Rithm (RPT) Q3 2025 Earnings Call Transcript

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DATE

Friday, Oct. 31, 2025, at 8 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Michael Nierenberg
• Investor Relations — Tiffany [last name not provided]

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RISKS

• Earnings Stagnation -- CEO Nierenberg stated, “We need to do something more material to actually generate earnings.”
• Low Equity Valuation -- CEO Nierenberg highlighted, “with book value at $5.30 and the stock trading at $2.40, clearly, there is a huge value play for equity investors,” pointing to the significant market discount.
• Capital Constraints -- CEO Nierenberg said, “With the stock trading, you know, whatever, 50-odd-percent of book, it is very difficult. My view and our view is, you know, not to dilute shareholders. If there is a way to kind of grow out of this with something meaningful in some sizable offering associated with a pool of assets, we will consider that.”

TAKEAWAYS

• Book Value -- shares are trading at $2.40.
• Dividend -- $0.06 per share dividend, maintained quarter over quarter.
• Quarterly Earnings -- CEO Nierenberg remarked, “the company essentially is flat, you know, when you take into account earnings.”
• Cash Position -- Approximately $81 million in cash and cash equivalents reported at quarter end.
• Total Equity -- $292 million total equity at quarter end.
• Recent Loan Origination -- $21 million loan originated on a grocery-anchored retail center outside Seattle, with the yield expected in the mid-teens.
• Asset Sales and Reinvestment -- Residential assets were liquidated and proceeds redeployed into commercial mortgage-backed securities (CMBS) floaters, described as higher-yielding, top-of-capital-stack assets.
• Potential Strategic Actions -- CEO Nierenberg outlined three options: equity recapitalization, liquidation, or pursuing growth, stating, “we are not going to just stay the course and leave something outstanding for the sake of leaving something outstanding.”
• Paramount Transaction Discussion -- May invest up to $50 million in equity in the Paramount office REIT take-private deal, subject to board approval, targeting a “two times MOIC” (non-GAAP), according to Michael Nierenberg, and a “20+% return,” according to Michael Nierenberg, on investment.
• Direct Lending Focus -- Company aims to grow in direct lending, leveraging experience with Genesis partners.
• No Legacy Loan Issues -- CEO Nierenberg asserted, “we do not have any of those [underwater loans] here at our firm,” indicating a clean balance sheet with no distressed legacy commercial real estate loans.
• Recent Preferred Offering -- A small preferred equity offering was completed, boosting liquidity.
• Pipeline Outlook -- Management described the lending pipeline as positive, but recent loan activity was more selective than previously indicated, as some deals -- such as the Rosewood Hotel in Dallas and rent-stabilized New York loans -- were passed on during diligence.
• Strategic Flexibility -- Company is open to exploring auction, liquidation, or capital raising depending on value realization and market conditions.

SUMMARY

The management team presented Rithm Property Trust (NYSE:AJX) as a stabilized platform with no legacy problem assets and a current market valuation at less than half of reported book value. Discussions focused on three forward paths for value realization, including a potential equity recap, outright liquidation, or targeted growth through both direct lending and opportunistic investments such as possible participation in the Paramount office REIT deal. Management highlighted a substantial cash position and readiness to redeploy capital into higher-yielding or strategic opportunities, but stressed that material earnings growth will require significant new initiatives or transactions.

• CEO Nierenberg said, “This deal has opened up conversations that, truly, you know, we would not have had six months ago,” indicating broadening access to new investment partners for future deals.
• CEO Nierenberg expressed reluctance to dilute shareholders, considering equity offerings only if associated with something meaningful, striving to maximize returns on equity under current market conditions.
• CEO Nierenberg described capital markets for commercial real estate as “wide open,” which management views as favorable for deploying capital, especially in direct lending and opportunistic acquisition strategies.
• A third-party capital-raising process is underway for the Paramount transaction, with “a fund around the remaining, call it, $1 billion,” according to Michael Nierenberg, showing intent to leverage both internal and external funding sources for future growth.

INDUSTRY GLOSSARY

• CMBS Floaters: Commercial mortgage-backed securities with floating interest rates, typically senior in the capital stack, providing liquidity and higher yields relative to some fixed-rate instruments.
• MOIC: Multiple on Invested Capital; a measure of investment return calculated as total value divided by total invested capital.
• Pari Passu: A term indicating equal ranking or standing among investment positions in relation to returns or claims in investment structures.

Full Conference Call Transcript

Michael Nierenberg: Thanks, Emma. Good morning, and thanks for joining us today for the Rithm Property Trust call. During the quarter, we did not have a ton of activity. What I would say is that when we took over this company last June, we stabilized the company, which at that time, I think, was losing in and around $10 million a quarter. Today, the company essentially is flat, you know, when you take into account earnings, and we are still paying a $0.06 dividend. Along the way, we have liquidated what I would say a bunch of resi assets.

We have added some commercial real estate floaters, or CMBS floaters, which are higher yielding, top part of the capital stack, with some reasonable yield. The other thing about these assets, from a liquidity standpoint, they are very easy to create liquidity. When we take a step back and we look at the assets that we have added, the assets that we have sold, to the extent that we find an interesting opportunity, and, you know, we are always on the hunt, as everybody knows, we will be able to liquidate a number of these assets and then use some of that capital to redeploy into either higher yielding assets or something that is more strategic for the company.

The real question for the company is, where do we go from here? We have a few options. One, we can recap the vehicle with an offering of equity associated with a pool of assets or other types of instruments that could be in the fixed income world that will provide real income for investors. Two is we could explore some kind of liquidation of the company. I bring that up because with book value at $5.30 and the stock trading at $2.40, clearly, there is a huge value play for equity investors in this. Three is stay the course.

What I would say on three is we are not going to just stay the course and leave something outstanding for the sake of leaving something outstanding. If you listen to our Rithm earnings call yesterday, we discussed our most recent acquisition at Rithm and our affiliates, which is the Paramount transaction where we agreed to take private one of the large office REITs here in New York City and San Francisco. Quite frankly, we are really excited about that deal and really excited about the returns on that deal. One of the questions we got on yesterday's call is, is it something that we consider adding some Paramount to the Rithm Property Trust?

The answer, you know, what I said was yes. Longer term, as we look at this vehicle, we are developing a direct lending business, and this platform would be perfect for Rithm Property Trust. As we think about that, we will work in conjunction with our Genesis partners, which in Genesis, so everybody knows, is our residential transition loan organization where we make construction loans to kind of mid-tier type sponsors and not some of the larger players. When we look at that, our experience there, we grew a company that was doing $1.7 billion in production. Today, we are going to, this year, we will probably do north of $5 billion.

The asset yields on those are great, and we have a real business around it. What we will likely do is grow that, and some of those products could be perfect for our direct lending business. What I do think, one more time, as we look at the equity and where it trades relative to book value and some of the things that we do, it is, you know, just to reiterate, we are not going to leave this thing outstanding for the sake of leaving a company outstanding.

We need to either figure out a way to grow it, or at some point, we will likely think about an auction process for the company and realize what I think is going to be true book value. With that, I will turn, we will flip, we will start. We have a small deck. There is not a ton in there, quite frankly. We will start on page three, and then we will have a Q&A, and then we will go from there. As I mentioned earlier, Rithm Property Trust, it was formerly known as Great Ajax. It was a residential mortgage REIT. Quite frankly, it was a little bit broken.

We took over the management of that, rebranded it to Rithm Property Trust, set out on a mission to deploy more capital in the commercial real estate business. We did a small preferred offering, which helped us raise a bunch of cash. When you look at the company today, we are sitting with in and around $100 million in cash. The company has about $300 million in total equity, and the pipelines look great. The portfolio is about $308 million today. What I think this vehicle will do is afford us the ability to continue to hunt for things to try to grow the vehicle.

I have used in the past what happened with BXMT, which is Blackstone's mortgage REIT, where they actually created a vehicle around a pool of assets and really grew it. Hopefully, we could do that. If not, I gave you the other options before. Looking at on page four, your financial highlights, effectively, you know, the company was flat quarter over quarter, still maintained a $0.06 dividend, cash and cash equivalents on balance sheet at the end of the quarter, $81 million in total equities, $292 million. When you look at page five, you know, the opportunity we, you know, during the quarter, we actually originated a $21 million loan on a grocery-anchored retail center outside Seattle.

The yield on that will likely be in the mid-teens. When we look at that and we think about our ability to grow in some of the lending activities, that is something that gets us excited here. Quite frankly, we have to execute on that plan. When you look at Rithm Property Trust on this page, on page five, you might say, "Why Rithm Property Trust?" There is no legacy anything, quite frankly, in the company. I think it is truly. This is truly upside as we—to the extent that we could grow the vehicle. Page six just talks about how when we first took over the company, we stabilized earnings. As we go forward again. Earnings are pretty flat.

We need to do something more material to actually generate earnings, and that is something we are keenly focused on. Page seven is our typical slide, which illustrates what the future state of the portfolio could be. I would look at this vehicle as more being opportunistic in nature than some of the other things out there. With that, I will turn it back to the operator.

Tiffany: We will open up for some Q&A, and if anybody has any questions, please do not hesitate to ask.

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Tom Catherwood with BTIG. Please go ahead.

Tom Catherwood: Thank you. Good morning, everybody. Michael, obviously, you laid out a bunch of different avenues that you could go forward with, with the three that you laid out at the beginning. Maybe just take the stay the course one for this question. You talked last quarter about $50 million of loans kind of being pretty close to the finish line. You did $21 million this quarter. What does that kind of pool in closing look like right now?

Michael Nierenberg: You know, there is a couple of things here. One is I brought up the Paramount deal. That is a big deal. I mean, there is a, you know, they are $6.60 on 13 million square feet. It is likely this company, you know, depending upon board approval, could participate in that transaction. One thing we are working on in conjunction with our Genesis partners, when you think about that business, we make multifamily loans. We make residential transitional loans. At Rithm and Rithm Property Trust, we are doing more in the direct lending space. We would really like to grow our direct lending presence. We have been adding some bodies around the house.

I think this vehicle could be perfect for that. Some of the things, you know, when we mentioned last quarter and we spoke about $50 million in loans, we did this $21 million loan, which we like very much. We have passed on what I would say more of. Some of this is, as you think about the mayoral election here. When we think about some rent-stabilized stuff that we were looking at, you know, we are not going to do rent-stabilized loans in New York City right now. We also passed, initially, we were down the path on a Rosewood Hotel in Dallas.

We went down and did a bunch of diligence on that and just could not get comfortable on that. We passed on that. In the quarter, we did the, obviously, the $21 million loan. We are sitting with roughly $100 million in cash and liquidity. We look at what is sitting on balance sheet on the retained side. As we go forward, it is just really going to be about direct lending, the growth there, and some more opportunistic situations.

Tom Catherwood: Great. Appreciate that. On Paramount more specifically, I know the deal is still coming together. Obviously, it has not closed, so all options are on the table. When we think of that company, it had historically had a part of its business that was dedicated to making opportunistic commercial real estate loans, whether that was mezz positions, preferred positions, so be it. Is the potential thought to carve off whatever may be remaining of that or whatever capacity that exists within their funds, or is this potentially Rithm Property Trust taking a position somewhere else in the capital stack as you go towards that closing? If you cannot talk about it, I fully understand.

Just trying to get ideas of what this might look like.

Michael Nierenberg: Yeah. No, that is a good question. They had some legacy funds. I would assume for purposes of this discussion, there is nothing to do with Rithm Property Trust and those funds. It would likely be a position that would be pari passu alongside Rithm, the parent company, you know, our parent company, obviously, on the under prop goes. When you think about it, there are 13 assets between New York City and San Francisco, and it would be a position in those specific assets on the property side.

Tom Catherwood: Got it. Got it. Kind of last one for Michael. You make this comment about the discount to book value and all of that, and it makes sense. When we look across all of the commercial real estate mortgage space, the discounts are huge and have gotten more so, obviously, since Tricolor, since their bankruptcy, since First Brands, since we had the regional banking issue a couple of weeks ago. In general, commercial mortgage REITs have just been lumped together with this existential fear about credit. You sit kind of at the nexus of a bunch of different credit vehicles.

What is your view right now on what is real out there risk-wise for credit, be it real estate or otherwise? What is kind of overdone right now? I think that is not just hitting Rithm Property Trust. It is hitting everybody. What are your thoughts on the market right now?

Michael Nierenberg: I think it is bifurcated. I think there is a couple of situations. One is a lot of the legacy commercial real estate REITs were still saddled with bad loans that need to get—I am not saying bad loans. Let us just say underwater loans that need to get worked out. We do not have any of those here at our firm. That goes for both on the Rithm level and on the Rithm Property Trust level. When we set out on a mission to kind of rebrand this vehicle, we said we are going to get into the commercial real estate space again because we do not have any legacy issues.

I think when you look across the spectrum, there are a number of REITs out there that are still working through some of their issues, and this vehicle is clean. I think that is one. Two, when you think about credit and you think about, like, even when we think about this Paramount deal, why Office? Not everybody can do Office because a lot of folks are still reworking their existing Office portfolio. We looked at that as a real opportunity for us because, one, we as a company, we have a need for 100,000 square feet.

We are in the market looking at Office pretty much every day, and we have a really good pulse on what is happening in the market. As we think about credit, the capital markets for commercial real estate are wide open. You are seeing more and more CMBS get done. Prior to us announcing this deal, the company did a CMBS deal on 1301 Sixth Avenue. I think the credit markets are wide open. With the breadth of the Rithm team and our other affiliates, there is a ton of things to look at.

I will say in commercial real estate, and I am sure you know this, you got to be really, really careful, not just in commercial real estate and everything, but in commercial real estate, particularly when you have one-way risk on a single type of property. When we think about where we could go with this in the direct lending space and create more diversified pools of assets or diversified lending around the business, it gives us pretty good comfort that we are going to be able to do wonderful things here.

What I would say on the discount to book, quite frankly, if we could all get paid in equity at these kind of levels, I think we would love to do that. The net of it is we are extremely optimistic on where we could go. The thing is you need capital to grow. With the stock trading, you know, whatever, 50-odd % of book, it is very difficult. My view and our view is, you know, not to dilute shareholders. If there is a way to kind of grow out of this with something meaningful in some sizable offering associated with a pool of assets, we will consider that.

Tom Catherwood: Got it. Appreciate all those thoughts. Thanks, Michael.

Michael Nierenberg: Thank you.

Tiffany: Your next question comes from the line of Craig Kucera with Lucid Capital Markets. Please go ahead.

Craig Kucera: Yeah, hey, good morning, guys.

Michael Nierenberg: Good morning.

Craig Kucera: Good morning. I wanted to circle back to the Paramount transaction. Can you give us a sense of what the economics of that might look like for Rithm Property Trust? I mean, is that sort of in the ballpark of what you have done this year with the, call it the Office senior sub deal at maybe 12% or the retail asset at 11%?

Michael Nierenberg: You know, the Paramount deal is more equity-based. We are playing around with a couple of different structures. Are there different ways to think about this? I do not have a specific answer. On the surface, when you look at the Paramount deal and the way that we are doing this, we paid $6.60 for the company. That equates to about $1.6 billion before some of the, you know, fees and noise around this. That gets you roughly $1.8 billion. The amount of cash that sits on balance sheets is a little south of $500 million, that gets you to $1.3 billion. Rithm, the parent, will put in, give or take, about $300 million of equity.

The contemplation, again, subject to board approval, would be for Paramount to put in about $50 million. That gets you to a little under $1 billion. Rithm, the parent, will then be raising, and we are in the market now, a fund around the remaining, call it, $1 billion. That is the so-called funding of the vehicle. When we look at economics, here is how to think about this. We are assuming going in a cap rate a little bit south of 7%. Our going in so-called cost per foot is about a little under $600 a foot. When you think about replacement costs, the replacement cost, including land in New York City, is likely something around $3,000 a foot.

Effectively, you are going in to acquire Class A office buildings at a 75% discount-ish to replacement costs. When you look at the stabilized cost, you are in the low $700s. We think our exit strategy here, just to give you a sense, is something around 6% on New York and 6.5% to 6.75% on San Francisco. What that does, based on a, you know, let us use Rithm Property Trust, a $50 million equity check gives you about a two times MOIC on that $50 million and a 20+% return based on our assumptions. We are extremely excited about this transaction. This is, in investing, and we like to think about us and our businesses in more opportunistic investing.

You very rarely have the opportunity to deploy a large amount of capital in Class A office assets that are located in two of the gateway cities in the U.S., which are obviously here in New York and San Francisco, in a dislocated market where we think we are going to generate outsized returns for our investors. That is the investment thesis here. We would love for Rithm Property Trust to participate in that, and hopefully we have a good result around it.

Craig Kucera: Thanks. I appreciate the color. That was very, very thorough. I would like to think about the flip side of that, though. Could you envision a scenario where Rithm Capital could potentially deploy capital into Rithm Property Trust in order to sort of jumpstart the scale of the company?

Michael Nierenberg: You know, it is a really good question. I mean, I think that when you think about equity offerings or you think about preferred offerings or something like that. We have had a number of conversations, what I would say, our banking partners on the street about this, how to think about a potential rights offering where Rithm backs up that against a pool of assets. I do not know, quite frankly, those conversations go on all the time. I do not know that there is anything to do right now today. There is one deal that is happening in the marketplace, but it is small in nature.

I think there is a—I do not have all the details, but I think it is between an $80 million and $100 million offering that one of the banks is doing, against either a pool of assets or that is guaranteed by a parent at a discount, I think, of 10% to 15%. The backstop, I think, is 10% to 15% where the offering is coming. We have to be thoughtful about how this works for both Paramount and, I mean, Rithm Property Trust and how it would work for Rithm, the parent. I think, to keep it clean, we would prefer to do something that is not like that. I do not know yet, just where we ultimately go.

Craig Kucera: Got it. Just one more for me. In the process of raising capital around this Paramount transaction, I know you are looking for other third-party sources of capital. Has that opened up any potential partners for Rithm Property Trust? I believe, like, in the past, you have said that you are looking for a third party to sort of jumpstart the company.

Michael Nierenberg: Yeah. I mean, the amount of conversations we as a firm have, and when you think about the firm, I can tell you whether it be at the Rithm level, whether it be at the, you know, even Crestline, which has not closed, we expect that deal to close on December 1st or even at the Sculptor level. There is a lot of what I would say cross-pollinization around the firm as we have a ton of conversations with LPs and other partners. This deal has opened up conversations that, truly, you know, we would not have had six months ago. We are super excited about that. There is a ton of opportunity.

If we wanted to fund this entire Paramount deal yesterday with third-party capital, we could do that in a heartbeat. It is just how do we think about, as an organization, maximizing returns for our shareholders?

Craig Kucera: Okay, thanks. That is it for me.

Tiffany: That concludes our question and answer session. I will now turn the call back over to Michael Nierenberg for closing remarks.

Michael Nierenberg: Great, thanks for dialing in. Guys, appreciate the questions. Just to be clear, we are going to do anything and all we can to figure out a way to grow earnings in the company, not just grow the company, but grow earnings in this company. We do feel that the equity is fundamentally mispriced. I think, to some of the questions we heard, a number of these REITs have equity that is fundamentally mispriced. The difference here is we do not have any legacy issues. It should be onward and upward. We will keep you posted throughout the quarter and other things that we are doing around the company. If you have any questions, do not hesitate to follow up.

With that, happy Halloween. Have a great weekend and look forward to updating everybody soon. Thank you.

Tiffany: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

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