New Residential Broadcasts IPO for its NewRez mortgage enterprise

New Residential Investment confidentially filed a draft registration statement with the Securities and Exchange Commission confirming its intention to outsource the NewRez subsidiary in an IPO, the company said.

"Management had discussed this possibility in its third quarter earnings call, so this filing is no surprise," said Bose George, analyst at Keefe, Bruyette & Woods, in a note on the move. "It was at this point that the company also realized that an IPO could positively impact New Residential's valuation as a mortgage lender could trade at a premium at book value."

Common stock of New Residential, a real estate mutual fund that also owns mortgage-backed securities, traded at 80% of its book value in the third quarter of $ 10.86 per share, before opening on November 20, George said.

But even after the announcement, New Residential traded under that mark, opening at $ 9.30 per share on Friday.

During New Residential's third-quarter profit tender on October 29, CEO Michael Leberberg pointed out the mortgage companies that had gone public in the previous weeks.

"If we look at where these are trading, I'm not going to compare ourselves to Rocket, which trades 12 to 16 times EBITDA, but if we look at where this company could trade as a stand-alone company in the public markets They say the comps are between 5 and 6 times, "he said. "We know that the sum of our products is greater than the whole. And we believe that the value of business operations is not captured in our share price."

In addition to Rocket, Guild Mortgage completed its IPO, but two more, Caliber and AmeriHome, have delayed their IPO due to market conditions. Both United Wholesale Mortgage and Finance of America announced mergers with publicly traded special purpose vehicles.

LoanDepot also filed a confidential statement with the SEC on a second attempt at an IPO, while is reportedly considering an IPO in 2021 after an increase in private equity.

NewRez is a mortgage lender and service provider that was acquired as New Penn Financial with the acquisition of Shellpoint Partners by New Residential in 2018. In October 2019, the company was the successful bidder for Ditech's bankrupt futures deal.

Since the pandemic began, NewRez has been the bright spot for New Residential. The company earned $ 77.9 million in the third quarter compared to a loss of $ 8.8 million in the second quarter. For the quarter ended September 30, the origination business earned $ 236.1 million while the service earned $ 24.2 million.

New Residential posted revenue of $ 18.1 billion in the third quarter, up from $ 8.3 billion in the second quarter and $ 5.7 billion in the third quarter of 2019.

The number of common shares to be sold has not yet been determined, New Residential announced in a press release. The IPO is expected to occur after the Securities and Exchange Commission completes its review process, subject to market and other conditions.

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