Q4 2025 Ready Capital Corp Earnings Call

February 27, 2026

Speaker #2: A reconciliation of these measures to the most directly comparable GAAP measure is available in our fourth quarter 2025 earnings release and our supplemental information, which can be found in the Investors section of the Ready Capital website.

Speaker #2: I will now turn it over to Chief Executive Officer Tom Capasse.

Speaker #3: Thank you, Andrew. Good morning, everyone, and thank you for joining today's call. To begin, we have made significant progress advancing a comprehensive balance sheet repositioning strategy outlined in the third quarter.

Speaker #3: This disciplined plan remains focused on three key priorities: One, strengthening liquidity to generate free cash flow in excess of our 2026 debt maturities; two, selling underperforming CRE assets to eliminate negative earnings drag; and three, positioning Ready Capital for sustainable future growth.

Speaker #3: The first phase of our repositioning strategy has focused on aggressive asset management, while the second will streamline the CRE origination business into a lower-cost structure with greater reliance on our external manager, Waterfalls, deep CRE investment capacity and expertise.

Speaker #3: To that end, to support and lead these efforts, we have promoted dominant scaling to chief credit officer and co-president of our CRE operating business, Ready Cap Commercial.

Speaker #3: With over 25 years of CRE lending experience, including 10 years with Ready Capital, Dominic has significantly contributed to building our lending infrastructure. In his new role, he will oversee all aspects of our CRE strategy.

Speaker #3: Dom is joining us on today's call. Gary Taylor will transition to focus on our SBA business as president of ReadyCap Lending, from his position as chief operating officer.

Speaker #3: Given Gary's over 30 years of experience leading non-bank SBA lenders, this change aligns well with our increasing emphasis on capital-like business lines going forward.

Speaker #3: I also want to express my gratitude to Adam Zausmer, for his decade-long contributions to Ready Capital, and the instrumental roles he has played over the years.

Speaker #3: These organizational changes support the execution of our repositioning plan and seize new opportunities as we progress. Now, turning to the business update. We are making significant progress executing our liquidity plan to both address our corporate maturities and reposition the CRE portfolio.

Speaker #3: Our plan targets generating over $850 million of free cash and reduces the legacy CRE book 60% to approximately $2 billion, thereby optimizing the balance sheet to support future earnings growth.

Speaker #3: From the start of the fourth quarter to date, we have generated approximately $380 million in free cash from two primary sources. $130 million from both portfolio sales, and $250 million from portfolio runoff and other asset management resolutions.

Speaker #3: Overall, our liquidity projections anticipate generating an additional $500 million in free cash flow by year-end from two primary sources. First, we expect to generate $250 million from the portfolio runoff, consistent with our 36% trailing 12-month repayment rate.

Speaker #3: Second, we expect to generate approximately $250 million in free cash from planned 1.5 billion of additional loan sales with a focus on NPL and subyielding assets.

Speaker #3: Loan sales are expected to be substantially complete by the end of the second quarter. Within this gross reduction of our legacy CRE book, our portfolio repositioning includes an aggressive asset management focus on the sale or resolution of approximately $1.4 billion of sub and non-performing loans at REO assets.

Speaker #3: The current quarterly negative earnings drag of this subset is approximately $0.08 per share, with cash outflows of $13 million per quarter. Continued execution of the liquidity plan may result in additional book value pressure, depending on the specific actions we take to increase cash and reduce debt.

Speaker #3: In the fourth quarter, the company's book value declined 14% per share. The anticipated benefit is a more attractive portfolio with competitive earnings profile and a $1.0 times reduction in leverage to $2.5X, which would allow us to allocate more cash flow towards growth.

Speaker #3: Our immediate debt maturities include $67 million due in the third quarter, and $450 million due in the fourth quarter. While we are discussing the refinance of a portion of these maturities into a new debt offering, we are executing a liquidity plan that ensures free cash significantly exceeding these obligations.

Speaker #3: We successfully retired our five and three-quarters percent February senior unsecured note upon maturity. Our plan also includes a targeted $25% reduction in operating costs to align with the business's more simplified CRE investment strategy and increase capital allocation to our capital-light small business lending operations from 10% to 20%.

Speaker #3: I would also like to provide an update on two additional items. First, the Ritz property remains our largest single equity allocation representing 16% of year-end stockholders' equity.

Speaker #3: Since assuming control of the property in August, we have made meaningful progress in our stabilization plan. First, the condominiums, which represent 40% of the total project value.

Speaker #3: Along with the new sales agent, Christie's, we have adopted a phased sales strategy to sell the smaller units first at lower prices and the larger units later at higher prices.

Speaker #3: This is designed to facilitate momentum and achieve a full sellout at target per square foot levels. We successfully launched phase one in December, placing 16 units under contract with an additional 9 units executing reservation agreements, and deposits.

Speaker #3: Which would result in $27% sellout of the $131 total units. The average price to get the new sales was $737 per square foot. Second, the hotel, which represents 50% of the total project value.

Operator: If anyone should require operator assistance, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Andrew Ahlborn. Thank you. You may begin.

Speaker #3: We have adopted a strategy led by our property manager, Lincoln, that focuses on achieving higher occupancy given the more competitive market rates in the improving Portland area.

Andrew Ahlborn: Thank you, operator. 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. 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. 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. 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 #3: As a result, year-over-year occupancy increased by 6.5%, ADR rose by 5% to $492, and RevPAR reached $210. Third, the combined office and retail spaces, which represent 10% of the total project value.

Speaker #3: We continue to maintain 28% occupancy, but prospective tenant tours have substantially increased since our relaunch. Separately, the impact of last year's government shutdown was estimated to have curtailed $5.3 billion of industry-wide SBA 7A originations, resulting in a 50% decline in our originations in the quarter to $84 million.

Speaker #3: A level significantly below 2026 volume targets. Importantly, we remain a top five lender in the SBA market. We anticipate coming to market with our fourth SBA securitization during the second quarter, highlighting the growth of this key segment in 2026.

Andrew Ahlborn: A reconciliation of these measures to the most directly comparable GAAP measure is available on our Q4 2025 earnings release and our supplemental information, which can be found in the Investors section of the Ready Capital website. I will now turn it over to Chief Executive Officer, Thomas Capasse.

Speaker #3: In terms of our repositioning plan, greater capital allocation to this high-ROE segment provides another foundation for future earnings growth. We continue to take deliberate steps to enhance liquidity and strengthen the platform.

Thomas Capasse: Thank you, Andrew. Good morning, everyone, and thank you for joining today's call. To begin, we have made significant progress advancing the comprehensive balance sheet repositioning strategy outlined in the Q3. This disciplined plan remains focused on 3 key priorities: 1, strengthening liquidity to generate free cash flow in excess of our 2026 debt maturities. 2, selling underperforming CRE assets to eliminate negative earnings drag. 3, positioning Ready Capital for sustainable future growth. The first phase of our repositioning strategy is focused on aggressive asset management, while the second will streamline the CRE origination business into a lower cost structure with greater reliance on our external manager waterfalls, deep CRE investment capacity and expertise. To that end, to support and lead these efforts, we have promoted Dom Nicascali to Chief Credit Officer and Co-President of our CRE operating business, ReadyCap Commercial.

Speaker #3: As of today, we generated approximately 35% of our target liquidity objective and continue to make steady progress. At the same time, we are redefining or refining our CRE business and increasing our reliance on Waterfall to expand investment capacity and reduce related operating costs.

Speaker #3: There is more work ahead, but we are encouraged by the progress made to date and remain focused on disciplined execution. With that said, I'll now turn it over to Andrew for a detailed review of the quarterly results.

Speaker #4: Thanks, Tom. The fourth quarter earnings and balance sheet are reflective of the repositioning strategy outlined by Tom. For the fourth quarter, we reported a gap loss from continuing operations of $1.46 per common share.

Speaker #4: Distributable earnings were a loss of 43 cents per common share and 9 cents per common share excluding realized losses on asset sales. As Tom discussed, book value ended the year at $8.79 per share versus $10.28 per share in the prior quarter.

Thomas Capasse: With over 24 years of CRE lending experience, including 10 years with Ready Capital, Dominic has significantly contributed to building our lending infrastructure. In his new role, he will oversee all aspects of our CRE strategy. Dom is joining us on today's call. Gary Taylor will transition to focus on our SBA business as President of ReadyCap Lending from his position as Chief Operating Officer. Given Gary's over 30 years of experience leading non-bank SBA lenders, this change aligns well with our increasing emphasis on capital-light business lines going forward. I also want to express my gratitude to Adam Zausmer for his decade-long contributions to Ready Capital and the instrumental roles he has played over the years. These organizational changes support the execution of our repositioning plan and seize new opportunities as we progress. Now, turning to the business update.

Speaker #4: This change was primarily due to an increase in the combined valuation allowance and CISO reserves of $173 million. The $23 million of valuation allowances relates to $600 million of loans that were transferred to held-for-sale in the fourth quarter and subsequently sold in the first quarter of 2026.

Speaker #4: The $150 million increase in CISO reserves relates to more aggressive reserves on non-performing loans given the shortened resolution timelines. We also anticipate incurring increased valuation allowances as additional loans are identified for sale.

Thomas Capasse: We are making significant progress executing our liquidity plan to both address our corporate maturities and reposition the CRE portfolio. Our plan targets generating over $850 million of free cash and reduces the legacy CRE book 60% to approximately $2 billion, thereby optimizing the balance sheet to support future earnings growth. From the start of Q4 to date, we have generated approximately $380 million in free cash from two primary sources: $130 million from both portfolio sales and $250 million from portfolio runoff and other asset management resolutions. Overall, our liquidity projections anticipate generating an additional $500 million in free cash flow by year-end from two primary sources. First, we expect to generate $250 million from the portfolio runoff, consistent with our 36% trailing tweak 12-month repayment rate.

Speaker #4: In the net loss from normal operations, the following items were impactful. First, reoccurring revenue was $41.5 million compared to $47.3 million in the prior quarter.

Speaker #4: The change was primarily due to a 7.7 million reduction in gain-on-sale revenue from lower SBA 7A and USDA loan sales due to the government shutdown.

Speaker #4: This reduction was partially offset by a 2.5 million increase in net interest income as we reduced the negative carry on non-performing loans. Second, operating expenses increased 7.4 million quarter over quarter to $59.9 million.

Speaker #4: This change was primarily due to increased compensation expense and higher legal fees, as well as a reduction in the tax benefit. Other items of significance included realized losses of $29 million on asset sales, $15 million of REO charge-offs, and $9.1 million of unrealized losses.

Thomas Capasse: Second, we expect to generate approximately $250 million in free cash from planned one and a half billion of additional loan sales, with a focus on NPL and sub-yielding assets. Loan sales are expected to be substantially complete by the end of Q2. Within this gross reduction of our legacy CRE book, our portfolio repositioning includes an aggressive asset management focus on the sale or resolution of approximately $1.4 billion of sub and non-performing loans at REO Assets. The current quarterly negative earnings drag of this subset is approximately $0.08 per share, with cash outflows of $13 million per quarter. Continued execution of the liquidity plan may result in additional book value pressure, depending on the specific actions we take to increase cash and reduce debt. In Q4, the company's book value declined 14% per share.

Speaker #4: Regarding the portfolio, we significantly increased the population of loans placed on non-accrual, which totaled 27% at year-end. Given portfolio repositioning efforts, we have limited interest accruals to both loans we anticipate holding through maturity and to the cash yield on non-performing or loans that are potentially sale candidates.

Speaker #4: We currently have a little under $200 million of free cash, which positions us well to address our near-term obligations, along with the items previously discussed by Tom.

Speaker #4: With that, we will open the line for questions.

Speaker #5: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad.

Speaker #5: A confirmation tone will indicate the line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

Thomas Capasse: The anticipated benefit is a more attractive portfolio with competitive earnings profile and a 1.0 times reduction in leverage to 2.5x, which would allow us to allocate more cash flow towards growth. Our immediate debt maturities include $67 million due in Q3 and $450 million due in Q4. While we are discussing the refinance of a portion of these maturities into a new debt offering, we are executing a liquidity plan that ensures free cash significantly exceeding these obligations. We successfully retired our 5.75% February senior unsecured note upon maturity. Our plan also includes a targeted 25% reduction in operating costs to align with the business's more simplified CRE investment strategy and increased capital allocation to our capital-light small business lending operations from 10% to 20%.

Speaker #5: One moment, please, while we pull for questions. Our first question comes from the line of Doug Harder with UBS. Please proceed with your question.

Speaker #6: Thanks. In light of your comments around looking to kind of reposition the portfolio, accelerate dispositions, can you talk about the thoughts around keeping the Portland asset, or whether that makes sense to kind of accelerate the timeframe on that?

Speaker #7: Yeah. Good question, Harder. So as you can see in the quarter with there's been a very dramatic change in the trajectories on both the RevPAR and given the change in the occupancy strategy by lowering the ADR and secondly, the condominiums by putting two professional managers with specialization in both.

Thomas Capasse: I would also like to provide an update on 2 additional items. First, the Ritz property remains our largest single equity allocation, representing 16% of year-end stockholders' equity. Since assuming control of the property in August, we have made meaningful progress in our stabilization plan. First, the condominiums, which represent 40% of the total project value. Along with the new sales agent, Christie's, we have adopted a phased sales strategy to sell the smaller units first at lower prices and the larger units later at higher prices. This is designed to facilitate momentum and achieve a full sellout at target per square foot levels. We successfully launched phase one in December, placing 16 units under contract, with an additional 9 units executing reservation agreements and deposits, which would result in 27% sellout of the 131 total units.

Speaker #7: So we're ahead of schedule right now in terms of our stabilization plan. So the short answer is we're making very strong progress. And would we hold to the last mile of that stabilization plan versus accelerating it—accelerated sale?

Speaker #7: The answer is yes. We probably would lean in that direction. However, we're very confident of our ability to meet the stabilization plan on the two primary components, which are 90% of the value, the condos and the hotel.

Speaker #7: And we also note an overall improvement in the kind of Phoenix factor in the Portland market more broadly. So, yeah. So, that being said, we would, if post-stabilization with the appropriate pricing in relation to that, look for an early disposition.

Thomas Capasse: The average pricing on the new sales was $737 per square foot. Second, the hotel, which represents 50% of the total project value. We have adopted a strategy led by our property manager, Lincoln, that focuses on achieving higher occupancy given the more competitive market rates in the improving Portland area. As a result, year-over-year occupancy increased by 6.5%, ADR rose by 5% to $492, and RevPAR reached $210. Third, the combined office and retail spaces, which represent 10% of the total project value. We continue to maintain 28% occupancy, prospective tenant tours have substantially increased since our relaunch.

Speaker #6: Great. Appreciate that. And then just on the increase on the non-accruals, just to flush that out, was there a change in the underlying performance or just a change in the strategy of how long you expect to hold those assets?

Speaker #7: Yeah. No, no. It's actually 100% the latter. And on that point, it's a good question. So just to be very clear, what we are undertaking is a focus on short-term resolutions, which will through both asset sales and what we call strategic asset management.

Thomas Capasse: Separately, the impact of last year's government shutdown was estimated to have curtailed $5.3 billion of industry-wide SBA 7(a) originations, resulting in a 50% decline in our originations in the quarter to $84 million, a level significantly below 2026 volume targets. Importantly, we remain a top five lender in the SBA market. We anticipate coming to market with our fourth SBA securitization during Q2, highlighting the growth of this key segment in 2026. In terms of our repositioning plan, greater capital allocation to this high ROE segment provides another foundation for future earnings growth. We continue to take deliberate steps to enhance liquidity and strengthen the platform. As of today, we generated approximately 35% of our target liquidity objective and continue to make steady progress.

Speaker #7: And that will reduce the portfolio by 60%, to $2 billion. So that actually renders our previous characterization of core and non-core as less relevant, as well as the typical 60-day metrics.

Speaker #7: And a good example of that is in the strategic asset management is we have, for example, a large loan with a sponsor who we might have otherwise extended, and we decide not to extend, and that work with the sponsor to execute a sale of the all or a portion of the portfolio.

Speaker #7: And actually, so that's very critical to understand. So it's not necessarily negative credit migration. It's really related to the asset sale that asset management strategy itself.

Thomas Capasse: At the same time, we are redefining or re-refining our CRE business and increasing our reliance on Waterfall to expand investment capacity and reducing related operating costs. There is more work ahead, but we are encouraged by the progress made to date and remain focused on disciplined execution. With that said, I'll now turn it over to Andrew for a detailed review of the quarterly results.

Speaker #6: All right. Appreciate the clarifications. Thank you.

Speaker #5: Thank you. As a reminder, if anyone has any questions, you may press star one on your telephone keypad and to join the queue. Our next question comes from the line of Jade Rahmani with KBW.

Andrew Ahlborn: Thanks, Tom. The Q4 earnings and balance sheet are reflective of the repositioning strategy outlined by Tom. For the Q4, we reported a GAAP loss from continuing operations of $1.46 per common share. Distributable earnings were a loss of $0.43 per common share and $0.09 per common share, excluding realized losses on asset sales. As Tom discussed, book value ended the year at $8.79 per share versus $10.28 per share in the prior quarter. This change was primarily due to an increase in the combined valuation allowance and CECL reserves of $173 million. The $23 million of valuation allowances relates to $600 million of loans that were transferred to held-for-sale in the Q4 and subsequently sold in the Q1 2026.

Speaker #5: Please proceed with your question.

Speaker #6: Thank you very much. On the core CRE and non-core CRE loan portfolios, the percentage of non-accruals as you just said increased sharply. Do you anticipate needing to reverse previously accrued interest on these loans as a result?

Speaker #6: If not, why not? And can you just comment on the underlying credit trends in both portfolios?

Speaker #7: Yeah. Again—and Andrew, you could touch on the accrual question—but Jade, to be very clear, we're making strategic asset management decisions to not extend where we believe that would be putting the borrower in, to— we're not extending the loan, and we're putting the borrower in a good place to be able to execute an alternative strategy, which is usually a portfolio sale.

Andrew Ahlborn: The $150 million increase in CECL reserves relates to more aggressive reserves on non-performing loans, given the shortened resolution timelines. We also anticipate incurring increased valuation allowances as additional loans are identified for sale. In the net loss from normal operations, the following items were impactful. First, recurring revenue was $41.5 million, compared to $47.3 million in the prior quarter. The change was primarily due to a $7.7 million reduction in gain on sale revenue from lower SBA 7(a) and USDA loan sales due to the government shutdown. This reduction was partially offset by a $2.5 million increase in net interest income, as we reduced the negative carry on non-performing loans. Second, operating expenses increased $7.4 million quarter-over-quarter to $59.9 million.

Speaker #7: And so to put more granularity on and so therefore, it's not negative credit migration. It's a conscious decision by our us as the lender to not execute modification and extension strategies.

Speaker #7: So maybe we could do is Andrew, if you could answer the question regarding the accrual and then Dom, maybe just give Jade an example or two in terms of what we're looking at with respect to the what we're deeming our strategic AM strategies.

Speaker #8: Yeah. Good morning, Jade. So for loans that are being positioned for the for loans that were identified for sale in the fourth quarter and settled in the first quarter or loans that we anticipate selling, we have taken the reversals of the accrued interest in the fourth quarter numbers.

Andrew Ahlborn: This change was primarily due to increased compensation expense, higher legal fees, and a reduction in the tax benefit. Other items of significance included realized losses of $29 million on asset sales, $15 million of REO charge-offs, and $9.1 million of unrealized losses. Regarding the portfolio, we significantly increased the population of loans placed on nonaccrual, which totaled 27% at year-end. Given portfolio repositioning efforts, we have limited interest accruals to both loans we anticipate holding through maturity and to the cash yield on non-performing or loans that are potentially sale candidates. We currently have a little under $200 million of free cash, which positions us well to address our near-term obligations, along with the items previously discussed by Tom. With that, we will open the line for questions.

Speaker #8: So you saw roughly a 53-million-dollar reduction in accrued interest. So the accrued interest that's sitting on the balance sheet as of year-end is roughly 42 million.

Speaker #8: And really, just related to loans we anticipate holding, through maturity with full collectibility on that interest.

Speaker #7: So maybe yeah.

Speaker #6: But Andrew, it sounds like—Andrew, it does sound like you're stepping up the pace of loan resolutions, and you did say that you expect to increase valuation allowances on loan sales in the future.

Speaker #6: So would that not entail writing down that accrued interest balance as well?

Speaker #7: Yeah. So the accrued interest associated with loans that may be subject to a market discount if we move them to sale—the accrued interest attached to any of those loans was written down in the fourth quarter.

Thomas Capasse: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment please while we pull for questions.

Speaker #6: Okay.

Speaker #7: It's almost like, Jade, that was helpful in terms of the accrual question. Dom, maybe just give an example of a more granular example of what our asset management strategy is with respect to some of these larger loans.

Speaker #9: Yeah, sure. Hey, good morning, Jade. So, as Tom mentioned, consistent with our AM strategy and liquidity strategy, we're purposely not entertaining longer-term modifications with some of our assets.

Operator: Our first question comes from the line of Doug Hardy with UBS. Please proceed with your question.

Speaker #9: A concentration in sort of the increase in non-accrual is in four or five larger loan exposures. Where good sponsors, good quality asset, good performance, but unwilling to provide additional time.

Doug Hardy: Thanks. In light of your comments around looking to kind of reposition the portfolio, accelerate dispositions, can you talk about, you know, the thoughts around keeping the Portland asset, or whether that makes sense to kind of accelerate the timeframe on that?

Speaker #9: And what sponsors have pivoted to do is seek alternative financing or potentially sell assets. So a good example of that—we have a private property portfolio in the Sun Belt region with an institutional sponsor.

Speaker #9: Obviously, they would have preferred to have additional time and maybe some spread forbearance to get to the next 12 to 18 months. In lieu of that, they've sort of started marketing that portfolio with the National Brokerage Firm and where we're confident that we should be able to get repaid in the next quarter or so at or close to par.

Thomas Capasse: Yeah, the good question, Hardy. You know, as you can see in the quarter with there's been a very dramatic change in the trajectories on both the RevPAR, kind of, given the change in the occupancy strategy by lowering the ADR. Secondly, the condominiums, by putting 2 professional managers with specialization in both. We're ahead of schedule right now in terms of our stabilization plan. The short answer is we're making very strong progress, and, you know, would we hold to the last mile if that stabilization plan versus accelerating it, accelerated sales? The answer is yes. We probably would, you know, lean in that direction.

Speaker #9: So just putting some pressure on borrowers on some of these assets, where they will pivot ultimately to either seeking alternative financing or potentially selling the underlying assets.

Speaker #6: Okay, thank you. Just on the Portland asset—the 25 reservation agreements—what percent will convert to contracts, and what's the average price?

Speaker #7: So, Dom, you want to comment on that?

Speaker #9: Yeah. So of the 25, 16 are in contract with hard deposits. The remaining 9 should be converted to contracts with hard deposits within the next few weeks.

Thomas Capasse: However, we're very confident of our ability to meet the stabilization plan on the two primary components, which are 90% of the value, the condos and the hotel. And we also note an overall improvement in the kind of a Phoenix factor in the Portland market more broadly. Yeah, that being said, we would if post, you know, stabilization with the appropriate, you know, pricing in relation to that, we would look for an early disposition.

Speaker #9: We have actually closings in process this week and next. Those units sold for an average price of 737. And as Tom alluded to earlier on the call, the lower per square foot is expected just given these are sort of the smaller units on the lower floors.

Speaker #6: Okay.

Speaker #7: So Jade, this is just part of a—just to put some more color in there. This is part of a strategy we're working on with Christie's, our broker, and they have experience globally with these Ritz residences and other luxury hotel concepts, where the lower units sell at lower prices early on, and then the higher floor, higher units sell at the higher prices later.

Doug Hardy: Great. Appreciate that. And just on the increase on the nonaccruals, just to flush that out, was there a change in the underlying performance or just a change in the strategy of how long you expect to hold those assets?

Thomas Capasse: Yeah, no, it's actually 100% the latter. On that point, it's a good question. You know, just to be very clear, what we are undertaking is a focus on short-term resolutions, which will through both asset sales and what we call strategic asset management. You know, that will reduce the portfolio by 60% to $2 billion. That actually renders our previous characterization of core, non-core as less relevant, as well as the typical 60-day metrics.

Speaker #7: In the process that we've faced, we've bifurcated the 132 units, which are sold out now. And I'm 27% into these four phases.

Speaker #7: And we're highly confident in our ability to achieve, on an average per-square-foot basis, the numbers in our projection plans.

Speaker #6: Okay, that's good to hear. And then, on the $855 million of loans sold in February, what's the sale price relative to par and relative to carrying value?

Thomas Capasse: A good example of that is in the strategic asset management, you know, we have, for example, a large loan with a sponsor who we might have otherwise extended, and we decide not to extend, and that work with the sponsor to execute a sale of the port or all or a portion of the portfolio. Actually, so that's very critical to understand. It's not necessarily trick negative credit migration. It's really related to the asset sale that asset management strategy itself.

Speaker #7: Yeah, Andrew, do you want to comment on that?

Speaker #6: Yeah, so they sold in the high 90s, Jade. Carrying and UPB were right on top of each other. The pricing is the same there.

Speaker #6: Thanks very much.

Speaker #1: Thank you. Our next question comes from the line of Christopher Nolan with Latinburg Diamond. Please proceed with your question.

Speaker #10: Tom, in your comments, you indicated that through repositioning the portfolio and dispositions, the leverage ratios are going to go down. How much was that again, please?

Doug Hardy: I appreciate the clarification. Thank you.

Operator: Thank you. As a reminder, if anyone has any questions, you may press star one on your telephone keypad to join the queue. Our next question comes from the line of Jade Rahmani with KBW. Please proceed with your question.

Speaker #7: I have one turn to two and a half. The pro forma RC2O, if you will, is going to involve significantly less leverage with a multi-sector approach, with a significant percentage of investment capacity being brought to bear by the external manager waterfall, which is a large private funds investor in commercial real estate debt and equity.

Jade Rahmani: Thank you very much. On the core CRE and non-core CRE loan portfolios, the percentage of nonaccruals, as you just said, increased sharply. Do you anticipate needing to reverse previously accrued interest on these loans as a result? If not, why not? Can you just comment on the underlying credit trends in both portfolios?

Speaker #10: And then for the debt maturities that you guys coming up in the second half of the year, is the plan to retire that debt with just portfolio realizations and so forth?

Thomas Capasse: Yeah, again, Andrew, you could touch on the accrual question. Jade, to be very clear, we are making strategic asset management decisions to not extend where we're not extending the loan, and we're putting the borrower in a good place to be able to execute an alternative strategy, which is usually a portfolio sale. To put more granularity on... Therefore, it's not negative credit migration. It's a conscious decision by us as the lender to not execute modification and extension strategies.

Speaker #7: Yeah. The let Andrew comment on that. But as we said before, the broader liquidity plan is to it's an excess of 800 million dollars, which is a multiple significant multiple of the total maturities.

Speaker #7: And we're 35% into that plan and are going to raise another $500 million, half through asset sales and half through runoff, which we've been running at our 36% repayment rate.

Speaker #7: And these asset management strategy that Dom just talked about will enable us to outperform there. And we've completed two of the four asset sales with the other two by the end of the second quarter.

Speaker #7: So given that plan, Andrew, what is your—yeah, what is the timing on the debt maturities?

Thomas Capasse: Maybe we could do is, Andrew, if you could answer the question regarding the accrual, and then, Dom, maybe just give Jade a, an example or two in terms of what we're looking at with respect to the, what we're deeming our strategic AM strategies.

Speaker #9: Yeah. I would say, certainly, to the extent we can get execution levels that are accretive to the business from both an earnings perspective and a cash flow perspective, we would like to buy portions of the '26 maturities.

Doug Hardy: Good morning, Jade. For loans that are being positioned for loans that were identified for sale in Q4 and settled in Q1, or loans that we anticipate selling, we have taken the reversals of the accrued interest in the Q4 numbers. You saw roughly a $53 million reduction in accrued interest. The accrued interest that's sitting on the balance sheet as of year-end is roughly $42 million, and really just related to loans we anticipate holding through maturity with, you know, full collectibility on that interest.

Andrew Ahlborn: Good morning, Jade. For loans that are being positioned for loans that were identified for sale in Q4 and settled in Q1, or loans that we anticipate selling, we have taken the reversals of the accrued interest in the Q4 numbers. You saw roughly a $53 million reduction in accrued interest. The accrued interest that's sitting on the balance sheet as of year-end is roughly $42 million, and really just related to loans we anticipate holding through maturity with, you know, full collectibility on that interest.

Speaker #9: With that being said, as Tom highlighted, the liquidity plan currently underway certainly provides a substantial cushion to take out all of the three remaining maturities with cash, if needed.

Speaker #9: I think you will see sort of sequentially take out these bonds in the upcoming weeks and months. Given the current liquidity position.

Speaker #10: Okay. Thank you.

Speaker #1: Thank you. And our final question comes from the line of Chris Mueller with Citizens Capital Markets. Please proceed with your question.

Thomas Capasse: What, Don, maybe.

Speaker #11: Hey, guys. Thanks for taking the question. I guess as you guys are focused on liquidity here, are there other monetization strategies that you guys would consider like selling or spinning off a business line?

Jade Rahmani: Andrew, it does sound like you're stepping up the pace of loan resolutions, and you did say that you expect to increase valuation allowances on loan sales in the future. Would that not entail writing down that accrued interest balance as well?

Dominick Scali: Andrew, it does sound like you're stepping up the pace of loan resolutions, and you did say that you expect to increase valuation allowances on loan sales in the future. Would that not entail writing down that accrued interest balance as well?

Speaker #11: And it also looks like there's a couple of GSC licenses up for sale right now. So maybe not the best time to be a seller there, but are there other avenues of raising some capital that you guys are looking at?

Andrew Ahlborn: Yeah. The accrued interest associated with loans that, you know, may be subject to a market discount if we move them to sale. The accrued interest attached to any of those loans was written down in Q4.

Speaker #7: Yeah, there are. That's a good question, Chris, and appreciate you taking the time. Yeah, there's a number of what we'll call non-core assets that are not in this liquidity plan that we're entertaining potential dispositions.

Jade Rahmani: Okay.

Speaker #7: I think, obviously, one area you're right. We do have OPCOs in the form of TRS, taxable REIT subsidiaries, that are or could be sold.

Thomas Capasse: Look, Jade, that was helpful in terms of the accrual question. And, Dominick, maybe just give a an example of a more granular example of what our asset management strategy is with respect to some of the larger loans.

Dominick Scali: Yeah, sure. Hey, good morning, Jay. As Tom mentioned, and consistent with our AM strategy and liquidity strategy, we're purposely, you know, not entertaining, longer-term modifications with some of our assets. You know, a concentration in sort of the increase in nonaccrual is in four or five larger loan exposures, where, you know, good sponsors, good quality assets, good performance, but unwilling to provide additional time. What sponsors have pivoted to do is seek alternative financing or potentially sell assets. A good example of that, we have a 5-property portfolio in the Sun Belt region with an institutional sponsor. You know, obviously, they would have preferred to have additional time and maybe some spread forbearance, to get to the next 12 to 18 months.

Speaker #7: However, I'll underscore that our commitment to the SBA business—which is a high ROE business with low capital allocation—we are strongly committed to that.

Speaker #7: However, there are other non-core assets that we are undertaking reviews for sale that could materially provide an additional buffer to the portfolio sales, but as far as the SBA, we're really committed to that.

Speaker #7: But are looking at other smaller non-core assets for additional sales.

Speaker #11: Got it. That's very helpful. Thanks for taking the question.

Speaker #7: No problem.

Speaker #1: Thank you. And we have reached the end of the question-and-answer session. Therefore, I would like to turn the call back over to CEO Thomas Capasse for closing remarks.

Dominick Scali: In lieu of that, they've sort of started marketing that portfolio with a national brokerage firm, and you know, we're confident that we should be able to get repaid in the next quarter or so, at or close to par. Just putting some pressure on borrowers on some of these assets, where they will pivot ultimately to either seeking alternative financing or potentially selling the underlying assets.

Speaker #7: Yeah. Again, we appreciate everybody's time. And Ready Capital and our team remain highly confident of our ability to execute this liquidity plan and emerge in the latter half of this year in a position to improve the fundamental earnings capacity of the business and we look forward to future calls.

Jade Rahmani: Okay, thank you. Just on the Portland asset, the 25 reservation agreements, what % will convert to contracts, and what's the average price?

Thomas Capasse: Don, you want to comment on that?

Dominick Scali: Yeah. Of the 25, 16 are in contract with hard deposits. The remaining 9 should be converted to contracts with hard deposits within the next few weeks. We have actually closings in process this week and next. Those units sold for an average price of $737. As Tom alluded to earlier in the call, you know, the lower per square foot is expected, just given these are sort of the smaller units on the lower course.

Jade Rahmani: Okay.

Thomas Capasse: Jay, Just put some more color on it. This is part of a strategy we're working on with Christie's, our broker, and they have, yeah, experience globally with these Ritz Residences and other luxury hotel concepts, where the lower units sell at lower prices, early on, and then the higher floor or higher units sell at the higher prices later in the process. We've bifurcated the 132 units, of which were sold out now, and 27% into, you know, these four phases. We're highly confident of our ability to achieve on an average price per square foot basis, the numbers in our projection plans.

Jade Rahmani: Okay. That's good to hear. On the $855 million of loans sold in February, what's the sales price relative to par and relative to carrying value?

Thomas Capasse: Yeah, Andrew, do you want to comment on that?

Andrew Ahlborn: Yeah. They sold in the high 90s shade. Carrying and UPB were right on top of each other. The pricing is the same there.

Jade Rahmani: Thanks very much.

Operator: Thank you. Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed with your question.

Christopher Nolan: Tom, in your comments, you indicated that, through repositioning the portfolio and dispositions, the leverage ratios are going to go down. How much was that again, please?

Thomas Capasse: By 1 turn to two and a half. The, you know, the pro forma RC 2.0, if you will, is going to involve significantly less leverage with, you know, a multi-sector approach with a significant percentage of investment capacity being brought to bear by the external manager, Waterfall. Which is, you know, a large private funds investor in commercial real estate debt and equity.

Christopher Nolan: For the debt maturities that you guys coming up in the second half of the year, is the plan to retire that debt with just, you know, portfolio realizations and so forth?

Thomas Capasse: Yeah, I'll let Andrew comment on that. As we said before, the broader liquidity plan is to, you know, it's in excess of $800 million, which is a multiple, significant multiple of the total maturities. And we're 35% into that plan and are going to raise another $500 million, half through asset sales and half through runoff, which we've been running at a 36% repayment rate. The asset management strategy that Don just talked about will enable us to outperform there. We've completed two of the four asset sales, with the other two by the end of Q2. Given that plan, Andrew, what is your, yeah, what is the timing on the debt maturities?

Andrew Ahlborn: I would say, certainly, to the extent we can get execution levels that are accretive to the business from both a earnings perspective and a cash flow perspective, you know, we would like to rebuy portions of the 2026 maturities. With that being said, as Tom, you know, highlighted, the liquidity plan, currently underway certainly provides a substantial cushion to take out all of the three remaining maturities with cash if needed. I think you will see us sort of sequentially take out these bonds in the upcoming weeks and months, given the current liquidity position.

Doug Hardy: Okay, thank you.

Christopher Nolan: Okay, thank you.

Operator: Thank you. Our final question comes from the line of Chris Mueller with Citizens JMP Securities. Please proceed with your question.

Chris Mueller: Hey, guys, thanks for taking the question. I guess as you guys are focused on liquidity here, are there other monetization strategies that you guys would consider, like selling or spinning off a business line? It also looks like there's a couple of GSE licenses up for sale right now. Maybe not the best time to be a seller there, but are there other avenues of raising some capital that you guys are looking at?

Thomas Capasse: Yeah, there are. That's a good question, Chris, and appreciate you taking the time. Yeah, there's a number of, what we'll call non-core assets that are not in this liquidity plan that we're entertaining potential dispositions. You know, I think one, obviously, one area you're right, we do have OpCos in the form of TRS, taxable REIT subsidiaries, that are, you know, would, could be sold. However, I'll just underscore that our commitment to the SBA business, which is a high ROE business and low capital allocation, we are strongly committed to that.

Thomas Capasse: However, there are other non-core assets that we are undertaking reviews for sale that could materially provide an additional buffer to the portfolio sales. You know, as far as the SBA, we're really committed to that and, but are looking at other smaller non-core assets for additional sales.

Chris Mueller: Got it. That's very helpful. Thanks for taking the question.

Thomas Capasse: No problem.

Operator: Thank you. We have reached the end of the question-and-answer session, and therefore, I would like to turn the call back over to CEO Thomas Capasse for closing remarks.

Thomas Capasse: Yeah, again, we appreciate everybody's time. You know, Ready Capital and our team remain highly confident of our ability to execute this liquidity plan, you know, and emerge in the, that latter half of this year in a position to, you know, improve the fundamental earnings capacity of the business. We look forward to, future calls.

Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.

Q4 2025 Ready Capital Corp Earnings Call

Request a DemoDemo

Ready Capital

Earnings