges
Rithm Capital’s business is subject to various risks, including interest rate risk, credit risk, and prepayment risk. The company’s mortgage-related investments and servicing operations are particularly sensitive to changes in interest rates, which can impact the fair value of its assets and the performance of its loan portfolios.
Additionally, the company’s asset management business is exposed to market and performance risks, as the success of its funds and investment strategies is largely dependent on the ability of its portfolio managers to generate attractive returns.
Rithm Capital also faces regulatory risks, as its operations are subject to various laws and regulations governing the mortgage and financial services industries. Changes in the regulatory environment could impact the company’s compliance obligations and the profitability of its business.
Outlook and Recent Developments
In the third quarter of 2024, Rithm Capital reported strong financial results, with GAAP net income of $97 million and earnings available for distribution of $270.3 million. The company’s mortgage origination volume reached $15.9 billion, up 9% from the previous quarter, while its servicing portfolio grew to over $755 billion in UPB.
The company’s recent acquisition of Sculptor Capital Management has provided it with a diversified platform for growth in the asset management space. Rithm Capital’s real estate investment trust (REIT) subsidiary, Great Ajax Corp., was recently renamed Rithm Property Trust, reflecting the company’s strategic focus on expanding its commercial real estate business.
Looking ahead, Rithm Capital remains well-positioned to capitalize on opportunities in the mortgage, credit, and asset management sectors. The company’s strong liquidity position, diversified business model, and proven track record of execution provide a solid foundation for continued growth and shareholder value creation.
Rithm Capital has demonstrated consistent growth, with earnings available for distribution increasing by approximately 60% since 2021, reaching $0.54 per diluted share in Q3 2024. The company’s book value has also increased by 8% since 2021. Management highlighted that they have delivered 20 consecutive quarters where earnings available for distribution were greater than common dividends paid.
While specific forward-looking guidance was not provided, the company emphasized its focus on growing the asset management business, expanding direct lending capabilities, and pursuing new market opportunities. With $7.8 billion of permanent capital in the public markets and $80 billion of assets managed across business lines, Rithm Capital is well-positioned for future growth.
Conclusion
Rithm Capital Corp. (RITM) is a diversified asset manager with a proven track record of navigating the complex and ever-changing financial landscape. Through its mortgage origination, servicing, and asset management platforms, the company has built a robust and scalable business that is well-positioned to generate consistent returns for its shareholders. With a focus on risk management, strategic partnerships, and disciplined capital allocation, Rithm Capital is poised to continue its growth trajectory and maintain its position as a leading player in the alternative investment space.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.