Ready Capital's Q2 2025: Contradictions Emerge on Portland Asset Valuation, Dividend Policy, and SBA Lending Volumes

Guidance:

• Expect modest earnings growth in the back half of 2025 versus Q1/Q2.
• Maintain current dividend level until earnings profile warrants an increase.
• Reenter originations in Q3 focused on high-quality multifamily bridge (lower LTVs), targeting retained yields ~13%–15% and a return to the CLO market in early 2026.
• Ramp SBA 7(a) toward >$325M per quarter and scale USDA to a ~$300M annual target.
• Use $221M of generated liquidity to fund new originations and rebuild NIM.

Business Commentary:

* Portfolio Repositioning and Bridge Loan Sale: - Ready Capital completed its first bulk sale of $494 million in legacy multifamily bridge assets, generating net proceeds of $85 million. - The transaction is strategically significant as it eliminates 100% of the 2021 vintage syndicated loans. - This sale was part of a broader strategy to reposition the company's balance sheet by disposing of low-yield assets and reinvesting in new originations to improve net interest margin.

• Capital Markets Enhancements:
• The company collapsed 2 of its 5 outstanding CRE CLOs, improving advance rates by 7% and generating $71 million in proceeds.
• This resulted in a nearly 100-basis-point improvement in financing costs.

• The enhancements were aimed at increasing warehouse capacity and supporting loan origination.

• Portfolio Segmentation and Composition:

• The CRE loan portfolio was segmented into a $5.4 billion core portfolio and a $695 million noncore portfolio.
• The core portfolio reduced by 8% due to payoffs and liquidations, with only 17 loans totaling $71 million transitioning to 60-day delinquency.

• This segmentation and reduction strategy focused on holding onto higher-yielding assets and liquidating noncore ones to stabilize the portfolio.

• SBA and USDA Lending Growth:

• Quarterly SBA 7(a) originations decreased to $216 million due to capital constraints.
• Ready Capital anticipates an increase in volumes with the approval of increased warehouse capacity from the SBA, targeting over $325 million per quarter.
• Growth in SBA and USDA lending is expected to bolster earnings with increased volumes and increased capital allocable to loan production.

Sentiment Analysis:

Overall Tone: Neutral

• Management executed balance-sheet actions that "generated $221 million of liquidity" and stated "we expect modest earnings growth in the back half of 2025," while reporting GAAP and distributable losses and noting refinancing cost headwinds, indicating cautious but constructive outlook.

Q&A:

• Question from Crispin Elliot Love (Piper Sandler): Does reentering originations in Q3 mean distributable earnings losses continue near-term and when can you reach profitability and closer to dividend coverage?
  Response: Management expects a bridge to positive normalized earnings in H2 2025 driven by the bulk sale (‑$ carry removal = +$0.05/sh), reinvestment (+$0.02/sh), repo payoff (+$0.01/sh) and SBA/USDA ramp (+$0.05–$0.07/sh), partly offset by higher refinancing costs (‑$0.03–$0.05/sh).

• Question from Crispin Elliot Love (Piper Sandler): On the bulk sale of legacy bridge loans, who were the buyers, how much is left to sell, was this all 2021 vintage and how did pricing compare to prior marks?
  Response: Sold $494M of legacy multifamily bridge loans to a multifamily operator partnering with a ~$1.5B‑AUM fund at roughly 77% of UPB, removing essentially 100% exposure to the 2021 syndicated sponsors; some 2021 vintage remains in the core portfolio.

• Question from Douglas Michael Harter (UBS): What will drive the SBA volumes pickup and timing for when we see that ramp?
  Response: SBA ramp depends on SBA warehouse approvals and capital‑markets capacity (securitizations/participations); Q3 volumes should remain near Q2, with a fuller ramp toward the back half of the year once additional warehousing and capital markets transactions clear.

• Question from Douglas Michael Harter (UBS): Given higher unsecured costs, do unsecured issuances still make sense or will you rely on other parts of the capital structure?
  Response: Plan is to rely primarily on secured issuances to refinance most maturities, with selective use of unsecured issuance possible but acknowledging higher cost will pressure earnings.

• Question from Jade Joseph Rahmani (KBW): Will the Portland asset be held at $425M (or $432M) and did the $5.3M carrying cost reflect a full quarter; what is the 3Q estimate and required capital (including marketing/sales/TI)?
  Response: Asset initially recorded at $425M; the $5.3M negative carry was a full‑quarter Q2 impact and management expects a similar near‑term drag that can be reduced by lowering financing costs and stabilization; estimated TI ~ $150–$200/sqft and ~70,000 sqft remains to lease.

• Question from Jade Joseph Rahmani (KBW): Given the large deferred tax asset, why not suspend the dividend and allocate capital to debt repayment and buybacks until stability returns?
  Response: Management and the Board prefer to maintain the current dividend for now while monitoring core portfolio performance and progress toward earnings coverage; they will evaluate suspension only if warranted by performance.

• Question from Randy Binner (B. Riley Securities): In your EPS walk to dividend coverage, was the Portland property drag included and over what timeframe was that assumed?
  Response: Yes — the EPS bridge assumes the Q2 negative carry from Portland continues in the near term; any incremental 'good‑news' spends that reduce drag are considered but the baseline includes the carry.

• Question from Randy Binner (B. Riley Securities): Clarify the $85M of net proceeds from the loan sale — was that cash after paying down financing and repurchasing loans from CLOs?
  Response: Yes — the $85M cash resulted after using proceeds to pay ~$308M to warehouse lenders and ~$128M to repurchase loans out of CLOs.

• Question from Randy Binner (B. Riley Securities): Regarding the $650M maturity wall in 2026, what is the expected net amount after the quarter's actions and how will you address it?
  Response: Management expects to address the 2026 maturities via a combination of organic paydowns/repurchases and new secured issuances rather than fully refinancing the entire amount with new debt.

• Question from Christopher Whitbread Patrick Nolan (Ladenburg Thalmann): Was the Portland asset acquired or a legacy from prior deals, and how has M&A strategy evolved going forward; will equity allocation to small business increase?
  Response: Portland came through the Mosaic merger; going forward M&A will be opportunistic and only if highly accretive, while management plans to continue allocating equity to small‑business lending given its high ROE and growth potential.

Contradiction Point 1

Portland Asset Valuation and Strategy

It involves differing expectations for the valuation and strategy regarding the Portland asset, which could impact financial forecasts and investor expectations.

Will the Portland asset remain on the balance sheet, and what are the carrying costs? - Jade Rahmani (KBW)

2025Q2: The asset will be held on the balance sheet at a valuation of $425 million. The $5.3 million carrying cost in Q2 represents the full quarter impact. Efforts are underway to reduce costs by lowering financing and stabilizing the asset. - Andrew Ahlborn(CFO), Adam Zausmer(CCO)

How did the UDF merger returns pencil out given prior acquisitions and current credit challenges? - Douglas Harter (UBS)

2024Q4: We acquired the Mosaic portfolio, which is a mixed-use asset in Portland. We believe it's a lower-risk opportunity for us and an asset that will stabilize over time and yield a very solid risk-adjusted return. - Andrew Ahlborn(CFO)

Contradiction Point 2

Dividend and Share Repurchase Policy

It involves the company's stance on dividends and share repurchases, which are key investor considerations.

Did the $85 million from the loan sale represent net proceeds? - Randy Binner (B. Riley Securities)

2025Q2: We currently have $150 million of cash, $150 million of warehouse lines, and organic projected maturities of about $425 million, $450 million. We're going to supplement that with -- we have $800 million of unencumbered assets. - Thomas Capasse(CEO)

Given corporate maturities and plans to reduce leverage, is it justifiable to continue paying the $80 million annual dividend and buying back stock? Can you explain the rationale and future plans? - Jade Rahmani (KBW)

2025Q3: The company is adopting a very aggressive approach to repositioning the balance sheet... In that context, we're going to evaluate, obviously, the dividend in December to determine the appropriate policy in that context. - Thomas Capasse(CEO)

Contradiction Point 3

Portland Asset Carrying Costs and Strategy

It involves the carrying costs and strategic plans for the Portland asset, which directly impacts the company's financial performance and strategic direction.

Will the Portland asset be held on the balance sheet, and what are its carrying costs? - Jade Rahmani (KBW)

2025Q2: The asset will be held on the balance sheet at a valuation of $425 million. The $5.3 million carrying cost in Q2 represents the full quarter impact. - Andrew Ahlborn(CFO)

Will the Portland asset be held unlevered, and is there any plan to exit it? What's the rationale for holding it? - Jade Rahmani (KBW)

2025Q1: The Portland asset remains leveraged, with plans to pursue title and stabilize the components. - Adam Zausmer(Chief Credit Officer)

Contradiction Point 4

SBA Lending Volume Growth and Strategy

It involves differing expectations for SBA lending volume growth and the strategy behind it, which could impact revenue projections and operational focus.

What factors will drive the increase in SBA volumes, and how confident are you about the timing? - Douglas Harter (UBS)

2025Q2: The increase is due to improved credit guidelines and increased demand for small business loans. We expect volumes to ramp up with the approval of additional warehouse lines from the SBA. SBA lending volumes are expected to increase with the entry of the USDA market. - Thomas Capasse(CEO), Andrew Ahlborn(CFO)

Are you concerned about credit trends in SBA loans or administrative changes affecting the business? - Jade Rahmani (KBW)

2024Q4: In our lending business, we're just very, very excited about the growth opportunities in front of us with the SBA. We think the pipeline is very strong. - Thomas Capasse(CEO)

Contradiction Point 5

SBA Lending Volume Expectations

It involves the expectations for SBA lending volumes, which are crucial for the company's revenue forecasts and strategic focus.

What factors will drive the increase in SBA volumes, and how confident are you about the timing? - Doug Harter (UBS)

2025Q2: With the approval of additional warehouse lines from the SBA, SBA lending volumes are expected to increase. - Thomas Capasse(CEO)

What volume moderation level do you expect? What sales margin guidance do you have for the remainder of the year, given the 10.1% in Q1? - Jade Rahmani (KBW)

2025Q1: The SBA lending is expected to be below $1.5 billion in the short term due to policy changes and staffing reductions. - Thomas Edward Capasse(CEO)