8-K: Ready Capital Corporation Investor Presentation Highlights Diversified Lending Strategy and Growth

Ready Capital Corporation's investor presentation outlines its multi-strategy approach to real estate finance, focusing on lower-to-middle-market commercial real estate and government-backed small business lending.

Summary

• Ready Capital Corporation is a non-bank lender focused on lower-to-middle-market commercial real estate (CRE) and government-backed small business loans.
• The company has a $11.1 billion loan portfolio diversified across 50 states and Europe, with 99% being first lien loans.
• Ready Capital is externally managed by Waterfall Asset Management, a global structured products investment manager with $12.6 billion in assets under management.
• The company operates as a REIT with a taxable REIT subsidiary (TRS), providing flexibility in dividend policy and earnings retention.
• Ready Capital has a multi-strategy approach, including originating and acquiring loans, and servicing them.
• The company is strategically exiting the residential mortgage business, which represents 6% of total assets.
• The company's historical pre-tax income has grown from $62.8 million in 2018 to $347.1 million in 2023 YTD.
• Ready Capital has completed eight acquisitions since 2014, expanding its capital base and platform.
• The company targets a 1.5% market share in LMM CRE loans within 3 years, up from the current 0.3%.
• Ready Capital is the #1 non-bank and #4 overall 7(a) lender, with a 1.4% market share and a 3% 3-year target.
• The company's loan portfolio has a weighted average LTV of 65% for LMM CRE loans and 92% for government-backed small business loans.
• Ready Capital has a recourse debt-to-equity ratio of 0.9x and over $182 million in unrestricted cash.
• The company's distributable earnings have grown at a 36% CAGR between 2017 and 2022.
• The company expects to report $746.3 million in loans originated or acquired for the fourth quarter of 2023.
• The company expects to report a total debt-to-equity leverage ratio between 3.30x to 3.50x as of December 31, 2023.

Sentiment

Score: 7

Explanation: The document presents a positive outlook with strong growth metrics and a diversified business model, but there are some concerns about loan delinquencies and the exit from the residential mortgage business.

Positives

• Ready Capital has a diversified loan portfolio across geographies and asset types.
• The company has a proven track record of acquisitions and integrations.
• Ready Capital has a strong asset manager in Waterfall Asset Management.
• The company has a robust financial profile with consistent book value growth.
• Ready Capital has a diversified sourcing channel for loans.
• The company has a strong credit risk and asset management culture.
• Ready Capital has a flexible debt structure with access to liquidity.
• The company has a experienced management team.

Negatives

• The company is strategically exiting the residential mortgage business, which may impact revenue.
• A portion of the loan portfolio is related to acquisitions, which may have higher loss rates.
• The company has a high percentage of 60+ days delinquent loans, with 38.8% related to acquired loans.
• The company's preliminary fourth quarter results are subject to change.

Risks

• The company is exposed to changes in interest rates and the general economy.
• There is a risk of increased rates of default and decreased recovery rates on investments.
• The company faces competition for its target assets.
• The company's preliminary fourth quarter results are subject to change and may differ from actual results.
• The company's loan portfolio has a high percentage of 60+ days delinquent loans, with 38.8% related to acquired loans.

Future Outlook

The company aims to increase its market share in both LMM CRE and SBA lending, while maintaining a diversified portfolio and strong financial position. They are also strategically exiting the residential mortgage business.

Management Comments

• We believe our embedded operating companies have franchise value in excess of GAAP book value.
• Ready Capital has been very opportunistic in making tactical acquisitions to expand the capital base and platform.
• Ready Capital has the right of first refusal on all LMM CRE loans sourced by Waterfall.
• Ready Capital communicates directly with sponsors to ascertain status for loans over 30+ days delinquent.
• Flexibility to tailor loan modifications for prudent sponsors to match evolving business plans so long as such modified loan is one we'd make today.

Industry Context

The presentation highlights the retrenchment of banks from the LMM CRE market, creating opportunities for non-bank lenders like Ready Capital. The fragmented nature of both the LMM CRE and government-backed small business lending markets provides attractive origination and acquisition opportunities.

Comparison to Industry Standards

• Ready Capital's growth in book value and distributable earnings is strong compared to other commercial mortgage REITs.
• The company's focus on first lien loans and conservative LTVs aligns with industry best practices for risk management.
• The company's diversified sourcing channels and full project life cycle lending approach are competitive advantages.
• The company's 0.9x recourse debt-to-equity ratio is conservative compared to some peers.
• The company's 36% CAGR in distributable earnings between 2017 and 2022 is a strong performance metric compared to industry averages.

Related Party Transactions

• Ready Capital is externally managed by Waterfall Asset Management, LLC.
• Management fees and incentive fees are paid to Waterfall Asset Management, LLC.

Stakeholder Impact

• Shareholders will benefit from the company's growth and dividend payments.
• Employees will be impacted by the company's strategic exit from the residential mortgage business.
• Customers will have access to a variety of loan products and services.
• Suppliers and creditors will be impacted by the company's financial performance.

Next Steps

• The company will continue to focus on growing its LMM CRE and SBA lending businesses.
• Ready Capital will continue to integrate recent acquisitions.
• The company will continue to manage its loan portfolio and credit risk.
• The company will continue to monitor and manage loan delinquencies.
• The company will continue to execute its strategy of exiting the residential mortgage business.

Key Dates

Keywords

Commercial Real Estate Lending, Small Business Lending, Real Estate Finance, REIT, Waterfall Asset Management, Loan Origination, Asset Management, Distressed Assets, SBA Loans, CRE Loans