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New Residential Investment Corp. (NRZ-PA)
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Stable quarter, definitely better than I expected despite GoS and MSR headwinds, attesting to the increasingly diversified investment and operating portfolio. Earnings supplement and forward-looking trends on-call objectively very positive. Next year (finally) going to be exciting. Highlights from call and earnings supplement:
A) Earnings Power:
-- Caliber closes "early this quarter",-- With Caliber core earnings would have been around $0.40+ (+30-40% vs. $0.31 from NRZ alone). - "$0.40-60" quarterly core earnings explicitly stated as the expectation for next year from combined business. - $150-200M in synergies (0.10 more in earnings per quarter in synergies + before growth $0.15 more per quarter in earnings)
B) MSR Business: -- Per slide 13 of supplement, refinance projections for 22E are less than 1/3 of 2021 and 1/4 2020, making next year the year of the MSR, and NRZ is the single largest non-bank holder of MSRs. -- Refinance recapture increased to 40.7% in Q2’21 (from 28.2% in the previous quarter) as Direct to Consumer channel had largest funding quarter. Caliber recapture even higher.
-- Now 71% capital markets financed at very low rates, so locking in long-term financing to further reduce interest expense preparing for the next 5 years MSR boom.-- Currently at a balance sheet low despite slowing prepayments (i.e. dropping refinancings), so write-ups in future when rates ascend.
C) Origination business: Purchase market to remain very strong for years with low rates, and mix with Caliber will favor purchase market. Share gains stolen from the bottom 90 originators are expected driving stability in origination business. -- They said GoS margins have hit their bottom and are stabilizing and even improving after the adverse refinance fee was removed
D) New businesses-- New early buyout (EBO) market they are entering is enormous and profitable-- moving into Single Family rental to address wave of millennial renters and launching a new operating platform in Q3/Q4
-- 2.3% of portfolio now in active forbearance down from 3.5% in Q1-- $1.1B in cash on their balance sheet AFTER close of transaction-- Risk in form of total leverage, mark-to-market, majorly reduced from 2020 across the board
-- Biggest weak spot this quarter: MSRs across the board (interest rates fell; prepayments remained high)
F) Valuation and Dividend-- $11.27 book value vs. $9.70 current price. Book value grew to $11.43 before dilution from Caliber equity financing. -- Fair value of stock according to mgmt: $15-20-- Timing for next dividend raise? Probably $0.25 in Q4, and then $0.30 by Q1/2 next year keeping with a 70% conservative core earning payout (90% req is on GAAP income)
During the second quarter, we saw a slowdown in amortization in our MSR portfolio, which we believe will provide more cash flows and higher earnings as we go forward. We also expect our robust origination platform to more than offset amortization and create more MSRs. Our continued focus on driving higher recapture rates along with technology advancements should also help to create more earnings going forward.”
Does anybody know if rising inflation is going to harm NRZ business model ?
on seeking Alpha
￼ Can someone tell me why the payout ratio on NRZ is 57.81 and the Preferred are so much higher NRZ.PB payout ratio is 178.03%
It’s made me Confused
be REALLY SUPER NICE to get our next divy stock at 9.37 instead of 10.81 last time that was a ripoff. Now get our divy up to 25 cents and .... they should give us a quarter special in december. My goal is to own 30,000 shares soon as i can -- then head up to 18 bucks with a .50 divy... THEN i will start being more happier.
Thanks @dbtunr one more Question sir the payouts ratio￼￼ which Important the payout really sure on the common share or preferred￼?
I would have sold but this is a bargain with the tailwinds. Good god what this will be worth in 3 years when our divy gets back to .50 ... GOD SPEED and all that stuff.
Where Will New Residential be in the Next 3 Years
New Residential Investment (NYSE: NRZ) is one of the larger mortgage real estate investment trusts (mREITs) in today's market. The company -- which specializes in originating and servicing residential mortgages and investing in agency and nonagency securities -- is growing quickly, putting this mREIT on a lot of investors' radars.
Since announcing its acquisition of Caliber Home Loans, and at a time when mortgage applications are on fire, there's reason to believe the company could be in a much stronger and larger position within the next three years.
New Residential Investment today
The company earns revenues in a variety of ways, including loan originations through its mortgage subsidiary NewRez, servicing through its subsidiary Shellpoint, mortgage servicing rights (MSRs), and servicing advances. Additionally, the company buys and securitizes loans and other securities and sells them in the secondary market.
Calling, buying, and selling these loans and securities allows the company to recapitalize and leverage its portfolio to buy and originate more loans, thus helping it grow its portfolio and revenues.
As of Q1 2021, the company had $24.5 billion worth of assets in its portfolio and $304.6 billion worth of loans in its servicing portfolio, making it the largest non-bank owner of MSRs and a top 10 non-bank mortgage servicer. In the first quarter of 2021, the company originated $27.2 billion in loans, up 138% year over year (YOY).
The growth over the past few quarters has largely been driven by market conditions among residential real estate. High demand for housing backed by low interest rates has created a refinancing and buying frenzy.
These conditions have surely boosted the company's revenues and, in turn, helped offset some of the negative impacts from the COVID-19 pandemic, including New Residential's 60,350 borrowers among its servicing rights currently in forbearance and the 25% of its residential loan and securities portfolio that is delinquent. Despite this recent boost, core earnings per share as of Q1 2021 is still down 29% YOY.
In April 2021, New Residential raised $522 million in a common equity offering, which is being used in part to acquire Caliber Home Loans for an acquisition cost of $1.675 billion. This acquisition adds $141 billion in unpaid balances to New Residentials portfolio while adding new systems, software, and technology to its business model.
Where the company could be in three years
The latest acquisition and current market conditions should propel New Residential forward over the next few years, adding to its earnings per share and net revenues, particularly from its servicing rights and loan portfolio growth. The company predicts the acquisition alone will result in a 25%+ return on investment by 2022.
The biggest challenge the company faces within the next five years is the low-interest-rate environment and risk of increased defaults as forbearance plans begin to expire. A significant portion of the company's portfolio is in some stage of delinquency or forbearance.
Eventually, the company will need to rectify these delinquencies either through a loan sale or loss-mitigation efforts, which can be timely and costly. Its leverage ratio is 3.5x, so the company does carry notable debt in relation to its assets, making it something to keep an eye on over the next several quarters.
The company's share prices plummeted at the start of the pandemic, having yet to recover to pre-pandemic levels. General uncertainty over the long-term impacts of the mortgage and financial market has kept many investors on the sidelines until a clearer outcome can be determined. This means its -9.05% annualized return over the last three years is a far cry from the strong performance of the S&P 500 and most other REITs, despite pandemic-related concerns.
Right now, its book value is $11.35, while current share prices are below $10, meaning the company is trading below value. This is why the company has been repurchasing a great deal of its shares over the past year and will likely continue its buy-back program until trading values get closer to projected book values.
Given its growth prospects, I don't think it's unreasonable to see the company grow three times or more over the next five years, dividends included. Prior to the pandemic, the company achieved just over a 13% annualized return from 2017 to 2020.
While this could be a worthwhile growth stock for more risk-tolerant investors, it's important to remember the volatility that comes with buying into this REIT. Investors should only buy in knowing the risks and uncertainties that could unfold over the next three years.
Let's see $10 today!
It has become a habit for some amateur self-proclaimed gurus: in order to get into a good stock for cheap, they publish deliberately negative writeups on the do-it-yourself site Seeking Alpha, WS then aggregating the headlines. Over the years they have been dead wrong. I said it before and I'll say it again: the fair valuation of NRZ is around $14.
There are three levels of conversation.
Number one:’ there are people who talk about people.
Number two: there are people who talk about events.
Number three: are people who talk about ideas.
I like talking about ideas and events.
All Reits down this am...Animal spirits not so good in general-former Wells Fargo CEO on just now on CNBC, warning about 20% correction overnext 18 months, due to mind boggling ( and increasing), natl. debt, feckless leadership
& other obvious negatives....all that is prob. true, but hopefully fundamentals will eventually win out...always does,but delayed gratification is hard, an adult & rational approach, but Not necc. popular in our current cultural climate
Large Single-Family Investors Ramping Up Inventory
Single-family investing is a profitable niche. Big companies continue to expand their inventory, but it’s unclear how much they can grow before there’s a public backlash.
Best value in MREITS now. This should be above book. Tons of upside.
I don't think NRZ's drop has anything to do with TWO's secondary. I think it has to do with the (Jeffries) analyst downgrades of RKT, UWMC and LDI on Monday. NRZ competitors in origination.
Mortgage companies GOS margins are contracting as the competitive landscape heats up. NRZ mentioned the pressure on GOS in their last CC. NRZ's focus on the DTC channel (direct to consumer) offers the highest margins but even that is contracting as well.
Jeffries Thesis: Carr emphasized his expectation that the retail mortgage market could experience an extended period of margin pressures.
“With a price war ongoing in the wholesale channel, we conducted a proprietary survey of mortgage brokers and found very low prices are likely to bleed into retail, while we get the sense that the war will continue past ‘22,” Carr wrote in a note.
Dividend plays are investments for years. Not a few weeks or months.
DRIP the cash, be happy with the monthly income when you will need it most in retirement. I'll take 8% all day everyday. GL to all the patient investors here. Day traders and momo , swing traders, there are much better plays out there.
Mortgage Rates Fall for Fourth Week, Hitting 2.78%
I believe it will be this year or several years before a real recovery for this snail.
Added more today. Pullbacks happen and I've found these are good times to add modest increments. Also did this with EFC and ABR (though both of their pullbacks came following new share offerings).
Adding in increments on pullbacks and using DRIP gets some really nice returns -- over several years. Patience matters -- and not getting wiped out in a crash also helps!! Figure we go about a decade between these sorts of major events -- they can wipe out a lot of market winnings!!
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