8-K: Ready Capital Reports Q4 2024 Loss, Adjusts Dividend Amid Strategic Shift

Ready Capital Corporation reported a GAAP loss per common share of $(1.80) for Q4 2024 and adjusted its dividend to $0.125 per share as part of a strategy to stabilize its balance sheet and focus on higher-yielding originations.

Summary

• Ready Capital Corporation reported its financial results for the quarter ended December 31, 2024, announcing a GAAP loss per common share from continuing operations of $(1.80).
• Distributable loss per common share was $(0.03), while distributable earnings per common share before realized losses was $0.23.
• The company declared a quarterly cash dividend of $0.125 per share of common stock and operating partnership unit for the quarter ending March 31, 2025.
• LMM commercial real estate originations totaled $436 million, and SBL loan originations reached $348 million, including $315 million of Small Business Administration 7(a) loans.
• The book value per share of common stock was $10.61 as of December 31, 2024.
• Ready Capital acquired approximately 5.8 million shares of its common stock at an average price of $7.35 per share as part of its stock repurchase program.
• The company issued $130 million in aggregate principal amount of 9.00% Senior Unsecured Notes due 2029.
• For the full year, the GAAP loss per common share from continuing operations was $(2.52), and distributable earnings per common share before realized losses was $0.97.
• Total LMM and SBL originations for the year were $2.4 billion, including $1.1 billion of Small Business Administration 7(a) loans.
• The company sold $7.6 billion in mortgage servicing rights in connection with the disposition of its residential mortgage banking segment.
• Ready Capital completed the acquisitions of Madison One and Funding Circle USA, Inc.
• The company acquired approximately 10.3 million shares of its common stock at an average price of $7.95 per share as part of its stock repurchase program.
• Subsequent to the quarter, the Board approved a new stock repurchase program authorizing the repurchase of up to $150 million of the company's common stock.
• ReadyCap Holdings, LLC closed a private placement of $220 million in aggregate principal amount of its 9.375% Senior Secured Notes due 2028.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company is taking steps to improve its financial position, the current losses and dividend adjustment are concerning. The strategic shift and potential for future growth provide some optimism.

Positives

• Small Business Lending segment performed well, with significant origination growth.
• The company has taken decisive actions to stabilize and better position its balance sheet by fully reserving for all non-performing loans in its CRE portfolio.
• The dividend was adjusted to $0.125 per share to align with anticipated cash earnings and preserve capital.
• The company believes these actions will enable it to resume growth in both book value per share and the dividend.
• The company completed the acquisitions of Madison One and Funding Circle USA, Inc.
• The company has a new stock repurchase program authorizing the repurchase of up to $150 million of the company's common stock.

Negatives

• The company reported a GAAP loss per common share from continuing operations of $(1.80) for Q4 2024.
• Distributable loss per common share was $(0.03).
• The multi-family lending focused business faced challenges from higher rates, inflationary pressures, and lower rent growth.
• The company reduced its book value per share in the short term by fully reserving for all of its non-performing loans in its CRE portfolio.

Risks

• General volatility of the capital markets.
• Changes in the company's investment objectives and business strategy.
• The availability of financing on acceptable terms or at all.
• Changes in interest rates or the general economy.
• Increased rates of default and/or decreased recovery rates on investments.
• Changes in interest rates, interest rate spreads, the yield curve or prepayment rates.
• The degree and nature of competition, including competition for the company's target assets.

Future Outlook

Ready Capital aims to stabilize its balance sheet, resolve non-performing loans, and reinvest in higher-yielding originations, with the goal of resuming growth in book value per share and dividends.

Management Comments

• Thomas Capasse, Ready Capital's Chairman and Chief Executive Officer, stated that the fourth quarter closes out a year of mixed results.
• Thomas Capasse noted the strong performance of the Small Business Lending segment and the challenges faced by the multi-family lending business.
• Thomas Capasse said that the company has taken decisive actions to stabilize and better position its balance sheet by fully reserving for all of its non-performing loans in its CRE portfolio.
• Thomas Capasse believes that the actions taken provide a path to recovery in the net interest margin through the accelerated resolution of non-performing loans.
• Thomas Capasse believes these actions will enable the Company to resume growth in both book value per share and the dividend as we move forward.

Industry Context

Ready Capital's focus on lower-to-middle-market commercial real estate loans aligns with a segment of the market that often faces less competition from larger institutions. The acquisition of United Development Funding IV suggests a strategic move to expand into residential real estate development financing.

Comparison to Industry Standards

• Comparing Ready Capital's performance to peers like Arbor Realty Trust (ABR) or Blackstone Mortgage Trust (BXMT) would require a deeper dive into their respective portfolio compositions, risk profiles, and dividend yields.
• Given the focus on small business lending, comparing Ready Capital to other SBA lenders like NewtekOne (NEWT) could provide valuable insights.
• The company's distributable return on average stockholders equity before realized losses of 7.1% can be compared to the returns of similar REITs to assess its relative profitability.
• The 60+ delinquencies of 5.3% can be compared to industry averages to assess the company's asset quality.

Related Party Transactions

• The document mentions allocated employee compensation and benefits from related party and management fees related party.

Stakeholder Impact

• Shareholders will experience a reduced dividend of $0.125 per share.
• The company's actions aim to stabilize the balance sheet and resume growth in book value per share, which could benefit shareholders in the long term.
• Employees may be affected by the company's strategic shift and efforts to improve efficiency.
• Customers and partners may see changes in the company's product offerings and lending strategies.

Next Steps

• The company intends to use the net proceeds from the private placement to repay its indebtedness and for general corporate purposes.
• Ready Capital is working on an amicable solution with the Borrower of The Ritz-Carlton, Portland loan.
• Ready Capital plans to sequentially exit the 3 components of The Ritz-Carlton, Portland once stabilized: Commercial (2 years), Hotel (2 years), and Resi Condo (3-year linear sell-out period).

Key Dates