Good morning, welcome to the Rithm Capital Investor Update 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. Please note this event is being recorded. I would now like to turn the conference over to Phil Sivin. Please go ahead.
Thank you and good morning, everyone. I'd like to thank you for joining us today. Earlier this morning, we issued a press release announcing the acquisition of Sculptor Capital Management and provided Rithm's preliminary results for the second quarter of 2023. Joining me on the call this morning are Michael Nierenberg, Chairman, CEO, and President of Rithm Capital, Nick Santoro, Chief Financial Officer of Rithm Capital, and Varun Wadhawan, Managing Director of Rithm Capital. Throughout the call, we are going to refer to the investor presentation posted to the Rithm Capital website, www.rithmcap.com, this morning. If you've not already done so, I'd encourage you to download the presentation now. I'd like to remind you that certain statements today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results or performance.
I encourage you to review the disclaimers in our press release and investor presentation regarding forward-looking statements and review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we'll 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 at the end of our presentation. With that, I will turn the call over to Michael.
Thanks, Phil. Good morning, everyone. Exciting news for us and the Sculptor organization today. We're really excited to announce, you know, the acquisition of Sculptor Capital Management. Sculptor, one of the leading asset management firms in the world, and it's a line of business that is extremely important to our growth in the asset management business. This continues with the narrative that I think you heard from me and others over the past year or so or the past number of months, where we're looking to develop, you know, one of the leading alternative asset managers anywhere. With Sculptor, they have it, plus us. W e're excited about that combination.
The respective management teams and investment professionals at both organizations will continue to do what they do, which is to create excellent returns for our LPs and shareholders at both the Sculptor level and the Rithm level. If you take a step back and think about this combination, we create an asset management business with $34 billion of AUM, approximately $7 billion of book equity, and a $30+ billion balance sheet. It's a real powerful company. In a minute, I'll take you through the investor presentation that Phil referred to, which is posted online. Before I do that, I just want to take you through earnings real quick for the Rithm, for our Rithm company. For the quarter, and we're going to give you a range, obviously, because it's early. GAAP earnings, $0.71-$0.77 for the quarter.
Earnings available for distribution, $0.59-$0.65 for the quarter. Book value per share, $12.13-$12.19. That's versus $11.67 at the end of Q1. Cash at the end of Q2 is approximately $1.8 billion. The other thing I want to mention before I get into the presentation, during the quarter, I'm sure some of you saw the Bloomberg article. We acquired $1.4 billion of consumer loans from Goldman. With that, let's go to the investor presentation, after that, we'll have some Q&A. The overview again, is that we're acquiring Rithm, we're acquiring Sculptor Capital Management. Sculptor is an alternative asset manager with $34 billion of AUM as of July 1.
The strategies include, I'm on page three, by the way, of the investor deck. Strategies include opportunistic credit, institutional credit, real estate, and a multi-strategy fund. The transaction today is valued at $639 million. That includes $11.15 per Class A share for Sculptor shareholders. The deal will, we're considering 100% cash consideration for all Sculptor Class A shareholders. This represents a 31% premium to the unaffected share price of $8.50, which goes back, I believe, to November of last year, and an 18% premium to Sculptor's closing price on July 21 of 2023. Sculptor Class A unit holders are to receive consideration in accordance with the operating partnerships based on an $11.15 per share price.
Class A unit holders are expected to be offered the opportunity to elect to receive cash or new units in a Rithm subsidiary. The new units would be convertible into Rithm shares. Such rollover is intended to be tax-free to the maximum extent practicable. The transaction is expected to be funded with Rithm's cash. I just pointed out at the end of Q2, we have $1.8 billion of cash and liquidity on balance sheet. Sculptor is expected to operate as a separate business unit with Rithm and will be continued to be led by Jimmy Levin and will report to me as CEO of Rithm. The financial impact to Rithm, we expect to be neutral to earnings in 2024 and accretive to earnings in 2025. The closing, we're targeted for Q4 of 2023.
Hopefully, we can get it done earlier, it's subject to the customary closing conditions and approvals by the different regulatory bodies. Flipping to page four. How do we think about this? This truly accelerates our growth as an alternative asset manager. It's a significant expansion into asset management. Again, the $34 billion of AUM plus our own Rithm Capital, creates a pretty powerful organization. Creates instant scale and broadens our reach and investment capabilities. When we think about alignment of interest and projected to be value additive for shareholders, one is, when we think about the potential, we wanna drive shareholder value while continuing to grow both companies. As pointed out earlier, we expect it to be neutral in 2024 and accretive in 2025. It bolsters the private capital business.
As we think about this going forward, we will have one private capital business, and we're really excited about the capital formation team and the Sculptor organization to be able to help us lead the way to continue to grow our business, grow AUM, and most importantly, deliver results for our LPs and shareholders. The team, obviously, many of us, both on the Sculptor side and the Rithm side, know each other for many, many years. It's a very established team on both sides. I think the combination of both organizations gives us extremely good investment expertise, and a great organization. Page five on Sculptor. Employees worldwide, 323. Investment professionals, approximately 100. It was founded in 1994. There's four global offices.
If you look to the middle of the page, when we think about the private asset and credit business, there's $26 billion of AUM, of which $21 billion is credit, four and change billion is real estate. On the market side or the multi-strat side, the debt fund currently is at $8.2 billion. We hope to grow that over time. When we look at products, there's commingled funds, there's separate accounts, there's specialized products, and there's also a non-traded REIT. On the management side, I pointed out that Jimmy, who's CEO and CIO, will lead the charge, along with Wayne, who's President, as well as the other investment professionals in the organization. Headquartered in New York, with offices in London, Hong Kong and Dubai.
When you look at page six and look at the performance, I'm not gonna take you through every one of the of the charts here, but overall performance is, you know, as you, as you go back in time, it's been really, really good. I look at the performance of the Sculptor business, I look at the performance of the Rithm business, where the values are the same. We wanna drive value for shareholders from a return perspective. I think as you take a look at page six, you'll understand the performances here. I look at the Rithm business, our performances there. Obviously, we came off a very good quarter, and things are going well for the Sculptor business as through the first half of the year.
When we look at the combined platform, again, it's $34 billion of AUM, the Rithm balance sheet, $32 billion. We expect from a structure standpoint, that will continue to evolve. I know as we get into some of the Q&A, we filed an S-1 on our mortgage business, and we'll talk a little bit about that. I think when you take a step back and from a structure standpoint, Rithm Capital is a mortgage REIT. You know, we expect that Sculptor will be a wholly owned sub of the parent, Rithm. When you look at the operating companies we have along the way, we have our investment portfolio, which is led by Charles Sorrentino. We have our mortgage company, led by Baron Silverstein.
We have Genesis Capital, which is led by Clint Arrowsmith, GreenBarn, which we're 50/50 partners on the real estate side with David Welsh and David Schonbraun. Adoor, our single-family rental business, where we have over 4,000 units. Then we have supporting businesses in what I would call our single-family residential business, with a title company, appraisal company, and a property preservation business. Everything, when you look at our business today, is very, very strategic, built around the entire organization, the way that we've been building and forming this company. When you look at page eight, we talk about our track record of corporate transactions, the company, as I think many folks know, was born in 2013 under the Fortress umbrella. It was really formed to acquire excess Mortgage Servicing Rights.
Over the years, we grew where we became licensed owners to be able to acquire Mortgage Servicing Rights. We bought a company called HLSS. Actually reverting back to 2013, and this may come up around the consumer side. In 2013, we acquired $4 billion of consumer assets with a couple partners from under the SpringCastle umbrella. We were part of that transaction. SpringCastle ultimately became OneMain Financial, a lot of what I would call good creativity at the Fortress level over the years. In 2017, we acquired $100 billion of MSRs from Citi.
We also were, we were part of a consortium with Soros, Jefferies, and Third Point to acquire up to 35% of the equity for penny warrants from a company called Prosper. We still have roughly 8% of that as a consumer loan lender. 2018, we acquired Shellpoint Newrez. 2019, we acquired Ditech assets out of bankruptcy. We also acquired a company called Guardian Asset Management, which is our property preservation business. 2021, we bought Caliber from Lone Star Funds. Really the play there was, you know, we were sourcing very, very cheap, what we thought at that time, mortgage servicing rights. That's been a terrific transaction for us. Genesis Capital was acquired from Goldman Sachs Merchant Bank. That's our business purpose lender.
2022, we enter into a JV, where we own 50% of the opco of GreenBarn, which is a former Normandy Partners business. Today, we're super thrilled to announce the acquisition of Sculptor Capital Management. Everything very strategic around what I would say, financial services, and we look forward to the growth in all of these organizations and platforms. As we think about the strategic opportunities, clearly being in the business, we see a lot of, what I would say, flow in deals. We think that will continue. The combined platform is very well positioned to capitalize on those opportunities. Our infrastructure, we should be able to leverage the infrastructure to drive enhanced opportunities for growth and expansion.
We would, as we think about capital formation, you know, one of the things we think about is creating, you know, new fund strategies, that could diversify and, you know, the possibilities are endless, is what I would say. As we think about capital, obviously plenty capital on balance sheet. Sometimes many of you ask us, well, you know, why are we carrying around so much capital? It's for opportunities like the one we're announcing today. From a fund perspective, continued increasement to increased commitment to our fund business. I've been running around the globe for the past six months or so, meeting with different LPs, and I feel like we're making some very good headway.
You couple that with the Sculptor Capital Management, again, I think that there is significant upside for our shareholders and LPs in this transaction. We think about synergies, we're gonna capitalize on the strength of Rithm and Sculptor Capital Management. You know, we've done this before when I was part of the Fortress Investment Group. We're gonna drive alignment with the management team. We have performance-based long-term incentive plans in place, and we're gonna be able to benefit from the ongoing leverage as Sculptor Capital Management continues to grow within our organization. On page 11, you look at our financial results, I just pointed out we had a terrific quarter. There is a one-time gain, you know, related to the securitization of our excess MSRs.
If you take that out the quarter, in and around $0.42 in core, that's versus a $0.25 dividend. The business continues to perform extremely well. The team is performing extremely well. Book value, I'd point out, you know, we grew. We're getting closer to home as we look at where rates are. Cash and liquidity, again, $1.8 billion. Total equity, $7 billion. Dividend yield at the end of June, 10.7%. I think with that, I'll just finish up on page 12, we'll go to some Q&A. I mean, I'm sorry, on page 12. You know, in Q2, we deployed $330 million of what I would say, equity.
That includes the $1.4 billion of Marcus loans acquired from Goldman Sachs. We've done a few things in the commercial real estate side around debt and equity. We did a couple of securitizations, one specifically around our excess servicing rights. The mortgage company continues to perform extremely well. Our Genesis business is performing extremely well. When we look at our SFR business, we've acquired a number of units in partnership with some of the largest home builders here in the U.S. Just to summarize before we get into Q&A, super excited about the transaction. It's very, very transformational for us. We look forward to working with the Sculptor team, and I think for us, quite frankly, the possibilities are endless.
With that, I'll turn it back to the operator for some Q&A.
Thank you. We'll now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys, to withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Bose George, from KBW. Please go ahead.
Hey, guys. Good morning. Congratulations on the deal.
Thanks, Bose.
In terms of future growth at Sculptor, is it a combination of organic and inorganic? To the extent it's inorganic, is the capital more from Rithm? Is there some room at Sculptor for leverage at the corporate level? Just, yeah, can you just discuss growth?
I mean, the cash consideration is all coming from Rithm. I mean, clearly there'll be some, if you go back, we're offering the Class A unit shareholders the ability to roll into new Rithm units. That would be less capital required. You know, again, everything's gonna be funded from the Rithm balance sheet at this time.
Then just in terms of, you know, future growth as well, can you just discuss how that.? Ho w that could sort of develop in terms of is it organic?
Yeah, I think it's both. You know, I do think the REIT is gonna continue to grow, and I think that, you know, in our partnership with the Sculptor folks and Jimmy and the team, we're gonna continue to work together to grow that platform as well around AUM. I think it's twofold. You know, you look at, obviously, you know, the leader of the pack and will continue to be the leader of the pack. If you look at what Blackstone has, and, you know, obviously they have their mortgage REIT, and they have their private capital business. You know, I think any of us in the asset management business and would aspire to having a reasonable capital structure that looks something like that.
You know, we're not gonna get to $1 trillion in assets, but I look forward to getting to some percentage of that.
Yeah. Yeah, yeah. No, makes sense. Thanks. Then just in terms of the deployment you guys did into the Goldman Marcus loans, how much capital did that entail?
It was only about $150 million. There's some, you know, there was some term financing that we did alongside that. You know, from a levered return standpoint, we think it's gonna be something, you know, loss adjusted in the 15%-20% range.
Okay, great. Thanks a lot.
Thank you both.
Next question comes from Eric Hagen from BTIG. Please go ahead.
Hey, thanks. Good morning, guys. Congratulations. How do you expect this acquisition maybe drives the scope as well as the timeline to potentially spin out portions of the existing Rithm company? I mean, you guys talked about it a little bit in the remarks. Until you potentially effect a spin out, how do you expect to manage the leverage in Rithm? Thank you.
On the first question, Eric, around the existing company, the only thing that's different today is. There's really nothing different. We followed a, you know, confidential S-1 on the mortgage company, with the expectation that at some point we're going to unlock value for shareholders. You know, as we all know, you know, we've had a very good run in that business. We have a quite a bit of capital there, so if we can create a separate entity around that business, whether it be public or private, we think that's gonna unlock value for shareholders. As far as leverage in the business, you know, there's no real change in what we're doing.
We're sitting on plenty of cash and liquidity, I believe, you know, over time, we're gonna continue to sit on plenty of cash and liquidity. You know, the other thing I would say is, you know, the pipeline as we think about the world and investing, which we all do, because that's what we do for a living, is interesting, and it's only going to get more interesting. Plenty of cash and liquidity on balance sheet, no change in leverage. Mortgage company will create optionality for shareholders, and our sole goal is to continue to drive results and get our stock price higher.
Yep, that's helpful. Can you talk really quickly about how you expect to rebuild your cash position around both the Marcus acquisition and the Sculptor deal? W hich assets are you gonna?
You know.
Draw from?
I don't think quite frankly, I don't think we need to do anything. We've been carrying a fair amount of cash and liquidity on balance sheet. You know, our stock is, we trade well below book value, you know, book value in the, you know, in the 12%, 15%, 16%, 20% range versus where our stock. I don't anticipate us raising any equity there. Clearly, we, you know, our desire is to continue to grow our private capital business, thus the Sculptor acquisition. I think it's gonna remain the same. While saying that, you know, we're always open to, you know, strategic ideas and initiatives that we think are gonna help grow our share price.
Yep, that's helpful. Thank you, guys.
The next question comes from Doug Harter from Credit Suisse. Please go ahead.
Thanks. I mean, Michael, you mentioned, you know, you've been traveling around trying to kind of start the Rithm third-party fund business. You know, kind of any thoughts around kind of where you are on that and, you know, how this acquisition kind of changes the trajectory of raising funds for Rithm Strategies?
What I would say is I think it is a game changer for us. I think I pointed out in my opening remarks that the Sculptor organization has between 25 and 30 capital formation folks. Until the deal closes, obviously, we're gonna, I'm gonna be on the road, and we're gonna be on the road speaking to LPs and shareholders, and doing all we can to build our fund business. I think over time, we're gonna gravitate towards one private capital business. This acquisition is a game changer which enables us to do that.
Great. Thank you.
Thanks, Doug.
Our next question comes from Jay McCanless from Wedbush Securities. Please go ahead.
Hey, good morning. Thanks for taking my questions. I was wondering if you could break out a little more what the real estate credit and then the real estate assets under management, what type of exposure they have to multifamily, commercial, et cetera?
What I would say on the real estate side, is that the person that runs that business, Steven Orbuch, is, you know, he's a seasoned vet, and he's a great investor, and that business is performing extremely well. Without getting into too much detail, office exposure is extremely, you know, I don't know off the top of my head, so I don't want to quote it. The overall real estate business has done extremely well. It will continue to do extremely well, and I believe that we expect that to be a significant growth driver in the Sculptor organization as we go forward. Steve and the team are terrific, you know, I would say that, you know, from a portfolio standpoint, they're in great shape.
Okay. That's good to hear. Just for Rithm, specifically, any comments around Genesis and BPL? A nything you'd want to call out from either a delinquency standpoint or credit performance standpoint, especially as it relates to single-family construction?
Yeah, you know, we haven't gone outside our box. What I would say from an LTV standpoint, that business has done really well for us. It continues to perform extremely well. I think delinquency levels, you know, if there was a number, it could be like 0.01%. Maybe there's a loan or so that's delinquent. But overall, the performance has been great. You know, we see the same type of performance, I would tell you, on our single-family residential business and the mortgage company. You know, performance has been great. The homeowner seems like they're in great shape. We haven't gotten over our skis, I would say, anywhere as it relates to the lending businesses that we do.
In fact, I think we're significantly more conservative than others, even when we look at the non-QM business, and if you compare us to others, you know, our box is significantly tighter than others.
Great. The last on I know you said that the S-1 for the mortgage company is still confidential. Any timeline for when we might see that be publicly filed?
I don't, you know, on this call, I can't tell you what that looks like. Bruno, I don't know if there's anything to share on that or Nick.
No, there isn't. There isn't anything to share right now, Michael.
All right.
Okay, great. Thanks for taking my questions. Appreciate it.
Thank you.
Next question comes from Kevin Barker, from Piper Sandler. Please go ahead.
Morning. Thanks for all the comments on Sculptor and Marcus in particular. Could you also please give us an update of what happened with 2Q? I notice that you reported net income of $0.71 and, you know, earnings for distribution of $0.59. Could you just give us an idea of what's the main driver of some of that, in particular, like what happened with the servicing fees or even the mark-to-market of the MSR this quarter?
Sure. Nick, you know, just I'll give you a highlight. Nick will take a little bit more of the specifics. There's $0.20 that's equated to an excess MSR securitization that we did with one of the agencies. That takes you roughly down to $0.40. Away from that, the servicing business performed extremely well. Nick, maybe you wanna just give a little bit more clarity and if there's anything else you want to add there.
Sure. Kevin, in terms of book value, I would say the increase has been primarily driven by an increase in our MSR mark that's in line with other increases that you've seen this quarter. With respect to our earnings available for distributions, as Michael mentioned, $0.20 of that relates to the excess trade. Eric, just to back up on one of your questions, we actually used the capital from that excess trade to fund the Marcus transaction. It was essentially cash neutral. That would bring our earnings available from distribution down to $0.42. That's primarily driven by our servicing book.
What we experienced was, our amortization continues to be low, and there continues to be strong servicing fee income as well as custodial flow. Those are the highlights for the quarter, Kevin.
Okay. Longer term, Michael, I mean, you know, when we look at a year from now, What do you envision, you know, Rithm to look like? Is it just Rithm or is there several entities? How much assets under management do you feel like you can get to, maybe one year or maybe even by 2025?
I think it's a good question. I don't know that any of us have a crystal ball. I will tell you between the Sculptor organization and the travels that me and our team have had, I'm very encouraged by the reception that we're getting from LPs and investors around the private capital business. As you know, everything's led by performance. You know, when you look at our performance, you look at Sculptor's performance, the main thing for us is we got to stay focused on our existing businesses and driving results for our shareholders. That's the only thing that matters. If we didn't grow a dollar and we're driving results for our shareholders and LPs, that's gonna enable us to grow. I would expect we have some pretty good AUM growth.
I pointed out there is 25 to 30 people in the asset, in the capital formation group, give or take. That's gonna help us grow. Our performance is gonna help us grow. I don't have a specific number. I'd like to tell you $500 billion, but we're not gonna be $500 billion. You know, it's one step at a time. It's performance first. It's taking care of our LPs and our shareholders. As we continue to do that, I think that the business will continue to grow. As much as I'd like to give you a number, I just don't have what that is.
Yeah. Thank you, Michael.
Crystal ball. Thanks, guys.
Thank you.
Our next question comes from Kenneth Lee, from RBC Capital Markets. Please go ahead.
Hey, thanks for taking my question. Good morning. wondering for the Sculptor transaction, if you could just provide more details around any kind of long-term incentive compensation for the management team, retention or earnouts for the Sculptor management team? Thanks.
There's both. There's retention, and there's also a long-term incentive plan, which I think you'll see, you know, some more details that'll come out down the road. What I would tell you is doing this for 35 years, you know, from some of the biggest, you know, banks or investment banks that I've worked at and on the Sculptor side, I think we know how to compensate people. Obviously, compensation is an important thing. You know, having the right balance between that and results matters. I think we have struck a very good balance where we are today. Ken, you'll see details come out down the road.
Gotcha. That's all I have. Thank you.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Michael Nierenberg for any closing remarks.
Super. Appreciate everybody's comments and questions. Look forward to continuing the dialogue. Again, super excited about this strategic acquisition for us and more importantly, partnership with the Sculptor folks. I'm sure there'll be a lot more questions as we go down the road and we're around. If we don't speak, have a, have a great rest of the summer and look forward to speaking soon. Thanks, everyone. Stay well. Bye.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.