Rithm Capital (RITM) reported earnings on Friday, October 23. The 8% gain in shares that day indicates investors are starting to see what I have been preaching to my newsletter subscribers.
Rithm Capital is organized as a real estate investment trust (REIT). However, over the last four or five years, it has made numerous acquisitions, becoming more of an asset management company.
The company’s balance sheet businesses include a mortgage lender and servicer, a residential transition lender, and an owner-operator of 10 Class A office properties in New York City and San Francisco. While they are very diverse, these businesses can be viewed as REIT-type investments. These operating companies have $57 billion in assets.
Rithm also owns three alternative asset management businesses with $61 billion of assets under management.
For the third quarter, RITM reported earnings of $0.55 per share. For the trailing four quarters, the company earned $2.40 per share. The company has beaten the Wall Street estimate for the last nine quarters. Analysts expect earnings of $0.71 per share for the fourth quarter.
Book value for the quarter came in at $12.51 per share.
As I write this, RITM trades for $9.37—just 75% of book value, and less than four times trailing earnings.
In the earnings presentation, management showed a chart illustrating what RITM would be worth if it traded more like an asset management company than a finance REIT.
I believe RITM will eventually trade at least 1.0 times book, a 33% gain based on the third-quarter net asset value. The company may need to split in two, spinning off an REIT and an asset management company, to realize that value.
I don’t have a time frame on when RITM will become a $12 to $15 stock. However, the annual dividend is a well-covered $1.00 per share, meaning investors earn a 10% yield while they wait. I like that.
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