Q2 2025 Ready Capital Corp Earnings Call

Speaker #3: Greetings. Welcome to Ready Capital's second quarter of 2025 earnings call. At this time, all participants are in a en-only mode. The question and answer session will follow today's formal presentation.

Speaker #3: If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, today's conference is being recorded.

Speaker #3: At this time, I'll now turn the conference over to Andrew Ahlborn, Chief Financial Officer. Andrew, you may begin.

Speaker #4: 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 Laws.

Speaker #4: 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 #4: 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 #4: During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the 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 #4: A reconciliation of these measures for the most directly comparable GAAP measure is available in our second quarter 2025 earnings release and our supplemental information which can be found in the Investors section of the Ready Capital website.

Speaker #4: In addition to Tom and myself on today's call, we are also joined by Adam Zasner, Ready Capital's Chief Credit Officer. I will now turn it over to Chief Executive Officer Tom Capasse.

Speaker #5: Thanks, Andrew. Good morning, everyone, and thank you for joining the call today. In the second quarter, we completed three initiatives to continue the repositioning of the company's balance sheet coming out of this CRE cycle.

Speaker #5: The financial benefit of which will be visible in the second half of the year and beyond. First, as part of the broader strategy, each loan in both the core and non-core portfolios is evaluated to determine whether the NPV of asset sale is more accretive to improving net interest margin by disposing of below-yield assets and reinvesting in new originations versus traditional on-balance sheet asset management strategies such as loan modification.

Speaker #5: In this regard, we completed our first bulk sale earlier this week, selling 494 million of legacy multifamily bridge assets generating net proceeds of 85 million.

Speaker #5: While the transactions settled in the third quarter, it reflects a sale process initiated in the second. The pool included 73% non-core, 27% core, 40% were delinquent, 33% risk-graded four or five, and 92% non-accrual.

Speaker #5: An additional $26 million of REO included in this trade is expected to settle by mid-August. This transaction is strategically significant, eliminating 100% of the 2021 vintage syndicated loans while allowing potential upside through retention of a preferred return if certain performance targets are met by the buyer.

Speaker #5: The pro forma financial benefit is twofold. An immediate increase of 5 cents per share per quarter representing the removal of the negative carry associated with these assets and longer-term, an additional 2 cents per share per quarter from the reinvestment of the equity into market-yielding loans.

Speaker #5: In the third quarter, the cumulative loss from the transaction will flow through distributable earnings with no material expected impact on book value per share as the transaction was reserved in the second quarter.

Speaker #5: Second, we took ownership of the Portland, Oregon mixed-use asset which includes a Ritz-Carlton hotel and branded residences along with Class A office and retail space through a consensual transaction that closed on July 21st.

Speaker #5: We avoided a lengthy costly foreclosure process with a net cash outlay in the third quarter of $10 million. Since taking title and uming operating control, we're moving quickly to stabilize the asset.

Speaker #5: We partnered with institutional property manager Lincoln Property Company and are evaluating residential brokers and Ritz resident sales strategies. From a performance standpoint, in the second quarter, RevPAR at the hotel was $192; the retail component is 100% occupied.

Speaker #5: The office is 23% leased and to date, 11 of 132 residences were sold at an average price of $1,123 per square foot. The negative carry from the asset was 5.3 million, or 3 cents per share for the quarter.

Speaker #5: Ready Cap fully intends to provide financial and operational support to maximize the value of this premier hospitality asset in the Portland market. Now, third, we took steps in the capital markets enhance liquidity and increase warehouse capacity to support loan origination.

Speaker #5: In our CRE business, we collapsed two of five outstanding CRE CLOs, improving advance rates 7%, generating $71 million in proceeds with nearly 100 basis point improvement in financing costs.

Speaker #5: In our SBA business, two of the three warehouse lines pending approval with the SBA were approved adding $75 million of additional warehouse capacity that is expected to fund over $400 million of 7A production.

Speaker #5: Additionally, we closed $100 million USDA warehouse facility with its second $100 million facility anticipated to close in third quarter. These two facilities will facilitate the ramp in USDA volume to our $300 million annual target.

Speaker #5: Collectively, these three actions, sale of underperforming loans, taking ownership of the Portland asset to accelerate its stabilization, and expanding our funding capacity generated $221 million of liquidity providing capital for new loan originations to rebuild our NIM.

Speaker #5: As of the quarter-end, the CRE loan portfolio totaled $6.1 billion now clearly segmented into two parts, a $5.4 billion core portfolio consisting of legacy loans favoring on-balance sheet hold-to-maturity asset management strategies and a $695 million non-core portfolio consisting of lower-yielding assets where asset management strategies favor accelerated liquidation.

Speaker #5: In the core portfolio, $527 million of payoffs and quidations reduced the portfolio 8% in the quarter. As expected, negative credit migration in the portfolio was muted.

Speaker #5: With only 17 loans totaling $71 million transitioning to 60-day-plus delinquency, 60% of this 50 basis point increase in 60-day delinquency number was due to quarterly decline in the portfolio balance.

Speaker #5: Additionally, we modified 14 loans totaling $250 million with a 14 basis point decline in expected yield on those assets. Regarding the earnings impact of the core portfolio, the leveraged ield decreased 20 basis points quarter over quarter to 10.9%, producing $43 million of net interest income or $26 cents per share.

Speaker #5: Several quarters of reduced originations and loan payouts have reduced our CRE portfolio over 30% from its 10.5 billion peak in the second quarter of 2023.

Speaker #5: As discussed previously, our bridge portfolio is primarily financed via the issuance of static CRE CLOs with industry-tight CLO triggers, where weakening collateral performance resulted in loan payoffs reducing senior bonds rather than providing capital for reinvestment.

Speaker #5: In turn, relative to the peer group, Ready Cap experienced more rapidly leveraging with less free cash flow to make loans. After a prolonged focus on stabilizing the portfolio, liquidating underperforming assets and collapsing five of our eight CLOs we anticipate reentering the origination market in the third quarter.

Speaker #5: Originations will focus on high-quality multifamily bridge loans underwritten at a lower LTV and healthy in-place debt yield, designed to rebuild the core portfolio and facilitate our return to the CLO market in early 2026.

Speaker #5: Current lending margins of SOFR plus 275 to 300 and a CLO AAA market spread under 150 basis points support projected retained yields of 13 to 15 percent.

Speaker #5: Additionally, we continue to leverage our al manager Waterfalls infrastructure to also allocate capital to more liquid CRE debt securities. In our non-core portfolio, we have met 78% of our second quarter disposition targets of which 3% settled in the quarter with the remaining 97% closing post-quarter end.

Speaker #5: In the second quarter, $9.6 million of loans were liquidated at 105% premium to our mark, generating $3.8 million of liquidity. Post-settlement of the bulk sale, the non-core portfolio was reduced by an additional 52% to $333 million of carrying value consisting of 39 loans with an average price of 79.

Speaker #5: The quarterly yield on the non-core portfolio was negative 10.7%, resulting in a cost of $5.3 million or negative 3 cents per share; however, the continued liquidation of the non-core portfolio will minimize its financial drag.

Speaker #5: As of today, the combined non-core and REO portfolios total 12% of the company's investments down approximately 25% from the beginning of the year. In our SBA business, as anticipated from the prior quarter's earnings call, quarterly origination volume decreased to 216 million due solely to capitalist constraints as we awaited on approval of increased warehouse capacity from the SBA.

Speaker #5: In addition to the approvals received to date, we anticipate an additional $100 million in warehouse capacity currently pending SBA approval. A planned future securitization of retained 7A unguaranteed interest would provide additional liquidity to fully fund the business.

Speaker #5: In 2024, we originated $1.1 billion of SBA 7A loans, and the platform has continued to carry the infrastructure and costs to originate more. Our current SBA pipeline in closing totals $173 million.

Speaker #5: Now, in terms of the outlook, there are three primary items that we expect to contribute to earnings improvement. First, the increase in new originations, with capital generated from the continued liquidation of the non-core portfolio and other lower-yielding assets to further growth in net interest margin.

Speaker #5: Second, stabilization of the Portland mixed-use asset is important for both reducing the current negative financial drag and facilitating the liquidation of the hospitality, office, and residential components.

Speaker #5: And third, a return of SBA 7A lending volumes to over $325 million per quarter and the long-awaited entry of Ready Capital to the USDA market at scale.

Speaker #5: We expect modest earnings growth in the back half of 2025 from these initiatives relative to the first and second quarter results. Assuming those second no significant deterioration in the macro environment, we expect to maintain our current dividend level until our earnings profile warrants an rease.

Speaker #5: With that, 'll turn it over to Andrew to go through quarterly results.

Speaker #4: Thanks, Tom. For the second quarter, we reported a gap loss from continuing operations of 31 cents per common share. Distributable earnings were a loss of 14 cents per common share, and 10 cents per common share excluding realized losses on asset sales.

Speaker #4: Several key factors impacted our quarterly results. First, net interest income increased to $17 million in the quarter. The improvement was due to a full quarter of interest income from the UDF transaction and lower interest expense from lower leverage and a five basis point reduction in borrowing costs.

Speaker #4: Which averaged 6.8% for the quarter. In the core portfolio, the interest yield was 8.1%, and the cash yield was 6.1%. The interest yield in the non-core portfolio was 2.4%.

Speaker #4: Second, gain on sale income net of variable costs increased 2.5 million to 22.7 million. The change was the result of higher USDA and Freddie Affordable Volume offset by lower SBA 7A volumes due to the pending approval of warehouse line increases with the SBA.

Speaker #4: The income was driven by the sale of 121.2 million of guaranteed SBA 7A loans at average premiums of 9.9%. The sale of 151 million of Freddie Mac loans at premiums of 265 basis points and the sale of 41.9 million of USDA production at premiums averaging 9.7%.

Speaker #4: Realized gains from normal operations were offset by 8.9 million of realized losses from the sale of assets. All of which were adequately reserved for in previous quarters.

Speaker #4: Third, operating costs from normal operations were 58 million, representing a 5% increase from the previous quarter. Fourth, the combined provision for loan loss and valuation allowance increased 48.4 million.

Speaker #4: The additional 39.7 million valuation allowance was due to pricing adjustments on the trade Tom mentioned, which settled this week. The 173 million dollar cumulative valuation allowance related to this trade will flip to a realized loss in the third quarter and be included in distributable earnings.

Speaker #4: The 8.6 million dollar provision for loan loss was due to a net increase in the general provision of $800,000 and 7.8 million of specific reserves on assets which experienced deterioration in the quarter.

Speaker #4: And last, other items of significance included a 14.4 million dollar reduction in the bargain purchase gain related to the closing of the UDF IV merger, six and a half million of non-cash impairment of the SBA and USDA servicing assets related to movements in the discount rate, and a 41.6 million dollar tax benefit from losses associated with the loan pool sale.

Speaker #4: Income from normal operations net of tax which can be found on page 11 of the financial supplement decreased 6.7 million to a 7.3 million dollar loss in the quarter.

Speaker #4: Reoccurring revenue increases of $89,000 due to higher net interest income and higher gain on sale revenue were offset by a 7.5 million dollar increase in operating costs due to higher accruals and a 4.8 million dollar reduction in the tax benefit.

Speaker #4: On the balance sheet, a few key items to highlight. First, we completed the sale of a residential mortgage banking business, GMFS. Proceeds from the sale included cash equal to the adjusted book value of the business and an earnout over the next 30 months.

Speaker #4: The transaction resulted in a cumulative loss and disposition of $3 million. Second, we continue to reduce our short- to medium-term debt maturities. In the quarter, we retired $50 million of corporate debt using proceeds raised from the upsize of our initial Q1 $220 million senior secured issuance.

Speaker #4: As of today, we have a total of $650 million of corporate debt maturing through 2026 including current maturities of $132 million. We are focused on extending those maturities over the upcoming quarters.

Speaker #4: Book value per share was $10.44 at quarter-end. Down 17 cents from March 31st. The decline was primarily due to the dividend and coverage shortfall, partially offset by repurchase of 8.5 million shares at an average price of $4.41 cents, which offset the reduction in book value per share by 31 cents per share.

Speaker #4: Liquidity remained strong, with unrestricted cash at over $150 million and just under $1 billion of total unencumbered assets. With that, we will open the line for questions.

Speaker #2: Thank you. We'll now be conducting the question and answer session. If you'd ike to ask a question at this time, you press star one from our telephone keypad.

Speaker #2: And a confirmation tone will indicate your line is in the estion queue. You may press star two if ou'd like to withdraw your question from the queue.

Speaker #2: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull up for questions.

Speaker #2: Thank you. The first question is from the line of Crispin Love with Piper Sandler. Please proceed with our estions.

Speaker #6: Thank you. good morning, everyone. first, Tom, you you mentioned your reentering the origination market in the in the third quarter and and you said, you expect modest earnings growth.

Speaker #6: I was wondering if you could just put a little bit of a finer point on that. Does that mean that you still expect distributable earnings losses in the near term and then when do you think you can get to profitability and then closer to dividend coverage?

Speaker #5: Yeah. I'll let Andrew touch on . But with one, one adjunct comment, which is, at the the origination team is gearing up to target, if you will, new vintage multifamily bridge.

Speaker #5: it's ably about a five-point lower attachment point and higher debt yields than, in the in the peak of this last cycle. and that'll take some, the pathway for that is probably like 120 days.

Speaker #5: However, in the interim, we have access to the external managers' significant CMBS trading capabilities. So, we would look to deploy cash immediately into those instruments to provide, some kind of, if you will, the first leg of the rebuild in the NIM.

Speaker #5: So, Andrew, maybe with that back backdrop, be touch on Crispin's question regarding the ramp in the, earnings.

Speaker #7: Yep. Good morning, Crispin. so if you if you start from what I'll call normalized earnings in the quarter, which were a loss of 4 cents, and the difference between that and distributable being mainly things like MSR impairment, there are a couple of items that Tom mentioned in his prepared remarks that are sort of already baked.

Speaker #7: The first is that JV sale, where the negative carry will increase. The reduction in negative carry will increase EPS by $0.05 a quarter.

Speaker #7: We anticipate that the reinvestment of that equity, which, will occur over the third and fourth quarters, to generate another 2 cents. so that'll bridge the gap into positive what I'll call normalized earnings.

Speaker #7: There are a uple of other items that happen in the third quarter, while we paid off a $75 million repo on the retained interest of one of our CLOs.

Speaker #7: That's going to generate a penny. And then you move into production increases in our small business lending segments. So our expectation is once the USDA platform gets to a normalized ramp of roughly $300 million annually, that'll increase earnings by 2 cents share.

Speaker #7: And the return of SBA volume to where we were running at the back half of '24 is expected to increase earnings another 3 to 5 cents.

Speaker #7: Now, that is going to be offset by, obviously, the need to refinance the corporate debt, where if you just take the delta between where the cost of the debt is today and where we priced our last deal, we expect it to decrease earnings by 3 to 5 cents.

Speaker #7: So those are the most immediate term ramps. you know, growth from there is going to come from turnover of the portfolio, as Tom mentioned.

Speaker #6: Perfect. Thanks, Andrew. I appreciate you laying all that out. And then on the, the bulk sale of legacy bridge loans, can you first describe the type of buyer here broadly?

Speaker #6: And then how much is left to sell? And I I think you might might have said that the that's all from the 2021 vintage.

Speaker #6: And then also, if you can just dig into a little bit of the pricing of that sale versus initial originated values and then pricing prior to those, two-queue final marks.

Speaker #5: Yeah. I'll let maybe, Adam, you could tackle this. But just as as a preparatory comment, Crispin, the in the private funds market and the at the the external manager, you know, we, we see this firsthand.

Speaker #5: But there's a lot of, money raised in real estate private equity, which is targeting the, multifamily sector. Which is viewed as, fundamentally a solid in terms of the buy the the supply-demand dynamics and the the, the, basically, in '25 and '26, the oversupply from the the the boom years of '21 through '23, are now working their way through the market.

Speaker #5: So, you’re starting to see firmness in the environment. So, anyway, a long-winded way of saying that there’s probably been at least $300 to $400 billion of opportunity capital that is looking for these assets.

Speaker #5: And what they'll do is they'll look to undertake to purchase the debt, to, you know, essentially to own and operate the properties. So with that backdrop, Adam, maybe just provide some additional, color.

Speaker #6: Yeah. Yeah. Sure. Yeah. Good morning, Crispin. The partners here are, you know, a multifamily operator with a few thousand units and a fund partner that has AUM of about $1.5 billion.

Speaker #6: They came together and are the buyer of this portfolio. from a price perspective, the price is around 77. of the UPB. and you know, I think, ou know, it's important to highlight here this this portfolio, had a sponsor concentration of specifically two two syndicators, GVA and Tides.

Speaker #6: so, you know, we are, you know, virtually removing 100% of of exposure to those two, two sponsors. and you ow, I think as as Tom highlighted in his remarks, about 40% of of that portfolio was 60-plus days delinquent.

Speaker #6: non-core, 31% core. sorry, 31% of the 60-plus was in non-core. and you know, there there was REO in here as as well, of about 31 million.

Speaker #6: in this portfolio. I don't, Crispin, if you have other other questions or I answered, you hear?

Speaker #8: Yeah, just one last kind of quick follow-up. Is there anything left from the 2021 vintage in your portfolio, either core or non-core?

Speaker #6: Yes. There there there certainly is in in the core portfolio.

Speaker #8: Great. thank you. I appreciate you ing my estions.

Speaker #6: Sure.

Speaker #8: The next questions are from the line of Doug Harder with UBS. Please proceed with your questions.

Speaker #9: thanks. And good ning. you you talked about, you know, kind of, SBA volumes picking up. Can can you talk about what it what is going to be the driver of that and and your confidence as to the timing as to when you're ing to start to see that?

Speaker #5: the well, if you ok at the, industry volume, when, when the new administration came in, there was an industry-wide decline in volume. I think it what Andrew was like 10, 15 percent, metric.

Speaker #5: Said that this I'm referring to the 7A program. Which typically runs 25 to 30 billion per year. Based , annual approval by authorization by Congress.

Speaker #5: and that was mainly due to changes in the some of the Biden, era, rules called published standard operating procedure regarding, small loans. In particular.

Speaker #5: So we, the industry has undergone, those changes, and, is rebooted credit guidelines which are, you know, more incrementally more conservative. 'll point out that we preemptively and our small loan program actually implemented those guidelines about, say, three months ahead of the SBA's, changes.

Speaker #5: So we feel fortable there. So that so we're we're seeing we're going to e a ramp. And demand for, we we're seeing demand for small business loans, especially M&A, or business acquisitions remains, strong.

Speaker #5: And then, of course, we're a leader in the small loan program via our fintech, iBusiness, so, yeah, we so that so the main the main constraint we have faced has been the, approval of, warehouse lines by the SBA.

Speaker #5: And you know, obviously, there's some constraints with the the turnover in the government's throughout the government agencies and staffing. So we now see a path forward to, to sequentially increase the lines the next line limit is, I think, in is slated for around 7,500 million.

Speaker #5: So that's what, from an industry perspective and from our own specific perspective, has accounted for the drop in this quarter's 7(a) originations.

Speaker #5: And and bolted onto that, ever, is the ramp in our our USDA business, which is a top three, lender historically. And that will that will add an incremental, increase in the P&L in our our small business segment.

Speaker #5: So, Andrew, I don't know if you would add to that.

Speaker #7: Yeah, I think you will see volumes in the third quarter remain somewhat consistent with where they are in the second quarter. As Tom mentioned, the pending approval of that third warehouse line with the SBA will certainly open up capacity.

Speaker #7: but the full ramp, back to, you know, what it targeted 1.2 to 1.5 billion in annual originations, is really going to come from, you know, clearing the existing warehouse lines through some capital markets transaction, as Tom mentioned.

Speaker #7: you know, whether that be a normal way securitization of 7A loans, which we've one a handful of, or participation sales, you know, that will be the driver to to really increase, the capital needed to get back to the those levels.

Speaker #7: So, I would expect a ramp back there to happen more towards the back half of the second half of the year.

Speaker #5: Yeah. And I and just one last comment on SBA. We're we are fully supportive of the the regulatory changes since, we're under the new administration.

Speaker #5: And, h, there is a a bill before Congress to increase the guarantee, from the cap from 5 to 10 million for manufacturing, facilities. And we're ing, we're targeting to, h, to the extent that that led, we support that legislation and to the extent it's roved, we're developing targeted origination strategies around that.

Speaker #5: So there's there is some upside to the in terms of the, going into the fourth quarter and early, you know, early, early 2026.

Speaker #8: Great. Appreciate that. And then, on on the unsecured, issuance, you know, can you just talk about your plans there, given given, the higher costs you're seeing there now?

Speaker #8: Does that does that market still make sense? financially or, you know, or is it an important part the capital structure that you want to continue even though it costs, it costs are elevated today?

Speaker #7: Yeah. If you look at, the 650 million, we have coming due of around 300 million of that is unsecured. some of that being, you know, $25 par deals.

Speaker #7: So we think, you know, that the market will play a part in the refinance of a portion of that $650 million. You know, I do believe that the majority of that pending debt, though, will probably get placed through a secured issuance.

Speaker #7: whether it be utilizing, the 100 million dollars still available on our Q1 issuance, or a new security, and when you look at, you ow, unencumbered assets and even excess coverage in existing deals, there there's a significant amount of what I'll call clean performing product to support those issuance.

Speaker #7: So, you ow, we remain confident in the ability to refy those out. but certainly, acknowledge the the increased cost of that debt, you know, will put, you know, pressure on the earnings as I described earlier.

Speaker #8: Great. Appreciate it. ank you.

Speaker #5: Thanks, Tom.

Speaker #8: Our next questions are from the line of Jade Rahmani with KBW. Please proceed with your questions.

Speaker #10: Thank you very much. There’s so much to go through here, but I'll try to be somewhat brief. Just on Portland, will the assets be held on the balance sheet at $432 million? And did the $5.3 million carrying costs you cited reflect a full quarter impact?

Speaker #10: What's the three-queue estimate?

Speaker #4: Yeah. I can answer the the first question, Jade, and then I'll et, Adam talk about the operations. Yeah. The initial valuation will be put on at that 425, and then evaluated, you know, for impairment going forward from there.

Speaker #10: Okay. And then the quarterly carrying cost estimate?

Speaker #6: Yeah. Jade, 'm sorry. You're you're your question is what on the on the 5.3?

Speaker #10: Yeah. Is that a full quarter estimate for the carrying cost?

Speaker #7: Yes. That was the full quarter impact.

Speaker #10: That affected the second quarter?

Speaker #7: Correct. So it's 5.3 was in the second quarter.

Speaker #10: But you foreclosed in July?

Speaker #7: Yeah. But we were holding it as a non-performing loan in the second quarter. So that's in that expense.

Speaker #10: Now, will be now that you own it, what will the carrying costs be?

Speaker #7: Yeah. I think that's a fairly good estimate going forward. There are a couple of ings that we are are working on to help reduce that.

Speaker #7: One is to, lower the financing costs associated with that asset. And then, obviously, you know, as the loan stabilizes, whether it be leasing of the office or a reduction in the amount of unsold condos that number will come down.

Speaker #6: Yeah. I think, Jade, I think the material I think the material operating costs would be what we'd call like good good news money, where, we get an office tenant and, we're required to put up tenant improvements.

Speaker #6: To get that, tenant into the office space and improve their space. so again, I think, you know, the material costs would would be where the asset is improving significantly and we're utting in, good news.

Speaker #6: Good news investment.

Speaker #10: How much capital will need to be put in across the three categories?

Speaker #6: Yeah. I mean, look, it depends on it depends on the type of sales spending. I'm ry. I'm sorry. I missed that last comment.

Speaker #10: How much capital will be need will need to be put in, marketing and sales spending? you know.

Speaker #6: Look, we got the asset about two weeks ago. So, you know, our partner Lincoln who is, you know, we're partnering with on on the asset management, the asset is putting together a budget.

Speaker #6: you know, as of right now, you know, again, the material the material spends are, you know, on marketing, the condo units, which, you know, again, we're utting together a budget for that.

Speaker #6: That's, you know, that'll be driver. you know, the tenant improvements, you ow, dependent depends on the type of tenant that comes in. but we're looking at from a tenant improvement cost, you know, probably around $150 a square foot to $200 a square foot for for for TIs, for for the office tenants.

Speaker #6: And we've got, approximately, 60, 66 percent, remaining to lease up. and then, yeah, I mean, look, there's there's, you know, there's other costs associated with, the HOA on the condo.

Speaker #6: and and and other aspects of of of marketing this this property.

Speaker #5: But I think just as a one comment, Adam, correct me if I'm rong, but in relation to, say, for example, office, and and that you look and the future projected, CapEx in relation to our basis, you ow, over 50% is a is a is a rich Carlton that opened up in, October of '23.

Speaker #5: Which is on its way to stabilization, trailing 12 red par with a little over $200, so that per se doesn't require significant CapEx.

Speaker #5: And then the CapEx on the office, it's how many square feet, of the 66% that's left, Adam? It's?

Speaker #6: Yeah. It's about, 70,000.

Speaker #5: Yeah. it's 70,000 square feet. It's the minimum in relation to true office property. So that's, Jade, where you might have some, some some CapEx.

Speaker #5: But again, that along along with maybe the marketing strategies around the residences, the branded residences, are are will incrementally have some CapEx. But nothing in relation much less than what you'd have with, for example, other, other, office I'm sorry, other pro sectors like the office space.

Speaker #10: Okay. Secondly, just on the dividend, you know, conveying some sentiment from institutional investors that have been in touch with the company, has a very large deferred tax asset.

Speaker #10: So plenty of shield to, avoid having to play, pay a dividend. So, you know, based on, current management expectations, you ow, why not eliminate the dividend and reallocate that capital toward, number one, debt repayment because there's significant maturities at a very high cost that was referred to.

Speaker #10: And then, number two, once you feel really comfortable you could allocate that toward the buybacks, which are continuing. Which would stabilize book value and protect the company's equity base.

Speaker #10: So, right now, you know, the dividend is still quite costly. It would seem to make more sense to suspend it and then recommence once, you know, we're kind of out of the woods in this period of stress.

Speaker #5: Yeah. I mean, that's that's a fair question. And, you know, a lot it, has to do with our repositioning strategy. And the, you know, we right now, you know, for example, in this quarter, we achieved with a, you know, a month or two delay, the, the goal to eliminate half of our non-core portfolio and the significant drag there.

Speaker #5: And you saw the bridge to covering the dividend. But maybe, Andrew, you could just discuss, in that context, some color and thoughts around Jade's question.

Speaker #7: Yeah. I think it's a a good question. As I mentioned, earlier to Crispin's question, there is a a bridge to, an earnings profile assuming no further deterioration in the the core portfolio.

Speaker #7: That gets close to that coverage. Now, it's going to take, some time, as I mentioned. But I think the the board will continue to evaluate the performance of the core portfolio.

Speaker #7: As well as the progress on that walk I made earlier, in evaluating the dividend.

Speaker #10: Thanks very much.

Speaker #5: Thanks, Jade.

Speaker #8: The next question is from the line of Randy Benner with B-Riley Securities. Please proceed with your estions.

Speaker #11: Hey. Thanks. And I think I just kind of have follow-ups to some of the questions. I guess the first one, excuse me, on just Andrew, going back to our walk the the EPS walk to to dividend coverage.

Speaker #11: Did that I think you at the end, you said there was some some negative for for higher anticipated interest expenses you, you know, you ow, kind of, deal with the the debt maturity for '26.

Speaker #11: Is was the was the drag from the Portland property also contemplated in that EPS walk?

Speaker #7: Yeah. So the the the current that EPS walk, assumes, as I mentioned to Jade, that the the Q2 negative carry of that stays somewhat consistent.

Speaker #7: You know, to the extent there, as Adam mentioned, good money that goes out, you know, that may weigh, but then results in higher revenue.

Speaker #7: So the the drag is already included in that upfront number.

Speaker #10: Okay. But it would I mean, 's at least two quarters if not three quarters the way I'm putting these numbers together before you'd be at 12.5 cents.

Speaker #5: I think that's right.

Speaker #10: Okay, well, the dividend question was covered. I'm just going back. I think Crispin asked about this, but I just wanted to make sure I'm clear on this.

Speaker #10: the 85 of net proceeds from the loan sale, that's there I think in the in this the answer there, it's some it was it a held at 77 percent of UPB.

Speaker #10: I don't know if that if I heard that correctly. But I'm I'm just trying understand is it was it a, you ow, you sold 494 million worth and 85 was all the proceeds?

Speaker #10: Or there there was that was the net proceeds after kind of other offsets? I just just wanted to ake sure I was clear on on that.

Speaker #7: Yeah. Yeah. So all of these assets were financed, whether that be on warehouse or inside our CLOs. So roughly $38 million went to pay off our warehouse lenders.

Speaker #7: And then there was another 128 million that went to repurchase those loans out of the CLOs. Which is how we get to the net 85 million of cash.

Speaker #10: Okay. Yeah. Got it. And then just just on the, you ow, you did issue the 50 and you have the 85 of proceeds there.

Speaker #10: And so it, you know, I Andrew, I heard, I mean, you referred the 650 maturity, wall coming up for 2026. But is it kind on a when we talked to him, investors and think about it pro forma these raises, I mean, is it ally more like 600 or even lower?

Speaker #10: Would we assume that the the 50 million issued and then these proceeds would kind of pay down debt? Or is it is are the is that going to other purposes and the 650 stands on its own?

Speaker #10: and and would be, ou know, refied independently? If that makes sense. I'm trying to I'm trying handicap like what the right 26 maturity number is, you know, net of everything we've ussed on this call.

Speaker #7: Yeah. Yeah. No. Under understood. I I do think that a portion of that 650 million will come from, you know, just natural paydowns or repurchases in the market by the company.

Speaker #7: So don't anticipate, dealing with that maturity letter fully through the issuance of of new debt. you know, with that being said, not 100% of the cash flow coming off the portfolio is going to go towards deleveraging for the, you ow, this simple fact that you know, rebuilding the net interest income, as Tom mentioned, is is really important to, you know, getting the earnings profile going in in the right direction.

Speaker #7: And, you know, have confidence in that just based on a lot of the work we've done over the last few months on the accessibility of of the markets to you know, help deal with with that 650.

Speaker #7: But but to your point, I don't anticipate 100% of that being refund. Some of it's going to come from us, you know, using the organic liquidity of the company to to lower that to lower that amount.

Speaker #10: Okay. Great. That's all I had. Thank ou.

Speaker #8: The next question is from the line of Christopher Nolan with Leidenberg Falcon. Please proceed with your estions.

Speaker #12: Hey, guys. Was the Portland asset acquired, or was that a legacy asset of Ready Capital?

Speaker #6: That was an asset that was acquired through the Mosaic merger.

Speaker #12: Okay. And then I guess in, you ow, looking back on all the fast and furious mergers that you guys did over the past years, and many of them seemed, you know, at least to the outsider, more as a financing vehicle.

Great. And then final question um I think Adam commented earlier about private Equity entering into for multifamily um should we look at that as sort of being opportunistic money given? This is a large wall of maturing commercial real estate paper out there and the private Equity is trying to um

Get into the asset class on the cheap. Uh,

Sort of is it a cyclical play by private Equity playing into multi family.

It's unequivocally, a cyclical play. They bucket it as opportunistic CRA in the pension fund world.

And, um, you know, as a result of that, we've— and Adam can come in— but we get a constant, uh, reverse inquiries from, um,

the acquisition specialist at these Theory Equity shops, uh, given the fact that we have a significant, uh,

You know, rather than buying 1z 2zs in the broker Market there, there's very few opportunities for bulk sales, like we just executed today. So as a result of that and it was it was part of the commentary in our prepared, remarks, 1 of the things we do in the both, obviously the core which is favors accelerated liquidation, but also the non-core, our asset managers will always have an overlay evaluation of looking at sale in the secondary Market, uh, to the extent that the at on balance sheet Asset Management strategies, create a, a lower yield, um, you know,

Cyclical influx of capital into targeting the multifamily space. And obviously, we we have a large, uh, Legacy book that can benefit from that.

Okay, thank you very much. Take my questions.

Thank you.

We've reached the end of the question and answer session and I'll turn the call back over to management for closing remarks.

And we appreciate everybody's time and look forward to the uh, the third quarter call.

This will conclude today's conference. You made this connect your lines at this time. Thank you for your participation and have a wonderful day.