Rithm Capital Corp. Q3 FY2025 earnings call

Management Statement and Operational Highlights:

• Company had a great quarter with all business lines performing well, generating ~$300 million in earnings for shareholders and 18% ROE. Ended quarter with $2.2 billion cash and liquidity.
• Announced acquisitions of Crestline (expected to close Dec 1) and Paramount (expected to close mid-Dec), funding with balance sheet and third-party LPs.
• Newrez had strong quarter with pretax income up, non-agency originations, and servicing business performing well with $260 million pretax income, up 11% YOY.
• Sculptor and Crestline expanding product offerings, with ABF fund expected to close in Q4 on a leading wealth management platform.

Segment Performance:

• Newrez: One of the largest mortgage companies in the U.S. Production expected to be north of $5 billion this year with EBITDA going from ~$40 million to ~$120 million.
• Genesis: Construction lender bought from Goldman Sachs in 2022. This year, production expected north of $5 billion with EBITDA up to $120 million. Third quarter had $1.2 billion new originations, 60% growth YOY.
• Sculptor: Asset manager with ~$37 billion AUM. Recently raised north of $4 billion for their business.
• Crestline: Credit manager with $18 - $20 billion AUM acquired in September, with direct lending, NAV lending, insurance, and reinsurance businesses.
• Paramount: Class A office REIT with 13 properties in NY and SF. NY portfolio north of 90% leased, SF in low 70s.
• Rithm Property Trust: Work in progress to grow and place right assets.

Guidance:

• Expect ABF fund to close in Q4, likely upwards of $500 million with average duration ~3 years.
• No plans to raise equity for acquisitions, funding with balance sheet and third parties.
• Confidence in continuing to grow earnings and revalue the company through business expansion, including growing asset management and mortgage business.

Risks:

• Market uncertainties affecting stock price and valuation.
• Competition in asset management and real estate sectors.
• Potential impact of underwriting issues or fraud in consumer lending on the market.

Q: There's been a wide divergence in share price between Rithm and some originator servicer peers. What's the broader strategic vision and time lines?

A: Fundamentally attractive from value standpoint. Focus on driving more FRE through pipes, ABF fund closing, Crestline addition, and Sculptor growth. Consider spins/sells like mortgage company potentially going public.

Q: On Ginnie Mae streamline refis affecting gain on sale margin. Are those loans cheaper to produce?

A: Yes, they are cheaper to produce.

Q: For the initial ABF fund targeting wealth management platform, size and expected life?

A: Likely upwards of $500 million with average duration ~3 years, focusing on diversified risk products like non-QM and RTL.

Q: Thoughts on dividend payout policy?

A: No desire to increase dividend at this point; focus on reinvesting capital for accretive earnings growth.

Q: Outlook on Sculptor fundraising heading into 2026?

A: Sustainable pace, with plans to make capital investments in personnel, expecting to surpass 2025 fundraising numbers as capital formation groups synergize.