Ready Capital Third Quarter 2026 Earnings Call - BROADMARK REALTY CAPITAL INC

Financial Performance:

• Reported GAAP loss from continuing operations of $0.40 per share (improved from $0.63 loss in Q2 2025), with distributable loss of $0.53 per share and $0.21 per share excluding realized losses.
• Book value per share declined $0.39 year-over-year to $6.44 due to liquidity generation costs and asset resolutions; quarter-over-quarter decline slowed to $0.17.
• Recurring revenue rose to $20.7 million (vs. $15.3 million prior quarter); gain-on-sale revenue reached $11.2 million ($6.1M from SBA 7A).
• Net interest income improved by $6.4 million to $8.3 million driven by better collections; operating expenses reduced by $7.9 million to $47.6 million.
• Total assets decreased to $5.78 billion; secured borrowings dropped to $1.69 billion; leverage ratio improved to 2.8x (targeting 2.5x).
• Unrestricted cash ended at $157.1 million; non-performing loan portfolio carries a quarterly earnings drag of $1.7 million.

Guidance and Future Outlook:

• Near-term strategy focuses on shifting from liquidity preservation to rebuilding earnings and resolving the legacy CRE loan book.
• Target is to bring distributable earnings and cash flow from operations to break-even by the end of 2027.
• Immediate SBA 7A originations target is $1 billion annually (current run rate ~$435M), with a long-term goal of $1.5 billion; expected to add ~$8M quarterly revenue at scale.
• Unsecured working capital lending expected to scale 2x in early 2027, adding ~$3M quarterly revenue.
• Expecting revenue ramp-up from SBA and working capital lines to begin in early 2027, coinciding with full realization of cost reductions.

Business Segments and Product Lines:

• SBA 7A Platform: Originations up 33% QoQ to $109M; gain-on-sale revenue up 56% to $6.1M; current pipeline is $150M.
• Unsecured Working Capital: 10-year fintech partnership (iBusiness) generated $3.2M in gains/fees on $61M originations; strong demand from private credit investors.
• Legacy CRE Portfolio: Total carrying value $1.95B segmented into Performing ($1.1B, 11.5% levered yield), Resolution ($318M, expected exit by end of 2027), and Non-Performing Workouts ($515M).
• Real Estate Operations: Ritz-Carlton Portland saw NOI improve to $1.6M/quarter; REVPAR up 35% YoY to $271; 39% of condos sold.
• Non-Core Divestitures: Plans announced to divest non-core businesses and right-size staff in Q4, with full benefits realized in early 2027.

Market and Competitive Landscape:

• Recent rise in 10-year Treasury yields has created a "second leg down" in multifamily transaction volumes and prices (estimated 5-10% decline).
• Portfolio is heavily concentrated in multifamily (93% of non-performing assets); markets like Phoenix, Dallas, and Atlanta are viewed as bottoming out.
• Elevated rates stress refinancing and exits for borrowers but offer insulated floating-rate exposure on the transitional book.
• Competition in SBA and unsecured lending remains strong, leveraging existing fintech infrastructure and private credit demand.

Risks and Challenges:

• Market Volatility: Extended realizations expected due to higher interest rates delaying refinancing and asset sales.
• Asset Valuation: Potential for additional losses if multifamily prices continue to decline or if stabilization takes longer than anticipated.
• Liquidity Constraints: Historical reduction in dividend to $0.01/share to preserve cash; current book value erosion.
• Execution Risk: Dependence on successful ramp-up of capital-light businesses and timing of legacy CRE asset exits to achieve break-even earnings.

Management Commentary and Tone:

• Tone is confident regarding the completion of the 2026 liquidity repositioning plan ($649M debt repaid, $1.7B secured financing reduced).
• Management acknowledges the "cost" of liquidity generation (book value decline) but frames the pivot to asset management and capital-light growth as the path to future value.
• Emphasis on "patient capital" for non-performing assets rather than distressed sales, aiming to maximize value through active management and NOI improvement.
• Clear acknowledgment that current earnings drag will persist until portfolio turnover accelerates.

Analyst Questions and Answers:

• Portland Asset: Loan loss reserve fully written down to "as-is" value upon REO conversion; current losses driven by condo sales pace.
• Equity Allocation: SBA equity allocation currently at 13%, with a target to increase to 25-30% over 24 months.
• Break-even Timeline: Projected for end of 2027, driven by revenue ramp-up (early 2027) and operational cost reductions (late 2026/early 2027).
• Interest Rate Impact: Transitioned loans float over SOFR; primary risk is on exit/refi delays, not current interest expense.
• Non-Performing Assets: 28 MPL assets (<del>$515M) and 5 REO assets (</del>$67M) targeted for long-term hold/workout strategy; ~$15M CapEx estimated for stabilization.
• Portfolio Transition: 14 assets (~$318M) targeted for exit by end of 2027; remaining portfolio will take 12-24 months for market recovery.

Other Key Points:

• $2.7B in legacy CRE loans (2021-22 vintages) resolved or sold during the repositioning plan.
• Asset management strategy shifting from discount sales to stabilizing operations to improve NOI before exit.
• $157.1M unrestricted cash and $606M unencumbered assets provide liquidity buffer.
• $26.9M net loss from operations (before tax) improved 33% QoQ despite realized losses.