Ready Capital ((RC)) has held its Q3 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Ready Capital painted a picture of strategic repositioning amidst a challenging financial landscape. The company is actively working to stabilize its financials through strategic initiatives such as the sale of legacy assets and boosting liquidity. However, these efforts are being counterbalanced by significant losses, rising operating costs, and hurdles in asset divestment, indicating a complex transitional phase for the company.
Strategic Sale of Legacy Assets
Ready Capital completed a significant bulk sale of $494 million in legacy multifamily bridge assets. This transaction generated net proceeds of $85 million and eliminated all 2021 vintage syndicated loans. The sale is expected to result in an immediate increase of $0.05 per share per quarter, marking a positive step in the company’s financial restructuring.
Ownership and Stabilization of Portland Asset
In a move to avoid foreclosure, Ready Capital took ownership of a mixed-use asset in Portland, which includes a Ritz-Carlton Hotel. The company plans to stabilize this asset in collaboration with institutional partners, aiming to turn it into a profitable venture.
Enhanced Liquidity and Funding Capacity
The company has bolstered its liquidity by increasing warehouse capacity, securing $71 million from improved advance rates, and closing a $100 million USDA warehouse facility. These measures are intended to support Ready Capital’s loan origination capabilities.
Reduction in Noncore Portfolio
Following the settlement of the bulk sale, Ready Capital successfully reduced its noncore portfolio by 52%, bringing it down to $333 million. This reduction is aimed at minimizing the financial drag on the company’s overall performance.
GAAP Loss from Continuing Operations
Despite strategic efforts, Ready Capital reported a GAAP loss from continuing operations of $0.31 per common share for the second quarter. Distributable earnings also reflected a loss of $0.14 per common share, highlighting the financial challenges the company is facing.
Increased Operating Costs
Operating costs from normal operations rose by 5% from the previous quarter, totaling $58 million. This increase in costs is a concern as the company navigates through its financial restructuring.
Negative Yield on Noncore Portfolio
The noncore portfolio yielded a negative 10.7% quarterly return, translating to a cost of $5.3 million or negative $0.03 per share. This negative yield underscores the challenges in managing underperforming assets.
Divestment Challenges
The company faced difficulties in divesting its GMFS residential mortgage banking business, resulting in a cumulative loss of $3 million. This highlights the challenges Ready Capital is encountering in its divestment strategy.
Forward-Looking Guidance
Looking ahead, Ready Capital is focused on strategic repositioning and improving its financial performance. The bulk sale of legacy assets is expected to boost earnings by $0.05 per share per quarter. The company is also working on stabilizing the Portland asset and enhancing liquidity through improved advance rates and increased warehouse capacity. Despite the current GAAP loss, Ready Capital anticipates modest earnings growth in the latter half of 2025, driven by new loan originations and increased SBA 7(a) lending volumes.
In summary, Ready Capital’s earnings call highlighted a period of strategic transition with a focus on stabilizing and repositioning the company’s financials. While the sale of legacy assets and increased liquidity are positive steps, the company faces significant challenges, including losses and increased operating costs. Looking forward, Ready Capital is optimistic about modest earnings growth driven by strategic initiatives and asset stabilization.