Ready Capital (RC) Nareit REIT Week: 2024 Investor Conference summary

Business overview and differentiation

• Fourth largest commercial real estate REIT, achieved scale through nine M&A transactions over a decade.

• Focuses on capital-heavy bridge lending for lower middle market multifamily, with average loan balances around $15 million.

• 90% of invested capital in multifamily bridge loans, underwritten for agency takeout, generating 8.5%-9% ROE in normal environments.

• 10% of capital in government gain-on-sale businesses, primarily SBA 7(a) lending, where it is the largest non-bank lender.

• Externally managed by Waterfall Asset Management, with $13-$14 billion in net assets.

Market trends and portfolio performance

• Multifamily portfolio, 85% of assets, currently has 7.9% delinquency, inflated by inflexible CRE CLO structures and servicing limitations.

• Delinquencies expected to decline as $500 million in loans are modified or transferred to a more flexible servicer over the next three months.

• Structural shifts in multifamily include negative absorption in oversupplied markets, but exposure is limited due to geographic selection.

• Appraisals are being repriced for higher OpEx and rates, with insurance as a major cost driver.

• Market expected to bottom in 6-12 months as supply/demand recalibrates, creating opportunities for capital solutions.

Capital management and liquidity initiatives

• Broadmark acquisition reduced leverage from 5x to 3x, increasing debt capacity.

• Liquidating $655 million of Broadmark portfolio, aiming to complete 70% by end of Q3, retaining high-yielding core assets.

• Combined asset sales, repo facility, and divestitures to generate $500 million in organic liquidity by year-end.

• Plans to redeploy capital into new originations and capital solutions, targeting a return to 10% ROE.

• Current leverage at 3.4x, with a target of 4.5x, allowing for $300 million in additional recourse debt.