Rithm Capital Corp.

Good morning and welcome to the Rhythm Capital fourth quarter and full year 2023 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Emma Bola, Associate General Counsel. Please go ahead.

Thank you and good morning, everyone. I would like to thank you for joining us today for Rhythm Capital's fourth quarter and full year 2023 earnings call. Joining me today are Michael Nirenberg, Chairman, CEO, and President of Rhythm Capital, and Nick Santoro, Chief Financial Officer of Rhythm Capital. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rhythm Capital website, www.rhythmcap.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. Thanks for joining our call today. As we report our fourth quarter and full year earnings, another, what I would say, 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 got us here in asset classes and and the 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 did a couple very strategic transactions which put us in a position to, one, maintain earnings, and two, grow 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 was acquired from Computershare. We expect that to close sometime here in the first quarter. As we look forward, the growth of our asset management business will be critical to the revaluing of our equity in our company and just the overall valuation of what we do here at Rhythm. 2024 and beyond should be a very good investing year, and the environment's In the current environment, and as we look forward, we are extremely well positioned to invest in all asset classes, whether that be real estate. I think it's important to note we have no legacy real estate. Credit, structured products, equities, et cetera, anything in the financial services sector, we will have a hard look at. The results at both Rhythm and the Sculptor companies in 23 were excellent, and the long-term performance in both the REIT and the asset management business put 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 a top three or four non-bank mortgage company here in the U.S. Between Rhythm and Nures, our mortgage company, we have approximately $850 billion pro forma of mortgage servicing rights, which continue to provide great income and great cash flow for our investors. As we look at the macro environment, yes, the Fed has been clear about their desire to lower rates. However, we don't see that happening until inflation comes down a little 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 that we've seen, should keep the Fed on hold for the March meeting. Regarding our positioning, we are close to home, as we have been in years, as we have hedges against all of our servicing assets. I will now refer to the supplement which has been posted online, and we're going to start on page three. Sort of a new chapter as we think about, again, the repositioning of Rhythm as a global alternative asset manager. A couple things to point out on this slide. At the Rhythm level, we have a $35 billion balance sheet. There's $7 billion of book equity. We've paid out $5 billion of dividends since the company was started in 2013. and our total shareholder return for 2023 was 43%. Sculptor, world-class asset management business, $33 billion under management in verticals such as real estate, credit, multi-strat funds, and a large CLO business. The combination of the two businesses, or when you think about the different businesses and the performance on both has been, puts us in a real position to continue to be a formidable player in the alt space. Page four, our financial highlights. 2023, book value at the end of December was $11.90. Our gap net income, we had a loss of $88 million. That's attributable to our write down of some of our MSR assets. Earnings available for distribution, $247 million or $0.51 per diluted share. Common dividend, $0.25. At the end of 2023, we had $1.9 billion of cash and liquidity and total equity of $7 billion at the rhythm level. For the full year, earnings, $533 million or $1.10 per diluted share. Earnings available for distribution, $997 million, or $2.06 per diluted share. Total economic return, 7.2%. Return on equity, 9.3% from a GAAP perspective, and 17.4% for earnings after distribution. Book value was essentially unchanged, and again, this factors in warrants, dividends, et cetera. As we think about our new chapter, What are the dynamics that we're seeing in the marketplace today, and what are some of the things that we've done at the rhythm level? In July of last year, or second quarter, Goldman announced they were pulling back on their markets business. So we went out and we acquired a billion-four of consumer loans from Goldman Sachs. As we think about the banks continuing to retreat, Civic, which was a division of PacWest, we acquired a portfolio of residential transitional loans that were originated by CIVIC. We expanded our direct lending capabilities through our Genesis Capital business, which makes residential transitional loans to builders and developers throughout the United States. To grow our alternative asset management business, we acquired Sculptor. When we think about funding gaps, dislocated sectors like commercial real estate have a real need for gap capital and equity infusions. Not having legacy commercial real estate exposure puts us in a very, very good place from a strategic standpoint. Underfunded sectors such as construction financing provide great opportunities for our Genesis Capital business. As we think about capabilities, the acquisition of SLS, which is truly a third-party servicer, helps us grow our fee-based business in the third-party servicing business, and we'll get to those slides in a little bit here. As we think about performance, and we'll get into some of the numbers shortly, both the Rhythm business and the Sculptor funds had a very, very good 2023. As we think about partnerships, we want to extend our global reach with partnerships throughout the world to create capital solutions to help us deploy more capital and then co-invest alongside of our different business lines that we have here at both the Rhythm and the Sculptor levels. Page six, Sculptor. $33 billion of AUM under management. If you look across the different verticals, large credit business, large real estate business, and a great multi-strat fund. And we'll talk about that shortly. When you look at the clients, 70% of the clients have been partners for over a decade. We've deployed at the scope deliver $200 billion of capital in credit investments. 70% of the AUM is longer duration. The investment leaders in the business over greater than 15 years at Sculptor. And then we have one team, one incentive structure, and we want to operate as a team and be really transparent with our LPs and shareholders. Page seven, 2023 performance and looking back. The credit funds, there's two credit funds. The tactical credit fund, Net, 17.9%. The Credit Opportunities Fund, 8.6. Great performance in what I would call a volatile year. The Multistrat Fund was up 12.8% net. That is one of the industry leaders in the Multistrat business. On the real estate side, life-to-date performance, Real Estate Fund 3, 20% net. Real Estate Fund 1, 12.6 net. And then if you look to the right, the performance since inception, The tactical credit fund is up 10.9% net. The credit opportunities fund, 8.8. Very good returns. And then the multi-strat is 10.6. So overall, as I pointed out in my opening remarks, we're going to lead with performance, and then we're going to build AUM around performance and hopefully grow our business with strategic LPs and partners throughout the world. As we think about the rhythm approach on page eight, opportunity, innovation, and partnership. I know these are buzzwords. We expect our private capital business to continue to grow as there's a number of sectors that have needs for funding, and we see banks pulling back in different areas. Innovation. We've been very much on the forefront of creating innovation. Keep in mind Rhythm, which was formerly known as New Residential, was born out of a commercial reef at Fortress back in 2013, started out as a as an MSR-only REIT, and then we've grown into this full-scale operating business where we have, obviously, an asset manager, we have the large REIT, and then we have our operating companies as well. And then partnership, track records matter. We all know that, and that's something we're very, very focused on. Barron's here. I'm going to let Barron talk about the mortgage company, and we'll take those slides out on page nine. All right. Good morning.