Rithm Capital Corp.

Good day and welcome to the Rhythm Capital fourth quarter and full year 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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 two. Please note this event is being recorded. I would now like to turn the conference over to Emma Vola, 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 2024 earnings call. Joining me today are Michael Nirenberg, Chairman, CEO, and President of Rhythm Capital, Nick Santoro, Chief Financial Officer of Rhythm Capital, and Barron Silverstein, President of New Rest. 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. I want to welcome you to our fourth quarter and full year call for Rhythm. The company had a great fourth quarter and a great year. What I thought I would do today, which is a little bit different than our typical earnings call, I figured I would take a step back and talk about the Rhythm story for a minute. When you look at Rhythm, you may ask, who are we? We began the company in 2013 while at Fortress. to acquire MSRs from banks as Basel III capital rules made them too costly for banks to hold. The company, which started with $1 billion of capital, today has grown to $7.8 billion of permanent capital. Along the way, we grew our asset management business. We began building and acquiring operating companies. In 2022, the board acquired the management contract of New Residential from Fortress, and then we began the next leg of our journey which was to continue building a world-class asset management firm. Our thought was to go out and raise third-party capital. So if you think about it, while at Fortress, all the capital and all the growth of the company was done in the public markets. So to not confuse that story, we built it in the public markets. As we looked at the next leg of our lives, we said, let's go raise private capital. So in August of 22, we changed our name to Rhythm Capital. While we still operate as a REIT, We continue to evaluate the benefits of changing our capital structure. There are still some things to do in order for us to get there. Today, when I look at the firm and we look at the firm, we have what I believe is a complete product offering for shareholders and LPs in all asset classes, ranging from real estate to credit, including the new hot word in the private capital sector of ABF, which is asset-based finance, something that we've been doing our whole careers. Another exciting thing is we expect to announce soon, probably in the next 30 days, a global energy infrastructure platform with scale capital partners, which will be supplying power to data centers across the world. When I think about our business, I like to think about why us. One, results. We must have performance to grow our business. Two, we're very different than other asset managers. We have the ability to manufacture assets through our operating businesses. We underwrite, originate, and service the assets from beginning to end. Servicing matters. We've been in a very benign credit cycle for many, many years, and at some point that'll turn, and having the third largest mortgage company or servicer here in the United States is going to make a big difference for our business. Our asset management business. Many of you know we acquired Sculptor in November of 2023. We've been together for one year, and the business is doing great. The results are great, and we look forward to future growth there as well. So our value prop is the following. Results first again. When you look at the family of all of our companies, on the investment side between Rhythm, Sculptor, and some of our other investment areas, we have over 400 individuals. Our operating business lines have approximately 7,000 people. Number two, when I look at our equity, when looking at the sum of the parts, were severely undervalued. And I know as we trade as a REIT, like others that trade a REIT, either trade a book, a slightly above book or below book, I think that the sector is extremely undervalued relative to when you see other asset managers trading at 30 times DE. Our manufacturing engine for assets differentiates us from others. We can differentiate our product offerings. We can create whatever product offering one of our LPs would like. So I'll now refer to our supplement, which has been posted online. I'm going to start with page three. I'll go through most of the slides. Barron will hit the mortgage company, and then we'll go to Q&A. So when you look at the company today, between Rhythm and Sculptor, assets really being managed. Rhythm has a $45 billion balance sheet. Sculptor has about $35 billion of AUM. The combined entity is about $80 billion of AUM. $7.8 billion of permanent capital. and the company makes a little north of a billion dollars a year. When you look at growth, 76% earnings growth since the first quarter of 2021. To the right side of the page, you can have a look. New Res, our mortgage company, obviously sculpted the asset management business in the private markets. Genesis Capital, one of the largest non-bank construction slash RTL lenders in the business. Last year in June, we took over... The management contract of something called Great Ajax, it was kind of a broken REIT. We renamed it Rhythm Property Trust with the intent of growing that into, quite frankly, like a rhythm, like what others have done in the public markets around externally managed vehicles. And then we have a small SFR business in a door. Financial highlights, page four. Year-over-year growth in earnings, 27%. Earnings available for distribution, $2.10. As I look at Q4, gap net income, $263 million, or 50 cents per diluted share. Return on equity, 16%. Earnings available for distribution, $316 million, or 60 cents per diluted share. Return on equity, 20%. When you look at our dividend, it's still 9.2%, and we still pay 25 cents per common share. Book value. We ended the year at 1256, which I think is pretty much unchanged versus the prior year. And today, our book value is in and around the same. For fiscal year 24, full year, gap net income $835 million, or $1.67 per diluted share, 14% return on equity. That includes marks and other things. Earnings available for distribution, $1,050,000,000, $1,050,000,000, $2.10, $2.10 per diluted share and a 17% return in equity. And then again, the dividend yield of 9.2%. We pay $1 a year. Page five, year in review. Genesis Capital. We acquired this company from Goldman's Merchant Bank in, I believe it was December of 2021. At that time, they were doing about $2 billion in origination. This year, we did $3.6 billion. When we acquired the company, the EBITDA number was about $40 million. Today it's doing about in and around $100 million of EBITDA. So it's been a great success story. Obviously, with banks and regional banks pulling back in certain areas, this company is poised for success, and it's also poised for a lot of growth. The asset management side, as I pointed out, we're one year in with Sculptor. That's our asset management arm. The returns have been super. I mean, if you look at the multistrat fund, Last year, 18% gross or 13.5% net. And if you look at some of the other businesses around the real estate side, and I'll get into that when we look at some of the sculpture slides, just great performance. And it echoes my opening remarks that the only thing we care about is performance first. Performance first is going to lead to more AUM growth. It's not the other way around for us. When I look at the investment portfolio, we did seven securitizations in 24, a little under $3 billion. We invested $1.8 billion in residential mortgage assets. And one of the interesting deals we did, and this is very popular with a lot of LPs, we invested $200 million of equity in a large SRT transaction with a large bank, where effectively we took a slice of a mortgage warehouse. Why us? Because we have the operational capacity in the event that there was something that went awry with one of their underlying mortgage bankers. And then Nures, again, very proud of this company, proud of the team. Barron's done a great job, as has his leadership team. Top three U.S. mortgage servicer in total. Top five U.S. mortgage originator in total. And keep in mind, when we were at Fortress, we built Mr. Cooper, which was formerly known as NationStar. We started this company from scratch in 2018. So very, very proud of the team and the results that we had there. And that company is just poised to grow, and I think a lot of it, and Barron will talk to that in a little bit. When I look at our foundation for growth, we're going to continue to try to grow our third-party asset management business. We want to shrink our balance sheet. We want to do things more, again, off balance sheet. If you look to the right side of the page here, Rhythm Property Trust, I pointed out, that was an opportunistic situation. Effectively, we just took over the management contract The team has done a great job on that. We took it over in June. It was losing money. We actually got it to, at the end of Q4, where the company is flat to now making money. And that should continue to grow. Just for Rhythm shareholders, that is an external managed vehicle. So management fees, as we grow that, will feed to the bottom line. Asset-based finance, the hot topic. Everywhere, every asset manager everywhere is talking about that so-called $30 trillion opportunity. We've been doing this our whole life. Energy transition, I pointed out, we're going to be partnering and launching a global energy infrastructure fund. What's going to happen there is we're going to partner with a couple of our old Fortress colleagues, bring in third-party capital. There was a huge shortage, obviously, of power. We're not going to get in on the Q&A. We don't need to get into the deep-seek stuff. But what I would say is world-class team, we won't enter a vertical unless we have the expertise. And we're super pumped for that because the need for power around the globe is massive. And the amount of capital needed to fund all this power, whether you're building power plants or you're funding some of these hyperscalers, is going to be immense. So we're really excited about that. So that's page six. Some of the parts, I'm not going to spend a ton of time here. Bottom line is I think our equity is extremely cheap. I look at asset managers, where they trade. If you think about it, we make a billion dollars. We trade at six and change times. We have asset management. We have operating businesses. The company is extremely undervalued. I think at some point, and I thought about this coming into the beginning of the year, the market should be looking at some of the REITs and the real earnings potential around not only us, but just others and what people are doing in that sector. If you think about something at 30 times or something that's Steady billion dollars at six times. I know where I would think about it. Capital deployment on page six. This just shows going back to 21, how we've grown our earnings. We've grown it strategically. We have focused on sectors that we believe are going to generate mid-teens or teens returns. So when you have a look, earnings growth, again, up 76% since 21. And our EAD from a CAGR standpoint is up 16%. So again, very proud of that. Just a couple quick points here on Genesis. I mentioned before, bought the company in 21. Another great team. The team here at Rhythm works very closely with them. I expect this business to, we gotta be sensitive to credit, obviously, because as I pointed out in my opening remarks, we've been in a very benign credit environment for many years. While saying that, you know, this $3.6 billion with $100 million of EBITDA, I expect that to continue to grow. The asset class itself is very much in vogue. It's a mid-teens type return, and we're seeing a lot of demand from LPs for that type of product. A lot of different sponsors, and I think the upside there, when you look at, you know, unfortunately some of the disasters happening, whether it be on the West Coast and other places, we're poised to make loans in those areas. I'm going to flip to the Sculptor slides. Page 13. Obviously, when we bought Sculptor and we closed in November, I think it was the 19th of November in 2023, so truly one full year in. Returns have been great. Fundraising is going extremely well. When I look at, or we all collectively look at the teams, world-class, world-class real estate business, world-class multi-strat business. Credit, we're going to look to continue to try to grow that business over time. We restarted the CLO platform last year, and we've also accelerated some growth in a Sculptor non-traded REIT. The other thing, what I would say around Rhythm and Sculptor, Rhythm is a true partner to Sculptor. So when we look at things that Sculptor can do, whether it be launching a fund or something, it's very likely that the support from Rhythm will enable us to participate not only in that fund, but help grow those funds over time. Page 14, just the performance. Again, if you look at the Sculptor Tactical Credit Fund, for example, 25% gross, almost 20% net. Fantastic. You look at the multi-strat, I pointed out earlier, 18 gross, 13.5% net. And then when you look at the real estate business, again, these guys and gals are world-class business, second to none. When they go out with funds, I think we'd expect those to be oversubscribed. Finally, I'll talk to Rhythm Property Trust, and I'll turn it over to Barron. Again, this is the so-called broken REIT we took over in June. Right now, it's got about $250 million of equity in it. It earns a management fee and a promote. So as we continue to grow that and take advantage of dislocations in the commercial real estate market, it's our expectations that this vehicle could grow into a multi-billion dollar vehicle. With that, I'm going to turn it over to Barron who will talk about New Res.