Thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rhythm Property Trust fourth quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. I would like to hand the call over to Emma Bulla, Associate General Counsel of Rhythm Capital. You may begin your conference.

Thank you, and good morning, everyone. I would like to thank you for joining us today for Rhythm Property Trust's fourth quarter 2024 earnings call. Joining me today are Michael Nirenberg, CEO of Rhythm Capital and of Rhythm Property Trust, and Mary Doyle, CFO of Rhythm Property Trust. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rhythm Property Trust website, www.rhythmpropertytrust.com. If you've not already done so, I'd encourage you to download the presentation now. I would 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 discussing 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.

Thanks, Emma. Good morning, everyone, and thanks for joining us. I have some short comments, and then we'll go to the supplement, and then we'll do a little bit of Q&A. As we think about this vehicle, we took over the management contract of what was formerly known as Great Ajax in June of 2024. For the first time in three years, we're happy to report the company had a positive economic result in Q4. While six cents a share is a start, we look forward to our ability to continue growing earnings and our capital base. When we took over the company, the thought was with the commercial real estate market extremely dislocated, we were going to turn this vehicle into getting out of the so-called legacy resi non-performing loan business. It's not that we're out of it as a firm, but in this vehicle, and turning it into an opportunistic vehicle focused on commercial real estate. So in doing that, we repositioned the balance sheet. We shored up all of the financing around the assets. We sold down legacy residential positions, and we reinvested the proceeds into high-quality commercial real estate. In doing all that, you're going to see, you know, you can see the economic result, which, you know, for the quarter, again, we made six cents per diluted share from a gap perspective. And we're still maintaining the dividend of six cents with the belief that we're going to continue to grow out of this so-called hole that was, you know, part of this company for many, many years. How are we going to get there? How are we thinking about, you know, this vehicle on a go-forward basis? because right now it's got roughly $250 million, call it, of equity. It trades that, give or take, 50% a book. So how are we going to get there? One is we're going to need more capital. So when we think about the stock price, we think the equity is extremely undervalued. So we'll likely be in the market in Q1 with a preferred equity deal. This will do a couple things. One, it's going to help us shore up our capital base. Two, it's just going to give us more capital to invest, which, therefore, is going to hopefully create more earnings for our shareholders. We'll continue to sell down legacy assets that don't meet our current thresholds, return thresholds. I will say the balance sheet is, for the most part, very, very clean. There's a bunch of retained interest that sit on the balance sheet that we can't sell that are part of, you know, older securitizations. Those will be there for quite some time. That's part one. Part two, however, on that is the liability structure. They were issued with very low rates. So we feel good about that, and, again, there's not much we could do there. And then, finally, what we're going to do is we're going to seek M&A opportunities to truly grow the company. As you know, at Rhythm Capital, we, you know, our pipeline of M&A across the firm is extremely broad, and we are optimistic, and we do feel like we're going to be able to do something here. You know, the playbook is very similar to New Residential. When we started that vehicle at Fortress, it was externally managed, and that was in 2013. We started roughly $1 billion of capital. Today it has $7.8 billion. And along the way, we did a bunch of M&A, and we bought a bunch of assets. And, you know, quite frankly, I think we're going to be able to do that. I'm hopeful we'll be able to do the same thing here. So with that, I'm going to turn to the supplement. I'll begin on page three. Again, Rhythm Property Trust was formerly known as Great Ajax. I gave you the comments that we set this thing up or repositioned the company to take advantage of what we think is one of the better investing opportunities we've seen in many, many years in the commercial real estate sector, as well as we'll look for other opportunistic ways to deploy capital. The pipeline today is roughly a billion dollars of things we're looking at. And we all know not everything fits in one box, so we're extremely selective. When we look at the amount of capital in commercial real estate, right now there's $50 million in commercial real estate. That's going to continue to grow. When we look at new investments, we're targeting something in the low double digits. When you look at the team and you think about the folks that work on this business, again, this vehicle is externally managed. There's not, you know, whether it's $200 million, quite frankly, or $20 billion, the amount of effort and the team is still the same, and we take great pride in trying to create value for shareholders. Page four, financial results, $2.9 million in gap income for the quarter, $0.06 per diluted share. EAD earnings are available for distribution, a penny. Again, first positive result in three years, while a penny is not much, we're optimistic on where we're going to go with this. We kept our dividend the same at $0.06 per common share. Cash and liquidity on balance sheet at the end of Q4 is $64 million, and total shareholder equity is $247 million. Looking at book value, $5.44, essentially unchanged from Q3. The one thing I want to point out there is rates. When you look at rates across the curve, they're up approximately 60 basis points. So if you think about the result, rates up 60 basis points, book value essentially unchanged. And a lot of that is due, quite frankly, to the investing that we did in the quarter and then prior quarters where we put on floating rate assets at low double-digit returns, and that enabled us to get to this positive result. So, you know, if you look at page five, you know, just a couple of points here, as I mentioned, we repositioned the balance sheet. What did that mean? We sold down a little under $340 million from a gross standpoint of legacy residential mortgage assets. We deployed, as I pointed out, $50 million into commercial real estate. Gap net income grew from a loss in Q2 of $13 million to a positive result of $2.9 million. And then earnings available for distribution grew from a loss of a little under $10 million to a little bit. So call it kind of flat. And then we also improved all of the financing arrangements we had in the company. As we look ahead, you know, I think this is, you know, pretty straightforward. Commercial real estate debt, you know, we're targeting. what I would say, low double-digit returns, there'll be some opportunities to deploy capital at higher returns, but for now, that's how we're thinking about it. There's no legacy issues that we see right now that are going to cause any problems for the company. You think about the commercial real estate sector, anybody that's been investing in office over the past number of years is going to have many issues. Right now, where we stand, we feel very, very comfortable at the opportunity ahead of us. Page seven just talked about opportunities and yields. Again, we're going to target something in the low double digits. We'll look for some opportunistic situations where we're going to be able to deploy capital at higher returns as well. So really, to summarize for me, and then we'll turn it over to Q&A, one is the company is on the right path. Team is working hard. We are going to need more capital. The capital we're going to try to do is raise money in the PREP market in Q1. And then from there, we'll continue to deploy capital. We'll hunt for some M&A opportunities. And again, the playbook is very similar to what we did when at Fortress, where we had started with a billion of capital in new residential and grew that to where it has a little bit under $8 billion today. So with that, I'm going to turn it back to the operator, and then we can have some Q&A. As a reminder to ask a question,

please press star one on your telephone keypad. If you would like to withdraw your question, once again, please press star one. Our first question comes from the line of Tom Catherwood with BTIG. Your line is open. Thank you. And good morning, everybody. Michael,

first off, congratulations on reaching profitability and 4Q. It was great to see that. and then appreciate your comments as far as the opportunities and the strategy for growth going forward. But now that you've been under the hood at RPT for eight plus months, how is your view on commercial real estate evolved and are the opportunities that you're pursuing the same as

they initially were or have they shifted over time? You know, good question, Tom. Here's what I would say, and there's been all this talk about opportunities in commercial real estate. Quite frankly, if you roll back the clock, and even at Rhythm, we have deployed hundreds of millions of dollars into different commercial real estate opportunities. While saying that, there are opportunities to do so. We've seen a lot of office over the course of the past year, year and a half. Not everything works, quite frankly. We are starting to see more opportunities. We're seeing, for example, working with some of the large money center banks where we could provide a, you know, a B note or MES note on some underlying loan that they're making helps from a capital standpoint at the bank. And for us, it creates that, you know, double-digit yield that we're targeting. The net of it is, quite frankly, that we think on a go-forward basis you're going to see more opportunities. There's plenty of capital out there chasing. I think the key for us is when you look at Rhythm as an organization between, you know, Sculptor, which does their own thing, has raised a lot of money around the real estate funds and has, you know, great track record, Rhythm at the Rhythm level where we've deployed capital, and now in this vehicle where we repositioned, we see everything. But, again, not everything fits. We're looking for debt. We're going to look for some more opportunistic situations, and it's going to continue to come our way. We don't need to be office everything. We have the expertise here to do that, but it's going to be more around the loan side, I think, and working with some of the larger banks and some distressed opportunities.

I appreciate those thoughts, and that's kind of where I wanted to go next was, you know, were you somewhat surprised in 24 that we saw a slower pace of loan sales out of banks, and could that accelerate in 25?

I do think it will accelerate in 25. You know, when you think about, and I worked at a large bank for five years, when you think about the banks, unless you're forced to take that mark, typically you're going to hold on to that asset. As you see banks taking more marks, and, you know, obviously the banking sector has had a great, great run. You know, you look at bank earnings, they're fantastic. I think you'll see them write down more of their kind of problem real estate. The other thing what you're going to see is our belief is that rates are going to stay higher for longer. Everybody was betting on, for example, the 10-year note. I pointed out rates are up 60 basis points, right? So if you look, I think 10s went from, you know, the 10-year trading roughly 460 today. And, you know, I think at the end of the year is you're up, you know, you're up 60. Now you're up even a little bit more. when you look at the general belief was that rates are going to come back down because the Fed is cutting rates. You had the Fed meeting yesterday and the Fed's basically saying we're on hold for now because the economy is strong. Rates are not going to come down that quick. And as a result, I think you're going to see more problems in commercial real estate as things reset higher and debt service becomes a problem. So I think you'll see more assets come out.

Color on that. And then last one for me, On the preferreds, maybe kind of two questions. First, do you have a magnitude in mind as of this point? And the second part is, would this be growth capital or would some of it be used to address the higher coupon unsecured notes that you have on the balance sheet?

It's going to be a combination of both. It's a good question. I mean, ideally, if there was a transaction that was highly accretive, you know, we're going to continue to try to do those. Where the stock's trading, you know, I didn't, this morning, roughly $2.85 or something like that. And book value, we'll call it $5.50. You know, we prefer not to issue stock down here if we don't have to. That's why tapping into the preferred market, even if it's higher or coupon. I will point out that if you go back in time, you know, there's covenants around the unsecured. and there is a need to buffer the capital base around some of that unsecured as you think about covenants. Now, we've deployed capital. We have cash and liquidity on balance sheet, but the net of it is we want to do both. One, take care of some of the high yield notes and two, have more capital to deploy so we can grow earnings.

Appreciate the comments, Michael. Thank you.

Our next question comes from the line of Jason Stewart With Jannie, your wine is opened.

Hey, Michael. As you think about the strategy evolving and you're moving maybe from the top of the capital structure down to the middle part of the capital structure on the asset side, have you thought about how the financing needs to evolve and where that would meet your needs in terms of hitting ROE and the term financing of those assets?

The answer is yes. You know, when we do something, if we're going to partner with, you know, call it one of our large money center banks, typically we'll try to do something in conjunction with financing unless the returns where we could justify an unlevered return without putting any leverage on that asset. There's plenty of financing available to us at the Rhythm Property Trust level. Well, keep in mind, Jason, you know, as a firm, you know, at the Rhythm level, the balance sheet, you know, we finance the mortgage company and everything else. The balance sheet is $40 billion. So when you think about the power of Rhythm supporting, you know, being that this vehicle is externally managed and everybody here is a Rhythm employee, the power of our franchise, I think, is pretty broad. We have a lot of access to financing. So we're not going to do something unless it meets, obviously, the return hurdles. So, you know, the short answer is going back, yes, but there's plenty of financing available, whether that be in the, you know, term financing on an asset or some straight, you know, financing with an insurance company and or other ways to finance our business.

Okay, that's helpful. I guess I'm looking at slide seven. I'm just thinking about ROE on a go-forward basis. And if you move from senior down into sub to juice the top line, gross ROEs to cover, say, the preferred and, you know, spread tight and to get more opportunistic, you know, where the sweet spot in the capital structure on the asset side would be, you know, in conjunction with financing, how far down you're thinking about going in the future, down the asset side of the capital structure?

We're not going to set up this vehicle to be a so-called first loss vehicle just to seek yield. I'll be really clear about that. But, you know, there's a ton of lending demand where it could be transitional lending. It could be – there's just a ton of demand for lending. And, you know, when you look even in our Genesis business, that's a wholly owned sub of Rhythm. You know, that business on, you know, residential transitional loans did almost $4 billion of production last year. You look at the underlying unlevered return, and it's anywhere from, give or take, 10% to 11%. So we're going to see plenty of opportunity. We're not going to be, again, the first loss piece provider on different deals just to do something to seek yield. We want to make sure one is, first and foremost, credit first in underwriting, and then we're going to sell for return. And we're confident we'll get there. You know, we did a loan out of RITM going back in 24 at, you know, SOFR plus 700 on a development project with Kushner. And, you know, that was, you know, if you think about it, it's a 12-plus percent unlevered return. So there's going to be plenty of opportunity to deploy capital.

Okay, that's really helpful. And then just going back real quick to the office market, I mean, it does seem like on the margin, the conversation has shifted a little bit more positively. Do you think that unlocks more opportunity, or do you think – how do you think about that conversation evolving, I guess, and the opportunities in office?

They're there. We've seen a lot of office. I mean, you know, if you look at the pipeline, even from some of the larger brokers, there's a ton of office. You know, there was a building that traded, I think, today, you know, my old fortress stomping ground, 1345, that traded to Blackstone. I mean, there's a ton of things, you know, that we see in office. We want things that, if we're going to be in office, and, for example, if you're going to be on the equity side, that equity investment in Rhythm Property Trust has to be a multiple. We have to get a multiple of what we think the building is worth. you know, if we're going to go in on that. While saying that again, you know, we prefer to be in debt rather than equity because we think it's a better place to be right now based on where we could, you know, put money out. But there's tons and tons of office that continue to come out. A lot of it's bad, quite frankly. You know, and when I say bad, it's like, you know, I don't know, a lot of this stuff has to be repurposed. So you got to be really, really selective there. And this is, again, there's a ton of need for capital. I do think people are going to go back into the office. There's a ton of need for money for CapEx in a lot of these buildings because everybody wants to be in a new building. But we see plenty, but a lot of it doesn't work.

Got it. Okay. Thanks for the caller. Appreciate it. Thanks, Jason.

The question comes from the line of Stephen Laws with Raymond James. Your line is open.

Hi. Good morning, Michael. So on the deck, about $48 million of equity capitals allocated to CRE assets, so about 20%. Can you talk about the ramp and on the current equity base, how high that can get, or maybe asked another way, how much equity supports some of the investments in legacy assets that are going to stay on the balance sheet?

It's a good question, Stephen. So let me address the second part. It's everything we do, not everything, but I think everything we do on a go-forward basis is going to be around commercial real estate. So, for example, if we hit the market with, you know, let's just use round numbers, and I'm hopeful we can do this. If we hit the market with a couple hundred million of preferred equity over the course of the year, whether we do it in one swoop or not, I don't know. would prefer to do it now. Let's just call it roughly 50% of that. If we wanted to retire the outstanding debt, we would do that. Then you'd have another $100 million of equity going into commercial real estate. When you look at the money that we've deployed in commercial real estate so far, it's roughly, you know, we've added about $270 million from a gross standpoint. Again, most, if not all of it's floating rate. And when you think about the advance rates on this stuff and where we are, you know, advance rates could be anywhere from you know, call it 80 to 85%, you know, in that range as we think about the no mark to market or facilities. The rest of the stuff, quite frankly, you have a bunch of stuff that's consolidated on balance sheet, and I pointed that out earlier in my opening remarks. You just can't sell them because they're legacy, you know, the legacy residential RMBS. So if you think about $250 of kind of equity capital and, you know, I'm looking at our position sheet, and the balance sheet's in really good shape, there's not that much that's left to sell down that's going to release a ton of equity. So the rest of it's really going to be in residential real estate right now. Great. Appreciate the comments there.

And touching base on the investments, I guess can you update us on any investment activity in the month of January, and then kind of bigger picture, as you look at your current pipeline, can you talk about the relative attractiveness of additional CMBS investments versus the senior and MES loan

opportunities you're seeing in your pipeline? We're looking at both. We look at every deal that comes out. We see every deal. It's going to be a combination is what I would say. Same comment going back to Jason's question. We're not going to be, I've been doing this a long time, Credit matters first. Underwriting matters first, particularly in commercial real estate. You want to make sure that you're, you know, you're crossing your T's and dotting your I's. So it's going to be a combination of, call it, bonds as well as putting money out. I also think, you know, and I pointed out M&A, you know, we at Rhythm, we see a ton of M&A. You know, we look at hundreds of deals a year. You know, if you look at our track record around the stuff that we've done, you know, it's been pretty impressive, quite frankly. But that doesn't mean, you know, last year we did, we took over the management contract of this and we did another mortgage company deal. So it's not like, you know, we're going to do a ton. But there'll be some opportunities, I think, on the M&A side to, one, grow the capital base, and then, two, put out capital that's going to be more accretive than just, for example, buying a AAA CMBS bond.

You know, over the course of the year, you know, I know most of the securities on the balance sheet is available for sale. I mean, are those investments, do you think, eventually you rotate out of into CRE whole loans, or do you think these are longer-term holds and just part of the longer-term targeted asset mix as you put together this portfolio?

You know, when I look at forward-levered yields on the remaining portfolio where we currently sit, Our forward returns are, on average, you know, what I would say anywhere from 12% to 18%. So there's really no rush to sell them unless you have the ability to redeploy that capital into something that's more agreed of. And we spend a lot of time between, you know, on the resi side of our, you know, our residential teams or commercial teams, we spend a lot of time looking at all kinds of different assets. You know, the book I pointed out is, you know, book value is stable at five and a half bucks, stocks at $2.85, so we think the equity is dirt cheap. But we've got to have a reason to actually just sell something. We don't give anything away. You know, that's not who we are. But we need to make sure that we look at what's the opportunity on the other side of something that we're going to sell, is what I would say.

Oh, any investment activity in January you can share with us today?

Yeah, just a little bit more in the top part of the capital stack around some newer CMBS deals. Not a ton of capital out. I pointed out earlier, I think we're sitting on, give or take, $65 million of cash and liquidity. We want to raise a bunch here in the first quarter just to bolster the balance sheet, have a hard look at some of the debt, and then get ready to deploy more capital. And then if there's something highly accretive, we'll come back to the marketplace and figure out a way to take, you know, our track record is good in doing this stuff to take this company from where it has $250 million of, call it equity value, to something that's multiple billions. So it becomes extremely relevant.

Appreciate the comments this morning, Michael. Thank you. Thanks, Stephen.

Our next question comes from the line of Doug Harder with UBS. Your line is opened.

Thanks. Hey, Michael. Can you talk about the relative attractiveness of using structural leverage like a B-note versus kind of financing through warehouse lines and which kind of offer better return opportunities today?

Again, going back to my earlier comments, we look at everything. There's going to be a combination of both. You know, when you think about B-notes and you think about issuing, you know, loans, obviously you've got to underwrite first. Structural leverage, you know, when you hit the securitization markets, that is attractive. While saying that, you know, the balance sheet that we have here is small. The equity capital base is small. And until we get to real scale, there's nothing that we're going to issue in the securitization markets because we don't, you know, we're not underwriting or creating conduit loans per se. We'll be working more with partners on the origination side. I think you could see, you know, you may even see at some point where we partner with some of the other businesses that we have here at Rhythm on some opportunities in commercial real estate. You know, we have a lot of capability between, you know, some of our wholly owned subs on the Rhythm balance sheet. You know, the same team, again, we're externally managed, so the Rhythm employees, the same guys and gals that work on Rhythm Property Trust are working on Rhythm. Obviously, Rhythm has plenty of capital, so you're going to see situations, I think, where we as a firm, no different than I think what Blackstone does on some of their stuff, where we as a firm are going to partner with some of our other subs and operating companies.

Appreciate it. Thank you, Michael. Thanks, Doug.

There are no further questions at this time. I would like to hand things back over to Michael Nirenberg for some closing remarks.

Thanks. Appreciate you guys joining the call and asking the questions. It's helpful, helpful to all of us here at Rhythm Property Trust and Rhythm Capital. What I would say, again, just to close in my closing remarks, this vehicle will be a lot more active, we hope, over the course as we go forward. Our ability and track record to create value for shareholders, I think, is, you know, you don't have to look further to some of the other things that we as a group have done. It's the same group that's, you know, created Rhythm Capital. We'll be the same groups that are working on Rhythm Property Trust plus, you know, some of our other opcos. And we're excited about where we think we could take the company. You know, we'll be in the capital markets, hopefully here in the near future, and, you know, and stay tuned. You know, the desire to grow earnings and make this thing, you know, great and grow the share price is something that's extremely important to us. So look forward to updating you soon. Have a great day, and thank you.

Thank you. This concludes today's conference call. You may now disconnect.