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New Residential Investment Corp. Message Board

  • nschwartz_99 nschwartz_99 Nov 7, 2013 2:17 PM Flag

    Is this why the stock is down and it was NOT discussed at CC.

    There is substantial 56,195 of Other Income. I've copied, pasted and laid out again the numbers for 3 months ending Sept 2013. I don't completely understand this, but these appear to be one-time items. They may re-cur in the future due to the nature of their business, but it wasn't discussed at the CC nor questioned by analysts.??? Comments appreciated!
    Other Income
    Change in fair value of investments in excess mortgage
    servicing rights 208
    Change in fair value of investments in excess mortgage
    servicing rights, equity method investees 20,645
    Earnings from investments in consumer loans, equity
    method investees 24,129
    Gain on settlement of securities 11,213
    Total 56,195
    Reconciliation of Core Earnings
    ($ in thousands)

    Three Months Ended September 30, 2013
    Income available for common shareholders $ 63,145
    Impairment - - -
    Other Income (56,195 )
    Incentive compensation to affiliate 4,470
    Non-capitalized deal costs 107
    Core earnings of equity method investees
    Excess mortgage servicing rights 8,091
    Consumer loans 18,260
    Core Earnings $ 37,878

    Sentiment: Hold

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    • NRZ's presentation of Other Income is based upon US Generally Accepted Accounting Principles (US GAAP). NRZ management believes that "Core Earnings" better reflects the health of NRZ and that is the reason for their reconciliation and what was discussed on the conference call. Under US GAAP, NRZ's investments are reported at fair value which would only be realized at that price if they were sold (in theory). Some investments are more easily fair valued than others such as if there is a ready market.

      Both presentations are important, but US GAAP is what is used for financial reporting and what will most often determine NRZ's price per in the market. Good luck!

      Sentiment: Strong Buy

    • i guess i do not quite understand why 'other income' would be such a negative factor? even though it is characterized as 'other', there seems to be plenty in there that could well be somewhat ongoing? so ... they backed out other income from core, but what happens when it continues at some level? does that make it a 'gift' eventually?

      Sentiment: Hold

    • I'm surprised no comments on this post. Maybe my suggestion in the original post is why the stock is under such pressure?

      • 1 Reply to nschwartz_99
      • Two things I think spooked the mutual funds. 1. Having its core earnings not cover its distribution. 2. Assuming a 15% return on its cash. It's cash comprises 10% of its equity right now and has to be considered a drag on the IRRs of the portfolio.

        The move in interest rates should have helped the MSR portfolio on Friday, but instead the mutual funds puked it. I think it is an under-followed name and less understood name because of the recent spin-off and might have been a delayed reaction to earnings and/or retail puking it when they saw the decline on Thursday. If you believe that interest rates are stable or heading higher then I think MSRs are where you want to be on a macro sense. Within the space, I like management and where they are positioned. TBD is the performance of the holdings over any period of time but this isn't the team's first rodeo. Given book price is ~$5/share and the team expects a high teen IRR across their portfolio, with a $6 share price this would equate to investors requiring an IRR of 15% on their equity investment in the portfolio. Looking across other MSR REITs, this still seems absurdly high.

        Sentiment: Buy

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