Ready Capital ((RC)) has held its Q1 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Ready Capital painted a mixed picture, balancing between strategic successes and ongoing challenges. While the company has made strides in stabilizing its book value and liquidating non-core portfolios, it faces hurdles such as declining net interest income and increased loan delinquencies. The UDF merger provided a positive boost, yet the overall sentiment remains cautiously optimistic.
Stable Book Value Per Share
Ready Capital reported a stable book value per share at $10.61, maintaining its position quarter-over-quarter. This stability was achieved through strategic actions, including share repurchases and merger activities, which have helped to bolster investor confidence.
Successful Non-Core Portfolio Liquidation
The company exceeded its first-quarter liquidation targets by nearly double, generating $28 million in liquidity and reducing its non-core portfolio by 6%. This successful liquidation effort underscores Ready Capital’s commitment to streamlining its operations and focusing on core assets.
SBA Business Performance
Ready Capital’s SBA business continued to perform well, with first-quarter volumes reaching $343 million. The 12-month default rate stood at 3.2%, slightly better than the industry average of 3.4%, highlighting the company’s effective management in this segment.
UDF Merger Accretion
The merger with UDF was accretive to Ready Capital’s book value per share by 1.3%, adding $167.1 million in equity. This strategic move has strengthened the company’s financial position and provided a significant boost to its equity base.
Bargain Purchase Gain
Ready Capital recognized a substantial bargain purchase gain of $102.5 million related to the UDF IV merger. This gain reflects the company’s ability to capitalize on strategic acquisition opportunities.
Net Interest Income Decline
The company faced a decline in net interest income, which fell to $14.6 million. This was primarily due to the movement of non-core assets to non-accrual status, resulting in a cash yield of only 1.3%.
Increased Loan Delinquencies
Loan delinquencies over 60 days increased to 4%, with risk-rated loans rising to 7.5% of the total portfolio. This increase poses a challenge to the company’s credit management efforts.
Portland Mixed Use Asset Challenges
The Portland asset was marked down to $426 million, moving to non-accrual status and causing a $0.13 per share reduction in earnings quarter-over-quarter. This asset remains a significant challenge for Ready Capital.
Distributable Earnings Loss
The first quarter saw a distributable earnings loss of $0.09 per common share, impacted by realized losses on asset sales. This loss highlights the financial pressures the company is currently facing.
Challenging Debt Capital Markets
Ready Capital expressed concerns over refinancing $650 million of corporate debt maturing through 2026 amidst volatile debt capital markets. This presents a significant challenge in managing its capital structure.
Forward-Looking Guidance
Looking ahead, Ready Capital aims to maintain its dividend level and targets accretion in 2026, driven by the liquidation of non-core assets and potential favorable changes in the economic environment. The company remains focused on reducing its non-core portfolio further by year-end, despite the current challenges.
In conclusion, Ready Capital’s earnings call highlighted a balanced view of achievements and challenges. While strategic moves like the UDF merger and non-core asset liquidation have strengthened its position, issues such as declining net interest income and increased delinquencies pose ongoing challenges. Investors remain cautiously optimistic about the company’s future prospects.