Rithm Property Trust Inc. Q2 FY2025 Earnings Call

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. I would like to welcome everyone to the Rithm Property Trust, Inc. Second Quarter 2025 Earnings Conference Call. I would now like to turn the conference over to Emma Bolla, Associate General Counsel. Emma, you may begin.

Thank you, and good afternoon, everyone. I would like to thank you for joining us today for Rithm Property Trust's Second 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, Chief Financial Officer of Rithm Capital and Rithm Property Trust. Throughout the call, we're going to reference the earnings supplement that was posted this afternoon 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 would like to point out that some 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. With that, I will turn the call over to Michael.

Good afternoon. Thanks, Emma. Good afternoon, everyone, and thanks for joining the call. A year ago, we took over the management contract of this REIT, which was formerly known as Great Ajax. The company was losing money, needed more liquidity and, quite frankly, a new leadership team and a new mission. We renamed the company to Rithm Property Trust. We sold down legacy assets, which were not accretive for shareholders, and we repositioned the company to be an opportunistic commercial real estate REIT. Over the course of the past year, we deployed $300 million in commercial real estate assets. We raised a new pool of capital without diluting shareholders via a preferred offering, and we put the company on a path towards success and profitability. While the numbers this past quarter are similar to last, we have a ton of deals and investments in the pipeline. When we were at Fortress, we took a company at that time, which was known as New Residential, today Rithm Capital, from $1 billion of equity in 2013. Today, we stand at almost $8 billion of permanent capital, or equity, and we manage over $80 billion of assets across all of our various business lines. We intend to do the same here. Unfortunately, it takes time. If you think about the company this way, I'm confident you will be rewarded well in the future. One, we do not have any legacy commercial real estate assets. Two, the equity trades at a 50% discount to book. So we believe as we continue to execute on our plan, there will be huge upside in the valuation of the equity. Three, with what's going on in the real estate market, whether it be on the equity or debt side, we have very large pipelines of deals we are currently evaluating. We also have a number of deals that should close here in the third quarter. So net-net, while we're not thrilled with the current stock price, I believe the value proposition here is a good one. I'll now refer to the supplement that we have posted online. I'm going to start on Page 3. So again, the way to think about this is as an opportunistic equity investment in a publicly traded commercial real estate REIT, and it doesn't have to be commercial; it could be opportunistic as well. Our current pipeline is around $2 billion in assets that we're currently evaluating. We have a little under $300 million in total equity. Our real estate portfolio is $300 million, and we're sitting on approximately $100 million of cash and liquidity. As you flip to Page 4, earnings are fairly similar to where they were last quarter, with $1.4 million in GAAP income or $0.03 per diluted share. The EAD is about $100,000, effectively virtually 0. The second quarter common stock dividend is $0.06 per common share. We do not intend to reduce that anytime here soon. Cash and cash equivalents are about $98.6 million, and total equity is $2.95 million. GAAP book value is $5.37, with the stock trading at around $2.70, approximately a 50% discount to book. The Opportunity for Rithm Property Trust, why now? We're entering what we think is an attractive time in the real estate market. We've been vocal about that. While saying this, not every real estate asset is the same; we need to be extremely diligent and careful in our underwriting and capital deployment. So why Rithm Property Trust? One, again, no legacy commercial real estate exposure. Two, again, the company is trading at a sizable discount to book value. Three, the amount of employees and the management team here at Rithm, not including our GreenBarn subsidiary or Sculptor, is approximately 75 to 100 folks who work on our various vehicles. When we consider the commercial real estate landscape, one, the repricing of commercial real estate assets, continuous debt maturities, and market dislocations are and will continue to create opportunities across the capital stack. As we look at changing capital structures, there's a huge need for preferred equity in a number of the assets we're examining, and this will continue to create extremely attractive opportunities for capital deployment. As we move forward, the pipeline as of the end of June was $2 billion in various real estate investments, including senior mortgages, subordinate loans, mezzanine loans, and other opportunistic investments. And finally, our emphasis on growth will enable us, in our opinion, to drive the company's valuation higher. Regarding the Path to Profitability, if you look at Page 6, when we took over the company, it was losing money. Q2 of '24 had a loss of $0.35 per diluted share, and now we're at a profit of $0.03 per diluted share. This reflects our continued risk discipline around the asset side of the balance sheet and our strategy for growing earnings. As I pointed out in my opening remarks, this will take time since the equity base here is $300 million, and we intend to grow this vehicle similarly to how we did at Fortress, where we started New Residential with $1 billion of assets and grew it to $8 billion over time. As you look at Q2 investment activities and our current status, we have a deal source of approximately $6.5 billion. We have a number of deals we believe will close in the third quarter, deploying about $50 million of equity here with double-digit returns. Investment opportunities we're pursuing include debt, preferred equity, mezzanine, and opportunistic equity across the stack. Regarding the strength of the platform, we take performance extremely seriously at Rithm. Our typically ROEs are between 15% and 20%. We'd like to position this company to do the same over time. Looking at Page 8, with the potential portfolio for the future, including CMBS senior loans, opportunistic investments, and subordinated and mezzanine loans, we believe we will generate target yields around 15%. Before I turn it over to Q&A, I want to emphasize our satisfaction with the optionality in the platform. We are pleased with our balance sheet and are working on several situations that will enable us to deploy significant capital. We do not intend to dilute shareholders unless necessary, so we will likely consider bringing in third-party partners on some larger opportunities. With that, I'll turn it back to the operator to open up for Q&A.

Your first question comes from Jason Stewart with Janney.

In terms of the near-term opportunities in the pipeline, could you talk about how that splits up between the different sectors, loans, securities, etc.?

Sure. Most of the assets we're focusing on today, for example, in our portfolio are floating rate, particularly on the real estate side. Looking forward, most of that is up in the capital stack in AAA CMBS. We do have some loans on the balance sheet that we made. We executed a small SRT deal with one of our larger bank counterparties. In terms of pipelines, we're looking at various opportunities; some are hopeful to fund in the next couple of weeks—one being a retail asset in Seattle, anchored by strong tenants, including Albertsons and Staples. We're also considering several opportunities in the multifamily and office spaces, and we're exploring some larger M&A opportunities that could significantly change our organization's landscape for years to come.

Okay. That's helpful. And then on the last point, and I think you started to perhaps talk about this in your comments, you said commercial and opportunistic, but it doesn't have to be commercial. Maybe you could elaborate a little bit more on what you meant there in terms of opportunistic.

Right now, the intent is for this vehicle to be focused on commercial opportunities. I refer back to our Fortress days when we bought just under $4 billion of consumer loans into our REIT, alongside some other capital vehicles we had, which was the foundation of what became OneMain Financial. I'm using that solely as an example. Currently, though, I'd emphasize that our focus at Rithm is to build this into a dedicated opportunistic commercial REIT.

Your next question comes from the line of Randy Binner with B. Riley Securities.

This is Tim D'Agostino on for Randy Binner. When we think about the go-forward plan for the portfolio, what should we think about in terms of capital being put to work per quarter and where we may see that capital being deployed?

The capital is going to be deployed in the same types of assets I just described. Our pipeline includes retail, multifamily, office, and some industrial opportunities. We executed an SRT deal with one of our larger bank counterparties. Regarding capital deployment, we're currently holding about $100 million of cash and liquidity on our balance sheet. As much as I want to deploy that capital immediately, we need to ensure we identify the right opportunities that can yield attractive returns. The $100 million is available; our projections indicate we will be deploying approximately $50 million this quarter, assuming the various loan opportunities we're pursuing close as planned. Going forward, we'd like our stock to improve, but we will continue to tap into the preferred market as well to avoid diluting shareholders.

Your next question comes from the line of Tom Catherwood with BTIG.

So my question is about tying together a couple of points. It sounds like your pipeline of opportunities has scaled up. You took us through the cleanup you did on legacy Great Ajax over the past 12 months. Regarding that pipeline, it seems you have reached a point where execution is key. Was this purely a matter of time in building that pipeline? Or was there a shift in what you were focusing on? Did you miss out on deals earlier and become more aggressive, thus leading to more opportunities? What has changed between Q1 and Q2 that has allowed your pipeline to scale this way?

These are great questions. The team is actively pursuing conversations with large banks, third-party origination platforms, and we receive direct calls from sponsors. We're seeing a lot more activity. Part of this growth is attributed to building the Rithm Property Trust brand, which wasn't as recognized when we initially took over the platform. The pipeline is expanding, our teams are engaging in numerous discussions, and while we are experiencing some competition, we won't engage in a bidding war for deals that don't align with our strategy. Our objective is to leverage our clean balance sheet with available liquidity and deploy that capital prudently to achieve returns in the teens. Thus, we're observing greater interest from various sponsors, increased dialogue with banking partners, and overall brand recognition is improving, resulting in attracting these potential deals.

Got it. I appreciate that. With respect to sources and uses, as the opportunity set expands and more deals progress, you have also built up a large book of CMBS securities during a period when spreads were wider. Those spreads have since tightened towards record levels. How do you approach taking on more debt, utilizing cash on the balance sheet, or potentially selling securities, which could lead to gains, to transition into direct lending opportunities—all of which seem to be in your pipeline?

It could easily be that. We prioritized remaining high up in the capital stack to facilitate growth and generate earnings for the balance sheet. We're looking at numerous opportunities and understand that to grow meaningfully, we need to undertake larger, impactful transactions over time. We aim to hit our 'singles' and also identify larger ones. Our recent $50 million preferred offering was an effort to avoid diluting shareholders unnecessarily; we plan to bring in third-party capital alongside these larger transactions, which will help propel the platform forward. Once we achieve this, you'll see our stock price improve, and I believe the potential and upside for this company is significant.

Understood. One last question from me. After you allocate the anticipated $50 million towards near-term opportunities, it looks to us like that may yield about $0.01 per share quarterly. Will that math work? Are there catalysts needed to boost earnings back to the dividend level, or would we be looking at needing to allocate $300 million of incremental capital?

In your calculations, you're somewhat correct—it's about $0.02 a quarter. We need to create scale around our capital formation. However, I believe we will eventually attain the dividend level we're paying currently. Our goal is to avoid cutting dividends, as stakeholders have already faced considerable challenges before we took over management.

Your next question comes from the line of Doug Harter with UBS.

I hope you can address how to reconcile the growing pipeline, the absence of interest in diluting shareholders, and how patience plays a role in scaling the business with those two factors in mind.

The business will scale through larger transactions. This will enable us to raise enough capital to facilitate significant earnings growth. I mentioned the possibility of collaborating with third-party capital alongside us. We should avoid diluting shareholders, considering the current stock price of around $2.70—raising significant capital at that level is challenging. Pipeline-wise, I'm assessing 11 different transactions, ranging from substantial M&A opportunities to retail loans. Our pipeline is robust, and we intend to deploy capital prudently.

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

Thanks for the great questions, everyone. I look forward to updating you next quarter or during the quarter. I’m feeling optimistic about our current position. We must remain patient while aiming to enhance our stock price. If we don't connect again, enjoy the rest of the summer and have a great weekend. Thank you.

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