Good morning and welcome to the Rithm Capital Fourth Quarter and Full Year 2023 Earnings Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. 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 fourth quarter and full year 2023 earnings call. Joining me today are Michael Nierenberg, Chairman, CEO and President of Rithm Capital; and Nick Santoro, Chief Financial Officer of Rithm Capital. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rithm Capital website. 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. Thanks for joining our call today. As we report our fourth quarter and full year earnings, I would say it was a very solid quarter and a very good year consistent with earnings across all of our business lines. As we began 2023, we set out on a path to pivot our business to become more of an alternative asset manager while maintaining the very same discipline that has brought us to this point in the asset classes and operating companies that we own. Book value year-over-year is essentially unchanged despite all the volatility we saw in the markets. There was a little bit of warrant dilution from some warrants that were issued back in 2020, and we distributed a little under $500 million to shareholders. We continue to create solid earnings quarter after quarter, and we made a couple of very strategic transactions, which have positioned us to maintain earnings while growing our alternative asset business. In the fourth quarter, we closed on Sculptor. We also announced the acquisition of a leading third-party servicer in SLS, which we expect to close sometime here in the first quarter. As we look forward, the growth of our asset management business will be critical to the revaluation of our equity in our company and just the overall valuation of what we do here at Rithm. 2024 and beyond should be a very good investing year, and in the current environment, we are extremely well-positioned to invest in all asset classes, including real estate, credit, structured products, and equities. Anything in the financial services sector will receive thorough consideration. The results at both Rithm and the Sculptor companies in 2023 were excellent, and the long-term performance in both the REIT and asset management business puts us in a position to be at the top of the pack. This should enable us to grow our credit and real estate businesses while prioritizing results for our LPs and shareholders. To be clear, results matter. This will always trump any growth aspirations we may have as a company. Our mortgage company continues to be best-in-class. We're among the top three or four non-bank mortgage companies in the US. Between Rithm and Newrez, our mortgage company, we have approximately $850 billion pro forma of mortgage servicing rights, which continue to provide great income and cash flow for our investors. As we analyze the macro environment, yes, the Fed has been explicit about their desire to lower rates. However, we don't anticipate this happening until inflation comes down a bit closer to the Fed target of 2%, and the data softens. Friday's employment data, as well as some of the other recent economic releases, should keep the Fed on hold for the March meeting. Regarding our positioning, we are close to home, as we have been in years past, with hedges against all of our servicing assets. I will now refer to the supplement, which has been posted online. And we'll start on Page 3. As we think about the repositioning of Rithm as a global alternative asset manager, a couple of things to highlight on this slide. At the Rithm level, we have a $35 billion balance sheet and $7 billion of book equity. We have paid out $5 billion of dividends since the company began in 2013. Our total shareholder return for 2023 was 43%. Sculptor is a world-class asset management business with $33 billion under management across verticals such as real estate, credit, multi-strategy funds, and a large CLO business. The combination of these businesses places us in a strong position as a formidable player in the space. Our financial highlights for 2023 show that book value at the end of December was $11.90. Our GAAP net income reflected a loss of $88 million, attributable to a write-down of some of our MSR assets. Earnings available for distribution amounted to $247 million, or $0.51 per diluted share, and our common dividend is $0.25. At the end of 2023, we had $1.9 billion in cash and liquidity and total equity of $7 billion at the Rithm level. For the full year, earnings were $533 million, or $1.10 per diluted share, with earnings available for distribution totaling $997 million, or $2.06 per diluted share. Our total economic return was 7.2% and return on equity was 9.3% from a GAAP perspective and 17.4% for earnings after distribution. While our book value was essentially unchanged, this accounts for warrants, dividends, etc. As we think about our new chapter, we are observing several dynamics in the marketplace and what we've done at Rithm. In July of last year, Goldman announced they were pulling back on their Marcus business, so we acquired $1.4 billion of consumer loans from Goldman Sachs. With banks continuing to retreat, we acquired a portfolio of residential transitional loans that were originated by Civic, a former PacWest division. We are also expanding our direct lending capabilities through our Genesis Capital business, which lends to builders and developers throughout the US. In order to grow our alternative asset management business, we acquired Sculptor. We believe there are substantial opportunities in underfunded sectors like construction financing for our Genesis Capital business. The acquisition of SLS, a third-party servicer, will enhance our fee-based business in third-party servicing. As we review our performance, both Rithm and Sculptor had exceptionally strong years in 2023. In terms of partnerships, we aim to expand our global reach through partnerships worldwide to create capital solutions that allow us to deploy more capital and co-invest alongside our business lines. On Page 6, you'll see Sculptor has $33 billion of AUM across various verticals, including a significant credit business, a large real estate business, and a multi-strategy fund. Approximately 70% of our clients have been partners for over a decade. At Sculptor, we have deployed $200 billion of capital in credit investments, with around 70% of our AUM being of longer duration. Our investment leaders have over 15 years of experience at Sculptor, and we operate with a unified team and incentive structure for transparency with our LPs and shareholders. Looking back at 2023 performance, our two credit funds showed impressive returns, with the Tactical Credit Fund netting 17.9% and the Credit Opportunities Fund at 8.6%. The multi-strategy fund increased by 12.8% net, marking it as an industry leader. In real estate, Life-to-Date performances were 20% net for Real Estate Fund III and 12.6% net for Real Estate Fund I. Additionally, since inception, the Tactical Credit Fund has climbed to 10.9% net, with the Credit Opportunities Fund at 8.8% and the multi-strategy at 10.6%. As I pointed out in my opening remarks, we will prioritize performance and build AUM around it, hoping to grow our business with strategic LPs and partners globally. Moving to the Rithm approach on Page 8, focusing on opportunity, innovation, and partnership, we anticipate growth in our private capital business, fueled by various sectors' funding needs and the pullback of banks. We remain at the forefront of creating innovative solutions. Rithm, formerly known as New Residential, originated from a commercial REIT at Fortress back in 2013. Our evolution saw us grow from an MSR-only REIT into a full-scale operating entity, encompassing asset management, REIT, and our various operating companies. Lastly, partnership track records are important to us, and we are committed to this strategic focus. Baron will now discuss our mortgage company and details on Page 9.

Good morning. Turning to Slide 9, we had a very good year with industry-leading ROE at 19%. We view our platform as a differentiated one and structured for continued success in 2024. Our Q4 results show that the servicing segment had $210 million of income in Q4 2023. Michael mentioned the gap mark-to-market on the MSRs of $296 million. During 2023, we managed to run our origination business on a breakeven basis. Our strategic advantage lies in our servicing platform, which I will discuss further on the next slide. When we benchmark our servicing platform, you'll notice a 39% compound annual growth rate over the last six years, and with the anticipated acquisition of the SLS servicing business, we expect to nearly double our third-party fee-based income from $111 billion at the end of Q4 to $196 billion on a pro forma basis. There are numerous opportunities for us in the servicing sector, whether increasing MSRs or pursuing market share through acquisition or organic growth. As we move to Slide 10, I want to briefly overview our origination platform. Our focus remains on the retail business, and we see good alignment with Newrez's strategy. Our retail business has proven excellent at recapture due to strong customer relationships. We are also looking to enhance our retail platform and distributed retail sales leaders in sync with our servicing portfolio. The correspondent platform provides a cost-effective channel for customer and MSR acquisition, and we believe it positions us best-in-class. Our wholesale platform focuses on alternative products, while we partner with Rithm regarding non-agency products, including closed-end seconds and non-QM loans. Our centralized sales force within Consumer Direct is being expanded to act defensively across our entire business, and we are entering into strategic partnerships with various fintechs, brokerages, and builders to drive relationships and grow our origination business comprehensively. On Slide 12, we mention the focus on AI, which will revolutionize the mortgage industry. We've recently announced a strategic partnership with Microsoft to implement self-service tools for our employees. This enhancement allows our teams to concentrate on our customers and servicing them effectively. Our outlook on AI is one of significant benefit as we explore different avenues to enhance our efficiency and customer service. Now, I will turn it back to Michael.

Thanks, Baron. I want to spend a couple more minutes discussing Genesis Capital, which is a business we acquired from Goldman back in 2021. They provide loans to builders and developers with typical first lien mortgages, with attachment points ranging from 65% to 70% LTVs and coupon rates from SOFR plus 400 to 700. On an unlevered basis, the coupons on these underlying loans range from about 8% to 12%. The Genesis business is projected to reach approximately $2.5 billion in 2024. This has proven a solid business for us as banks continue to retreat in this area, which maintains a strong income and ROE potential. This final slide addresses our single-family rental business, where we currently manage about 4,200 homes, which aligns with our end of Q3 levels. This equates to about $1 billion in homes and $200 million in capital invested. While we are relatively small in this arena, we intend to grow by establishing partnerships in the Build to Rent space, given the current housing shortages in the US. Our goal is to deploy large pools of capital alongside various builders as opportunities arise in the coming years. Now, I will turn it back to the operator for Q&A.

We will now begin the question-and-answer session. At this time, we will pause momentarily to assemble our roster. The first question comes from Bose George with KBW. Please go ahead.

Hey, everyone, good morning. Can you talk about your excess capital position, including pro forma for the SLS acquisition?

Current cash on hand, as announced at the end of Q4, was roughly $1.9 billion. Today, I believe our cash and liquidity stands at about $1.7 billion, and that's where we are. We anticipate the SLS acquisition will likely fund in early March.

Yes. Post-SLS acquisition, we expect to be at around $1.3 billion and $1.4 billion in liquidity, Bose.

Is there a good way to think about cash available for deployment versus the necessary liquidity you must maintain? How much capital will you have available post-acquisition?

Post-acquisition, we anticipate about $400 million available for deployment. One key strategy over the past couple of years is to maintain ample excess cash and liquidity. We haven’t accessed the capital markets since 2020, but we're keeping an eye on the peers raising capital in high-yield markets. As we expand our alternative space, our teams are actively engaging with various LPs regarding capital formation. You can expect 2024 to be a proactive year for capital formation at Rithm and our other operating companies.

What is the final goodwill number for Sculptor?

Goodwill and intangibles are approximately $325 million.

Great. Thanks.

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

Hey, good morning. A couple of questions around recapture and portfolio. How effective do you expect to be with recapture in the correspondent channel, including the MSRs that you purchased from SLS? Is there a recapture estimate you're using?

Baron can elaborate more, but looking at the recapture business, whether it’s for us or anyone else in the market, it's crucial to analyze apples-to-apples comparisons. Our recent portfolios have consistently added value, including those from SLS. Historically, Ginnie Mae or HUD type loans have shown higher recapture success rates, while Fannie Mae and Freddie Mac products tend to be lower. That said, our refinancing recapture numbers are likely to exceed 50% as our recapture efforts are significantly enhanced by the recent rates. I think you’ll see that consistency in performance with higher numbers for Ginnie Mae products.

That's right.

Thank you. You mentioned unsecured debt being raised in the sector and possibly exploring the same yourself. Could you clarify your appetite for that and if the capital raised by others could change competitive dynamics?

Certainly. We respect all players in our industry. If we scrutinize the high-yield market, SOFR today fluctuates between 5.25% and 5.5%, and if we can issue high-yield unsecured debt in public markets, we will actively pursue that.

Thank you.

Thanks, Eric.

The next question comes from Doug Harter with UBS. Please go ahead.

Michael, regarding hedging for MSRs, can you provide an update on when those hedges were added and their performance for Q1?

In Q4, the 10-year closed around 388 or 389. We experienced a surge in the period wrapped in GAAP results reflecting the write-down of our MSR book that was, I believe, higher than expected. As we analyze those results, the total mark we took down was substantially greater, but when considering the breadth of our business, we have many high-quality assets from a duration perspective. For Q1, we have rates from our mortgages that are hedging our MSR book. We aim to stay close to home with many hedges in place. Book value is currently north of $12 a share, reflecting the gains we've witnessed in both our MSR book and hedges.

Would you expect to maintain a close-to-home strategy, or will high rates prompt adjustments?

From a market perspective, we feel recent trends necessitate the close-to-home approach for a period, especially in light of Fed communication regarding potential rate cuts. In our estimation, March is unlikely to yield a cut, but June shows a probability of 90%. Therefore, we won't fight the Fed and expect higher volatility this year compared to the last couple of years.

Thank you.

Thanks, Doug.

The next question comes from Kevin Barker with Piper Sandler. Please go ahead.

Great. Regarding the new segment information, do you view these four segments as your management structure going forward? Will these interact, for instance, between asset management and handling the investment portfolio?

Thank you for noticing the new segment structure. Yes, this is how we intend to manage the business moving forward. We have established separate segments for the mortgage company, Genesis business, asset management, and the REIT investment portfolio. There will be asset management activity across segments, enhancing synergy and effective operation.

With the available structures going forward, how do you see Rithm evolving, and what updates exist for timing on those structures?

Our business will continue to evolve, especially post-Sculptor acquisition at the end of November. We aim to simplify our narrative and structure, hence the new vertical financial reporting. Our goal is to be a world-class asset manager, necessitating ongoing simplification of our story and continuous fundraising. Over time, we will likely adjust toward a Blackstone or Ares-type structure, enhancing our asset management fees to drive terminal value for our business.

Thank you for that detail. Regarding servicing fee revenue, do you anticipate a greater share of overall revenue mix from origination revenue given a potential increase in origination volume?

We expect stability in rates to benefit all areas. However, there's a 'lock-in effect' for homeowners with low-interest rates, complicating sales. While we expect more mortgage activity in the sector, it may be slower than some anticipate. Nonetheless, we see 2024 being a more productive year than before. We are focusing on reducing expenses across all platforms while remaining opportunistic in our approach across all verticals.

We are experiencing positive momentum already, and origination volumes are increasing going into spring.

Correct.

Importantly, our platform across all origination businesses has made strategic changes in retail to align expenses and profitability goals. Variable production strategies allow us to drive higher earnings.

Thank you for the insights.

Thank you.

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

Michael, regarding growth, how do you weigh organic versus acquisitions for Sculptor's asset management business and the retail channel? Are there any targets for AUM growth?

On the Sculptor side, we are actively raising capital, with a notable effort for a fund focused on commercial real estate. We anticipate significant growth in AUM, but you must lead with performance for effective growth. I cannot specify targets, but we are open to strategic acquisitions. Our outdoor teams deliver solid results at both the Sculptor and Rithm levels, ensuring we attract more capital.

Thank you. One follow-up regarding expected expenses from acquisitions like Sculptor and SLS. Do you expect significant synergies?

Upon closing the SLS deal, we will see significant synergies. Our overall strategy is to enhance revenue streams and achieve expense savings. While Sculptor operates separately, we will identify opportunities for shared services to drive efficiency, although investment teams will remain distinct.

Thank you for the insights.

Thank you.

The next question comes from Jay McCanless with Wedbush. Please go ahead.

Michael, regarding gaps and CRE funding, what areas seem promising and how do those opportunities evolve if rates remain elevated?

There are many appealing opportunities. For instance, we are considering several office-related prospects as market players are hesitant. Currently, we see some of the best investing opportunities in our careers similar to the RTC days of the early ’90s, the great financial crisis, and various turning points. As banks continue to write down their assets, there should be a rise in opportunities for us, especially in office and distressed markets. We have identified engagements and will likely pursue other investment areas.

Could you elaborate on acquisitions in the alternative asset space and your focus?

We are looking for synergistic opportunities that complement our current business. Our focus is to prioritize shareholder returns, and improving our equity trading position is vital. Our Sculptor and Rithm teams have executed tremendously well, and we have no pressing need to add additional platforms, though we're always analyzing opportunities with an eye toward enhancing synergies.

Thank you, Michael. Additionally, in the event rates remain high, do you anticipate acquisition prospects for building out Genesis?

Yes, we expect that the outlook in the Genesis platform will involve scale. As we stand poised for growth, we anticipate the business generating around $2.5 billion in 2024. There will certainly be opportunities this year for acquiring teams or platforms in direct lending.

Thank you.

Thank you.

The next question comes from Giuliano Bologna with Compass Point. Please go ahead.

Congrats on the good quarter. I'm curious about raising MSR funds and the growth of the mortgage company.

Our discussions regarding MSR funds are ongoing. The most effective structure for these discussions and corresponding interests are being evaluated. As we work toward a fund similar to the large asset manager that raised a $1 billion fund for the Build-to-Rent space, we will continue to approach the MSR side with proper valuation metrics. We envision that our operating structure and effective recapture/origination model will make these types of endeavors viable in the long run.

What is your outlook on transitioning balance sheet assets to fund structures?

The shift toward fund structures will take time, and we are committed to careful strategic development. We believe that creating opportunities for permanent capital will serve us well. Ultimately, while we prioritize organic growth alongside external fundraising, growth into fund structures will assist with our overall valuation strategy.

Thank you.

Thank you.

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

Can you elaborate on SLS integration into Newrez's ecosystem? What is the timeframe for achieving synergies?

We signed the deal, and integration is already in progress. We aim to centralize operations within key geographic areas to bolster our servicing business. We expect a smooth transition, given the service nature of the acquisition, and anticipate achieving substantial operational efficiencies.

Any updates on potential new joint venture partnerships on the origination side?

We continuously evaluate partnership opportunities, particularly in fintech or strategic ventures that could enhance our business. Our focus consistently remains on ensuring value through any joint initiatives.

Thank you.

Thank you.

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

Looking at Slide 16, can you talk about the servicing cost per loan and its evolution post-SLS?

Our cost per loan metric has improved significantly, driven by operational leverage. Upon acquisition, SLS will enhance efficiencies and cost structures, leading to favorable cost per loan reductions owing to their integration into our robust servicing system.

What financing possibilities exist for seeking out capital on Rithm's balance sheet versus pursuing alternative fund-managed options?

We maintain distinct strategies for asset management and balance sheet investments. Our Genesis team operates in direct lending under its own conditions, while our Sculptor team manages funds effectively. We see a convergence of opportunities where investment strategies can align, but each operates with its strengths.

Thanks.

Thank you.

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

Thank you for joining. We had valuable discussions today, and your inquiries were insightful. For any further follow-ups, please feel free to reach out. We appreciate your support and wish everyone a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.