Rithm Capital (RITM) Q2 FY26 earnings call: guidance and Q&A

Rithm Capital manages over $100 billion in investable assets, including $60 billion in third-party AUM across Sculptor, Crestline, and Rithm Capital, with 71% being longer-term capital. The multi-strat fund achieved an 8% net return year-to-date through Q2 FY26, with a 3-year return of 12.3% and 4.7% volatility. Management emphasizes performance-driven AUM growth, with current fundraising focused on ABF, direct lending, capital solutions, multi-strat, and real estate credit. New product offerings like insurance solutions and infrastructure are in development, leveraging internal expertise.

Elecor, Rithm's real estate arm, manages 10 core assets totaling 9.9 million square feet, with 86.5% leased. The strategy focuses on acquiring Class A office properties at a 75% discount to replacement cost and deploying capital for value enhancement. Year-to-date leasing activity exceeded 681,000 square feet, with initial rents 21.4% higher than 2025 transactions. Operational efficiencies of $44 million have been identified, and capital improvement projects are underway at four key assets to drive future rent growth and occupancy.

Genesis Capital, a leading nonbank construction lender, originated $1.9 billion in Q2 FY26, a significant increase from $1.7 billion annually in 2022, achieving a 17% annualized operating ROE. The business is a key feeder for both Rithm's balance sheet and fund offerings, with strong demand from insurance companies and ABF funds for its high-coupon, short-duration product. The portfolio composition is 50% construction, 34% bridge, and 12% renovation, with conservative metrics like a 63% loan-to-after-repaired value. Management expects significant future growth, potentially doubling or tripling the business size, with a focus on multifamily lending.

Newrez delivered $308 million in Q2 FY26 pretax income (ex-mark-to-market), up 12% QoQ, with a 22% ROE. The company is investing in proprietary ReziAI solutions and partnerships with Valon and Home Vision to enhance efficiency, aiming for a cost per loan 50% below industry average post-integrations, and an estimated annual expense savings in excess of $65 million. MSR acquisitions were $5 billion, up 45% QoQ, contributing to an $865 billion MSR portfolio (owned and third-party). Origination volume has been adjusted to $200M-$250M/day from $350M-$400M/day due to caution on MSR values.

Rithm's investment portfolio supports operating companies and opportunistic investing, with $6.6 billion in residential investments and $3.7 billion in securitizations in H1 FY26, achieving a 15% annual ROE. The company has expanded into home improvement loans through a flow arrangement with Upgrade, closing a second $300 million securitization. Management prioritizes redeploying capital for business growth over stock buybacks or dividend increases, believing this approach will generate higher long-term returns for shareholders.