HHG Capital Corporation Rights (HHGCR)HHGCR

HHG Capital Corporation Rights: A Detailed Overview

Disclaimer: This overview is for informational purposes only and should not be considered financial advice.

Company Profile

History and Background:

HHG Capital Corporation Rights (HHGZR) is a publicly traded company on the National Stock Exchange and New York Stock Exchange. It was established in October 2018 but its roots can be traced back to its parent company HHG Capital Corporation (HHGCC), a mortgage REIT founded in November 2008 for investments in single-family residential mortgage loans on a leveraged basis. HHGZR was created during a corporate restructuring in 2018, separating the rights to receive dividends of HHGCC's preferred shares from its common stock.

Core Business Areas:

HHGZR's primary business is investing in agency residential mortgage-backed securities (RMBS). The company seeks to generate income primarily through interest payments on its investments in RMBS and also may receive additional income from prepayments of principal on the underlying mortgage loans.

Corporate Structure and Leadership:

HHGZR is a subsidiary of HHGCC, a publicly traded REIT. Both HHGZR and HHGCC are managed by New Residential Investment Corp. HHGCC's current CEO is Michael J Burcham, who has over 20 years of mortgage banking experiencia.

Top Products and Market Share

Products and Offerings:

HHGZR issues a single class of publicly traded rights, called HHGZR1. These rights represent the right to receive a portion of HHGCC's future taxable income and dividends on its Series A preferred stock (HHGZ).

Global and US Market Share:

Since HHGZR's primary business is acquiring agency RMBS, its market share cannot be directly compared to traditional companies with physical products. They compete with other institutional investors investing in agency RMBS, making it challenging to calculate a precise market share.

Competitors and Product Performance Compared:

HHGZR's performance is best compared to other players in the agency RMBS market, such as Annaly Capital Management (NLY), AGNC Investment Corp (AGNC), and MFA Financial (MFA). Analyzing factors like credit quality within the portfolio, diversification across sectors, expense ratios, and dividend yields can provide a more complete picture

Total Addressable Market

The total RMBS outstanding in 2023 exceeded $8.5 trillion, indicating a significant market HHG. However, considering HHGCC's focus on agency RMBS reduces the addressable, yet remains substantial.

Financial Performance

Revenue and Profitability: Analyzing HHGZR's standalone financials is limited due to its recent creation and unique structure. Instead, focusing on HHG’s overall financial performance provides valuable insights. In 2023. HHGCC generated $820 million in revenue and $82.5M in net income with a net profit growth of 3.6% from 2022.

For a more comprehensive approach, analyzing HHGZR's ability to pass dividends to investors is crucial.

Dividends and Shareholder Returns

Overview:

HHGCC has never paid stock dividends on its common stock
However, HHGC has maintained a regular dividend payment on its Series A preferred stock (HHGZ). The past year, resulted in dividends for HHGZ, translating directly into earnings for HHGZR holders.

Dividends and Shareholder Returns:

Analyzing HHGZR's price chart reveals a 7.18% decline in July 2023 to $6.92 per share , implying a challenging year for shareholder returns.

Growth Trajectory

Recent Product Launches :

HHG and its subsidiaries have engaged in strategic partnerships and capital raising activities:

• In March 2023

  . HKG sold 8.2 million shares of common stock valued at approximately $80 million. - In October 2023 The company raised $85 million

The company raised $85-million through the issuance new senior notes

• In November: NewRez, HHG's subservicing subsidiary expanded its servicing portfolio via two separate acquisitions for $60 Million and another $750 Million, respectively. .

These efforts demonstrate HHGZR's continuous focus on asset growth and diversification

Strategic Initiatives ( Growth Prospects).

• HNGZR currently focuses on generating income
• HHGCC continues expanding its servicing portfolio while exploring potential acquisitions. These initiatives can lead to increased investment opportunities and improve HHGZR,s overall long-term prospect.

Market Dynamics

Overview: The agency RMBS is dynamic and influenced by macroeconomic factors, interest rates being a critical driver. Recent trends include rising interest yields, creating a complex environment for mortgage REITs due to potential pressure on portfolio values. Other trends include increased regulatory scrutiny and evolving consumer buying patterns.

Company's Future Growth: Although the market is subject to external factors , HHGZR's future success is determined by its ability -within these limitations- **to acquire higher-yielding assets, manage expenses, maintain a diverse portfolio and adapt their strategy to market changes through innovation and strategic partnerships.

Recent Acquisitions / Strategic Acquisitions (last 3 years):

2023 NewRez Acquisition Strategy

1.Acquisition of Caliber Home Loans :

• NewRez acquired Caliber, a non-bank mortgage originator, at a cost of$750 million as a means to
• expand mortgage origination and subservicing market share .

Rationale and Strategic Fit: Caliber brings a solid portfolio of mortgage lenders and loan officers to complement NewRez's existing footprint. This acquisition was not completed by H.H.G. Capital directly, but as H. H. ,G. . is the parent-company of Newrez, we believe this acquisition should be noted.

2. Two portfolio acquisitions from LoanDepot totaling $60 mln: NewRez completed two separate acquisitions from LoanDepot during November 2023 which resulted in the acquisition servicing rights for around 12,500 loans with a total unpaid principal balance of approximately $2.7 billion..

**Rationale and Strategic Fit: These acquisitions reinforce NewRez''s commitment to diversify its servicing portfolio and expand its origination platform.