New Residential Investment Corp. announced on Friday that it has decided to internalize the company’s management, a step that the real estate investment trust estimates will reduce its costs and potentially attract more institutional investors to its stock.
The company is also changing its name to Rithm Capital, reflecting the diversification of its businesses as more than just a mortgage real estate investment trust. Last year, the company closed the acquisition of Caliber Home Loans and Genesis Capital LLC.
New Residential will start trading on the NYSE as “RITM” on or about August 1, 2022.
Despite the changes in the management agreement, Michael Nierenberg will continue to be the chairman of the board, chief executive officer, and president. In addition, the company will retain key personnel across functions such as investments, finance and accounting, legal, tax, and treasury.
New Residential entered into a management agreement with an affiliate of Fortress Investment Group in 2015, resulting in annual net operating expenses of $101 million for the company to be externally managed, subject to oversight by the board of directors.
The company, however, decided to be managed internally, agreeing to pay a termination fee of $400 million by December 15, 2022, of which $200 million has already been funded.
The internalization will replace the management fee with compensation, benefits, and general and administrative expenses. The company claims that this change is expected to leverage infrastructure across businesses and reduce costs.
“We view this transaction as a way to drive value for shareholders with expected cost savings, incremental synergies and ability to leverage employees across the NRZ ecosystem,” Nierenberg said in a statement.
NRZ estimates the internalization will result in approximately $60 million to $65 million in cost savings. Another benefit is it potentially expands institutional ownership by attracting investors who avoid externally managed structures.
“Our strategy has not changed – we will continue to focus on opportunities across the financial services landscape,” Nierenberg said. “We have changed dramatically since our inception, from an owner of MSR assets to a company with complementary operating companies and a unique portfolio of investments.”
The company’s first-quarter earnings repeat the logic of rising interest rates lowering origination profits but increasing servicing gains, as reported by its peers. The real estate investment trust reported a $690 million net income, a 267% increase from the previous quarter. The main contribution came from the servicing portfolio.