This High-Yield REIT Could Make One Move To 2x Its Share Price

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When Rithm Capital (RITM) announced its 2024 fourth-quarter results, the CEO, Michael Nierenberg, hinted at changing the company’s capital structure, dropping its REIT status. Let’s look at RITM as a REIT and what a change might mean.

In 2022, the company, then called New Residential, acquired its management contract from Fortress Investment Group to become internally managed. Since operating principally as an investor in mortgage servicing rights, the company has grown its operating businesses to cover all aspects of real estate and investment management.

The growth has come with nicely growing profits. For 2024, RITM reported GAAP income of $1.67 per share, up from $1.10 for 2023. Two thousand twenty-four earnings available for distribution were $2.10 per share. Book value of $12.56 was up from $11.90 for 2023.

Which brings up an interesting question. The RITM dividend of $0.25 per quarter, $1.00 per year, has not changed for more than three years. REIT rules require companies to pay 90% of taxable income as dividends. Ninety percent of $1.67 would be $1.50 per share. I am not sure how GAAP income converts to taxable income. However, RITM may be forced to increase the common stock dividend to retain its REIT status. I wouldn’t mind that!

One reason to de-REIT would be to avoid the REIT dividend rules. However, doing so would also expose over $800 million in profits to corporate income taxes.

According to Nierenberg, the primary reason to change the capital structure is that RITM, which trades for around book value, is grossly undervalued compared to other asset managers that trade for up to 30 times distributable earnings. Using that math, RITM would be a $60 stock instead of a $12.00 stock.

I personally hope that the REIT status will be dropped and that our RITM shares will see two times or more gains. If they don’t, we still earn a great dividend, which looks like it needs to be increased.


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Disclaimer: The information contained in this article is neither an offer nor a recommendation to buy or sell any security, options on equities, or cryptocurrency. Investors Alley Corp. and its ...

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