Ready Capital (RC) Q4 2025 Earnings Transcript

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DATE

Feb. 27, 2026, 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Thomas Capasse
• Chief Financial Officer — Andrew Ahlborn
• Chief Credit Officer and Co-President, CRE Operating Business — Dominic Scally

TAKEAWAYS

• Free Cash Generated -- $380 million generated to date in the fourth quarter, with $130 million from bulk portfolio sales and $250 million from portfolio runoff and other resolutions.
• Liquidity Plan Targets -- Total free cash generation targeted at over $850 million, supporting debt maturities and CRE portfolio repositioning.
• Legacy CRE Book Reduction -- Portfolio to be reduced by 60% to approximately $2 billion through sales and resolutions.
• Book Value Per Share -- Declined 14% to $8.79 per share, primarily due to a $173 million increase in valuation allowance and CECL reserves.
• Leverage -- Pro forma leverage expected to decline by 1.0x to 2.5x after repositioning and asset dispositions.
• Nonaccrual Loans -- 27% of the loan portfolio was on nonaccrual status at year-end, driven by heightened asset management activity and sales strategies, not negative credit migration.
• Debt Maturities -- Immediate maturities include $67 million due in the third quarter and $450 million due in the fourth quarter, with a liquidity plan sufficient to retire these obligations.
• Recurring Revenue -- $41.5 million for the quarter, down from $47.3 million in the prior quarter, mainly due to a $7.7 million reduction in gain-on-sale revenue from lower SBA 7(a) and USDA loan sales.
• Operating Expenses -- Increased by $7.4 million sequentially to $59.9 million, reflecting higher compensation, legal fees, and reduced tax benefit.
• Realized Losses -- $29 million on asset sales, with an additional $15 million of REO charge-offs and $9.1 million of unrealized losses recorded.
• Ritz Property Equity Concentration -- The Ritz asset represents 16% of year-end stockholders’ equity, with a phased sales approach placing 27% of condominium units under contract or reservation.
• Ritz Hotel Performance -- Year-over-year occupancy increased 6.5%, ADR rose 5% to $492, and RevPAR reached $210.
• SBA 7(a) Origination Impact -- Originations declined 50% to $84 million due to last year’s government shutdown, impacting segment revenue.
• Capital Allocation Shift -- Operating cost reductions of 25% targeted, with capital allocated to small business lending operations increased from 10% to 20%.
• CRE Loan Sales Pricing -- Recent sales executed in the "high 90s" as a percentage of par value, with carrying values aligned to unpaid principal balances.

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RISKS

• Book value declined 14% per share, primarily due to "an increase in the combined valuation allowance and CECL reserves of $173 million."
• Segment-level SBA originations fell significantly below 2026 volume targets, with management stating "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." caused by the federal government shutdown.
• Management cautioned: "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."
• 27% of total loans on nonaccrual at year-end, resulting in quarterly negative earnings drag of $0.08 per share and $13 million in cash outflows.

SUMMARY

Ready Capital Corporation (NYSE:RC) expedited its strategic repositioning plan, generating $380 million in free cash and targeting a total of $850 million to address significant 2026 debt maturities through CRE asset sales and runoff. The company’s book value per share fell 14%, largely attributed to increased valuation and CECL reserves from asset sales and shortened resolution timelines. Management signaled a 25% operating cost reduction and a capital allocation shift toward small business lending, while the Ritz property achieved a 27% sales contract rate and improvements in hotel metrics. Loan sales referenced in the call transacted in the high 90s to par, supporting balance sheet optimization efforts.

• Phase one of the Ritz condominium sales launched in December, with 16 units under contract and an additional 9 under reservation at an average of $737 per square foot.
• The company intends to complete two remaining asset sales by the end of the second quarter to support liquidity objectives.
• Immediate debt maturities are to be addressed either via portfolio realizations or refinancing, with liquidity projections exceeding total maturities.
• Book value impact was driven by $23 million in valuation allowances on $600 million of loans moved to held-for-sale status and $150 million in additional CECL reserves against nonperforming loans.
• Management specified that the large increase in nonaccruals resulted from strategic asset management choices rather than underlying credit deterioration, with reversals of accrued interest already taken in the quarter.
• SBA 7(a) securitization plans are proceeding, with a fourth transaction expected in the coming quarter and a reaffirmed commitment to the SBA and capital-light business segments.

INDUSTRY GLOSSARY

• CECL (Current Expected Credit Loss): A forward-looking allowance methodology that requires lenders to estimate expected credit losses over the life of a loan.
• REO (Real Estate Owned): Property acquired by a lender through foreclosure or other means that is held in inventory.
• ADR (Average Daily Rate): A hospitality industry metric measuring average revenue earned per occupied room per day.
• RevPAR (Revenue per Available Room): A performance metric in the hospitality industry calculated by multiplying a hotel's ADR by its occupancy rate.
• NPL (Nonperforming Loan): A loan on which the borrower is not making interest payments or repaying any principal.
• SBA 7(a) Loan: The primary loan program of the U.S. Small Business Administration, providing guarantees to lenders for small business financing.
• UPB (Unpaid Principal Balance): The remaining principal amount on a loan, exclusive of interest or fees.

Full Conference Call Transcript

Thomas Capasse: 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. 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 Corporation 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 Waterfall’s deep CRE investment capacity and expertise.

To that end, to support and lead these efforts, we have promoted Dominic Scally to Chief Credit Officer and Co-President of our CRE operating business, ReadyCap Commercial. With over 24 years of CRE lending experience, including 10 years with Ready Capital Corporation, 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 nonbank 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 Corporation 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. 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 the fourth quarter to date, we have generated approximately $380 million in free cash from two primary sources: $130 million from bulk 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 portfolio runoff consistent with our 36% trailing twelve-month repayment rate. 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 sub-yielding assets. 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 nonperforming loans and REO assets. Currently, the 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 the fourth quarter, the company’s book value declined 14% per share.

The anticipated benefit is a more attractive portfolio with a competitive earnings profile, a 1.0x 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 the third quarter, and $450 million due in the fourth quarter. While we are discussing refinancing 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%. 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. 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. The average price to date for 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, 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 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 the second quarter, 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. At the same time, we are refining our CRE business and increasing our reliance on Waterfall to expand investment capacity and reduce 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 will now turn it over to Andrew for a detailed review of the quarterly results.

Andrew Ahlborn: 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 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 fourth quarter and subsequently sold in 2026. The $150 million increase in CECL reserves relates to more aggressive reserves on nonperforming 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 nonperforming loans. Second, operating expenses increased $7.4 million quarter-over-quarter to $59.9 million. 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 nonperforming loans 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. Thank you.

Operator: We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 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 poll for questions. Our first question comes from the line of Doug Harter with UBS. Please proceed with your question.

Doug Harter: Thanks. In light of your comments around looking to kind of reposition the portfolio and 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?

Thomas Capasse: Yeah. Good question, Gordon. So as you could see in the quarter, there has been a very dramatic change in the trajectories on both the RevPAR given the change in the occupancy strategy by lowering the ADR. Secondly, the condominiums by putting professional managers with specialization in both. So we are ahead of schedule right now in terms of our stabilization plan. So the short answer is we are making very strong progress. And would we hold to the last mile of that stabilization plan versus an accelerated sale, the answer is yes. We probably would lean in that direction.

However, we are very confident of our ability to meet the stabilization plan on the two primary components that 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. So, yeah, so we would, that being said, post-stabilization and with the appropriate pricing in relation to that, we would look for an early disposition.

Doug Harter: Great. Appreciate that. And then 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 is actually 100% the latter. And on that point, it is a good question. So just to be very clear, what we are undertaking is a focus on short-term resolutions through both asset sales and what we call strategic management, and that will reduce the portfolio by 60% to $2 billion. So that actually renders our previous characterization of core, noncore as less relevant as well as the typical 60-day metrics.

And a good example of that 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 then work with the sponsor to execute a sale of all or a portion of the portfolio. So that is very critical to understand. It is not necessarily negative credit migration. It is really related to the asset sale and asset management strategy itself.

Doug Harter: Appreciate the clarifications. Thank you.

Operator: As a reminder, if anyone has any questions, you may press 1 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.

Jade Rahmani: Thank you very much. On the core CRE and noncore 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? And can you just comment on the underlying credit trends in both portfolios?

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

So maybe what 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 of what we are looking at with respect to what we are deeming our strategic AM strategies.

Andrew Ahlborn: Yeah. Good morning, Jade. So 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. So you saw roughly a $53 million reduction in accrued interest. So the accrued interest that is 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 full collectibility on that interest.

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

Andrew Ahlborn: 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.

Jade Rahmani: Okay.

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

Dominic Scally: Yeah. Sure. Hey. Good morning, Jade. So as Tom mentioned, and consistent with our AM strategy and liquidity strategy, we are purposely not entertaining longer-term modifications with some of our assets. A concentration in the increase in nonaccrual is in four or five larger loan exposures where sponsors, good quality asset, good performance, but we are unwilling to provide additional time. And what sponsors have pivoted to do is seek alternative financing or potentially sell assets. So a good example of that, we have a five-property portfolio in the Sunbelt region with an institutional sponsor. 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 have started marketing that portfolio with a national brokerage firm, and we are confident that we should be able to get repaid in the next quarter or so at or close to par. 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.

Jade Rahmani: Okay. Thank you. Just on the Portland asset, the 25 reservation agreements, what percent will convert to contracts and what is the average price?

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

Thomas Capasse: Okay. So, Jade, this is just part of, I will put some more color on it. This is part of the strategy we are 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, larger units sell at higher prices later in the process that we phased in. We have bifurcated the 132 units, of which we are sold out now at 27%, into these four phases, and we are highly confident of our ability to achieve, on an average per-square-foot basis, the numbers in our projection plans.

Jade Rahmani: Okay. That is good to hear. And then on the $855 million of loans sold in February, what is the sales price relative to par and relative to carrying?

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

Andrew Ahlborn: Yeah. So they sold in the high 90s. 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 one turn to 2.5x. The pro forma Ready Capital Corporation, if you will, is going to involve significantly less leverage with a multisector 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.

Christopher Nolan: And then, for the debt maturities that you have 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. I will let Andrew comment on that. But as we said before, the broader liquidity plan is in excess of $800 million, which is a significant multiple of the total maturities. And we are 35% into that plan, and we are going to raise another $500 million, half through asset sales and half through runoff, which we have been running at a 36% repayment rate. These asset management strategies that Dom just talked about will enable us to outperform there. And we completed two of the four asset sales with the other two by the end of the second quarter. So given that plan, Andrew, what is the timing on the debt maturities?

Andrew Ahlborn: 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 refi portions of the 2026 maturities. 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. I think you will see us sort of sequentially take out these bonds in the upcoming weeks and months, given the current liquidity position.

Christopher Nolan: Okay. Thank you.

Operator: And our final question comes from the line of Chris Mueller with Citizens Capital Markets. Please proceed with your question.

Chris Mueller: Hey, guys. Thanks for taking the question. As you are focused on liquidity here, are there other monetization strategies that you would consider, like selling or spinning off a business line? And it also looks like there are 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 are looking at?

Thomas Capasse: Yeah. That is a good question, Chris, and I appreciate you taking the time. There are a number of what we will call noncore assets that are not in this liquidity plan that we are entertaining potential dispositions. I think one area, you are right, we do have, in the form of TRS, taxable REIT subsidiaries, that could be sold. However, I will underscore our commitment to the SBA business, which is a high-ROE business and low capital allocation. We are strongly committed to that. However, there are other noncore 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 are really committed to that and are looking at other smaller noncore assets for additional sale.

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

Operator: 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.

Thomas Capasse: Yeah. Again, I appreciate everybody’s time, and Ready Capital Corporation 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 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.

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