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  • Jonathan Poyer

Feel the Rithm (RITM) of New Residential (NRZ)

One opportunity I’d like to highlight is New Residential (NRZ). NRZ is structured as a mortgage REIT (mortgage REITs typically mostly focus on managing portfolios of debt) but it also operates one of the largest non-bank mortgage originators/servicers in the country. There are opportunities to buy common shares, preferred shares, and corporate debt.

We wrote about mortgage servicers HERE

Access the NRZ quarterly presentation HERE

  • NRZ is rebranding to Rithm Capital on 8/1 and internalizing its management (it was previously externally managed by Fortress). The newco will be managed by all of the same key people including CEO Michael Nierenberg

  • Internalizing management should increase institutional ownership and reduce ongoing costs

  • A $400mm termination fee is being paid to internalize management – a strong sign of ample liquidity despite many market participants worried about liquidity/financing conditions

  • The common stock currently trades at a ~25% discount to book value (after payment of termination fee and Q2 dividend). This is a steep discount to NRZ’s average price to book ratio

  • Both the common shares of NRZ and the corporate debt (which matures in 3 years) yield ~11%

  • NRZ is one of the largest owners of mortgage servicing rights (MSRs), which provides book value stability in many interest rate environments.

  • NRZ’s book value does not even include the following –

    • The value of NewRez, which is its mortgage originator – one of the larger non-bank mortgage originators in the country

    • The value of their legacy RMBS call rights which could have substantial value when interest rates decline again

    • Full upside of its MSR position which will be marked up further if rates rise

  • On the last update call, NRZ’s CEO strongly hinted at share buybacks given the deep discount to book value – although Board authorization has not occurred yet

  • NRZ has no mark to market leverage against non-agency mortgage assets. This was not the case leading up to March 2020. Leverage is in a much better place now

Overall, we believe NRZ’s stock price is being dragged down by retail investors that are not able to differentiate NRZ from a simple mortgage originator without a balanced business

You can access the NRZ quarterly investor call HERE

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