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

Explicit Guidance:

• Distributable Earnings/Cash Flow: Target to bring distributable earnings and cash flow from operations closer to break-even by 2027. Specific timing for revenue impacts expected in early 2027.
• Revenue Growth (SBA 7A): Immediate annual originations target of $1 billion; long-term target of $1.5 billion. Expected incremental revenue of approximately $8 million per quarter upon reaching the $1 billion run rate (expected early 2027).
• Revenue Growth (Working Capital): Expect to scale unsecured conventional working capital lending (via iBusiness) approximately 2x in the new year (2027), adding $3 million in incremental quarterly revenue.
• Dividend: Currently reduced to $0.01 per share; future increases contingent on the achievement of break-even distributable earnings and liquidity stability.
• Book Value: Book value per share was $6.44 at Sept 30, 2026; management aims to stabilize and rebuild value through asset turnover and earnings growth over the next 24 months.

Business-Segment Outlook:

• SBA 7A Platform: Originations rose 33% to $109 million in Q3; pipeline stands at $150 million. Equity allocation targeted to increase from current ~13% to 25–33% over a 12–24 month period.
• Unsecured Working Capital (iBusiness): Quarterly originations of $61 million with 23% revenue growth. Strategy to scale production 2x in early 2027.
• Legacy CRE Portfolio: Strategy pivots from distressed sales to stabilizing non-performing loans and REO.
  • Performing Loans: $1.1B carrying value (83% multifamily); 29 loans ($391M) expected to pay off at par in 2027, generating ~$97M net liquidity.
  • Resolution Segment: 14 assets ($318M) expected to be resolved by end of 2027, generating ~$109M net liquidity and ~$3M quarterly net income improvement upon reinvestment.
  • Long-Term Workout: 28 non-performing multifamily assets ($515M) and 5 REO assets ($67M) slated for a long-term hold strategy to maximize value via stabilization. Estimated $15M CapEx required for the 28-asset portfolio.
• Hotel (Ritz-Carlton Portland): NOI turned positive ($1.6M); 39% of units sold (52 units). Focus on continued sales and operational stabilization.
• Operating Expenses: Plans to right-size staff and reduce spending in non-revenue-producing businesses; full benefits of rightsizing expected in early 2027. Specific non-core business divestitures expected to be announced in succeeding quarters, with some completions anticipated in 2026 and 2027.

Market and Competitive Outlook:

• Multifamily Market: Transaction volumes and prices pressured by elevated interest rates; management anticipates a potential additional 5–10% decline in multifamily prices.
• Exit Environment: Elevated 10-year Treasury yields (approx. 5%) create refinancing and exit stress, potentially delaying takeouts and asset resolutions.
• Pricing/Valuation: Strategy shifted to active asset management to improve NOI and value at exit rather than selling at current distressed prices.
• Competition/Demand: Strong demand from private credit investors for unsecured working capital products; SBA platform positioned for growth relative to peers.

Macro / Industry Outlook:

• Interest Rates: Concern regarding the recent spike in the 10-year Treasury and its impact on refinance proceeds and exit timing. Management notes the 10-year rate was at 4.9% at the time of the call (down from earlier highs), viewing the environment as "on the way down."
• Liquidity Focus: Continued emphasis on reducing leverage (targeting 2.5x total leverage) and recycling capital into higher-yielding, lower-risk assets (SBA and yield CRE).
• Regulatory/FX: No specific new regulatory or FX headwinds mentioned beyond general credit market conditions.

Strategic Initiatives:

• Asset Repositioning: Substantial completion of 2026 liquidity plan ($649M corporate debt repaid, $1.7B secured financing reduced).
• Capital Recycling: Moving capital from legacy CRE resolution into SBA 7A originations and high-yield CRE.
• Portfolio Optimization: Active management of 28 multifamily assets and 5 REO assets to stabilize operations and recover value over a 12–24 month horizon.
• Joint Ventures: Considering joint ventures with opportunistic operators for stabilized and turnaround assets.
• Divestitures: Planned divestiture of non-core businesses to reduce opex and preserve book value.

Risks and Headwinds to Outlook:

• Interest Rate Sensitivity: Further rate increases could extend realizations and delay exits due to refinancing constraints.
• Market Recovery Timing: Delays in multifamily market recovery (Phoenix, Dallas, Atlanta) could extend the hold period for the $515M workout portfolio beyond 2027.
• Execution Risk: The timeline for breaking even depends on the successful execution of originations ramp-ups ($1B SBA target) and OpEx reductions.
• Realization Uncertainty: Selling at current distressed prices versus holding for stabilization involves trade-offs; holding strategy relies on market bottoming and NOI optimization.

Management Tone on the Future:

• Confidence Level: Cautiously optimistic regarding the completion of the liquidity plan and the ability to stabilize earnings. Management expresses confidence in the "measurable" path forward but acknowledges the extended timeline for the workout portfolio.
• Hedges: Explicitly notes that the 2027 timeline is dependent on market recovery and the successful execution of capital recycling; "measurable" framework provided but not guaranteed.
• Change vs. Prior Guidance: Shift from aggressive asset sales to generate liquidity (2025/2026) to stabilizing assets and rebuilding earnings (2027+). Divestiture timing extends into 2026/2027 to allow for value recovery rather than immediate fire-sale.

Miscellaneous:

• Liquidity: Unrestricted cash ended at $157.1 million (up from $124.1M); $606M of unencumbered assets held.
• Leverage: Total leverage at 2.8x, improving toward a 2.5x target.
• Q3 Financials: GAAP loss of $0.40/share; Distributable loss of $0.21/share excluding realized losses. Reoccurring revenue of $20.7M (up from $15.3M).