Ready Capital Corporation Stock

Greetings, and welcome to the Ready Capital Corporation Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Andrew Ahlborn, Chief Financial Officer. Thank you. You may begin.

Thank you, operator, and good morning to those of you on the call. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Such statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our second quarter 2026 earnings release and our supplemental information, which can be found in the Investors section of the Ready Capital website.

I will now turn it over to Chief Executive Officer, Tom Capasse.

Thank you, Andrew. Good morning, everyone, and thank you for joining today's call. The second quarter of 2026 demonstrates meaningful progress in our balance sheet repositioning strategy. At this juncture, we do not anticipate further large portfolio sales as our completed sales were successful in both raising liquidity and repositioning legacy assets. We have also completed several important financings and believe that multiple initiatives are coming together to meet our corporate obligations as we build towards sustainable profitability.

We have been organizing our work this year around 4 priorities: first, strengthening liquidity to generate free cash flow in excess of our 2026 debt maturities; second, resolving non and subperforming CRE assets to eliminate earnings drag; third, transitioning to a lower-cost business model by divesting noncore business lines and integrating our CRE lending with our external manager Waterfall; and fourth, focusing on growth in our small business SBA 7(a) lending.

On liquidity, we are nearing completion of the initiatives we started at the end of 2025. Since our first quarter earnings, we have completed the following actions. First, the sale of our $167 million construction portfolio, generating $64 million of net liquidity and removing $172 million of future funding obligations. Second, the securitization of $158 million of unguaranteed SBA 7(a) loans at a 92% advance priced at SOFR plus 240 basis points. The transaction generated $25 million of net liquidity and $500 million of additional funding capacity for 7(a) production. Third, the disposition of $445 million of CRE assets for net liquidity of $85 million; and fourth, the successful refinance of the Portland Ritz asset into a CPACE loan. These items, together with prior loan sales and portfolio runoff, have generated approximately $1.9 billion of cash that has been used to pay down $1.7 billion of asset level and corporate debt. We now have achieved approximately 81% of our target liquidity objective.

Three initiatives to complete the final leg of our liquidity plan are underway: optimizing the financing of approximately $950 million of CRE loans, the sale or financing of our $118 million joint venture position and the second half anticipated runoff of approximately $900 million of CRE loans. Additionally, we continue to evaluate the potential refinance of a portion of the October maturity, which will help to further accelerate earnings recovery as we move into 2027.

On the CRE portfolio, following this quarter's actions, the legacy loan book stands at approximately $2.7 billion across 172 positions with an additional $218 million of CMBS exposure. 37% or roughly $1 billion of the loan book comprises sub and nonperforming assets whose current status produces a greater net present value for active asset management on our balance sheet versus sales in the secondary market.

We continuously monitor assets to determine the best path forward, maximizing value, which may include sales. The sub and nonperforming loans have an average duration of 11 months, average mark-to-market LTVs of 82% and are marked at 85%. The current equity held in sub and nonperforming loans is $436 million. In our performing loan book, totaling $572 million in equity, levered yields equaled 10.1%.

As of quarter end, we had $588 million of REO across 24 properties. The Ritz property remains our largest REO asset, representing 66% of total REO and approximately 22% of quarter end stockholders' equity. We believe our stabilization strategy is working. We now have sold 50 condominium units and have 3 under contract, bringing the sellout to 40% of the total. Sales progress remains consistent with our phased strategy of building momentum toward a full sellout.

On the hotel, we continue to realize linear improvement in operating performance. Hotel NOI was $1 million in the quarter. Trailing 12-month occupancy rose 10% to 52%. ADR decreased 4% to $468, and room RevPAR increased 20% to $244 compared to the same period last year.

As we move forward, we will determine the optimal path forward for the property, whether that's continued stabilization or monetization. The current earnings drag across our non and subperforming and REO was $0.29 per share in the quarter.

In our SBA 7(a) platform, capital constraints at the start of the quarter resulted in second quarter origination volume of $82 million, which is well below production capacity. We've addressed those constraints with the completion of our SBA 7(a) securitization in June, which we believe will provide capital for approximately $500 million of incremental go-forward volume, and we intend to accelerate our capital levels through more frequent SBA 7(a) ABS offerings. Since completing the securitization, we have originated $43 million of 7(a) loans and have a current money-up (sic) [ money-out ] pipeline of $78 million. We expect steady growth towards our annual target of $1.5 billion of originations.

Turning to expenses. We are executing a targeted cost optimization program to align our cost structure with our go-forward business model. This includes targeted organizational efficiency initiatives, divestiture of noncore businesses and assets and deeper integration of our CRE lending platform with Waterfall. We expect these initiatives will materially lower our operating expense ratio and improve operating leverage.

In summary, we remain equally focused on the completion of our liquidity plan and the action items needed to return the business to profitability. While we still have steps to complete in order to meet our 2026 corporate obligations, concurrent actions to accelerate resolutions, reduce operating costs and increase capital deployment into new investments that focus on our SBA 7(a) and CRE platforms, position the company for improvement as we move forward.

With that said, I'll now turn it over to Andrew for a detailed review of the quarterly results.

Thanks, Tom. Second quarter earnings and balance sheet reflect the continuation of the repositioning plan Tom described and importantly, a deceleration in the pressures that have weighed on our results.

For the quarter, we reported a GAAP loss from continuing operations of $0.63 per common share, an improvement from the $1.25 loss in the first quarter. Distributable earnings were a loss of $0.47 per common share and a loss of $0.24 per common share, excluding realized losses on asset sales compared to losses of $1.33, respectively, in the prior quarters.

At quarter end, book value per share was $6.83 versus $7.43 at March 31, a decline of 8.1%, which is a substantial deceleration from the 15.5% and 14.5% per share declines in the 2 prior quarters and reflects the wind down of the loan sale program. The change was primarily due to approximately $0.23 per share of realized losses on asset sales, approximately $0.12 per share of net loan loss provisioning and valuation allowances and the balance from the operating loss in the quarter.

The net loss from normal operations was impacted by the following revenue and expense items. On the revenue side, reoccurring revenue was $15.3 million compared to $16.2 million in the prior quarter. The change was driven by an $8.7 million improvement in the net interest loss, offset by a $2 million reduction in gain on sale revenue and a $7.5 million reduction in other reoccurring revenue.

The improvement in the net interest loss was due to a $445 million reduction in secured borrowings and continued corporate debt paydown, more than offsetting $4.3 million in lower interest income, which settled at $77.4 million as the CRE portfolio continued to contract. We expect net interest income to continue improving as nonaccrual loans and REO are resolved, asset level and corporate debt are reduced and capital is recycled into current market yields.

On the expense side, operating expenses improved to $48.7 million from $67.7 million. This was primarily due to normalization of servicing expenses to $3.4 million from $15.4 million, which previously included $6.7 million of nonrecurring servicer advance reimbursements tied to the first quarter CLO collapses. Additionally, the net loss on the Ritz position improved $1.2 million in the quarter.

Other items included in earnings improved $80.2 million quarter-over-quarter to a loss of $68.3 million. The improvement was primarily due to lower realized losses, which equaled $27.9 million and lower loan loss reserves and valuation allowances, which equaled $20.1 million.

Regarding liquidity and capitalization, we ended the quarter with $124.1 million of unrestricted cash. Total assets declined to $6.26 billion from $6.31 billion on March 31. Total leverage was 3x, trending towards our 2.5x target, and we held $690 million of unencumbered assets at quarter end.

With that, we will open the line for questions.

[Operator Instructions] Our first question comes from the line of Crispin Love with Piper Sandler.

First, on meeting the fourth quarter debt maturities, can you share just what else needs to be done to be able to do that? Is it driven by continued sales of loans? And then just how close are you to accomplishing that? And then what are you targeting for the remainder of 2026 as it relates for CRE and ROE (sic) [ REO ] dispositions and runoff?

Yes. Just to contextualize that, Crispin, we embarked on a liquidity plan in the fourth quarter. And then through organic liquidity, which is portfolio runoff, and supplemented by loan sales, we raised almost $2 billion, which was used to pay down $1.7 billion of unsecured and -- corporate debt and secured debt. So as of today, we're in the -- what I'd characterize it as the eighth inning. And the only major difference here is that we're -- we are no longer budgeting loan sales at this stage, maybe opportunistically at the loan level here and there as part of an asset management strategy.

But the balance of what we're looking at is the optimization of financing on $950 million of performing and nonperforming loans and runoff on $900 million, and a potential sale or financing on a $118 million joint venture position. There's a few other incremental liquidity initiatives, but we're confident that those 3 key drivers, absent any loan sales, which are not currently budgeted, will generate liquidity in excess of the 2026 remaining maturities.

Okay. That's helpful. And then just on the Portland mixed-use property, Tom, I believe you discussed potential monetization for that property. Is that beyond the Ritz kind of hotel and residences? And then can you just discuss the process there and when you might decide if that's the right path for the property? And what are the kind of -- what you need to look at to see if that's the right path?

Yes, I'll give a high level, and I'll have Dom, our Chief Credit Officer, comment. But as you may recall, the -- there's 3 components to that mixed-use project. One is the -- obviously, the core is the Ritz-Carlton Hotel, which continues to meet its stabilization target as measured by RevPAR, occupancy, et cetera. And one of the big decisions we made there, which has been very successful is working with Marriott to reduce the ADR to increase occupancy. So that strategy, that is about 50% of the value and that continues to -- continues on a trajectory.

The second component, which is about 40% is the condos and we've embarked with Christie's on a 4-phase project going back to earlier -- late last year. We're in Phase 2 now, and we've -- we're on target in terms of both pricing and number -- actually ahead of schedule on a number of units sold. With those under contract plus what we've sold, we're at about 40% at this stage.

And then finally, there's the office, which is about, I think, 26% occupied, which we're continuing to look at -- we're getting some tenant traffic there, but that's only 10%. So all of that together is we have a very aggressive plan for -- which is on or ahead of target. And so that will lead -- to answer your question, that will lead to a decision to monetize it at some point in the next -- in the coming quarters.

[Operator Instructions] our next question comes from the line of Jade Rahmani with KBW.

Can you say more about the $118 million joint venture investment? What is that exactly?

Yes. Jade, that was historically, Ready Cap had purchased equity interests in CRE equity from the external manager who had a strategy around accessing those investments at a very cheap levels in the context of the fair value options on CMBS deals. So that was, in turn, converted into a -- fund was raised around that strategy and Ready Cap converted its interest in those CRE equity investments into an investment in the fund. So it's essentially an LP interest in a Waterfall-managed CRE fund, which is currently unencumbered.

Okay. But I assume that the underlying investments have leverage on them? Or do they not?

Yes, they're just traditional CRE equity investments. There's about 30 line items in the portfolio.

So this can be levered, this investment?

Yes. It's a straight-up LP interest in a fund that's in its harvest period. So it's very short duration. And so there's -- as you probably know, there's a whole growth area in the banking industry and nonbanks with these fund finance -- fund financing on LP interest as well as a secondary market for sale. So that's what we've been evaluating in the context of this being a good asset that's unlevered.

And the $2.7 billion CRE loan book, how much leverage, both secured and unsecured, is currently on that portfolio?

Andrew, do you want to comment?

Yes. So on the asset-level side, to the extent not securitized, average advance rates there are in the low 60s. So the majority of that book is levered with the exception of the unencumbered portfolio, which on the loan side is roughly $300-or-so million. And then on the securitized side, it's really -- given all the CLOs have been collapsed, it's really limited to our legacy fixed-rate product as well as some of the small-balance commercial loans we bought at the start of the company. So typically, the warehouse leverage advance rates are in the low 60s.

But in aggregate, that doesn't include the corporate leverage. So the 60s advance rate goes up, including the corporate leverage. So what's the total leverage that you would associate with that $2.7 billion portfolio?

Yes. So on the corporate leverage on the secured side, the majority of that secured debt is sort of equity pledges of entities throughout the structure. The majority or a good portion of that equity is in CRE assets. So that's really how it's done. It's not a direct pledge of that CRE collateral.

So I mean, just from my vantage point as an outsider looking at this, it seems challenging to raise $450 million of equity capital in order to pay off the upcoming maturities. So I'm surprised to hear that the loan asset sale program has been -- that you're not going to be doing that. I would have thought you'd continue to do that as a way to make sure you meet these maturities.

Jade, I think the -- I totally understand the comment, but what we constantly evaluate is the discount for sale in the secondary market versus on-balance sheet strategies. And we're talking about, obviously, a smaller number of line items now. The $1 billion nonperforming portfolio, for example, is down to 44 assets. So it's very finite. And so we have very strong -- away from loan sales, we have very strong financing counterparties. There's a lot of liquidity available for these assets.

So what we've done is we've focused on optimization of the existing remaining legacy book as an alternative to loan sales, and that is generating that plus cash on hand and the other liquidity initiatives that we've talked about or the runoff on the portfolio. Those 3 items will have enough cash to pay off the debt with a comfortable margin.

Okay. And so post all of this, do you think the company can get back to profitability based on its existing capital base, whatever that will look like after all of these remaining actions are effectuated?

Yes. And it's a very straightforward answer. As you know, the -- in one shade of gray or another, many in the sector are undertaking this exercise. But with respect to Ready, it's the -- the first is the recycling of the legacy book, which is $2.7 billion, and we've changed the characterization of the portfolio, performing, nonperforming to enable analysts and investors to track the success there. But I do point out that the duration of that book is -- the $1 billion of nonperforming is only 11 months. So it's a very quick runoff and 44 assets.

The other component of the legacy book, obviously, is the 24 REO units, of which the Ritz is the largest. And those have very defined relatively short duration runoff, too. So the big part, but the first leg of the stool on the reboot of the earnings is the runoff of the legacy book, which we're highly confident that it is short duration and will be realized. And we're also looking at joint ventures and other ideas, quasi-securitizations to accelerate that effort.

The second thing is obviously the -- now that we've fixed the liquidity and warehouse line structure in our SBA business, that is obviously highly profitable. And that will be the ramp in originations there will be the second leg of the stool.

And finally, OpEx. We expect through 3 approaches. One is just a natural reduction in staffing and vendors associated with the portfolio runoff; two, the second thing being divestiture of ancillary businesses, all of which are in flight; and the third is integration with the external manager's CRE lending businesses to source investments. Those 3 things will result in a targeted 25% to 35% reduction in OpEx.

So those are the 3 legs of the stool, the runoff of the legacy book, focus on the -- and doubling down on the SBA business and the OpEx rightsizing in that context, which will enable us to return to profitability.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Capasse for any final comments.

We appreciate everybody's time today and look forward to next quarter in terms of final updates on our repositioning plan. Thank you, everybody. Have a good day.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Hello, and welcome to the Annual Meeting of Stockholders of Ready Capital Corporation. Please note that today's meeting is being recorded. It is now my pleasure to turn today's meeting over to Thomas Capasse, Chief Executive Officer, Chief Investment Officer and Chairman of the Board of Directors of Ready Capital Corporation. Mr. Capasse, the floor is yours.

Good morning. I'm Thomas Capasse, CEO, Chief Investment Officer and Chairman of the Board of Ready Capital Corporation and Chairman of today's meeting. Also present today are each of the members of our Board of Directors and a representative from Deloitte who will be available to answer questions after the formal portion of the meeting adjourns. Andrew Ahlborn, Chief Financial Officer and Secretary of the company, will serve as Secretary of the meeting and will be serving as the Inspector of Election.

On behalf of the company, I want to welcome you to our 2026 Annual Meeting of Stockholders, which is now formally called to order. We are very pleased to have each of you in attendance today. We appreciate your attendance, your interest and most importantly, your support of the company. As a reminder, stockholders attending the virtual meeting can vote their shares online during this meeting until the closing of the polls by logging into the meeting website and following the instructions specified in the proxy statement that we filed with the Securities and Exchange Commission on June 1, 2026.

If you have previously voted by proxy and do not wish to change your vote, your vote will be cast as you previously instructed, and no further action is required. If you have any questions, you may submit them at any time by selecting the Q&A icon at the top of your screen, and we will address those questions after the formal portion of the meeting concludes. Questions from our shareholders are welcome. And however, we request that all shareholders abide by the meeting rules of conduct, which have been posted on the virtual meeting page. Before we begin the formal portion of our meeting, Andrew, would you bring to shareholders' attention our customary safe harbor disclosure regarding forward-looking statements? And will you please present the certificate of mailing?

Thank you, Tom. Today's meeting may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these projections. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.readycapital.com.

Mr. Chairman, I present the affidavit of mailing, which states that written notice of this 2026 Annual Meeting of Stockholders of Ready Capital Corporation, form of proxy card and for those requesting full sets of materials, the related proxy statement and 2025 annual report were mailed on or about June 5, 2026, to each stockholder of record as of April 21, 2026, the record date for this annual meeting.

In addition, I present the following: first, copies of the written notice of the 2026 Annual Meeting of Stockholders stating the date, time and place of this annual meeting; and second, copies of the related proxy statement, form of proxy card and 2025 annual report, which accompanied the written notice of this annual meeting. Only stockholders of record on the record date are entitled to vote at this annual meeting, and each stockholder is entitled to 1 vote for each share of common stock owned on the record date.

Thank you, Andrew. I would like to begin by calling your attention to the order of business for the meeting. The business to be transacted is to vote on the matters set forth in our proxy statement, specifically: One, the proposal to elect 7 directors to serve on our Board of Directors until the annual meeting in 2027 and until their successors have been duly elected and qualified. Two, a proposal to ratify the appointment of Deloitte & Touche as our independent registered public accounting firm for the 2026 fiscal year. And three, the proposal to approve on an advisory basis, the compensation of our named executive officers. And four, the proposal to approve and adopt the amended and restated 2023 plan as more fully described in our proxy statement.

A copy of our proxy statement, which was previously made available to each of the stockholders entitled to vote at this meeting is available on the company's Investor Relations website and the SEC Commission website at www.sec.gov. The Secretary is directed to incorporate a copy of the certificate of mailing, written notice of the 2026 Annual Meeting of Stockholders, including the related proxy statement, form of proxy card and 2025 annual report as part of the minutes of this annual meeting.

The bylaws of the company provide that the presence in person or by proxy of stockholders entitled to cast a majority of all votes entitled to be cast at the meeting constitutes a quorum. The inspector of election is in charge of calculating the votes from the proxies and stockholders present via webcast. Andrew, do we have a quorum?

Yes, we have a quorum. Stockholders entitled to cast more than a majority of all the votes entitled to be cast at the meeting are present in person via webcast or by proxy.

Thank you, Andrew. I hereby declare that a quorum is present. Accordingly, the meeting is duly constituted, and we may now proceed with the business of the meeting. It is 9:05 a.m., and the polls are now open. The first item of business is to elect 7 directors to serve on the company's Board of Directors until the 2027 Annual Meeting and until their successors are duly elected and qualified.

On behalf of the Board of Directors, I confirm that the following persons have been nominated for election as directors of the company: Thomas Capasse, Jack Ross, Meredith Marshall, Dominique Mielle, Gilbert Nathan, Mitchell Reese and Todd Sinai. Second item of business is to consider and act upon a proposal to ratify the appointment of Deloitte & Touche as the company's independent registered public accountants for the fiscal year ending December 31, 2026.

The third item of business is to consider and act upon a proposal to approve on a nonbinding advisory basis, the compensation of the company's named executive officers as disclosed in the proxy statement. The text of the advisory resolution to approve the company's named executive officers' compensation is set forth in the proxy statement that was sent or made available to stockholders.

The fourth item of business is to consider and act upon the proposal to approve and adopt the amended and restated 2023 plan as disclosed in the proxy statement. These 4 proposals have been properly brought before the meeting under the bylaws of the company. No one else can be nominated as a director from the floor, and no other proposal can be made from the floor.

That concludes the presentation of the items of business that you have been asked to vote on at today's meeting. Polls are about to close. So if you've not yet voted, please do so.

Since all stockholders have had the opportunity to vote, I hereby declare the polls are now closed at 9:07 a.m. on July 17, 2026. Andrew has provided me the preliminary report from the Inspector of Elections. The preliminary report of the Inspector of Elections indicates that with respect to the election of directors, each nominee has received the affirmative vote of holders of a plurality of all the votes cast in the election of the directors at this meeting.

Secondly, with respect to the proposal to ratify the appointment of Deloitte & Touche, we received the affirmative vote of more than a majority of all votes cast on the proposal. Third, with respect to the proposal to approve on a nonbinding advisory basis, the compensation of company's named executive officers as disclosed in our proxy statement, the proposal received more than a majority of all votes cast on the proposal.

Lastly, with respect to the proposal to approve and adopt the amended and restated 2023 plan as disclosed in our proxy statement, the proposal received more than a majority of all votes cast on the proposal. Therefore, according to the preliminary report that was presented to me by the Inspector of Election, each of the director nominees has been elected. The appointment of Deloitte & Touche has been ratified. The compensation of the company's executive officers has been approved on an advisory basis, the amended and restated 2023 plan has been approved.

Details regarding the number of shares that voted in favor and against each proposal will be provided in a current report on Form 8-K, which we will file with the SEC no later than Thursday, July 23, 2026, with 4 business days -- within 4 business days of this meeting.

That completes our formal business for today, and I hereby adjourn the meeting. As we have not received any questions on behalf of the Board of Directors, I want to thank all of you for attending our annual meeting.

This concludes the meeting. You may now disconnect.

Greetings. Welcome to Ready Capital's First Quarter 2026 Earnings Call.[Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Andrew Ahlborn, Chief Financial Officer. Thank you. You may now begin.

Thank you, operator, and good morning to those of you on the call. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Such statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our first quarter 2026 earnings release and our supplemental information, which can be found in the Investors section of the Ready Capital website.

I will now turn it over to Chief Executive Officer, Tom Capasse.

Thank you, Andrew. Good morning, everyone, and thank you for joining today's call. The first quarter of 2026 represents ongoing progress in our balance sheet repositioning strategy initiated in the fourth quarter of '25. First, year-to-date, we have generated $1.4 billion in cash from loan sales and liquidations. These proceeds have facilitated the paydown of over $1.1 billion in warehouse debt and generated $270 million in net liquidity, which was utilized to retire $184 million of corporate debt.

Second, we are continuing to resolve non- and subscriptions-performing positions to reduce earnings drag and facilitate recycling into current market-yielding opportunities. And third, we are transitioning the business model toward a lower leverage, more capital-efficient platform that positions the company for long-term sustainable earnings growth.

As we stated in the fourth quarter of 2025, our liquidity plan is projected to span 4 quarters, and we are confident it is the right approach to reset the company's platform for success in the future. We began the year with $650 million of corporate debt across 4 different 2026 maturities. Given the company's current cost of funds and performance of the legacy portfolio, we made the decision to delever the balance sheet with aggressive asset management focused primarily on loan sales.

We retired our $117 million, 5.75% senior unsecured bond in February and our $67 million, 6.2% senior unsecured bond in April, leaving $450 million across our fourth quarter '26 maturities. Year-to-date, we have generated liquidity from 2 primary sources. First, the sale of 48 loans with total unpaid principal balance of approximately $1 billion across 4 transactions for a net liquidity of $177 million. These sales consisted of 66% performing and 30% non and sub-performing loans.

Second, portfolio runoff of $550 million provided $93 million in net liquidity. As we look forward, our liquidity plan contemplates an incremental $400 million liquidity from the sale and runoff of $2 billion to $2.5 billion of CRE loans and REO assets through year-end. Based on current projections, we believe these remaining actions, along with current liquidity are sufficient to retire our remaining '26 maturities and satisfy the future cash flow needs of the business.

Post completion of our liquidity plan and the payment of our fourth quarter debt maturities, we believe that the remaining legacy CRE portfolio will total approximately $2 billion. We anticipate this will include $800 million, $900 million of sub and nonperforming loans and REO assets, which we believe have a better net present value via exit from aggressive asset management strategies versus sale at current market discounts. This sub-portfolio of non- and sub-performing assets has a current quarterly earnings drag of approximately $0.06 per share with cash outflows of $9.3 million per quarter.

Furthermore, we expect the anticipated long-term benefits of our repositioning plan will be a reset balance sheet to allow for future earnings growth and a more conservative leverage profile anticipated to stabilize around 2.5x. Upon the expected second quarter completion of the final CRE loan pool sale contemplated in our liquidity plan, we anticipate the material book value pressure that the company has experienced in the past several quarters will be substantially behind us.

We also expect several changes to the business model that we will discuss in greater detail in subsequent quarters. First, we intend to focus our investment activity on allocations to CRE sectors where we see best relative value. We expect average investment size to double relative to our historical average of $17 million. Similarly, we expect that our financing strategy will be more opportunistic and less securitization driven. Each change is intended to help scale the business with a more efficient operational footprint and allow us to be flexible in pursuing market opportunities.

Second, we intend to simplify our business model through increased integration with our external manager, Waterfall Asset Management and to refocus on 2 core businesses, middle market CRE debt investing and SBA 7(a) lending. During this period of constrained investing, we can generate fee income in lieu of net interest margin by originating for Waterfall, where we have funded $172 million year-to-date and for third parties, including through our new $1 billion flow arrangement. In the future, as we recycle legacy assets to generate liquidity for CRE investing, we expect that a combination of our rightsized CRE operations in concert with allocation from waterfall's CRE desk will result in a lower operating expense ratio.

And third, we intend to increase capital allocation to our small business lending platform, which we expect to represent 20% of the company's capital going forward. Sequentially, we believe that the high relative ROE of this business will lead the earnings recovery over the period that the legacy CRE portfolio is recycled into new vintage CRE investments. Historically, the small business platform has provided 300 to 500 basis points of core ROE alongside the CRE net interest margin.

I would also like to provide an update on 2 additional items. First, the Ritz property remains our largest single equity allocation, representing 18% of quarter end stockholders' equity. On the condominiums, we have sold 43 units and have additional 4 units under contract, which would bring our total sellout to 36% of the 132 total units. The average selling price of the 32 condos sold year-to-date was $745 per square foot compared to $900 per square foot for all condos sold.

This is a deliberate pricing strategy designed to drive momentum towards the full sellout at higher average prices. The hotel's occupancy increased 5% year-over-year to 46%, marking steady progress towards our 60% target. This increased occupancy, along with a 1% increase in ADR to $482 resulted in a 13% increase in RevPAR to $221.

Separately, lower SBA 7(a) originations in the first quarter reflected the prioritization of capital to debt repayment, limiting new SBA deployment to existing warehouse capacity. We anticipate that will change with the pending launch of our $158 million SBA 7(a) securitization. We expect second quarter securitization to generate capacity for $500 million of incremental go-forward volume, resulting in the second half of the year climbing towards historical production levels, which were $1.1 billion in 2024.

We continue to take deliberate steps to enhance liquidity and strengthen the platform. Specifically, we have generated 67% of our target liquidity and begun to streamline business lines to reduce operating costs in conjunction with greater integration with our external manager, Waterfall. There's certainly more work ahead, but we are encouraged by the progress made to date and remain focused on disciplined execution.

With that said, I'll now turn it over to Andrew for a detailed review of the quarterly results.

First quarter earnings and balance sheet reflect the continued effects of the repositioning plan outlined in Tom's remarks. For the quarter, we reported a GAAP loss from continuing operations of $1.25 per common share. Distributable earnings were a loss of $1 per common share and $0.33 per common share, excluding realized losses on asset sales.

At quarter end, book value per share was $7.43 versus $8.79 at year-end. The change was primarily due to a $0.42 per share loss on loan sales settled in the quarter, a $0.47 per share loss on additional CECL reserves and valuation allowances and a $0.36 per share loss from operations. The net loss from normal operations was impacted by the following revenue and expense items.

On the revenue side, recurring revenue was $16.2 million compared to $41.5 million in the prior quarter. The change was driven by a $28.5 million reduction in net interest income, offset by a $3 million increase in other income. The decline in interest income was primarily impacted by the following items: First, the liquidation of approximately $1.8 billion of loans across the last 2 quarters resulted in a $16.5 million quarter-over-quarter reduction in net interest income.

Second, a $5.4 million reduction in cash receipts on loans currently on nonaccrual, the majority of which was driven by 2 loans totaling $230 million that are scheduled for second quarter liquidations. And third, the timing delay between liquidation of assets and the proceeding paydown of corporate debt.

We expect net interest income to be negative as we move through this transition period with improvement coming from the continued reduction in nonaccrual loans in REO, the reduction of both asset level and corporate debt financing and the recycling of capital back into market yields. Over this period, we expect a greater percentage of revenue to come from gain on sale and fee revenue.

On the expense side, operating expenses increased $7.8 million quarter-over-quarter to $67.7 million. The change was primarily due to a $6.7 million increase in nonrecurring advance payments made to servicers upon the collapse of our remaining CLOs and a $3.9 million decrease in the tax benefit.

Regarding RC's liquidity and capitalization, we remained active in repositioning our liabilities. First quarter activities included collapsing 3 CLOs totaling $900 million of collateral, the addition of a new $500 million CRE warehouse facility and the renewal of an additional 2 facilities. Current total leverage is 3x, and we ended the quarter with $200 million of liquidity and $730 million of unencumbered assets.

With that, we will open the line for questions.

[Operator Instructions] And our first question is from the line of Jade Rahmani with KBW.

Where do you expect balance sheet total assets to end after you're done with the planned asset sales? What size balance sheet do you expect Ready Capital to have?

Andrew, do you want to touch on the pro forma?

Yes. And the total assets, as Tom said in his remarks, we expect another $2 billion to $2.5 billion reduction in the loan portfolio. So based on current total assets of roughly $6.3 billion, we'd expect that number to come down closer to $4 billion.

Okay. Do you have a range of pro forma book value per share you expect the $2 billion, $2.5 billion further reduction to result in?

We're not providing guidance at this -- Yes, go ahead -- Andrew.

Yes. What I would say is the change in book value between the first quarter and where we end up in the second quarter base is going to be highly dependent on -- how much of that $2.5 billion we end up selling to cover the remaining liquidity needs to get through the '26 maturities. So there's a little bit of variability based on the execution of those upcoming trades.

The remaining $800 million to $900 million of subperforming loans, that's not including any of the REO.

That includes...

That includes the REO portfolio.

That includes the Portland REO?

That's correct.

Okay. And then just lastly, in other assets of $466 million, do you have the balance of deferred tax assets and tax receivables? Because my worry is that there's write-down risk for those assets as the recoverability in earnings is reduced driven by ongoing operating losses and the lack of earnings to materialize those deferred tax assets.

Yes. The current deferred tax asset on the balance sheet is a little over $200 million. It's $201.6 million. And the tax receivable is $16.7 million. What I would say is there is a heavy focus on growing the SBA business. And as Tom mentioned, it's really been limited by the existing warehouse capacity as that opens up, I would expect that business to return towards profitability more similar to where we were running in '24. So we do think that, that deferred tax asset has value. But certainly, we are aware of the magnitude.

Yes. I mean just to add to Andrew's remarks, there's a clear path forward for earnings -- recovery in earnings sequentially over a relatively short period of time, led by the SBA small business, which has historically thrown off around 300 to 500 basis points of ROE. Secondly, there will be OpEx reductions consistent with the simplification of the business model.

And thirdly, the remaining nonperforming assets post the final tranche of the loan sales is a relatively small pool of assets to include the Ritz, which is experiencing positive financial momentum. And that is about a 2-year underlying duration of those assets is probably about 1.5 years.

[Operator Instructions] The next question is from the line of Christopher Nolan with Ladenburg Thalmann.

I want to preface just saying that you're skiing down some very difficult terrain, and I got to give you kudos for navigating this so far. The nonperformers for the overall portfolio increased materially quarter-over-quarter. Why -- can you give some color as to why the core CRE portfolio deteriorated?

Yes, I'll let Dom get into some of the details, but I will say that the -- to some extent, the legacy book traditional metrics like 60-plus are becoming not irrelevant, but less of a metric on loan quality because what we -- when we look to do a sale of assets, if it's subperforming with a relative, let's say, low single-digit debt yield, we won't -- we'll purposely execute asset management strategies, which improve the secondary market price of that sale, i.e., not providing additional modifications, et cetera. So that creates a roll rate that amplifies the additional impact of the denominator effect, which is the sale of performing loans. So Dom, maybe just touch on that as well.

Yes, sure. Just to stress what Tom was referencing, I think the designation with core and noncore as we work through this liquidity strategy is likely to become less relevant. But just to sort of give you some summary information. So if you look at Q4 quarter end compared to Q1 quarter end, I think we're up about 8 percentage points. As we identify assets for sale to generate liquidity, some of those assets will be and have been performing assets. So just keep that in mind. But I'd say the breakout of that increase would be 1/3 sort of credit migration with a few assets sort of moving to sort of a workout stage, but the majority of that is predominantly situated with sort of a denominator effect as we sell through some of the performing loans.

Okay. And then I guess, Andrew, what does all of the changing or deteriorating credit metrics and everything else mean for the reserve allowance going forward? And where do you see leverage ratios once this transition is over?

Yes. We had an additional provision of a little under $71 million in the quarter. As we sell through this remaining portfolio, as Tom mentioned, the amount of loans on the book and particularly loans that are non- and sub-performing is going to be fairly limited. Somewhere between $300 million and $400 million and only across 30 or so line items. So we have pretty good line of sight into how those assets are going to perform. So you may see marginal increases in reserving around those. But I think the biggest change that is -- or effect that is remaining in the book is just the execution of the sales on the $2 billion to $2.5 billion portfolio. And then leverage, we expect to stabilize around 2.5x.

Great. And Tom, you mentioned less securitization. Does that mean less 7(a) securitization?

No, I think the SBA securitizations are relative -- very liquid and there's a lot of demand in the ABS market. So that was more of a reference to the CRE, CLOs with a focus on a single sector, in this case, historically multifamily. Because the -- what's very important to understand is that kind of the third leg sequentially of the reboot of the earnings is going to come from recycling of these remaining and it's a very finite number of REO and NPL assets that have a negative drag of about 2 points currently on ROE.

We will -- we are integrating our operations, our current origination team, et cetera, with the external manager who has very large investment capacity around a broad array of CRE sectors, and we look at best relative value along the lines of becoming sector agnostic. And then to specifically answer your question, many times, those are -- those transactions are funded with nonrecourse bank debt, which matches the maturity of the underlying loans, which in turn are probably at most 3-year exposure. If you look at the external managers' trailing 5-year track record and types of investments.

So I think that -- but what's important to understand is once you free up equity from an NPL resolution, which we have finite plans for the small number of line items, that's immediately accretive because we could -- rather than building an origination pipeline, we are able to immediately get an allocation of that investment with -- from the external manager, which is immediately accretive. They're usually -- right now, those investments are running in the low to upper teens, probably in that 14 handle.

So anyway, that's -- just to answer your question, that's how our view is with respect to the positioning of a more -- if you will, a more conservative positioning of the liability management on unsecured basis.

At this time, I'll turn the floor back to management for closing comments.

We appreciate everybody's time and focus on this call, and we look forward to the second quarter earnings call where as we continue to execute and complete our liquidity plan.

Thank you. Ladies and gentlemen, you may now disconnect your lines at this time. We thank you for your participation, and have a wonderful day.

Greetings, and welcome to the Ready Capital Fourth Quarter 2025 Earnings Call. [Operator Instructions] It is now my pleasure to introduce your host, Andrew Ahlborn. Thank you. You may begin.

Thank you, operator, and good morning to those of you on the call. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Such statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.

Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance.

These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available on our fourth quarter 2025 earnings release and our supplemental information, which can be found in the Investors section of the Ready Capital website. I will now turn it over to Chief Executive Officer, Tom 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 3 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 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 at Waterfall. Deep CRE investment capacity and expertise.

To that end, to support and lead these efforts, we have promoted Dominick Scali 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, Dominick 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 and the incremental roles he has played over the years. These organizational changes support the execution of our response 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 2 primary sources: $130 million from both 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 2 primary sources.

First, we expect to generate $250 million from the portfolio runoff, consistent with our 36% trailing 12-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.

The currently -- current 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 competitive earnings profile and 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 the refinance 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' 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 2 additional items. First, the Ritz property remains our largest single equity allocation, representing 60% 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 1 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 pricing of 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 5 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 redefining -- refining our CRE business and increasing our reliance on Waterfall to expand investment capacity and reducing 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'll now turn it over to Andrew for a detailed review of the quarterly results.

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 the first quarter of 2026.

The $150 million increase in CECL reserves relates to more aggressive reserves on nonperforming loans given the shortened resolution time lines. 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, reoccurring 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 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.

[Operator Instructions] Our first question comes from the line of Doug Harter with UBS.

In light of your comments around looking to kind of reposition the portfolio, accelerate dispositions, can you talk about the thoughts around keeping the Portland assets or whether that makes sense to kind of accelerate the time frame on that?

Yes. Good question, Harter. So as you could see in the quarter with -- there's been a very dramatic change in the trajectories on both the RevPAR given the change in the occupancy strategy by lowering the ADR. And secondly, the condominiums by putting 2 professional managers with specialization in both.

So we're ahead of schedule right now in terms of our stabilization plan. So the short answer is we're making very strong progress. And would we hold to the last mile of that stabilization plan versus accelerating it -- accelerated sale? The answer is yes. We probably would lean in that direction.

However, we're very confident of our ability to meet the stabilization plan on the 2 primary components, which are 90% of the value, the condos and the hotel. And we also note an overall improvement in the kind of Phoenix factor in the Portland market more broadly.

So yes, so we -- that being said, we would -- post stabilization with the appropriate pricing in relation to that, we would look for an early disposition.

Great. Appreciate that. And then just on the increase on the nonaccruals, just to flesh 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?

Yes. No, that -- it's actually 100% the latter. And on that point, it's a good question. So just to be very clear, what we are undertaking is a focus on short-term resolutions, which will -- through both asset sales and what we call strategic asset management. And that will reduce the portfolio by 60% to $2 billion.

So that actually renders the -- our previous characterization of core and noncore as less relevant as well as the typical 60-day metrics. And a good example of that is in the strategic asset management is we have, for example, a large loan with a sponsor who we might have otherwise extended, and we decided not to extend and that work with the sponsor to execute a sale of all or a portion of the portfolio.

And actually, so that's very critical to understand. So it's not necessarily negative credit migration. It's really related to the asset sale -- that asset management strategy itself.

[Operator Instructions] Our next question comes from the line of Jade Rahmani with KBW.

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?

Yes. Again, 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 they were putting the borrower in to -- we're not extending the loan, and we're 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's not negative credit migration. It's a conscious decision by our -- us as the lender to not execute modification and extension strategies. So maybe we could do is, Andrew, if you could answer the question regarding the accrual. And then Dom, maybe just give Jade an example or 2 in terms of what we're looking at with respect to the -- what we're giving our strategic AM strategies.

So for loans that are being positioned for loans, that were identified for sale in the fourth quarter and settled in the [indiscernible] 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's 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.

Andrew, it sounds like -- Andrew, it does sound like you're 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?

Yes. So the accrued interest associated with loans that may be subject to a market discount if we move them to sales, the accrued interest attached to any of those loans was written down in the fourth quarter.

So hope that was helpful in terms of the accrual question. Dom, maybe just give an example of -- a more granular example of what our asset management strategy is with respect to some of that larger loans.

Yes, sure. As Tom mentioned and consistent with our AM strategy and liquidity strategy, we're purposely not entertaining longer-term modifications with some of our assets. A concentration in sort of the increase in nonaccrual is in 4 or 5 larger loan exposures where good sponsors, good quality assets, good performance, but unwilling to provide additional time.

And what sponsors have pivoted to do is seek alternative financing or potentially sell assets. So a good example is that we have a 5-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've sort of started marketing that portfolio with the national brokerage firm, and we're 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.

Okay. Just on the Portland asset, the '25 reservation agreements, what percent will convert to contracts? And what's the average price?

Dom, do you want to have a comment on that?

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 actually closings in process this week and next.

Those units sold for an average price of $737. And as Tom alluded to earlier on the call, the lower per square foot is expected just given these are sort of the smaller units on the lower floors.

This is just part of -- to put some more color on this. This is part of a strategy we're working on with Christie's is our broker, and they have experienced 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, higher units sell at higher prices later in the process. So we faced and we've bifurcated the 132 units of which were sold out now at 27% into these 4 phases, and we're highly confident of our ability to achieve on an average per square foot basis, the numbers in our projection plans.

Okay. That's good to hear. And then on the $855 million of loans sold in February, what's the sales price relative to par and relative to carrying value?

Andrew, do you want to comment on that?

Yes. So they sold in the high [ 90s share ]. Carrying and UPB were right on top of each other. The pricing is the same there.

Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann.

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?

1 turn to 2.5 the pro forma RC2O, if you will, is going to involve significantly less leverage with multi-sector 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.

And then for the debt maturities that you guys coming up in the second half of the year, is the plan to retire that debt with just portfolio realizations and so forth?

Yes. I'll let Andrew comment on that. But as we said before, the broader liquidity plan is to -- it's in excess of $800 million, which is a multiple -- significant multiple of the total maturities. And we're 35% into that plan and are going to raise another $500 million, half through asset sales and half through runoff, which we've been running at a 36% repayment rate.

And the asset management strategy that Dom just talked about will enable us to outperform there. And we completed 2 of the 4 asset sales with the other 2 by the end of the second quarter. So given that plan, Andrew, what is your -- yes, what is the timing on the debt maturities?

Yes. I would think, 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 refy portions of the '26 maturities. With that being said, as Tom highlighted, the liquidity plan currently underway certainly provides a substantial cushion to take out all of the 3 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.

And our final question comes from the line of Chris Muller with Citizens Capital Markets.

I guess as you guys are focused on liquidity here, are there other monetization strategies that you guys would consider like selling or spinning off a business line? And it also looks like there's a couple of GSE licenses up for sale right now. So maybe not the best time to be a seller there, but are there other avenues of raising some capital that you guys are looking at?

Yes, there are -- that's a good question, Chris, and I appreciate taking the time. Yes, there's a number of what we'll call noncore assets that are not in this liquidity plan that we're entertaining potential dispositions. I think one -- obviously, one area, you're right, we do have opcos in the form of TRS taxable REIT subsidiaries that are -- could be sold.

However, I'll just underscore that our commitment to the SBA business, which is a high ROE business and low capital allocation that 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're really committed to that but are looking at other smaller noncore assets for additional sales.

We have reached the end of the question-and-answer session. And therefore, I would like to turn the call back over to CEO, Thomas Capasse, for closing remarks.

Yes. Again, we appreciate everybody's time and Ready Capital 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 we look forward to future calls.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your.

Greetings, and welcome to the Ready Capital Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Andrew Ahlborn, Chief Financial Officer. Thank you. You may begin.

Thank you, operator, and good morning to those of you on the call. Some of our comments today will be forward-looking statements within the meaning of the federal securities laws. Such statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Therefore, you should exercise caution in interpreting and relying on them. We refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.

During the call, we will discuss our non-GAAP measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measure is available in our third quarter 2025 earnings release and our supplemental information, which can be found in the Investors section of the Ready Capital website. In addition to Tom and myself on today's call, we are also joined by Adam Zausmer, Ready Capital's Chief Credit Officer.

I will now turn it over to Chief Executive Officer, Tom Capasse.

Thanks, Andrew. Good morning, everyone, and thank you for joining the call today. Our focus remains on returning the company to financial health and profitability via rehabilitation of the portfolio yield, growth of our Small Business Lending operations, and management of our 2026 debt maturities. To begin, we continue to make progress in our balance sheet repositioning via reductions in our CRE loan exposure using sales of low-yielding assets in conjunction with our traditional asset management strategies. To that end, we completed 2 portfolio sales.

The first discussed in the second quarter call was the sale of 21 loans with an unpaid principal balance of $665 million at a price of [ $78 ]. The transaction netted $85 million and provided incremental earnings of $0.02 per share in the quarter with $0.05 per share expected for the pro forma full quarter. The second, the sale of 196 small balance loans with high servicing costs with an unpaid principal balance of $93 million at a price of [ $97 ] netting $24 million.

At quarter end, post completion of the sales, along with normal principal paydowns of $410 million, the portfolio totaled 1,120 loans with an unpaid principal balance of $5.4 billion and carrying value of $5.2 billion, split 94% in the core portfolio and 6% noncore portfolio. In the core portfolio, in the absence of adding new loans, we anticipate that the denominator effect will prevail as payoffs accelerate with portfolio seasoning and some loans migrate to delinquency, net of modifications. In the quarter, there were $40 million of new core net delinquencies, $131 million of core migrated to 60-day-plus, of which $91 million were resolved via modification or liquidation. As a result, delinquencies increased to 5.9% of the total.

Levered yields in the portfolio increased 10 basis points to 11%. For core loans experiencing negative migration, our go-forward asset management strategy will favor liquidations. In the noncore portfolio, we liquidated $503 million in the quarter, leaving 31 loans marked to 79% of UPB. In the quarter, the noncore portfolio had an $8 million drag on earnings or $0.05 per share. We also have $648 million of REO across 28 positions, including the Portland mixed-use asset comprising 66% of the total. The remaining REO book of $218 million comprises 27 assets with a $3.7 million average value, creating greater liquidity on exit. In the quarter, we sold 5 properties valued at $50 million and added 4 REO totaling $54 million via foreclosure.

Of note, collapsing the majority of our CRE CLOs has provided more flexible asset management, particularly quicker execution of foreclosure deed-in-lieu transactions to sell liquid multifamily properties. The Portland mixed-use asset represents 14% of quarter-end equity and is segmented into 3 components: the Ritz-branded hotel with 251 rooms; 169,000 square feet of office and retail space; and 132 Ritz residences.

In the quarter, net operating loss on the hotel was $330,000, with occupancy of 48%, ADR of $504, and RevPAR of $240, both up sequentially and quarter-over-quarter. After 24 months of operation, the hotel continues to near stabilization. The office and retail are currently 28% leased and hit breakeven. As discussed last quarter, our new property manager, Lincoln Property, a global platform with expertise in hospitality, is executing our business plan. We have had 6 prospective office tenants tour the space since taking the keys and expect to make significant progress in lease-up over the next few quarters.

Lastly, we have sold a total of 11 Ritz residences. We've engaged a top global firm in luxury condo sales and are launching a revised pricing strategy to improve future sales velocity. The net loss on the residences was $900,000. In total, the position is nearing breakeven on operations, with a net operating loss of $1.3 million, with an additional $3.7 million in interest carry. As previously stated, we will look to exit the position on the heels of ongoing stabilization, lease-up, and sales.

In our Small Business Lending operations, despite pressure from the government shutdown, we continue to see growth opportunities. In the quarter, we originated $175 million of Small Business Administration 7(a) loans, 50% below our quarterly target. As discussed on prior calls, the primary hurdle to reaching target volumes has been access to the capital markets, which has been slow given SBA staff turnover earlier in the year.

With that being said, the approval of our $75 million warehouse facility and 2 planned securitizations will open significant capacity for achieving volume growth in 2026. USDA production was $67 million in the quarter. Combined, the Small Business Lending platform generated $11 million in net income, adding 280 basis points return on equity before realized losses to the company's total. This platform continues to be a strong counterbalance to our CRE business with nearly $400 million invested and represents significant tangible equity value.

Turning to our balance sheet. In 2026, we have $650 million of debt maturing, which is our top priority. We have multiple pathways to address these obligations. First, we have $830 million of unencumbered assets, including $150 million of unrestricted cash. Second, we expect $425 million in net liquidity from portfolio maturities and pending asset resolutions over the next 12 months. Third, we intend to further accelerate sales as we move out of nonperforming loan and REO positions. We expect the combination of these items to delever the balance sheet, which may pressure book value depending on the size, timing and pricing of such actions. And last, we've demonstrated our ability to access the capital markets, including our successful debt issuance earlier this year and expect new debt issuance to replace a part of the maturing debt.

We expect a more conservative posturing of the company regarding new investments and dividend policy as we work through our maturities. Regarding the dividend, we will evaluate the current level in December and determine at that time the most appropriate level in the context of progress in the business plan, liquidity levels for managing the 2026 maturities, and competing sources of liquidity.

With that, I'll turn it over to Andrew to go through the quarterly results.

Thanks, Tom. For the third quarter, we reported a GAAP loss from continuing operations of $0.13 per common share. Distributable earnings were a loss of $0.94 per common share and $0.04 per common share, excluding realized losses on asset sales. Several key factors impacted our quarterly results. First, net interest income declined to $10.5 million in the quarter. The movement was due to a $1.4 billion reduction in the CRE portfolio and $40 million of negative credit migration. In the core portfolio, the interest yield was 8.1% and the cash yield was 5.8%. The interest yield in the noncore portfolio was 3.1%.

Second, gain-on-sale income, net of variable costs, decreased $2.6 million to $20 million. The change was the result of lower USDA and SBA 7(a) volume. The income was driven by the sale of $130 million of guaranteed SBA 7(a) loans at average premiums of 9.3% and the sale of $57 million of USDA production at premiums averaging 10.6%. Realized gains from normal operations were offset by $189 million of realized losses from the sale of assets. These losses were offset by the release of $178 million of valuation allowances.

Third, operating costs from normal operations were $52.5 million, representing an 8% improvement from the previous quarter. The change was the result of a $4.1 million reduction in compensation expense, servicing expense, and other fixed operating costs, along with an increased tax benefit of $5.6 million. These positive movements were partially offset by the inclusion of the Portland mixed-use asset's net operating loss and carry costs, which totaled $5 million.

Further, the combined provision for loan loss and valuation allowance [ decreased ] to $140.2 million. The net increase in provision for loan losses of $38 million was due to a net increase of $43.2 million of specific reserves, offset by a slight decline in the general provision. The decrease in the valuation allowance of $178 million relates to the reversal of previous marks taken on the $665 million loan sale upon settlement. And last, we reported a $24.5 million increase in the bargain purchase gain related to the closing of the UDF IV merger. The increased bargain purchase gain was the result of additional future cash flows expected to be received on the portfolio, which required an increase to the day 1 valuation.

Loss from normal operations, net of tax, which can be found on Page 11 of the Financial Supplement, improved quarter over quarter to a $5.2 million loss. Reoccurring revenue declined $2.6 million due to lower net interest income and lower gain-on-sale revenue, offset by increased earnings from our JV investments. Operating expense improvement of $4.6 million offset the decline in revenue. Book value per share was $10.28 at quarter end, down $0.16 from June 30. The change was primarily due to the dividend coverage shortfall, partially offset by the repurchase of 2.5 million shares at an average price of $4.17, which offset the reduction in book value per share by $0.09 per share. Liquidity remains strong with unencumbered assets of $830 million, including $150 million of unrestricted cash. With that, we will open the line for questions.

[Operator Instructions] The first question is from Doug Harter from UBS.

You talked about having a more conservative posture for the company going forward. Can you talk about where you think the right level of leverage to run the business, and so in thinking about how much debt do you need to refinance versus pay down?

Yes. Doug, right now, our current gross leverage is around 3.5x. I think we're looking at a turn less than that on a pro forma basis.

And then I guess, how do you think about what is the target mix of secured versus unsecured?

Andrew, do you want to comment on the target mix?

Yes. I expect, at least on the corporate side, the majority of our debt to be secured, at least for the immediate future. With that being said, we've accessed the unsecured markets via the baby bond market over the years quite frequently. So to the extent that market is open, I think we will tap that. But I expect more secured issuance, at least at this point.

The next question is from Jade Rahmani from KBW.

Can you tell me what the current covenant is on the unencumbered asset ratio? I'm not sure if it's 1.25x or 1.2x, and the slide deck shows 1.2x as the current ratio.

So the unencumbered asset test, we are well covered within that 1.2x range. So the covenant is well in excess of that.

The covenant -- is the covenant minimum 1.2x.

No, no, 1.2x is our current coverage of that. The only debt we have that has that ratio is $350 million, and that's at a 1:1, so we're well covered.

So there's no requirement to be at 1.25.

No, it's just the $350 at 1:1.

The comment about the restoration of financial health is well taken. The dividend cost, as you know, around, I think, $80 million a year, seems unjustifiable to continue paying it, and also spending money to buy back stock in the face of these corporate maturities and the company's plans to reduce leverage. So it just doesn't seem justifiable to continue to pay dividend and to also buy back stock. Can you please explain the rationale and what the plan is going forward?

Yes. So, Jade, the company is adopting a very aggressive approach to repositioning the balance sheet. And in the context of your question, we think about it in terms of the rank order of liquidity. 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. That will be supplemented by additional senior and unsecured issuance as well as asset sales to plug the gap. In that context, we're going to evaluate, obviously, the dividend in December to determine the appropriate policy in that context. But the rank order of liquidity will be to: a, reduce leverage; b, exit low-yielding assets and regenerating the resulting liquidity with a prioritization on the debt; and then subsequently, the potential for asset repurchases; and then reinvestment of ultimate free cash flow into new loans to rehabilitate the net interest margin.

Just one more, which would be on the other assets category, which continues to increase to now 5.7% of assets and 25% of equity. I guess that, I assume, will be evaluated at year-end as part of the audit. It includes significant deferred tax assets. And the duration of being able to absorb such assets seems quite long given current profitability and allocation of G&A to the SBA business. So do you think that, that category of assets will be evaluated at year-end as part of the audit process?

Jade, we certainly reevaluate the deferred tax assets on an ongoing basis, including at the year-end audit. What I would say is our expectation is that profitability in those businesses grow as origination volume grows to our target levels. And then the second thing I would add is, to the extent we monetize those businesses at some point inside the TRS, that tax benefit can be used in that way as well. So there's no limitations on the time period in which they can be used. And we think the pro forma profitability of those businesses, as well as the fair value of those businesses in excess of their current book value, provides a window to utilize those over time.

[Operator Instructions] The next question is from Christopher Nolan from Ladenburg Thalmann.

On the Portland property, is that being carried at fair value or at cost?

Fair value-- the current fair value of $425 million.

Okay. And then -- yes, please go ahead.

Chris, just one thing. The property is actually broken out into 2 components. So the condos are being held for sale and they're at fair value. And then the other 2 components are held for use, so they're being carried at cost. But both were put on the balance sheet at the time of taking the property REO at fair value.

And would the Portland property be categorized as one of the unencumbered assets that Tom alluded to earlier?

No, there's currently leverage on that asset.

And I guess the final question is, I saw somewhere where there's a large office building in Portland, the Big Pink, I think it's called, I think it was the U.S. Bancorp headquarters. And they recently sold for $45 million. It was originally -- prior value was $373 million, like 5 or 10 years ago. And given that, and apparently it's a marquee property in Portland, doesn't that for -- as nice as this property seems, doesn't it seem like the valuations on these things is really going to take a dive? Just like your comments.

Yes. No, appreciate it, Chris. It really is an apples and oranges comparison. And as you're probably well aware, the office sector, especially for -- I think the Big Pink was an [ 80s-ish ] property, maybe a B, B minus, and it had very large tenant concentrations, and there was an outflow from the poor-quality, the B/C space, into newer space. Actually, we're benefiting from that with the small amount of office we have in the Ritz. But the Ritz is really a hospitality asset, a luxury hospitality asset. And it's the only -- in the Portland market, it's the only luxury-branded hotel. And most of what you have in Portland on the luxury end is more on the boutique side. So this is a one-of-a-kind property.

So I think the economic forces that are driving the loss of tenancy in the Big Pink are actually benefiting a brand-new Class A office like the small amount we have. And then the hospitality is completely different. It's really not affected by the office trend. And as we noted, RevPAR has increased sequentially. And with the new Lincoln Property, they're best-in-class and they've had a lot of experience, not only just in the Portland market, but globally in these hospitality properties. And so we're 2 years into the stabilization, and we continue to see positive trends in the hospitality -- in the RevPAR at the hotel, which ultimately will drive condo sales, where we've hired a national firm that has experience with Ritz Residences to drive a different pricing policy there to get some momentum on the heels of the stabilization of hotels. So anyways, duly noted on the Big Pink. But it is really an apples and oranges comparison.

There are no further questions at this time. I would like to turn the floor back over to Mr. Capasse for closing comments.

We appreciate everybody's time today. And again, I wanted to underscore the commitment of the management team to continue to drive the repositioning of the company. We're very confident of our ability to refinance our pending debt maturities, and we look to the fourth quarter call pending. Thanks for your time.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.