Q1 2025 Ready Capital Corp Earnings Call and Business Update
Operator: Greetings, welcome to Ready Capital's first quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation.
Greetings welcome to ready Capital's first quarter 2025 earnings conference call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
Operator: If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded.
If anyone today should require operator assistance during the conference. Please press star zero from your telephone keypad.
Please note this conference is being recorded.
Operator: I'll now turn the conference over to Andrew Ahlborn, Chief Financial Officer. Mr. Ahlborn, you may begin your presentation.
Speaker Change: I'll now turn the conference over to Andrew Ahlborn, Chief Financial Officer, Mr. Albert You May begin your presentation.
Andrew Ahlborn: Thank you, Operator, and good morning to those of you on the call. Some of our comments today will be forward-looking statements within the meaning of the federal securities law. Such statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them.
Speaker Change: Thank you operator, and good morning to those of you on the call.
Speaker Change: Some of our comments today will be forward looking statements within the meaning of the federal Securities laws.
Speaker Change: The statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
Speaker Change: Therefore, you should exercise caution in interpreting and relying on them.
Andrew Ahlborn: We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating a company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
Speaker Change: We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.
Speaker Change: During the call we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These.
Speaker Change: These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
Andrew Ahlborn: A reconciliation of these measures to the most directly comparable gap measure is available in our first quarter 2025 earnings release and our supplemental information, which can be found in the investor section of the Ready Capital website.
Speaker Change: A reconciliation of these measures to the most directly comparable GAAP measure is available in our first quarter 2025 earnings release, and our supplemental information, which can be found in the investors section of the ready capital website.
Andrew Ahlborn: In addition to Tom and myself on today's call, we are also joined by Adam Zausmer, Ready Capital's Chief Credit Officer.
Speaker Change: In addition to Tom and myself on today's call. We are also joined by items Asmara ready Capital's Chief Credit Officer.
Thomas Capasse: I will now turn it over to Chief Executive Officer Tom Capasse. Thanks, Andrew. Good morning, everyone. And thank you for joining the call today. In terms of the first quarter macro backdrop, while the recovery in the CRE market has been affected by tariffs and increased recession risk, the impact on our core multifamily sector has been muted. Deliveries appear to have peaked in 24 with excess demand, resulting in a 1% increase in rent. in 1Q25.
Speaker Change: I will now turn it over to Chief Executive Officer, Tom capacity.
Tom Capacity: Thanks, Andrew Good morning, everyone and thank you for joining the call today in terms of the first quarter macro backdrop, while the recovery in the CRE market has been affected by tariffs and increased recession risk the impact on our core multifamily sector had been muted deliveries appear to have peaked in 'twenty four with excess demand, resulting in a 1% increase in rents.
Speaker Change: In <unk> 25.
Thomas Capasse: With this context, in the fourth quarter, we initiated a defensive late cycle posture and reset the balance sheet. In the first quarter, we made progress on several fronts, including stabilizing book value per share, completing targeted liquidations, closing the UDF merger at accretive economics, and successfully raised liquidity through capital markets execution, including debt issuance and collapsing existing CLOs. To start, book value per share quarter over quarter was flat at $10.61 per share. We benefited this quarter from an $0.11 per share increase in the repurchase of 3.4 million shares and $0.14 per share from the closing of the UDF merger.
Speaker Change: With this context in the fourth quarter, we initiated a defensive late cycle posture and reset the balance sheet in the first quarter, we made progress on several fronts, including stabilizing book value per share completing targeted liquidations clothing, the udf merger at accretive economics and successfully raised liquidity through capital markets execution.
Speaker Change: When including debt issuance and collapsing existing clo's.
Speaker Change: To start book value per share quarter over quarter was flat at $10 61 per share. We benefited this quarter from an 11% per share increase in the repurchase of three 4 million shares and 14 cents per share from the closing of the Udf merger.
Thomas Capasse: When accounting for the UDF merger, the dividend shortfall was primarily due to a reduction in net interest income as assets in the non-core portfolio transitioned to non-accrual status. We have provided additional transparency to aid in evaluating the recovery in our net interest margin, or NIM. To this point, we have bifurcated our $7.1 billion total CRE loan portfolio into a $5.9 billion core, higher yield, better credit bridge loans, and $1.2 billion non-core, comprising two segments. $740 million of low-yield distress credit bridge loans, and our $430 million Portland-Oregon mixed-use asset segment. Payoffs from bridge loans resulted in a 5% decline in the core portfolio to $5.9 billion a quarter end, comprising 1,400 loans with 78% concentration in multifamily.
Speaker Change: When accounting for the merger of the dividend shortfall was primarily due to a reduction in net interest income as assets in the noncore portfolio transition to nonaccrual status.
Speaker Change: We have provided additional transparency to aid in evaluating the recovery in our net interest margin or NIM to this point, we've bifurcated. Our 7.1 billion dollar total CRE loan portfolio into a $5 9 billion core higher yield better credit bridge loans and $1 2 billion noncore.
Speaker Change: Comprising two segments $740 million of low yield distress credit bridge loans, and our 430 million dollar Portland, Oregon mixed use asset segments.
Speaker Change: Payoffs from bridge loans resulted in a 5% decline in our core portfolio to $5 9 billion at quarter end, comprising 1400 loans with 78% concentration in multifamily.
Thomas Capasse: Credit rep metrics remained healthy with little negative migration. 60 day plus delinquencies remain relatively low at 4%. $117 million increase quarter over quarter. Our expectation is that 52% of the quarter one additions are resolved in the second quarter. Risk rated four and five loans increased to seven and a half percent of the total and underlying property fundamentals remain strong with a rated average debt yield of seven percent. In the core portfolio, we modified five loans totaling $312 million, increasing the percentage of modified loans to 18%. The five mods comprise three short-term forbearances, providing borrowers a bridge to a longer-term modification, and two with current pay reductions.
Speaker Change: Credit metrics remain healthy with little negative migration.
Speaker Change: 60 day, plus delinquencies remained relatively low at 4% or $117 million increase quarter over quarter, our expectation is that 52% in the quarter. One additions are resolved in the second quarter.
Speaker Change: Risk rated four and five loans increased to seven 5% of the total and underlying property fundamentals remained strong with a weighted average debt yield of 7%.
Speaker Change: In the core portfolio, we modified five loans totaling $312 million increase in the percentage of modified loans to 18%.
Speaker Change: The five mods comprised three short term forbearance is providing borrowers a bridge to a longer term modification and two with current pay reductions.
Thomas Capasse: We believe the core portfolio Earnings Profile provides a foundation for starting to rebuild NIM in the coming quarters. A leveraged yield of 10.2% generated $43.4 million of net interest income or $0.26 per share, 80% of which is current pay. In our non-core bridge loan portfolio, largely comprised of assets where the net present value of sale exceeds on balance sheet management strategies, we surpassed first quarter liquidation targets by close to 2x. We liquidated $51 million at a 102% premium to our mark, generating $28 million of liquidity and reducing the non-core portfolio by 6% to $740 million.
Speaker Change: We believe the core portfolio.
Speaker Change: These profile provides a foundation for starting to rebuild NIM in the coming quarters.
Speaker Change: Levered yield of 10, 2% generated $43 4 million of net interest income our 26 cents per share 80% of which is current pet.
Speaker Change: And our noncore bridge loan portfolio are largely comprised of assets, where the net present value of sale exceed on balance sheet management strategies, we surpassed first quarter liquidation targets by close to two X. We liquidated 51 million at a 102% premium to our mark generating $28 million of liquidity.
Speaker Change: And reducing the noncore portfolio by 6% to $740 million.
Thomas Capasse: In the second quarter, we expect to additionally reduce the non-core portfolio to approximately $270 million via an additional $470 million of liquidation. The target for year-end 2025 is a further reduction to $210 million through in-place asset management strategies. The cumulative go-forward earnings impact from these sales will be $0.24 per share, 70% from a reduction in negative carry, and 30% from the reinvestment of sale proceeds.
Speaker Change: In the second quarter, we expect to additionally, reduced the noncore portfolio to approximately 270 million via an additional $470 million of liquidations. The target for year end 2025 is a further reduction to $210 million through in place asset management strategies.
Speaker Change: Cumulative go forward earnings impact from these sales will be 24 cents per share 70% from a reduction in negative carry and 30% from the reinvestment of sale proceeds.
Thomas Capasse: Our noncorp portfolio includes the Portland mixed use asset, a construction project completed in October 2023, Ready Capital had held a $516 million senior loan. The property features premier hospitality, retail, office, and residential offerings in Portland, with each component now moving to stabilization. In the fourth quarter, the position was marked down to $426 million, and we are currently working to obtain title, after which we intend to move aggressively to stabilize the asset and generate upside from our current mark. In the quarter, REVPAR and the hotel improved 11% to $209, leasing of the combined office and retail remain at 28%, and an additional two condos were sold.
Speaker Change: Our noncore portfolio includes a Portland mixed use asset a construction project completed in October 22023, ready capital had held at 516 million senior loan.
Speaker Change: The property features premier hospitality retail office and residential offerings in Portland with each component now moving to stabilization in the fourth quarter that position was marked down to $426 million and we are currently working to obtain title after which we intend.
Speaker Change: To move aggressively to stabilize the asset and generate upside from our current mark.
Speaker Change: In the quarter Revpar in the hotel improved 11% to $209 leasing of the combined office and retail remain at 28% and additional two condos were sold.
Thomas Capasse: The financial effect of the asset moving from performing construction loan to non-accrual was a quarter over quarter $0.13 per share reduction in earnings, with the current carry expense in the quarter of $0.05 per share. We expect to sequentially exit the three components as they stabilize and remain fully committed to support the project both financially and operationally.
Speaker Change: The financial effect of the asset moving from performing construction loan to non accrual was a quarter over quarter 13 cents per share reduction in earnings with a current carry expense in the quarter ups five cents per share.
Speaker Change: We expect to sequentially exit the three components as they stabilize and remain fully committed to support the project both financially and operationally.
Thomas Capasse: In our SBA business, forks quarter volumes remained high at $343 million. While we anticipate moderation and volume ahead, we view recent policy updates from the SBA as constructive towards reinforcing the program's long-term strength and integrity. Ready Capital continues to deliver performance above industry benchmark. Our 12-month default rate was 3.2% versus the industry average of 3.4%, and our five-year charge-off rate has now declined for the fourth consecutive quarter, reflecting the strength of our credit and servicing practice. Additionally, our 12-month repair and denial rate reached a historic low. As the most established and active non-bank SBA lender, we remain confident in our ability to navigate a shifting policy landscape.
Speaker Change: In our SBA business fourth quarter volumes remained high at $343 million.
Speaker Change: While we anticipate moderation in volume ahead, we view recent policy updates from the SBA is constructive towards reinforcing the program's long term strength and integrity.
Speaker Change: Capital continues to deliver performance above industry benchmarks, our 12 month default rate was three 2% versus the industry average of three 4% and our five year charge off rate has now declined for the fourth consecutive quarter, reflecting the strength of our credit and servicing practices. Additionally, our 12 month repair and denial rate reached a.
Eric Love: Eric Love.
Eric Love: That's the most established and the active non bank SBA lender, we remain confident in our ability to navigate a shifting policy it landscape.
Thomas Capasse: Our current platform origination capacity is between $1.5 to $2 billion. Given current capital constraints, which include $175 million of additional warehouse capacity currently awaiting SBA approval, we expect 2025 volume to come under that $1.5 billion mark. However, adoption by Ready Capital to the new SBA underwriting guidelines and the proposed Made in America Finance Act legislation, which would increase the SBA loan cap from $5 to $10 million for manufacturing facilities, provides the path to higher origination volume.
Eric Love: Our current platform origination capacity is between one and a half to $2 billion.
Eric Love: Given current capital constraints, which include 175 million of additional warehouse capacity currently waiting SBA approval, we expect 2025 volume to come under that $1 $5 billion Mark.
Eric Love: However, adoption by ready capital to the new S. P. A underwriting guidelines and the proposed made in America financed act legislation, which would increase the SBA 11 cap from $5 million to $10 million for manufacturing facilities provides the path to higher origination volume.
Thomas Capasse: In terms of the outlook, as we mentioned earlier, we put in place a balance sheet repositioning plan in the fourth quarter, where in liquidation of the non-core book would provide liquidity for reinvestment in the core portfolio to reinstate NIM to peer group levels. We believe the plan will be executed in 2025 with accretion in 2026. This assumes the continuation of the high current rate stressed economic environment offset by the strong bid for our multi-family non-core assets benefiting from the influx of opportunistic capital to the sector. In addition, upside exists from lower short or long rates, quicker stabilization of the Portland asset, and faster implementation of the SBA changes.
Eric Love: In terms of the outlook as we mentioned earlier, we put in place a balance sheet repositioning plan in the fourth quarter were in liquidation of the noncore book would provide liquidity for reinvestment in our core portfolio to reinstate NIM to peer group levels.
Eric Love: Believe the plan will be executed in 2025 with accretion in 2026.
Eric Love: This assumes the continuation of the high current rate stressed economic environment upset by the strong bid for our multifamily noncore assets benefiting from the influx of opportunistic capital to this sector.
Eric Love: In addition, upside exists from lower short or long rates quicker stabilization of the Portland asset and faster implementation of the SBA changes.
Thomas Capasse: As such, absent further material deterioration in the macro environment, we expect our dividends remain at its current level until the earnings profile warrants an increase.
Eric Love: As such absent further material deterioration in the macro environment, we expect our dividend to remain at its current level until the earnings profile warrants should increase with that I'll turn it over to Andrew to go through the quarterly results.
Andrew Ahlborn: With that, I'll turn it over to Andrew to go through the quarterly results. Thanks, Tom. First quarter gap earnings for common share were $0.47, while distributable earnings were a loss of $0.09 per common share and $0.00 excluding realized losses on asset sales.
Andrew Ahlborn: Thanks, Tom first quarter GAAP earnings per common share were <unk> 47.
Andrew Ahlborn: While distributable earnings were a loss of nine cents per common share and zero cents, excluding realized losses on asset sales.
Andrew Ahlborn: The following factors impacted our quarter earnings. First, as expected, net interest income declined to $14.6 million in the quarter. The reduction was primarily due to the movement of non-core assets to non-accrual status. which generated a cash yield of 1.3%. In the core portfolio, the interest yield was 8.4% and the cash yield was 6.7%. In the quarter, $7.5 million of interest income recorded was non-cash and primarily relates to loans acquired in the UDF merger and certain modified loans. Second, gain on sale income, net of variable cost decreased $835,000 to $20.1 million. This income was driven by the sale of $254 million of guaranteed SBA 7A loans at an average premium of 10.1% and the sale of $43.3 million of Freddie Mac loans at premiums of 1.1%.
Andrew Ahlborn: The following factors impacted our quarter earnings.
Andrew Ahlborn: First as expected net interest income declined to $14 6 million in the quarter.
Andrew Ahlborn: The reduction was primarily due to the movement of noncore assets to non accrual status.
Andrew Ahlborn: <unk> generated a cash yield of one 3%.
Andrew Ahlborn: In our core portfolio the interest yield was eight 4% and a cash yield was six 7%.
Andrew Ahlborn: In the quarter $7 5 million of interest income recorded was non cash and primarily relates to loans acquired in the udf merger and certain modified loans.
Andrew Ahlborn: Second gain on sale income net of variable costs decreased 835000 to $20 1 million.
Andrew Ahlborn: This income was driven by the sale of $254 million of guaranteed SBA seven loans at an average premium of 10, 1% and the sale of $43 3 million of Freddie Mac loans at premiums of one 1%.
Andrew Ahlborn: Realized gains from normal operations were offset by $20.1 million of realized losses from the sale of assets, all of which were adequately reserved for in previous quarters. Third, operating costs from normal operations were $55.4 million, a 7.5% improvement from the previous quarter. employee costs, professional fees, and other operating expenses improved $8 million. These savings were partially offset by incremental servicing advances of $3.4 million. Fourth, the combined provision for loan loss and valuation allowance declined $9.9 million. The recovery was primarily due to a $16.8 million release of reserves on liquidations, offset by the addition of $6.9 million of reserves and loans held as of March 31st.
Andrew Ahlborn: Realized gains from normal operations were offset by $20 1 million of realized losses from the sale of assets.
Andrew Ahlborn: All of which were adequately reserved for in previous quarters.
Andrew Ahlborn: Third operating costs from normal operations were $55 4 million.
Seven 5% improvement from the previous quarter.
Andrew Ahlborn: Employee costs professional fees and other operating expenses improved 8 million. These.
Andrew Ahlborn: These savings were partially offset by incremental servicing advances of $3 4 million.
Andrew Ahlborn: Fourth the combined provision for loan loss and valuation allowance declined $9 9 million.
Andrew Ahlborn: Recovery was primarily due to a $16 8 million dollar release of reserves on liquidations offset by the addition of $6 9 million of reserves on loans held as of March 31.
Andrew Ahlborn: And last, we booked a bargain purchase gain of $102.5 million related to the closing of the UDF-4 merger. The bargain purchase gain represents the difference between the fair value of the assets acquired and the market value of the stock consideration issued at closing. Overall, the transaction added $167.1 million of equity to the balance sheet. and it was 1.3% accretive to book value per share. The portfolio was booked at a weighted average price of 55.9 percent and included 97 million of performing assets and 61 million of credited impaired assets. The transaction has generated $96 million of liquidity via payoffs and financing since closing.
Andrew Ahlborn: And lastly, booked a bargain purchase gain of $102 5 million related to the closing of the Udf for merger.
Andrew Ahlborn: The bargain purchase gain represents the difference between the fair value of the assets acquired and the market value of the stock consideration issued at closing.
Overall, the transaction added $167 1 billion of equity to the balance sheet and it was one 3% accretive to book value per share.
Andrew Ahlborn: The portfolio was booked at a weighted average price of 55, 9%.
Andrew Ahlborn: And included $97 million of performing assets.
Andrew Ahlborn: And $61 million of credit impaired assets.
Andrew Ahlborn: The transaction has generated $96 million of liquidity via payoffs and financing since closing.
Andrew Ahlborn: It is important to note that the earnings profile for UDF will include both peak interest as contractually defined in the loan term. and the accretion of discount given our basis in the asset. On the balance sheet, book value per share was unchanged at $10.61 per share at quarter end and total leverage declined to three and a half times. Key balance sheet items included, first, the transfer of $722.8 million of loans to help for sale. These loans are slated for sale in the second quarter and are 75.7% non-core. There were no additional allowances taken on these loans.
Andrew Ahlborn: It is important to note that the earnings profile for UDR will include both tech interest is contractually defined into long terms and the accretion of discount given our basis in the asset.
Andrew Ahlborn: On the balance sheet book value per share was unchanged at $10 61 per share at quarter end and total leverage declined to three five times.
Andrew Ahlborn: Key balance sheet items included first the transfer of $722 8 million of loans to held for sale.
Andrew Ahlborn: These loans are slated for sale in the second quarter.
Andrew Ahlborn: And our <unk>, 75.7% noncore there were no additional allowances taken on these loans.
Andrew Ahlborn: Second, we collapsed three CRE CLOs, totaling $1.2 billion of low collateral. The collapse resulted in a reduction in securitized debt of $756 million and an increase in warehouse debt of $834 million for net liquidity of $78 million. We expect to collapse two additional deals either at the end of the second quarter or beginning of the third quarter. Performance in the remaining CLOs remained under pressure with three deals currently failing interest coverage tests, but we expect improvements as the asset repositioning is executed. And last, we continue to reduce our short to medium-term debt maturities. In the quarter, we closed a $220 million senior secured offering, and subsequent to quarter end, increased the offering by $50 million.
Andrew Ahlborn: Second we collapsed three CRE CLO totaling $1 2 billion of loan collateral the claw.
Andrew Ahlborn: <unk> resulted in a reduction in securitized debt of 756 million and an increase in warehouse debt of $834 million for net liquidity of $78 million.
Andrew Ahlborn: We expect to collapse two additional deals either at the end of the second quarter or beginning of the third quarter.
Andrew Ahlborn: Performance in the remaining CLO has remained under pressure with three deals currently failing interest coverage test, but we expect improvements as the asset repositioning is executed.
Andrew Ahlborn: And last we continue to reduce our short to medium term debt maturities in the quarter, we closed a $220 million senior secured offering and subsequent to quarter end increased the offering by $50 million.
Andrew Ahlborn: Proceeds were used to pay off our $120 million April 2025 maturity and retire $111 million of 2026 maturity. As of today, we have a total of $650 million of corporate debt maturing through 2026, including current maturities of $131 million. We are focused on extending that maturity over the upcoming quarter.
Andrew Ahlborn: Proceeds were used to pay off our $120 million April 2025 maturity and retire 111 billion of 2026 maturities.
Andrew Ahlborn: As of today, we have a total of $650 million of corporate debt maturing through 2026, including current maturities of 131 billion.
Andrew Ahlborn: We are focused on extending that maturity over the upcoming quarters.
Andrew Ahlborn: Liquidity remains healthy with unrestricted cash at over $200 million and $1 billion of total unencumbered assets.
Andrew Ahlborn: Liquidity remains healthy with unrestricted cash at over $200 million and 1 billion of total unencumbered assets.
Operator: With that, we will open the line for questions. Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we poll for questions.
Andrew Ahlborn: With that we'll open the line for questions.
Andrew Ahlborn: Yeah.
Andrew Ahlborn: Thank you will now be conducting a question and answer session.
Speaker Change: To ask a question. Please press star one from your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One of them, please where we poll for questions.
Speaker Change: Yeah.
Douglas Harter: Our first question today is from the line of Doug Harder with UBS. Please proceed with your question. Thanks. You know, you highlighted that you're expecting a large portion of kind of the non-core book to kind of pay off in the second quarter. Can you talk about any impact to those expectations on April's volatility and kind of how those conversations are going?
Speaker Change: Our first question today is from the line of Doug Harter with UBS. Please proceed with your questions.
Speaker Change: Thanks.
Speaker Change: You highlighted that youre expecting a large portion of kind of the noncore book to kind of pay off in the second quarter can you talk about.
Speaker Change: Any impact to those expectations on april's volatility.
Speaker Change: And kind of how those conversations are going.
Adam Zausmer: And Andrew or Adam, you want to comment on that? Yeah, so the loan sales, you know, we're talking to various parties on, you know, one, liquidations, but then also just, you know, normal course of, you know, certain loans paying off from the borrowers, whether it's selling an asset or getting a refinance. In terms of the volatility in April, you know, I don't expect that it's going to have much impact on our, you know, exits that are in progress. You know, the parties that we're dealing with have been through due diligence periods and, you know, are working on, you know, various strategies, you know, we're in purchase and sale agreement with various parties.
Speaker Change: And Andrea or Adam you want to comment on that.
Speaker Change: Yeah.
Speaker Change: Yeah, so the loan sales.
Speaker Change: We're talking to various parties on.
Speaker Change: One liquidations, but then also just the normal course of certain loans.
Paying off.
Speaker Change: From the borrowers whether it's selling an asset.
Speaker Change: Or or getting a refinance.
Speaker Change: Some of the volatility in April.
Speaker Change: You know I don't expect that it's going to have much impact on our.
Speaker Change: Exits that are in progress.
Speaker Change: The parties that we're dealing with have been through due diligence periods.
Speaker Change: And are working on various strategies were in purchase and sale agreement with various parties. So.
Adam Zausmer: So I think, you know, things are certainly moving in the right direction and, you know, we don't expect any material diversion from, you know, kind of where those.
Speaker Change: So I think things are certainly moving in the right direction.
Speaker Change: And we don't expect any material diversion from kind of where do you where those.
Thomas Capasse: where those exits are are striked from a price perspective or from a timing Yeah, and Doug, just to add to that, to highlight in terms of the macro volatility as we come in in the earnings call script, but basically the multifamily sector is a relative outperformer, just given the fundamentals with peak deliveries having been reached in 2024 and the rents actually because of excess demand increased 1% in the first quarter. And on the heels of that, if you look at the inflows of opportunistic capital into the dislocation real estate, CRE real estate equity trade, you're definitely seeing a lot of excess capital flowing into that sector.
Speaker Change: Were those exits are strike from a price perspective or from a timing perspective.
Speaker Change: Doug just to add to that to highlight in terms of the macro volatility as we come in and in the earnings call script, but basically the multifamily sector is a relative outperformer just given the fundamentals with.
Speaker Change: Peak deliveries, having been reached in 2024.
Speaker Change: And rents actually because of excess demand increased 1%.
Speaker Change: In the first quarter and on the heels of that if you look at the inflows of opportunistic capital into the.
Speaker Change: Dislocation real estate CRE real estate equity trade, you're definitely seeing a lot of excess capital.
Speaker Change: Is flowing into that sector, and we see that in terms of inbound inquiries and trades that are occurring with.
Thomas Capasse: And we see that in terms of inbound inquiries and trades that are occurring with Distress bridge loan portfolios from private debt lenders in the secondary market, so there's a very active Very active trading market, which is a little bit divorced from the overall, you know, tariffs and macro effect Great.
Distress.
Speaker Change: Bridge loan portfolios from private debt lenders in the secondary markets. So it so there's a very active.
Speaker Change: Very active trading market, which is a little bit divorced from the overall, you know tariffs and macro factors.
Speaker Change: Great I appreciate the answers thank you.
Douglas Harter: Appreciate the answers.
Operator: Thank you.
Speaker Change: Rob.
Speaker Change: Yeah.
Crispin Love: The next questions are from the line of Crispin Love with Piper Sandler. Thank you. Good morning. You took a lot of decisive actions in the fourth quarter, but you did see delinquencies increase in the first, in both the core and the non-core portfolios, but you did call out the macro, putting some pressure.
Speaker Change: The next questions are from the line of Crispin Love with Piper Sandler. Please proceed with your question.
Crispin Love: Thank you. Good morning, you took a lot of decisive actions in the fourth quarter, but you did see delinquencies increase than the first.
Crispin Love: Both the core and the non core portfolios, but you did call out that the macro trends.
Crispin Love: Some pressure.
Crispin Love: out there broadly, but can you share your near-term expectations for the distributable earnings trajectory and when you believe that you could begin covering the $0.125 dividend and get back to your target ROE? Hey, good morning, Crispin. So, the real catalyst for a change in direction of where we were at in the first quarter really relates to the the repositioning of the assets we outlined in the prepared remarks. When you look at the financial effects of those currently, they're fairly pronounced. The interest expense of carrying those on the balance sheet today is Roughly $0.17, $0.16, $0.17.
Crispin Love: Out there broadly, but can you share your near term expectations for distributable earnings trajectory and when you believe that you could begin covering the 12 five cent dividend and get back to your target Roe.
Kristina: Hey, good morning Kristina.
Kristina: The real catalyst for.
Kristina: The change in direction of where we're at in the first quarter really relates to the.
Kristina: The repositioning of the assets, we outlined in our prepared remarks.
Kristina: When you look at the.
Kristina: Financial.
Kristina: Effects of those currently there theyre fairly.
Kristina: Early pronounced.
Kristina: The interest expense.
Kristina: Fans of carrying those on the balance sheet today is roughly 17 16 17 cents.
Crispin Love: The equity reinvested at market yields is roughly $0.07. So I think post the exit of the majority of that in the second quarter, And the reinvestment, which may take, you know, a handful of months, then you'll start to see, you know, material movement the other way. Now, there are several other items that, you know, are currently. impacting or putting pressure on earnings. For example, in a lot of the operating companies we own, you know, the operational expense that we're carrying today supports origination volumes substantially above where we're at. And so, you know, as those operating companies rebound, whether it be the USDA business or affordable business, you'll start to see the right sizing of the revenue to the OPEX play out.
Kristina: The equity reinvestment market yields.
Kristina: As roughly seven cents.
Kristina: Hey.
Kristina: Post the exit of the majority of that in the second quarter.
Kristina: And the reinvestment, which may take.
Kristina: A handful of bonds that youll start to see <unk>.
Kristina: Harold movement. The other way now there are some other items that are currently in.
Kristina: Impacting are putting pressure on earnings.
Kristina: For example in <unk>.
Kristina: A lot of the operating companies we own.
Kristina: The operational expense.
Kristina: We're carrying today supports origination volumes substantially above where we're at and so you know.
Kristina: As those operating companies rebound, whether it be the USDA business or our affordable business, you'll start to see the right sizing of the revenue to the Opex play out.
Crispin Love: I'd say some of the headwinds we face are, you know, potential declines in SBA volume, at least in the short term as we navigate some of the policy changes that Tom mentioned, as well as just the cost of potentially the refinance of our corporate debt.
Kristina: I'd say some of that the headwinds.
Kristina: We face our potential.
Kristina: Potential.
Kristina: Declines in and SBA volume at least in the short term is.
Speaker Change: As we navigate some of the policy changes that Tom mentioned.
Speaker Change: As well as just the the cost of potentially.
Speaker Change: Potentially the refinance of our corporate debt.
Crispin Love: So, I'd say, you know, the second quarter earnings profile is going to be, you know, similar to what we experienced in the first quarter and that the upward trend really will start upon reinvestment of that equity I just described. Great. Thank you. I appreciate all that color.
Speaker Change: So I'd say the second quarter earnings profile is going to be.
Speaker Change: Similar to what we experienced in the first quarter and that the you are there.
Speaker Change: The upward trend.
Speaker Change: Really we'll start upon reinvestment of of that equity I just described.
Speaker Change: Great. Thank you I appreciate all that color and then.
Crispin Love: And then second for me, you did repurchase shares in the quarter, but can you just discuss your current views and philosophy on repurchasing shares versus presuming liquidity in this type of environment and how you've thought about that decision and expect to over the next few quarters, or at least over the near term? Yeah, we certainly on a consistent basis are weighing the financial benefits and long term benefits of repurchasing shares with the outstanding maturity ladder we have today, which is roughly $650 million as we described. Now, I think we have demonstrated and continue to demonstrate that we have the ability to access the capital market.
Speaker Change: Second for me.
Speaker Change: You did repurchase shares in the quarter, but can you just discuss your current views and philosophy on repurchasing shares versus presuming liquidity in this type of environment and how you've thought about that decision and I expect over the next few quarters or at least over the near term.
Speaker Change: Yeah, we certainly on a consistent basis are weighing.
Speaker Change: <unk>.
Speaker Change: The financial benefits and long term benefits of repurchasing shares with.
Speaker Change: The outstanding maturity ladder, we have today.
Speaker Change: Which is roughly $650 million as we described now.
Speaker Change: We have demonstrated continued to demonstrate that we have the ability to access the capital markets. So we.
Crispin Love: So we feel confident in our ability to refi out a lot of that upcoming debt, half of which is unsecured, but we have a lot of unencumbered assets and collateral available to do secure deals if necessary. And then, you know, the other item that is obviously important given the current balance sheet earnings profile is reestablishing. the Net Interest Income, and so we'll continue to balance the benefits of FIERI purchases with those other two items. Great. Thank you, Andrew. I appreciate you taking my question.
Speaker Change: We feel.
Speaker Change: Confident in our ability to refi out.
Speaker Change: A lot of that upcoming debt.
Speaker Change: Half of which is unsecured but we have a lot of unencumbered assets and collateral available to do secured deals if necessary and then no.
Speaker Change: The other item that is obviously an important given the current balance sheet earnings profile is reestablishing.
Speaker Change: The net interest.
Speaker Change: Income and so we'll continue to balance the benefits of share repurchases with those those other two items.
Speaker Change: Great. Thank you Andrew I appreciate you taking my questions.
Christopher Nolan: Our next questions are from the line of Christopher Nolan with Lindenburg-Foundland.
Speaker Change: Our next question is from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed with your questions.
Christopher Nolan: Please receive your questions. Hey guys. First of all, I want to congratulate you. You took some hard actions in the last quarter. not easy, but you know, definitely reset the table. still a little bumpy, showed much improvement. So kudos.
Speaker Change: Hey, guys.
Christopher Nolan: First of all I want to congratulate you took some hard actions in the last quarter.
Christopher Nolan: And you know, it's not easy but.
Christopher Nolan: Definitely reset the table and I think the first quarter results.
Christopher Nolan: Still a little bumpy showed much improvement so kudos to you guys.
Thomas Capasse: I'm following the last question. Are you guys continuing to do repurchases in this quarter? And good morning. Yeah, we'll reevaluate where we're at, you know, post earnings here and go from there. With that being said, you know, liquidity remains extremely healthy. And there's, you know, several liquidity initiatives that will generate additional cash coming into the business, whether that be the upcoming collapses of two additional CLOs or the continued financing of the UDF's portfolio. So we certainly think there's liquidity to balance, you know, the three items I talked about previously.
Christopher Nolan: On phone and the last question.
Speaker Change: Are you guys continuing to do repurchases in this quarter.
Speaker Change: Good morning, Yeah, we will reevaluate.
Speaker Change: I'll post earnings here and go from there would that being said.
Speaker Change: Liquidity remains extremely healthy and theirs.
Speaker Change: Several liquidity initiatives that will generate additional cash coming into the business whether that be.
Speaker Change: The upcoming classes of two additional close or the continued financing of the uds portfolio. So we certainly think there's adequate liquidity to balance.
Speaker Change: The three items I talked about previously.
Thomas Capasse: And then on the collapse CLO, two things. One is you mentioned they weren't doing the interest coverage. What's the catalyst for that? Are reds coming in lighter than expected? And two, will there be any impact from these collapses on your leverage ratios?
Speaker Change: And then on the collapse CLO two things one is you mentioned they weren't doing the interest coverage.
Speaker Change: What's the catalyst for that or rents coming in later than expected and two will there be any impact from this.
Speaker Change: These collapses on your leverage ratios that's it for me.
Andrew Ahlborn: I'll take the second one and let Adam talk about the the first one. So, in terms of the leverage ratios, they tend to have, you know, slight upticks in leverage as we take the advance rates from the CLOs to warehouse advance rates. So, just as an example, the Q1 collapses went from a, you know, low 60s advance rates to a low 70s so you see, you know, that movement and you also see the movement to some degree from non-recourse to recourse. So, that'll be the effects on leverage. Now, the benefit is that they obviously generate a significant amount of liquidity and the yield profile on that pool of assets, you know, improves on the collapse.
Adam: We will take the second one and let Adam talk about the.
Speaker Change: The first one.
Adam: So in terms of the leverage ratios they tend to have.
Adam: A slight uptick in leverage as we take the advance rates from the Clo's do.
Adam: Two warehouse advance rates. So just as an example, the <unk>.
Adam: Q1 classes one from a.
Adam: Low 60% advance rates to a low seventy's advanced rates do you see.
Adam: That movement and you also see the movement to some degree from.
Adam: Nonrecourse to recourse so that'll be the the effects on leverage now the benefit is that they obviously generate.
Adam: A significant amount of liquidity.
Adam: And the the yield profile on that pool of assets improves on the crops.
Adam Zausmer: I'll let Adam talk about the course. Yeah, good morning, Christopher. Yeah, I mean, listen, NOIs are, you know, certainly continuing to be impacted by, you know, by the current environment, you know, rates remaining elevated.
Adam: I'll, let Adam talk about the personal.
Speaker Change: Yeah. Good morning, Christopher Yeah, I mean listen and NOI are certainly continuing to be impacted.
Speaker Change: By by the current environment rates rates remaining remaining elevated.
Christopher Nolan: And we're certainly seeing a higher degree of modifications in our portfolio, which is coupled with, you know, pressure on business plans, as well, which is why, you know, you're kind of seeing that increased stress within the CLOs. Okay, thank you. Thank you.
Speaker Change: And we're certainly seeing a higher degree of of modifications in our portfolio.
Speaker Change: Which is coupled with pressure on business plans.
Speaker Change: As well, which is why youre kind of seeing.
Speaker Change: That increased stress within the CLO.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Jade Rahmani: Our final question comes from the line of Jade Rahmani with KVW. Thank you very much.
Speaker Change: Our final question comes from the line of Jade Rahmani with Keyw. Please proceed with your questions.
Speaker Change: Thank you very much on.
Adam Zausmer: On the Portland asset, will the position be held unlevered and Is there any contemplation of exiting the position? What's the decision behind holding it? Seems like it's going to be a big earnings crash.
Speaker Change: On the Portland asset.
Speaker Change: Well the position be held a library.
Speaker Change: And.
Speaker Change:
Speaker Change: Is there any contemplation of exiting the position.
Speaker Change: What's what's the decision behind holding it seems like it's going to be a big earnings back.
Adam Zausmer: Hey, good morning, Jade. This is Adam. So, you know, the position is levered today, and it will remain levered, you know, once we obtain title to the project. And then, secondly, you know, our decision to, you know, obviously pursue title here is that from, you know, it's really the best economic outcome for the firm will be, you know, for a public read to get the keys to this asset. You know, we'll give confidence to, you know, prospective condo buyers, prospective office tenants where there's, you know, tenant improvement dollars that are needed at the project. And, you know, the plan is to, you know, as we work to stabilize the three components of the assets would be to, you know, sequentially exit those three components.
Speaker Change: Hey, good morning, Jami this is Adam so.
Speaker Change: You know that the position is levered today.
Speaker Change: And we remain levered.
Speaker Change: Once we obtained title to the project.
Speaker Change: And then secondly.
Our.
Speaker Change: Our decision to you know.
Speaker Change: Obviously pursue title here.
Speaker Change: Is that from it's really really the best economic outcome for the firm will be for the for a public REIT to get the keys to this asset.
Speaker Change: We will give confidence to you know.
Speaker Change: Perspective, prospective condo buyers prospective office tenants, where there is.
Speaker Change: Tenant improvement dollars that are needed at the project.
Speaker Change: And the plan.
Speaker Change: Is to as we as we work to stabilize the three components of the asset would be sequentially exit those three components.
Adam Zausmer: So, specifically as, you know, the hospitality stabilizes, the office stabilizes, you know, we'll look to the market to see, you know, really have like a pricing discovery and see where we can exit those assets. But, you know, it's certainly going to require some time for us to hold it, operate it. You know, we are certainly committed from a capital perspective and from an operational perspective to see this asset through. You know, it's a trophy asset in the Portland market, certainly very important for the city and members of the community. And, you know, the plan is, you know, really for ReadyCap, take title and see this asset through and get this thing to a much better position than it's in today.
Speaker Change: So specifically as the hospitality stabilizes the office stabilizes, we will look to the market to see.
Speaker Change: You know I really have like a pricing discovery and see where we can exit those assets, but it's certainly going to require some time for us to hold it operate it.
Speaker Change: We are certainly committed from a capital perspective and from an operational expected to see this asset through the.
Speaker Change: Trophy asset in the Portland market, certainly very important for the city and members of the community.
Speaker Change: And the plan is really for ready cap take title.
Speaker Change: And see this asset through and get this thing to a much better position than it is today.
Adam Zausmer: Okay, and I guess, how much dollars are needed, and over what time period are we looking? I mean, there were two condo sales in the quarter. I'm assuming this is all going to take. you know, years, we're talking. Yeah, it'll take, you know, to reach stabilization, you know, certainly, you know, the office and the hospitality will reach stabilization first with the condos, you know, taking I think, you know, to fully sell those condo units where we're pegging anywhere from two to three years. You know, clearly the interest rate environment is causing stress on that sector.
Speaker Change: Okay, and I guess, how much dollars are needed and over what time period are we looking I mean, there were two condo sales in the quarter.
Speaker Change: I'm, assuming this is all going to take.
Speaker Change: Yes, we're talking.
Speaker Change: Yeah, it'll take you know to reach stabilization certainly the office and the hospitality will re stabilization first with the condos.
Speaker Change: Taking I think you'd have to fully to fully wood.
Speaker Change: Yeah.
Speaker Change: Sell those condo units, where we're pegging anywhere from two to three years.
Speaker Change: Clearly the interest rate environment.
Speaker Change: Is causing is causing stress on on that sector.
Thomas Capasse: But, you know, the city of Portland, you know, has certainly shown tremendous signs of improvement. So we feel good there. I think it's important to point out the basis in the most liquid components, the Ritz Hotel and the office is what as a percentage of the total? Yeah, Tom, it's around 70%. Yeah, so Jade, the two largest slugs will have a shorter fuse in terms of stabilization and obviously they're relatively liquid markets for that, you know, a scaled risk and as well as, you know, most of the office tenants in that, it's really A-plus office in that sector.
Speaker Change: The city of Portland.
Speaker Change: <unk> has certainly shown tremendous.
Speaker Change: This signs.
Speaker Change: Signs of improvement.
Speaker Change: So we feel good there.
Speaker Change:
Speaker Change: So.
Speaker Change: Okay.
Speaker Change: As important to point out the basis and the <unk>.
Speaker Change: Most liquid components.
Speaker Change: The.
Speaker Change: Ritz Hotel and the office is what as a percentage of the total.
Speaker Change: Yes, Tom it's around 70%.
Speaker Change: Yeah, So Jamie the large the two largest slugs will have a shorter fuse in terms of stabilization and obviously, they're relatively liquid.
Speaker Change: Markets for that.
Speaker Change: Scaled rich and as well as most of the office tenants and that it's really a plus office and that.
Speaker Change: In that sector.
Thomas Capasse: So we got some law firms, et cetera, for tenants. So we expect a front-loaded exit of those two components with a linear sale of the condos which tends to pick up once the hotel is stabilized as well if you're familiar with the Ritz residence concept. I am.
Speaker Change: So we got some law firms et cetera are looking.
Speaker Change: For tenants. So we're we expect a frontloaded exited.
Speaker Change: The those two components with linear sale of the condos, which tends to pick up once the hotels.
Speaker Change: A hotel to stabilize as well if you if you're familiar with the rich residence concept.
Speaker Change: Uh huh.
Jade Rahmani: Thanks a lot.
Speaker Change: Thanks, a lot.
Jade Rahmani: On the SBA business, Considerable uncertainty in that space. And you all have invested heavily, you know, building up the Originations capabilities.
Speaker Change: On the SBA business.
Speaker Change:
Speaker Change: Considerable uncertainty in that state.
Speaker Change: And you all have invested heavily building up the origination capabilities.
Jade Rahmani: Could you talk about what level of moderation and volumes you expect? I think you said below the $1.5 billion, but if you could provide any additional color. And then gain on sale margins also, which was 10.1% in the first quarter, what do you expect there going forward?
Speaker Change: Could you talk about what level of moderation in volumes do you expect.
Speaker Change: I think you said below the one 5 billion, but if you could provide any additional color.
Speaker Change: And then gain on sale margins also which was 10, 1% in the first quarter, what do you expect there going forward.
Thomas Capasse: Yeah, just a job, a broader comment with the SBA, like a number of government agencies has had a significant reduction in staff. I think they publicly stated around a little over 40%. And so that has, you know, in terms of normal administrative product process has extended timelines, etc. But from a policy perspective, there has been a reassessment of, in particular, small loans and some of their credit guidelines, of which we are fully supportive and have active dialogue with the SBA. You know, we're the fourth largest SBA lender and by far the largest non-bank. And so, again, we're very constructive on and supportive of the SBA's changes.
Speaker Change: Yes.
Speaker Change: A job.
Speaker Change: A broader comment with the SBA like a number of government agencies has.
Speaker Change: <unk> had a significant reduction in staff I think they've publicly stated around little over 40% and so that that has.
Speaker Change: In terms of normal administrative product process is extended timelines et cetera, but from a policy perspective, there has been a reassessment of the.
Speaker Change: Small loans and some of their credit guidelines of which we are fully supportive and have active dialogue with the SBA and we're the fourth largest SBA lender in the by far the largest non bank and so again, we're very constructive on it and supportive of the SBA is changes.
Andrew Ahlborn: And so, you know, we currently are working with the SBA to modify our origination guidelines. And I'll point out that we did preemptively reduce our credit standards for small loans well in excess. I think it was, Andrew, it was the third quarter of last year. And so, and our relative credit metrics compare favorably with the peer group.
Speaker Change: So yeah.
Speaker Change: We currently are working with the SBA.
Speaker Change: Modify origination guidelines and I'll point out that we did preemptively reduce our credit.
Speaker Change: Standards for small loans well in excess I think it was Andrew it was the third quarter of last year.
Speaker Change: So and our our relative credit metrics compare.
Speaker Change: <unk> with the peer group, so I think a J to there there's a transition period for the industry.
Andrew Ahlborn: So I think, Jade, there's a transition period for the industry, not just Ready Capital, but a number of other to recalibrate with the policy changes that are currently underway with some, you know, administrative delays due to the staffing issues. But to, so putting all that, you know, down, I think we would be, and Andrew, feel free to chime in, we'd be at the low end of the, you know, our platform has the capacity of a billion and a half to two. I would say it'd be at below that one and a half range for at least a couple of quarters.
Speaker Change: Not just ready cap.
Speaker Change: A number of other lenders to recalibrate with the policy changes that are currently underway with some administrative delays due to the staffing issues.
Speaker Change: So putting all that data.
Speaker Change: Dan I think we would be in Andrew.
Speaker Change: Free to chime in and we'd be at the low end of the.
Speaker Change: Our platform has the capacity of a 1 billion and a half to two I would say it would be at a below that one and a half range for at least a couple of quarters I don't know Andrew if you want to add to that.
Andrew Ahlborn: I don't know, Andrew, if you'd want to add to that. No, I think that's right. I think, Jade, when we look at the outlook, at least in the short term, I don't think it would be unreasonable for the company to run in that $1 to $1.2 billion range in terms of total small business lending. And then on the, you know, the premium side, they've historically averaged even to the Biden era are sort of similar items right around in that 10% range. You may see some movement as the mix in our originations change. So, for example, the threshold for small loans was reduced.
Speaker Change: No I think that's right I think jade when we look about the outlook.
Speaker Change: At least in the short term I don't think it would be.
Speaker Change: Unreasonable for the company to run in that one to $1 2 billion.
Speaker Change: Range in terms of total small business lending.
Speaker Change: And then on the premium side historically averaged even.
Speaker Change: Previous to the bite in error sort of stimulus.
Speaker Change: I was right around in that 10% range. So you may see some.
Speaker Change: And as the mix in our originations change. So for example, the threshold for for small loans was reduced those loans typically are priced higher and have higher opinion. So you may see some movement just based on the portfolio mix.
Andrew Ahlborn: Those loans typically are priced higher and have higher premiums. So you may see some movement just based on the portfolio mix. But that, you know, the historical average has always been right around that.
Speaker Change: You know the historical average has always been right around that 10% Mark.
Speaker Change: Yeah.
Jade Rahmani: Thanks, that's helpful.
Speaker Change: Thanks, that's helpful. Freddie Freddie Mac has been Oh, that's a real asset for the company.
Jade Rahmani: Freddie Mac has been, you know, that's a real asset for the company. The volume was pretty muted in the first quarter. A lot of noise out of the FHFA.
Speaker Change:
Speaker Change: The volume was pretty muted in the first quarter.
Speaker Change: A lot of noise.
Speaker Change: The FHFA.
Adam Zausmer: So just wanted to check in on what you expect for that. Yeah, hey, Jade, it's Adam again. Yeah, you know, certainly our Freddie Mac volume was down in Q1. You know, I think, you know, really, I think the key piece of that is, you know, Ready Capital, our Freddie business, you know, the majority of our loans are sourced through mortgage bankers. And so the Freddie Mac has, you know, given fraud that was in the market, specifically from Meridian, as you probably recall, they have tightened up the process that mortgage brokers and the lenders go through.
Speaker Change: So just wanted to check in on what you expect for that business.
Speaker Change: Yeah, Hey, Hey, Jade its out of again.
Speaker Change: Certainly our Freddie Mac volume was down.
In Q1.
Speaker Change: I think.
Speaker Change: Really I think the key the key piece of that is.
Speaker Change: Ready capital our Freddie business.
Speaker Change: The majority of our loans are sourced through through mortgage bankers.
Speaker Change: And so the Freddie Mac has.
Speaker Change: Given given given fraud that that was in the the market specifically from from Meridian as you probably recall.
Speaker Change: They have tightened up.
Speaker Change: The process that.
At mortgage brokers and the lenders go through and so what's happened is a lot of the brokers and the clients look to other sources of capital for these small balance loans, and specifically banks and credit unions that have similar rate and term and it just makes for an easier process.
Adam Zausmer: And so what's happened is a lot of the brokers and the clients look to other sources of capital for these small balance loans, and specifically banks and credit unions that have similar rate and term, and it just makes for an easier process. And also, you know, Many of these borrowers, brokers are also tapping into Fannie's platform where they control the process. And then credit rates are really just okay, which is why I think folks are kind of pivoting to banks and credit unions and Fannie. So we're certainly seeing a decrease in Freddie Mac SBL volume.
Speaker Change: And also.
Speaker Change: Many of these borrowers brokers are also tapping into.
Speaker Change: Sorry to Fannies platform.
Speaker Change: Where were they control the process.
Speaker Change: And then Freddie rates are really just okay.
Speaker Change: Which is why I think folks are kind of pivoting to banks and credit unions and Fannie. So we're certainly seeing a decrease in Freddie Mac SPL volume in.
Adam Zausmer: Our Q2 pipeline is certainly more robust, somewhere around 40, 45 million today. And then on the affordable side, volume also down there, but pretty healthy pipeline of about 200, a little bit north of 200 million as we go into the second half of the year. So strong pipeline there, although down versus historical numbers.
Speaker Change: Our Q2 pipeline is certainly.
Speaker Change: More robust somewhere around 40% 40 to 45 million today, and then on the affordable side.
Speaker Change: Volume also down there, but pretty pretty pretty healthy pipeline of about <unk>.
Speaker Change: But north of 200 million as we go into the second half of the year.
Speaker Change: So strong pipeline, there, although down versus historical numbers.
Speaker Change: Theres been some equity raise.
Adam Zausmer: There's been some equity raise for capital into that business, which should help improve the pipeline as we enter the second.
Speaker Change: For capital into that business, which should help improve the pipeline is really as we enter the second the second half.
Jade Rahmani: Okay, thanks. I just have a couple others, and these are investor questions, but is the full pro forma share count for UDF4 172.5? I just want to make sure we're not ignoring any transaction-related additional shares or timing effects.
Speaker Change: Okay. Thanks, I just have a couple of other than.
Speaker Change: These are investment questions, but is the full pro forma share count for you. The F. Four $172 five I just wanted to make sure. We're not you know.
Speaker Change: Ignoring any.
Speaker Change: Eminent at.
Speaker Change: Transaction related additional says or timing effects.
Andrew Ahlborn: That's right, Jade. The only item that may influence future shares would be the CBR, which converts into shares if it is, you know, earned at book value. But that's a couple years out for your pro forma today.
Speaker Change: Thats right Jay the only.
I got that May influence future shares would be the CVR, which converts into shares if it is.
Speaker Change: Yeah earned at book value, but that's a couple of years out, but your pro forma Tonight.
Andrew Ahlborn: And how many shares would that be? Well, it's it's it's hard to put a number on it today because it's it's dependent upon The actual execution of the CVR. So it. You know, it really depends on performance going forward, so it's not a defined number.
Speaker Change: And how many shares would that be.
Speaker Change: Well, it's it's it's hard to put a number on it today because it's dependent upon.
Speaker Change: The actual execution of the CVR so.
Speaker Change: It really depends on performance going forward.
Speaker Change: So theres not a defined number.
Andrew Ahlborn: And lastly, do you have operating cash flow for the quarter, if possible, excluding loan sales? Yeah, so the the total operating cash flow for the quarter was 89. included, or sorry, $80 million. Included in that was $99 million related to loan sales. Some of that is realized gains, so it's closer to break-even than it has been. Okay, great.
Speaker Change: And lastly, do you have operating cash flow for the quarter.
Speaker Change: If possible excluding loan sales.
Speaker Change: Yeah. So the the total operating cash flow.
Speaker Change: For the quarter was <unk> 89.
Speaker Change: Included are sorry, 80 million included in that was 99.
Speaker Change: Nothing related to loan sales.
Speaker Change: Some of that as realized gains so it's closer to breakeven than it had been running.
Speaker Change: Okay great.
Jade Rahmani: Thanks for taking all the questions.
Speaker Change: Thanks for taking all the questions Oh, sorry, I should ask one last one which is you know receptivity of the debt capital markets today.
Jade Rahmani: Oh, sorry, I should ask one last one, which is, you know, receptivity of the debt capital markets today. I think there's probably been improvement the last couple of days, but definitely been choppy. So what are your thoughts around that? Yeah, so certainly we were in the markets over the last couple of weeks and months where we had a successful execution on the secure side. You know, based on the conversations we've been having in the markets, we feel pretty comfortable about the ability to refinance out the outstanding debt we have. Now, the one thing I'll point out is With the exception of the $350 million at the end of next year, a lot of that is unsecured debt.
Speaker Change: I think there's probably been improvement the last couple of days, but definitely been choppy. So what are your thoughts around that.
Speaker Change: Yeah.
Speaker Change: Yes, so certainly we were in the markets over the last couple of weeks and months.
Speaker Change: Where we had.
Speaker Change: Successful execution on the secured side.
Speaker Change: Based on the conversations we've been having in the market. So we feel pretty comfortable about the ability to refinance out the the outstanding definitely have.
Speaker Change: Now the one thing I'll point out is.
Speaker Change: No.
Speaker Change: With the exception of the 350 million at the end of next year a lot of that is.
Speaker Change: Unsecured debt and so we certainly think in the absence of being able to refinance all of that in the unsecured debt markets.
Andrew Ahlborn: And so we certainly think in the absence of being able to refinance all of that in the unsecured debt markets, that the collateral, the unencumbered asset pool we have, plus the excess collateral on existing secure deals provides a significant amount of room to refry some of that out into secure debt. And so we are going to continue to to prioritize extending those maturities and feel good about our ability to do so.
Speaker Change: But the the collateral of the unencumbered asset pool, we have plus the excess collateral on existing.
Speaker Change: Secured deals provides a significant amount.
Speaker Change: A room to refi some of that out into secured debt.
Speaker Change: So.
Speaker Change: We are going to continue to.
Speaker Change: So prioritize extending those maturities and feel good about our ability to do so.
Operator: Thank you so much. Thank you.
Speaker Change: Thank you so much.
Speaker Change: Yes.
Tom Capacity: Thank you at this time, we've reached the end of the question and answer session I'll turn the call over to Mr capacity for closing remarks.
Thomas Capasse: At this time, we've reached the end of the question and answer session. I'll turn the call over to Mr. Capasse for closing remarks. Again, I appreciate everybody signed this quarterly call and look forward to the second quarter call. Thank you.
Speaker Change: Hey, guys I appreciate everybody's time. This on this quarterly call and we look forward to the second quarter call.
Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Operator: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
Speaker Change: Okay.