Rithm Capital Successfully Closes Paramount Group Acquisition, Bolstering Asset Management Amid Strong Earnings Boost for Preferreds

Well, the ink is officially dry! Rithm Capital (NYSE:RITM) has successfully put the finishing touches on its acquisition of Paramount Group's (NYSE:PGRE) external real estate management business. This isn't just a simple transaction; it's a strategic move, costing Rithm a cool $100 million in cash, and it's designed to significantly scale up their already substantial asset management division.

What does this actually mean for Rithm? For starters, it immediately bumps their total assets under management (AUM) up to an impressive $17 billion, climbing from the previous $16 billion mark. But it’s not just about bigger numbers; this acquisition also helps Rithm diversify its real estate strategies, adding a broader array of investment avenues to its already robust portfolio. Think of it as adding new, exciting flavors to an already successful menu, really enhancing their reach in the commercial real estate landscape.

Now, moving onto the company's financial heartbeat, Rithm recently unveiled its second-quarter earnings, and they certainly didn't disappoint. The company reported GAAP earnings per share of $0.34, with a distributable EPS – which is often what investors really focus on for REITs – coming in at a healthy $0.39 per share. Both figures comfortably sailed past what analysts had been expecting, a pretty solid win for the quarter.

Looking at dividends, Rithm continues to pay out a $0.25 per share common dividend. With that $0.39 distributable EPS, it translates to a very manageable payout ratio of around 64%. But here’s the really good news, especially for those holding preferred shares: these strong earnings provide a significant boost to the coverage for all dividends. We’re talking about common dividend coverage at a comfortable 1.56 times, and when you factor in both common and preferred dividends, the total coverage still stands strong at 1.25 times. That's a reassuring cushion for investors, knowing those payouts are well-supported.

Interestingly, the book value per share saw a slight dip, moving from $11.90 down to $11.82. However, this didn't seem to faze market observers much, particularly KBW analyst Eric Hagen. He actually reiterated his 'Outperform' rating on Rithm, and even bumped up his price target a bit, from $12.50 to $13. Hagen seems to be quite optimistic, suggesting that Rithm might even be in a position to hike its common dividend later in the year, which would definitely be a nice bonus for shareholders, wouldn't it?

As for how the market digested all this news, Rithm's shares saw a modest bump, inching up about 0.3% in premarket trading. Paramount Group, on the other hand, experienced a slight downturn, dropping around 0.7%. It seems investors are carefully weighing the implications for both sides, as is often the case with these kinds of strategic shifts.