Rithm Property Trust Inc (RPT) 2025 Q1 法說會逐字稿

Thank you for standing by, and welcome to the Rithm Property Trust first-quarter 2025 earnings conference call. (Operator Instructions) I'd now like to turn the call over to Emma Bolla, Associate General Counsel of Rithm Capital. You may begin.

Thank you, and good morning, everyone. I would like to thank you for joining us today for Rithm Property Trust's first-quarter 2025 earnings call. Joining me today are Michael Nierenberg, Chairman, CEO and President of Rithm Capital and CEO of Rithm Property Trust; and Nick Santoro, CFO of Rithm Capital and Rithm Property Trust. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rithm Property Trust website, www.rithmpropertytrust.com. If you've not already done so, I'd encourage you to download the presentation now.

I'd like to point out that certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be disclosing some non-GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement.

And with that, I will turn the call over to Michael.

Yeah. Thanks, Emma. Good morning, and thanks for dialing in. Just I'm not going to give you the long Rithm update. But speaking about this company that we manage here at Rithm, the company is in great shape. If you think about when we took over in June of '24. The company had a lot of what I would call reperforming loans, very low coupon assets on the balance sheet. And the team has done a great job by repositioning the company selling down those assets and redeploying to current cash flow, higher-yielding assets in the commercial space.

One note is this company has no legacy commercial real estate exposure to the downside. So when you think about where we are today, the company has, give or take, about $300 million of equity, it's sitting on almost $100 million of cash. We did a capital raise in the quarter. So things are in very, very good shape.

The growth story here is going to be one that is similar to what we did with Rithm, which was formerly known as New Residential, where we -- the company was ceded with roughly $1 billion of capital, and we grew it from $1 billion of permanent capital to roughly $8 billion today and grew balance sheet earnings, that company makes $1 billion a year.

So this will take a little bit more time, obviously, because of where the equity trades, and I'll talk to that in a minute as I flip through the deck. But in general, I would say the company is in really good shape, excited about the ability to grow this company and put up real earnings for shareholders and see the equity price right itself to a more normalized valuation. So with that, I'm going to start on page 3, and I'll just flip through this quickly, and then we'll have a little bit of Q&A.

So when you think about the company, it is managed by Rithm Capital and our teams here at Rithm Capital, there's roughly 75 folks internally that focus on all of our, what I would call, our both Rithm Capital and Rithm Property Trust, that doesn't include, obviously, some of our affiliates at scope there and some of the different opcos. The team here has a ton of experience, whether it be in the resi space or the commercial space.

My partner here, Charles Sorrentino, has been with me since 2008, running different trading desks on the sell side and has a ton of experience in the commercial real estate as do our other team members that are focused on this company. If you flip to page 4, for the quarter, GAAP income $1.1 million or $0.02 per diluted share, earnings available for distribution, $75 million or $0.02 per diluted share. The first quarter dividend, we paid $0.06 that hopefully should continue. And then over time, hopefully, that grows.

Cash and cash equivalents, as I pointed out, $97 million total equity, $295 million, and the GAAP book value today is $5.40. If you think about that on a relative basis, the stock trades in the current market at about $2.85. So we think the equity is extremely undervalued. We saw our after last quarter's earnings calls. And then we -- with the volatility we saw in the markets, obviously, the equity price got hit pretty hard, but we feel very confident in, one is where we stand in the business. But number two is the ability to create real shareholder value for folks that are along the equity.

Page 5, if you look for first quarter, we deployed $65 million in various CRE debt. That includes $47 million of AAA CMBS bonds with a roughly 11% type yield. We also did -- we split a loan between Rithm Capital and Rithm Property Trust, $35 million loan at SOFR plus $800 on a Midtown office building with a good sponsor. So that's -- when you think about that, that's a 12% or 13% unlevered return, not including fees.

During the quarter, we did one of the first preps that got done in a long, long time. We raised $52 million of capital. While I would say we're eager to grow earnings, we want to be mindful of the volatility we're seeing in the markets. We're looking for great opportunities to deploy capital at what I would call t-type returns, and we're seeing plenty more things to do right now, but we're going to be patient.

During the quarter, we sold $21 million of legacy resi assets, and we continue to grow earnings in the company. Page 6 is just a slide showing the potential earnings growth I think you should assume for what we're trying to do here is looking for a strategic either a transaction or assets to acquire, which are going to give us the ability to grow earnings and raise capital around. We continue to be on the hunt for that. But like I said, with the volatility in the market, we do think things are going to come our way, but we're going to be extremely patient here.

Page 7, looking ahead of the opportunity with RPT. One is this year, just look at the stock price, $2.85 versus a $5.40 book value that should say enough. When you look at this page, why CRE debt, you've seen obviously the repricing of assets and dislocations. It was an article in the journal yesterday talking about the Chicago market, there's million square foot office being on the river there.

Blackstone gave the keys back and they're just talking about the state of the so-called market in Chicago. I'd encourage you to have a look at that article. When you look at our exposure in this business or at Rithm Property Trust, again, there's no legacy commercial real estate exposure. We feel really good about that, and we have a very good team. What to expect as we go forward, we continue to see a pretty robust pipeline. We'll continue to focus on what I would say, opportunistic investing and looking for the right time to deploy capital and drive higher earnings and higher growth.

And then finally, on page 8, just an illustration of what the future state of the portfolio could look like you'll have some CMBS. You'll have senior loans, a little bit of mezz and some opportunistic investments. We're not looking to go all in on any one strategy as it relates to the company. We're looking for some diversification across all these different asset classes.

So with that, I'll turn it back to the operator, and we'll take some questions.

(Operator Instructions)

Jason Stewart, Janney Montgomery.

Hi, thanks. Good morning. In terms of the volatility that we've seen, has that changed sellers motivation has it changed the activity level in the market? Are you seeing any movement there?

You have absolutely wider spreads across the board, whether you look at high yield or you look at IG or you look at the residential side of the market. While saying that, we've seen some good stability over the course of the past couple of weeks as Besson, I think, has taken more of a prominent role in the narrative around tariffs.

Again, while saying that, I do think that you're going to see more and more -- we're going to see more and more opportunities across all of our platforms. The beauty aware this company sits along with its what I would call its parent at Rithm is we see a ton of deal flow from all of our counterparties, whether that be the banks or if you look at our sourcing teams across the country that are out there looking for assets and/or deals to put capital to work. So there's plenty to do.

You've got to be careful though. I mean I use the Chicago office building as an example. And in that article, they're talking about how a lot of these deals are funded with AAA CMBS. If you look at the conduit markets, those markets have been very, very quiet as of late. So you've seen more single property deals and -- that are coming to market at what I would call wider spreads, but we got to be careful there.

Yeah. Thank you. And then when you say looking for diversification, does that mean that you've you shifted your thoughts on a platform or a transformative type acquisition?

No. It's more -- Jason, it's more of the same. We're still looking at platforms. We're looking at origination businesses. I think the key for -- again, not only this company, but for all of us that are so-called in the alts business or managing capital is how do you take your origination engines and use that to either seed balance sheet or seed funds. We've done a good job on that on the -- at the parent level. And that's something we'd like to see follow through at the -- on Rithm Property Trust.

Got it. Okay. I'll jump down. Thank you.

Tom Catherwood, BTIG.

Thanks. Good morning, everybody. Maybe starting with the $17.5 million subordinate mortgage. This is your first investment in that subordinated mezzanine loan category on page 8 that you highlighted, Michael. How is your $1 billion pipeline divided between that category and CMBS senior loans and opportunistic investments at this point?

This was -- I would actually look at this as an opportunistic investment. We partnered with a couple of large money center banks on this. We split it between, like I pointed out earlier, between Rithm Property Trust and Rithm Capital. As we look at this, again, it's not like we want to be all loans or we want to be all bonds. So it's going to be a diversified portfolio.

We think that is a good way to create risk limits around the portfolios that we're going to deploy capital in. So I don't know that it's any one formula, but we look at asset to asset. We underwrite every single asset that goes on the balance sheet. And this was an example of something working close with our banking partners. We're in the middle of another one that we're currently looking at with some of the large money center banks here in New York to partner with them on putting capital out?

Got it. Appreciate that. And then obviously, you mentioned the preferred issuance in 1Q and you're sitting on nearly $100 million on the balance sheet cash on the balance sheet. When are you thinking of starting to pay down that higher coupon corporate debt? And kind of beyond that, what are the next steps in the company's balance sheet evolution?

So the corporate debt, I believe, is 9 7/8 right now. So that probably stays outstanding for a little bit here as long as we think we're able to deploy capital above that. If you think about it, corporate debt versus preferred, the preferred we get equity treatment, obviously, the debt we don't. So I think that stays outstanding. As we get an upgrade for the company, you'll see the 9 and 7/8, I think that rate drops by 100 basis points.

So I think until we get the company at scale, it probably stays outstanding for now, unless again, there was some transformative deal that we do, where we're going to raise a bunch of capital around. And I do think it's very conceivable that the growth in this company could be not only from kind of the Rithm family of companies, but also from third party and bringing a real partners to grow this vehicle. And I think that's more likely than not as we go for it based on your stock trading roughly half of book value at 50% above.

Got it. And then that kind of may partially answer my last question, but I want to go through the thought process anyway. In terms of dividend coverage, right? Like if we look at current pace, you're improving earnings from 4Q to 1Q, you added $0.01 a share, and we look at the $0.06 dividend per quarter. At this current rate, it would be another four quarters to fully cover the dividend.

I understand the transformative acquisitions or investments can accelerate that process. But outside of a transformative event, are there any other items that can help accelerate the process of reaching breakeven on dividend?

I think it's growing earnings and getting rid of lower coupon, quite frankly, lower coupon assets on the balance sheet. The challenge with some of the lower coupon assets on balance sheet that retained interest and we can't sell those. So that's part of the challenge. The flip side of that is the cost of liabilities on some of those lower coupon assets is obviously very low because they're issued in securitization trust. So I think it would -- it's going to be more -- quite frankly, it's probably more the same deployed capital at accretive levels to grow out of the so-called earnings hole.

If you think about it, and I have a very strong view that the REITs in general are extremely attractive relative to different types of companies. You look at Rithm, for example, we trade 5.5, we trade at, call it, 5 to 6 times earnings. You look at some of the larger alt asset managers that trade at -- you look at companies like this that are trading at 50% of book value.

There's a lot of value here. The other thing what I would say as it relates to dividends, if we didn't pay dividends, and we are going to keep with our dividend policy in this company, if you didn't pay dividends and you redeploy the capital at teens type returns, your overall equity price should increase because you're retaining earnings and you're growing at double-digit returns.

So in general, what I would say is policy stays the same. We're going to grow out of it, but the sector fundamentally is extremely cheap right now. And again, going back to my earlier comment, I do think the growth in this vehicle will likely be with some third-party partners over time.

Got it. Appreciate the answers. Thanks, Michael.

Randy Binner, B. Riley.

Hey. Good morning. Just a couple kind of balance sheet-related questions. I guess the first one is, I think on the last call, you had mentioned there'd be less sale activity or selling the legacy portfolio. And so I think it was $21 million this quarter, and it sits at about $100 million. And so is that -- I think I'm kind of putting all the comments together, but the ability to continue to move on from the legacy portfolio, is it relatively limited going forward? Or is it pretty good. Like how should we think about that remaining amount that's going to stay?

Yeah, it's relatively limited. I mean, where we can make headway, we will, as long as we think we're not giving up value. The idea is to have obviously, the cleanest balance sheet -- the balance sheet is very clean. But when you look at the true amount of equity that's associated with a lot of the so-called legaty -- the legacy assets we have on balance sheet, it's extremely low. After quarter end, I think we're down to about $25 million of UPB that potentially could be sold. That's not where we have to hold for Dodd-Frank reasons from old securitization trust or what have you.

All right. That's helpful. And then just on the unrealized gain that came through the income statement. I think that's related to the AAA CMBS, but just looking to confirm that. And I think that would be marked lower this quarter at least so far. Is that where that unrealized gain activity is coming from?

No, I think it's the sale of legacy assets actually versus marks. We did not sell any of our AAA floating rate CMBS in the quarter.

No. I mean I think -- this is an unrealized gain.

Where do you see that?

The way I read it, the $4.4 million.

The $4.4 million of unrealized loss that you see in the quarter, there is an offset in OCI. So it's relatively flat on book value quarter-over-quarter.

So it's up in here.

Understood. Yes. Got it. That was geography thing. Okay, perfect. I appreciate that clarification. Thank you.

Jade Rahmani, KBW.

Thank you very much. A bit of a follow-up to Randy's question. But just in terms of the balance sheet, for those of us new to the story, what percentage is a core longer-term hold whether it be from the legacy assets or new investment? And what percentage of that is commercial real estate, the new debt investment strategy?

On the -- what the legacy hold, again, there's probably -- I think we discussed this about $25 million of kind of resi assets that could be sold, I think, at this point. And again, there's not that much cash that's associated with those. From an overall core balance sheet, the goal is to deploy capital in commercial real estate assets. That is what this vehicle is set up to do. but also explore if there's opportunistic investments we could do in and around kind of what I would call our core expertise, that's where we're going with the company.

So the core hold will likely be more commercial real estate assets that will grow as we take, for example, a little under $100 million of capital that we have today. we'll keep, I think, $50 million of that needs to be held for either covenants around some of our high-yield debt and kind of mark-to-market on some of the legacy assets that are on balance sheet. So that $50 million, let's just say, gets deployed, that will get to point into commercial real estate assets.

Thanks. Secondly, can you give some color on the team that you've put together to focus on CRE? I know you have these affiliate companies, green born, Sculptor. Maybe you could talk about the experience that's within commercial real estate. I've seen a lot of new entrants in the space. And when the experience that doesn't match a long duration, there could be issues. So it'd be helpful to get some color on the team.

Well, I'll start with my partner, Charles. So the two of us have been working together since 2008 running -- I mean one of my prior lives is, I ran a part of Bank of America, including all the commercial real estate there, Charles and, some of the trading businesses. When you look internally, we've added what I would say, a half a dozen folks around the hoop here on the commercial real estate side. couple that with all the other folks that are working on our different investment businesses.

So it's a pretty robust team. On the GreenBarn side, we own 50% of the opco there. I would look at them more as a sourcing engine for us at this point. Scope there is a separate entity, but the overall amount of real estate experience here is extremely high is what I would say. It comes from various firms as well.

Thanks very much. And lastly, what are you seeing from the banks? One of your peers in commercial real estate said they saw a handful of special situations crop up and order. We continue to see banks pull back from CRE direct lending but be active in the credit facility side and then maybe look to sell NPLs. What are you seeing from -- you mentioned large money center banks, but the banks overall.

Our relationships are still putting out money on the senior side, what I would say, and they're looking for partners like us and others. So we continue to see that. If you think about a bank, once a loan goes bad, if they don't think they're going to be able to work it out, they're going to sell it. So you'll see more nonperforming loans if credit deteriorates and the banks are going to sell them.

But in general, and I think the banks are going to be specific, if you think about the way a bank is run by different credit officers, banks aren't going to be specific based on obviously, we all know not every commercial real estate asset is the same. So you're going to see some -- I think where you're going to see a little bit of diversification from the banks. But we still see the banks lending. We do a lot of business with the banks, and I think that will continue.

Thanks a lot.

Doug Harter, UBS.

Thanks. Michael, can you talk about the balance between kind of looking to grow to be able to scale the business and hopefully scale earnings power versus kind of willingness to issue equity and dilute current book value?

So I think it's -- again, book value is $540 stock is $2.85. So if we start there, the company is sitting on, call it, $100 of cash. I assume we're going to keep 50% on balance sheet at all times right now until the balance sheet grows, and then we'll -- we will keep more cash. the growth will likely be from a third party, I think, is the way that we'd like to bring somebody in.

It could be an M&A transaction where we look at another company, and that will help us create some scale here. But the company doesn't trade. I mean we all know, right? It's $300 million of equity for this company to be relevant. I think it's got to be significantly bigger than where it currently is. we won't sacrifice earnings.

I said that's the same on the rhythm call on Friday, but we got to figure out a way to grow this thing and grow earnings more importantly. So I don't think -- Doug, the short answer is no secret sauce right now. I don't think. It could be third party. If there was a great transaction where we thought it was going to be highly accretive and we were going to generate a lot more earnings, I think we'd issue equity. But one of the reasons we did the preferred route is to not dilute shareholders. So we'll likely go down that path again as well.

Okay. Appreciate the answer, Michael. Thank you.

And that concludes our question-and-answer session. I will now turn the call back over to Michael Nierenberg for closing remarks.

Thanks, everyone, for asking the questions. Thanks for dialing in. Have a great week.

This concludes today's conference call. Thank you for your participation, you may now disconnect.