Ready Capital (NYSE:RC) said its second-quarter results reflected continued progress in a balance sheet repositioning plan, including portfolio sales, debt paydowns and new financing initiatives, as the company works to meet remaining 2026 debt maturities and return to sustainable profitability.
Chief Executive Officer Thomas Capasse said the company does not expect to pursue additional large portfolio sales after completed transactions raised liquidity and repositioned legacy assets. Instead, Ready Capital plans to rely on financing optimization, loan runoff and a potential transaction involving a joint venture investment to complete its liquidity plan.
Quarterly Loss Narrows as Asset-Sale Pressures Ease
Book value per share declined 8.1% sequentially to $6.83 at June 30 from $7.43 at March 31. Ahlborn said the decline was slower than the 15.5% and 14.5% per-share declines reported in the prior two quarters, respectively, and reflected the winding down of the loan-sale program.
The book value change included approximately $0.23 per share in realized losses on asset sales and approximately $0.12 per share in net loan-loss provisions and valuation allowances, with the remainder attributable to the quarter’s operating loss.
Recurring revenue totaled $15.3 million, compared with $16.2 million in the prior quarter. The company cited an $8.7 million improvement in net interest loss, partly offset by a $2 million decline in gain-on-sale revenue and a $7.5 million reduction in other recurring revenue. Interest income declined $4.3 million to $77.4 million as the commercial real estate portfolio contracted.
Operating expenses fell to $48.7 million from $67.7 million in the first quarter. The decline primarily reflected servicing expenses normalizing to $3.4 million from $15.4 million, after the prior quarter included nonrecurring servicer-advance reimbursements associated with CLO collapses.
Liquidity Plan Nearing Completion
Capasse said the company has achieved about 81% of its liquidity target. Since the first-quarter call, Ready Capital completed a sale of a $167 million construction portfolio, producing $64 million of net liquidity and removing $172 million in future funding obligations.
The company also securitized $158 million of unguaranteed SBA 7(a) loans at a 92% advance rate and pricing of SOFR plus 240 basis points. The transaction generated $25 million of net liquidity and provided $500 million of additional funding capacity for SBA 7(a) production, according to management.
- Ready Capital disposed of $445 million of CRE assets for $85 million of net liquidity.
- It refinanced the Portland Ritz asset through a C-PACE loan.
- Prior loan sales and portfolio runoff generated about $1.9 billion of cash, which the company used to repay $1.7 billion of asset-level and corporate debt.
Management identified three remaining components of the liquidity plan: optimizing financing on roughly $950 million of CRE loans, selling or financing a $118 million joint venture position, and capturing anticipated second-half runoff of about $900 million of CRE loans. Capasse said the company is also evaluating a refinance of part of its October maturity.
During the question-and-answer session, Capasse said the company is no longer budgeting broad loan sales, though it could sell individual loans opportunistically as part of asset management. He said management expects the remaining liquidity initiatives to generate cash in excess of its remaining 2026 maturities.
At quarter-end, Ready Capital had $124.1 million of unrestricted cash, $690 million of unencumbered assets and total leverage of three times, moving toward its target of 2.5 times. Total assets were $6.26 billion, compared with $6.31 billion at the end of the first quarter.
Legacy CRE Assets and Ritz Stabilization
The legacy CRE loan book stood at approximately $2.7 billion across 172 positions, along with $218 million of CMBS exposure. About 37% of the loan book, or roughly $1 billion, consisted of subperforming and nonperforming assets. Capasse said management believes active balance-sheet management offers greater net present value for those assets than secondary-market sales in their current condition.
The subperforming and nonperforming loans had an average duration of 11 months, average mark-to-market loan-to-value ratios of 82%, and were marked at 85%, according to the company. Ready Capital held $436 million of equity in those loans. Its performing loan book represented $572 million of equity and generated a leverage yield of 10.1%.
The company also held $588 million of real estate owned, or REO, across 24 properties. The Ritz property accounted for 66% of REO and about 22% of quarter-end stockholders’ equity. Capasse said 50 condominium units had been sold and three more were under contract, bringing sales to 40% of total units.
For the Ritz hotel, quarterly net operating income was $1 million. Trailing 12-month occupancy rose 10% to 52%, while average daily rate declined 4% to $468. Revenue per available room increased 20% year over year to $244. Management said it will determine whether continued stabilization or monetization is the best path for the property in coming quarters.
The company said nonperforming, subperforming and REO assets produced an earnings drag of $0.29 per share during the quarter.
SBA Growth and Cost Reduction Plans
Ready Capital originated $82 million of SBA 7(a) loans during the second quarter, a level Capasse said was constrained by available capital. Following the June securitization, the company originated $43 million of SBA loans and had a current pipeline of $78 million.
Management expects the added financing capacity to support a ramp toward its annual SBA 7(a) origination target of $1.5 billion. The company said it intends to use more frequent SBA asset-backed securities offerings to support that growth.
Capasse also outlined plans to reduce operating expenses through organizational efficiency measures, divestitures of noncore businesses and assets, and deeper integration of the CRE lending platform with external manager Waterfall. He said the company is targeting a 25% to 35% reduction in operating expenses through those efforts, portfolio runoff and consolidation of CRE lending activities.
Capasse said Ready Capital’s path back to profitability depends on resolving and recycling the legacy portfolio, expanding its SBA business after addressing funding constraints, and lowering its cost base.
About Ready Capital (NYSE:RC)
Ready Capital Corporation is a specialty finance real estate investment trust (REIT) that originates, acquires and manages commercial real estate loans and related assets. The company offers financing solutions across a variety of property types, including multifamily, office, retail, industrial, hospitality and mixed-use assets. Ready Capital focuses on delivering flexible loan structures to meet the diverse needs of borrowers in the small balance and middle-market sectors.
Through its small balance commercial real estate lending platform, Ready Capital provides loans typically ranging from $1 million to $15 million for acquisitions, refinancings, renovations and bridge financing.
