Ready Capital Corporation (NYSE:RC) Q3 2025 Earnings Call Transcript

Ready Capital Corporation (NYSE:RC) Q3 2025 Earnings Call Transcript August 8, 2025

Operator: Greetings. Welcome to Ready Capital’s Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, today’s conference is being recorded. At this time, I’ll now turn the conference over to Andrew Ahlborn, Chief Financial Officer. Andrew, you may begin.

Andrew Ahlborn: 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 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.

Thomas Edward Capasse: Thanks, Andrew. Good morning, everyone, and thank you for joining the call today. In the second quarter, we completed 3 initiatives to continue the repositioning of the company’s balance sheet coming out of the CRE cycle, the financial benefit of which will be visible in the second half of the year and beyond. First, as part of the broader strategy, each loan in both the core and noncore portfolios is evaluated to determine whether the NPV of asset sales is more accretive to improving net interest margin by disposing of low-yield assets and reinvesting in new originations versus traditional on-balance sheet asset management strategies, such as loan modification. In this regard, we completed our first bulk sale earlier this week, selling $494 million of legacy multifamily bridge assets, generating net proceeds of $85 million.

While the transaction settled in the third quarter, it reflects a sale process initiated in the second. The pool included 73% noncore, 27% core, 40% were delinquent, 33% risk rated 4 or 5 and 92% nonaccrual. An additional $26 million of REO included in this trade is expected to settle by mid-August. This transaction is strategically significant, eliminating 100% of the 2021 vintage syndicated loans, while allowing potential upside through retention of a preferred return if certain performance targets are met by the buyer. The pro forma financial benefit is twofold: an immediate increase of $0.05 per share per quarter, representing the removal of the negative carry associated with these assets; and longer term, an additional $0.02 per share per quarter from the reinvestment of the equity into market-yielding loans.

In the third quarter, the cumulative loss from the transaction will flow through distributable earnings, with no material expected impact on book value per share as the transaction was reserved in the second quarter. Second, we took ownership of the Portland, Oregon mixed-use asset, which includes a Ritz-Carlton Hotel and branded residences along with Class A office and retail space through a consensual transaction that closed on July 21. We avoided a lengthy and costly foreclosure process, with a net cash outlay in the third quarter of $10 million. Since taking title and assuming operating control, we are moving quickly to stabilize the asset. We partnered with institutional property manager Lincoln Property Company and are evaluating residential brokers and Ritz residence sales strategies.

From a performance standpoint, in the second quarter, RevPAR at the hotel was $192. The retail component is 100% occupied. The office is 23% leased, and to date, 11 of the 132 residences were sold at an average price of $1,123 per square foot. The negative carry from the asset was $5.3 million or $0.03 per share for the quarter. Ready Cap fully intends to provide financial and operational support to maximize the value of this premier hospitality asset in the Portland market. Now third, we took steps in the capital markets to enhance liquidity and increased warehouse capacity to support loan origination. In our CRE business, we collapsed 2 of the 5 outstanding CRE CLOs, improving advance rates 7%, generating $71 million in proceeds, with nearly a 100-basis-point improvement in financing cost.

In our SBA business, 2 of the 3 warehouse lines pending approval with the SBA were approved, adding $75 million of additional warehouse capacity that is expected to fund over $400 million of 7(a) production. Additionally, we closed a $100 million USDA warehouse facility, with a second $100 million facility anticipated to close in the third quarter. These 2 facilities will facilitate the ramp in USDA volume to our $300 million annual target. Collectively, these 3 actions, sale of underperforming loans, taking ownership of the Portland asset to accelerate its stabilization and expanding our funding capacity, generated $221 million of liquidity, providing capital for new loan originations to rebuild our NIM. As of the quarter end, the CRE loan portfolio totaled $6.1 billion, now clearly segmented into 2 parts: a $5.4 billion core portfolio, consisting of legacy loans favoring on-balance sheet, hold-to-maturity asset management strategies; and a $695 million noncore portfolio, consisting of lower-yielding assets, where asset management strategies favor accelerated liquidation.

In the core portfolio, $527 million of payoffs and liquidations reduced the portfolio 8% in the quarter. As expected, negative credit migration in the portfolio was muted, with only 17 loans totaling $71 million transitioning to 60-day plus delinquency. 60% of this 50-basis-point increase in the 60-day delinquency number was due to quarterly decline in the portfolio balance. Additionally, we modified 14 loans totaling $250 million, with a 40-basis-point decline in expected yield on those assets. Regarding the earnings impact of the core portfolio, the leverage yield decreased 20 basis points quarter-over-quarter to 10.9%, producing $43 million of net interest income or $0.26 per share. Several quarters of reduced originations and loan payoffs have reduced our CRE portfolio over 30% from its $10.5 billion peak in the second quarter of 2023.

As discussed previously, our bridge portfolio was primarily financed via the issuance of static CRE CLOs, with industry-type CLO triggers where weakening collateral performance resulted in loan payoffs, reducing senior bonds rather than providing capital for reinvestment. In turn, relative to the peer group, Ready Cap experienced more rapid deleveraging, with less free cash flow to make loans. After a prolonged focus on stabilizing the portfolio, liquidating underperforming assets and collapsing 5 of our 8 CLOs, we anticipate reentering the origination market in the third quarter. Originations will focus on high-quality multifamily bridge loans underwritten at a lower LTV and healthy in-place debt yield designed to rebuild the core portfolio and facilitate our return to the CLO market in early 2026.

Current lending margins of SOFR plus 275 to 300 and a CLO AAA market spread under 150 basis points support projected retained yields of 13% to 15%. Additionally, we continue to leverage our external manager, Waterfall’s, infrastructure to also allocate capital to more liquid CRE debt securities. In our noncore portfolio, we have met 78% of our second quarter disposition targets, of which 3% settled in the quarter, with the remaining 97% closing post quarter end. In the second quarter, $9.6 million of loans were liquidated at 105% premium to our mark, generating $3.8 million of liquidity. Post settlement of the bulk sale, the noncore portfolio was reduced by an additional 52% to $333 million of carrying value, consisting of 39 loans with an average price of 79.

The quarterly yield on the noncore portfolio was negative 10.7%, resulting in a cost of $5.3 million or negative $0.03 per share. However, the continued liquidation of the noncore portfolio will minimize its financial drag. As of today, the combined noncore and REO portfolios totals 12% of the company’s investments, down approximately 25% from the beginning of the year. In our SBA business, as anticipated from the prior quarter’s earnings call, quarterly origination volume decreased to $216 million due solely to capital constraints as we awaited on approval of increased warehouse capacity from the SBA. In addition to the approvals received to date, we anticipate an additional $100 million in warehouse capacity currently pending SBA approval.

A planned future securitization of retained 7(a) unguaranteed interest would provide additional liquidity to fully fund the business. In 2024, we originated $1.1 billion of SBA 7(a) loans, and the platform has continued to carry the infrastructure and cost to originate more. Our current SBA pipeline in closing totaled $173 million. Now in terms of the outlook, there are 3 primary items that we expect to contribute to earnings improvement. First, the increase in new originations with capital generated from the continued liquidation of the noncore portfolio and other lower-yielding assets to further grow the net interest margin; second, stabilization of the Portland mixed-use asset, important for both reducing the current negative financial drag and to facilitate liquidation of the hospitality, office and residential components; and third, our return of SBA 7(a) lending volumes to over $325 million per quarter and the long-awaited entry of Ready Capital to the USDA market at scale.

We expect modest earnings growth in the back half of 2025 from these initiatives relative to the first and second quarter results. Assuming no significant deterioration in the macro environment, we expect to maintain our current dividend level until our earnings profile warrants an increase. With that, I’ll turn it over to Andrew to go through quarterly results.

Andrew Ahlborn: Thanks, Tom. For the second quarter, we reported a GAAP loss from continuing operations of $0.31 per common share. Distributable earnings were a loss of $0.14 per common share and $0.10 per common share, excluding realized losses on asset sales. Several key factors impacted our quarterly results. First, net interest income increased to $17 million in the quarter. The improvement was due to a full quarter of interest income from the UDF transaction and lower interest expense from lower leverage and a 5-basis- point reduction in borrowing costs, which averaged 6.8% for the quarter. In the core portfolio, the interest yield was 8.1%, and the cash yield was 6.1%. The interest yield in the noncore portfolio was 2.4%.

Second, gain on sale income, net of variable costs, increased $2.5 million to $22.7 million. The change was the result of higher USDA and Freddie affordable volume, offset by lower SBA 7(a) volumes due to the pending approval of warehouse line increases with the SBA. The income was driven by the sale of $121.2 million of guaranteed SBA 7(a) loans at average premiums of 9.9%, the sale of $151 million of Freddie Mac loans at premiums of 265 basis points and the sale of $41.9 million of USDA production at premiums averaging 9.7%. Realized gains from normal operations were offset by $8.9 million of realized losses from the sale of assets, all of which were adequately reserved for in previous quarters. Third, operating costs from normal operations were $58 million, representing a 5% increase from the previous quarter.

Fourth, the combined provision for loan loss and valuation allowance increased $48.4 million. The additional $39.7 million valuation allowance was due to pricing adjustments on the trade Tom mentioned, which settled this week. The $173 million cumulative valuation allowance related to this trade will flip to a realized loss in the third quarter and be included in distributable earnings. The $8.6 million provision for loan loss was due to a net increase in the general provision of $800,000 and $7.8 million of specific reserves on assets which experienced deterioration in the quarter. And last, other items of significance included a $14.4 million reduction in the bargain purchase gain related to the closing of the UDF IV merger, $6.5 million of noncash impairment of the SBA and USDA servicing assets related to movements in the discount rate and a $41.6 million tax benefit from losses associated with the loan pool sale.

Income from normal operations net of tax, which can be found on Page 11 of the financial supplement, decreased $6.7 million to a $7.3 million loss in the quarter. Reoccurring revenue increases of $809,000 due to higher net interest income and higher gain on sale revenue were offset by a $7.5 million increase in operating costs due to higher accruals and a $4.8 million reduction in the tax benefit. On the balance sheet, a few key items to highlight. First, we completed the sale of our residential mortgage banking business, GMFS. Proceeds from the sale included cash equal to the adjusted book value of the business and an earnout over the next 30 months. The transaction resulted in a cumulative loss and disposition of $3 million. And second, we continue to reduce our short- to medium-term debt maturities.

In the quarter, we retired $50 million of corporate debt using proceeds raised from the upside of our initial Q1 $220 million senior secured issuance. As of today, we have a total of $650 million of corporate debt maturing through 2026, including current maturities of $132 million. We are focused on extending those maturities over the upcoming quarters. Book value per share was $10.44 at quarter end, down $0.17 from March 31. The decline was primarily due to the dividend coverage shortfall, partially offset by the repurchase of 8.5 million shares at an average price of $4.41, which offset the reduction in book value per share by $0.31 per share. Liquidity remains strong, with unrestricted cash at over $150 million and just under $1 billion of total unencumbered assets.

With that, we will open the line for questions.

Q&A Session

Operator: [Operator Instructions] The first question is from the line of Crispin Love with Piper Sandler.

Crispin Elliot Love: First, Tom, you mentioned that you’re reentering the origination market in the third quarter, and you said you expect modest earnings growth. I was wondering if you could just put a little bit of a finer point on that. Does that mean that you still expect distributable earnings losses in the near term? And then when do you think you can get to profitability and then closer to dividend coverage?

Thomas Edward Capasse: Yes. I’ll let Andrew touch on that, but with one adjunct comment, which is the origination team is gearing up to target, if you will, the new vintage multifamily bridge, probably about a 5-point lower attachment point and higher debt yields than in the peak of this last cycle. And that will take some — the pathway for that is probably like 120 days. However, in the interim, we have access to the external managers’ significant CMBS trading capabilities. So we would look to deploy cash immediately into those instruments to provide some kind of, if you will, the first leg of rebuilding the NIM. So Andrew, maybe with that backdrop, maybe touch on Crispin’s question regarding the ramp in the earnings.

Andrew Ahlborn: Yes. Crispin, so if you start from what I’ll call normalized earnings in the quarter, which were a loss of $0.04 and the difference between that and distributable being mainly things like MSR impairment, there are a couple of items that Tom mentioned in his prepared remarks that are sort of already baked. The first is that JV sale, where the negative carry will increase — the reduction in negative carry will increase EPS by $0.05 a quarter. We anticipate that the reinvestment of that equity, which will occur over the third and fourth quarters, to generate another $0.02. So that will bridge the gap into positive, what I’ll call, normalized earnings. There are a couple of other items that happened in the third quarter.

One, we paid off a $75 million repo on the retained interest of one of our CLOs. That’s going to generate $0.01. And then you move into production increases in our small business lending segments. So our expectation is once the USDA platform gets to a normalized ramp of roughly $300 million annually, that will increase earnings $0.02 a share. And the return of SBA volume to where we were running at the back half of ’24 is expected to increase earnings another $0.03 to $0.05. Now some of that is going to be offset by, obviously, the need to refinance the corporate debt, where if you just take the delta between where the cost and the debt today and where we priced our last deal, we expect it to increase — decrease earnings $0.03 to $0.05. So those are the most immediate-term ramps.

Growth from there is going to come from turnover of the portfolio, as Tom mentioned.

Crispin Elliot Love: Perfect. I appreciate you laying all that out. And then on the bulk sale of legacy bridge loans, can you first describe the type of buyers here broadly? And then how much is left to sell? And I think you might have said that the — that’s all from the 2021 vintage. And then also, if you can just dig into a little bit the pricing of that sale versus initial originated values and then pricing prior to those Q2 final marks.

Thomas Edward Capasse: Yes, I’ll let maybe — Adam, you could tackle this. But just as a prefatory comment, Crispin, the — in the private funds market and at the external manager, we see this firsthand, but there’s been a lot of money raised in real estate private equity, which is targeting the multifamily sector, which is viewed as fundamentally solid in terms of the buy — the supply-demand dynamics and the — basically in ’25 and ’26, the oversupply from the boom years of ’21 through ’23 are now working its way through the market. So you’re starting to see firmness in rents. So anyway, a long-winded way of saying that there’s probably been at least $300 billion, $400 billion of opportunity capital that has — is looking for these assets. And what they’ll do is they’ll look to undertake to purchase the debt to — essentially to own and operate the properties. So with that backdrop, Adam, maybe just provide some additional color.

Adam Zausmer: Yes. Yes, sure. The partners here are a multifamily operator with a few thousand units and a fund partner that has AUM of about $1.5 billion. They came together and are the buyer of this portfolio. From a price perspective, the price is around 77% of the UPB. And I think it’s important to highlight here that this portfolio had a sponsor concentration of specifically 2 syndicators, GVA and Tides. So we are virtually removing 100% of exposure to those 2 sponsors. And I think as Tom highlighted in his remarks, about 40% of that portfolio was 60-plus days delinquent, noncore; 31% core — sorry, 31% of the 60-plus was in noncore. And there was REO in here as well of about $31 million in this portfolio. I don’t know, Crispin, if you have other questions or I answered you here.

Crispin Elliot Love: Yes. Just one last kind of quick follow-up. Is there anything left from the 2021 vintage in your portfolio, either core or noncore?

Adam Zausmer: Yes. There certainly is in the core portfolio.

Operator: The next question is from the line of Doug Harter with UBS.

Douglas Michael Harter: You talked about kind of SBA volumes picking up. Can you talk about what is going to be the driver of that and your confidence as to the timing and as to when you’re going to start to see that?

Thomas Edward Capasse: The — well, if you look at the industry volume, when the new administration came in, there was an industry-wide decline in volume. I think it was what, Andrew? It was like 10%, 15% metric. So I’m referring to the 7(a) program, which typically runs $25 billion to $30 billion per year based on annual approval by — authorization by Congress. And that was mainly due to changes in the — some of the Biden rules we call the standard operating procedures regarding small loans in particular. So we — the industry has undergone those changes and has rebooted credit guidelines, which are more — incrementally more conservative. I’ll point out that we preemptively, in our small loan program, actually implemented those guidelines about 3 months ahead of the SBA’s changes.

So we feel comfortable there. So that — so we’re seeing — we’re going to see a ramp in demand for — we’re just seeing demand for small business loans, especially M&A or business acquisitions, remains strong. And of course, we’re a leader in the small loan program via our fintech iBusiness. So yes, so that — so the main constraint we have faced has been the approval of warehouse lines by the SBA. Obviously, there are some constraints with the turnover in the governments — throughout the government agency staffing. So we now see a path forward to sequentially increase the line. The next line limit is, I think, is slated for around $75 million, $100 million. So that’s what, from an industry perspective and from our own specific perspective, is what’s accounted for the drop in this quarter’s 7(a) originations.

And bolted on to that, however, is the ramp in our USDA business, which is a top 3 lender historically, and that will add an incremental increase in the P&L and our small business segment. So Andrew, I don’t know if you would add to that.

Andrew Ahlborn: Yes. I think you will see volumes in the third quarter remain somewhat consistent with where they are in the second quarter. As Tom mentioned, the pending approval of that third warehouse line with the SBA will certainly open up capacity. But the full ramp back to a targeted $1.2 billion to $1.5 billion in annual originations is really going to come from clearing the existing warehouse lines through some capital markets transaction, as Tom mentioned. Whether that be a normal way securitization of 7(a) loans, which we’ve done a handful of, or participation sales, that will be the driver to really increase the capital needed to get back to those levels. So I would expect a ramp back there to happen more towards the back half of the second half of the year.

Thomas Edward Capasse: Yes. And just one last comment on SBA. We are fully supportive of the regulatory changes since — under the new administration. And there is a bill before Congress to increase the guarantee from the cap from $5 million to $10 million for manufacturing facilities. And we’re working — we’re targeting to the extent that we support that legislation. And to that extent it’s approved, we’re developing targeted originations strategies around that. So there is some upside to the — in terms of the — going into the fourth quarter and early 2026.

Douglas Michael Harter: Great. Appreciate that. And then on the unsecured issuance, can you just talk about your plans there given the higher costs you’re seeing there now? Does that market still make sense financially? Or is it an important part of the capital structure that you want to continue even though the costs are elevated today?

Andrew Ahlborn: Yes. If you look at the $650 million we have coming due, around $300 million of that is unsecured. Some of that being $25 par deals. So we think that market will play a part in the refinance of a portion of that $650 million. I do believe that the majority of that pending debt though will probably get placed through a secured issuance, whether it be utilizing the $100 million still available on our Q1 issuance or new security. And when you look at unencumbered assets and even excess coverage in existing deals, there’s a significant amount of, what I’ll call, clean performing product to support those issuance. So we remain confident in the ability to refi those out. But certainly, acknowledge that the increased cost of that debt will put pressure on the earnings, as I described earlier.

Operator: Our next question is from the line of Jade Rahmani with KBW.

Jade Joseph Rahmani: So much to go through here, but I’ll try to be somewhat brief. Just on Portland, will the assets be held on the balance sheet at $432 million? And did the $5.3 million carrying costs you cited reflect a full quarter impact? What’s the 3Q estimate?

Andrew Ahlborn: Yes, I can answer the first question, Jade, and then I’ll let Adam talk about the operations. Yes, the initial valuation will be put on at that $425 million and then evaluated for impairment going forward from there.

Jade Joseph Rahmani: Okay. And then the quarterly carrying cost estimate?

Adam Zausmer: Yes. Jade, I’m sorry, your question is what on the $5.3 million?

Jade Joseph Rahmani: Yes. Is that a full quarter estimate for the carrying cost?

Andrew Ahlborn: Yes, that was the full quarter impact.

Jade Joseph Rahmani: That affected the second quarter?

Andrew Ahlborn: Correct. That $5.3 million was in the second quarter.

Jade Joseph Rahmani: But you foreclosed in July.

Andrew Ahlborn: Yes, but we were holding it as a nonperforming loan in the second quarter. So that’s the net expense.

Jade Joseph Rahmani: Now that you own it, what will the carrying cost be?

Andrew Ahlborn: Yes. I think that’s a fairly good estimate going forward. There are a couple of things that we are working on to help reduce that. One is to lower the financing cost associated with that asset. And then obviously, as the loan stabilizes, whether it be leasing of the office or a reduction in the amount of unsold condos, that number will come down.

Adam Zausmer: Yes. I think — Jade, I think the material operating cost would be what we’d call like good news money, where we get an office tenant and we’re required to put up tenant improvements to get that tenant into the office space and improve their space. So again, I think the material cost would be where the asset is improving significantly and we’re putting in good news investment.

Jade Joseph Rahmani: How much capital will need to be put in across the 3 categories?

Adam Zausmer: Yes. I mean, look, it depends on the type of…

Jade Joseph Rahmani: [indiscernible] sales spending.

Adam Zausmer: I’m sorry. I missed that last comment.

Jade Joseph Rahmani: How much capital will be need — will need to be put in, including marketing and sales spending?

Adam Zausmer: Look, we got the asset about 2 weeks ago. So our partner, Lincoln, who is — we’re partnering with on the asset management, the asset is putting together a budget. As of right now, again, the material spends are on marketing the condo units, which, again, we’re putting together a budget for that. That’s — that will be a driver. The tenant improvements, it depends on the type of tenant that comes in, but we’re looking at, from a tenant improvement cost, probably around $150 a square foot to $200 a square foot for TIs for the office tenants. And we’ve got approximately 66% remaining to lease up. And then, yes, I mean, look, there’s other costs associated with the HOA on the condo and other aspects of marketing this property.

Thomas Edward Capasse: But I think just as one comment, Adam, correct me if I’m wrong, but in relation to, say, for example, office and — that you look and the future projected CapEx in relation to our basis, over 50% is a Ritz-Carlton that opened up in October of ’23, which is on its way to stabilization. Trailing 12 RevPAR was a little bit over $200. So that per se doesn’t require significant CapEx. And then the CapEx on the office, it’s — how many square feet of the 66% that’s left, Adam? It’s…

Adam Zausmer: Yes, it’s about 70,000.

Thomas Edward Capasse: So it’s 70,000 square feet. It’s de minimis in relation to true office property. So that’s, Jade, where you might have some CapEx. But again, that, along with maybe the marketing strategies around the residences, the branded residences are — will incrementally have some CapEx. But nothing in relation — much less than what you have with, for example, other office — I’m sorry, other sectors like the office space.

Jade Joseph Rahmani: Okay. Secondly, just on the dividend, conveying some sentiment from institutional investors that I have been in touch with, the company has a very large deferred tax asset, so plenty of shield to avoid having to pay a dividend. So based on current management expectations, why not eliminate the dividend and reallocate that capital toward, number one, debt repayment because there’s significant maturities at a very high cost that was referred to? And then number two, once you feel really comfortable, you could allocate that towards the buybacks, which are continuing, which would stabilize book value and protect the company’s equity base. So right now, the dividend is still quite costly. It would seem to make more sense to suspend it and then recommence once we’re kind of out of the woods in this period of stress.

Thomas Edward Capasse: Yes, I mean that’s a fair question. And a lot of it has to do with our repositioning strategy. And the — right now, for example, in this quarter, we achieved, with a month or 2 delay, the goal to eliminate half of our noncore portfolio and the significant drag there, and you saw the bridge to covering the dividend. But maybe, Andrew, if you could just discuss, in that context, the — some color, some thoughts around Jade’s question.

Andrew Ahlborn: Yes, I think it’s a good question. As I mentioned earlier to Crispin’s question, there is a bridge to an earnings profile. Assuming no further deterioration in the core portfolio, that gets close to that coverage. Now it’s going to take some time, as I mentioned. But I think the Board will continue to evaluate the performance of the core portfolio as well as the progress on that walk I made earlier in evaluating the dividend.

Operator: The next question is from the line of Randy Binner with B. Riley Securities.

Randy Binner: I think I just kind of have follow-ups to some of the questions. I guess the first one is on just, Andrew, going back to your walk, the EPS walk to dividend coverage. Did that — I think at the end, you said there was some negative for higher anticipated interest expense as you kind of deal with the debt maturity for ’26. Was the drag from the Portland property also contemplated in that EPS walk?

Andrew Ahlborn: Yes. So the current — that EPS walk assumes, as I mentioned, to Jade, that the Q2 negative carry of that stays somewhat consistent. To the extent there are, as I mentioned, good news money that goes out, that may weigh but then results in higher revenue. So the drag is already included in that upfront number.

Randy Binner: Okay. But it would — I mean it’s at least 2 quarters, if not 3 quarters. The way I’m putting these number together, before, you’d be at $0.125.

Andrew Ahlborn: I think that’s right.

Randy Binner: Okay. Well, the dividend question was covered. Just going back, I think Crispin asked about this, but I just want to make sure I’m crystal clear on this. So the $85 million of net proceeds from the loan sale, that’s — I think in the answer there, it’s — it was held at 77% of UPB. I don’t know if that — if I heard that correctly, but I’m just trying to understand, is it — was it a — you sold $494 million worth and $85 million was all the proceeds, or there was — that was the net proceeds after kind of other offsets. I just wanted to make sure I was clear on that.

Andrew Ahlborn: Yes. So all of these assets were financed, whether that be on warehouse or inside our CLOs, so roughly $308 million went to pay off our warehouse lenders, and then there was another $128 million that went to repurchase those loans out of the CLOs, which is how we get to that $85 million of cash.

Randy Binner: Got it. And then just on the — you did issue the $50 million and you have the $85 million of proceeds there. And so Andrew, I heard you, I mean you referred to the $650 million maturity wall coming up for 2026. But is it kind of on a — when we talk to investors and think about it pro forma of these raises, I mean, is it really more like $600 million or even lower? Would we assume that the $50 million issued and then these proceeds would kind of pay down debt? Or is that going to other purposes and the $650 million stands on its own and would be refied independently, if that makes sense? I’m trying to handicap like what the ’26 maturity number is net of everything we’ve discussed on this call.

Andrew Ahlborn: Yes. No, understood. I do think that a portion of that $650 million will come from just natural paydowns or repurchases in the market by the company. So I don’t anticipate dealing with that maturity ladder fully through the issuance of new debt. With that being said, not 100% of the cash flow coming off the portfolio is going to go towards delevering for the simple fact that rebuilding the net interest income, as Tom mentioned, is really important to getting the earnings profile going in the right direction. And we have confidence in that just based on a lot of the work we’ve done over the last few months on the accessibility of the markets to help deal with that $650 million. But to your point, I don’t anticipate 100% of that being refied. Some of it’s going to come from us using the organic liquidity of the company to lower that amount.

Operator: The next question is from the line of Christopher Nolan with Ladenburg Thalmann.

Christopher Whitbread Patrick Nolan: Was the Portland asset acquired? Or was that a legacy of Ready Capital?

Adam Zausmer: That was an asset that was acquired through the Mosaic merger.

Christopher Whitbread Patrick Nolan: Okay. And then I guess looking back on all the fast-and-furious mergers that you guys did over the past years, and many of them seem, at least to the outsider, more as a financing vehicle. Going forward, what’s your M&A strategy? Has it changed when you come back to that? Or is it still looking to capitalize on cheap, underlevered balance sheets?

Thomas Edward Capasse: I mean we — the — beyond the M&A transactions, the history of Ready Cap and the external managers has been, since the GFC, acquiring portfolios of distressed assets. And so I think that was a strategy leading into the rate rise and the turn in the credit cycle. Obviously, we have had less reliance on that since 2023, albeit we did have a very accretive acquisition of the UDF lot loan business where we would look at some point down the road to deploy additional capital because it’s a very high ROE business with a lot less — limited — less exposure to the CRE market more broadly speaking. But I would say we’d have less of a reliance in the near term on M&A unless it’s highly accretive. I don’t know, Adam, Andrew, if you’d comment on that as well.

Andrew Ahlborn: Yes, nothing to add.

Christopher Whitbread Patrick Nolan: And Tom, on that small business comment, should we look for the equity allocation to small business to increase in coming quarters?

Thomas Edward Capasse: Yes. We would look to continue to allocate equity to that business. As we said in the past, it has a lot of inherent leverage given that you sell off 75% of the 7(a) loans on a participation basis. And then you can — under the SBA rules, you can borrow against, I think, it’s 60% of that. So but to support — it’s a very high ROE business, very — barriers to entry with the limit on nonbank licenses. And then, of course, there’s the growth of the USDA business, which support loans. What is it, Andrew? Up to $50 million or — $50 million or $25 million, I can’t remember the exact number. But the long way to answer your question is, yes, we would look to continue to allocate capital to that business where — to support growth in the volume.

Christopher Whitbread Patrick Nolan: Great. And then final question. I think Adam commented earlier about private equity entering in for multifamily. Should we look at that as sort of being opportunistic money given there’s a large wall of maturing commercial real estate paper out there and the private equity is trying to get into the asset class on the cheap? Sort of is it a cyclical play by private equity playing into multifamily?

Thomas Edward Capasse: Yes. It’s unequivocally a cyclical play. They bucket it as opportunistic CRE in the pension fund world. And as a result of that, we — and Adam could comment on this, but we get constant reverse inquiries from the acquisition specialists at these CRE equity shops, given the fact that we have a significant — rather than buying onesie, twosies in the broker market, there’s very few opportunities for bulk sales like we just executed today. So as a result of that, and it was part of the commentary in our prepared remarks, one of the things we do in the — both, obviously, the core, which is papers, accelerated liquidation, but also the noncore, our asset managers will always have an overlay evaluation of looking at sale in the secondary market.

To the extent that the on-balance sheet asset management strategies created a lower yield and given the focus on rebuilding the net interest margin, if we can sell at a discount and then use that net proceeds to rapidly recover that discount versus on balance sheet, we would look to undertake bulk sales. But yes, the reason that, that exists — that opportunity exists is the cyclical influx of capital into targeting the multifamily space. And obviously, we have a large legacy book that can benefit from that.

Operator: We’ve reached the end of the question-and-answer session. And I’ll turn the call back over to management for closing remarks.

Thomas Edward Capasse: We appreciate everybody’s time and look forward to the third quarter call.

Operator: This will conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.