Ready Capital Corp Q4 FY2023 earnings call

• 2023 Recap: Distributable return on average stockholders' equity was 8.6%, shortfall due to M&A drag (250bps) and residential mortgage banking underperformance (25bps). Plan to increase distributable ROE by 250bps over 2 years through capital redeployment, leverage, exit of residential, growth of small business, and cost structure optimization.
• Investment Activity: Active in CRE (lower middle market and multi-family) and small business lending. CRE originated $1.7B, small business $494M.
• Credit Focus: CRE portfolio 60-day+ delinquencies at 7.2% (originated) and 22.3% (acquired). Multi-family 60-day+ delinquency 6.6%, office 5% of portfolio but 21% of delinquencies. Focus on refinancing maturity ladder, with 45% of multifamily loans maturing in 2024.
• CLOs: Issued $7B with $5B outstanding, static deals with 1% overcollateralization trigger vs 3% peer average. 12 loans 60-day+ delinquent, with 15% payoff, 57% modification, 27% foreclosure expected.

CRE (Commercial Real Estate): In 2023, despite a 68% year-over-year decline in CRE industry transaction volume, originated $1.7 billion across products, including $1.3 billion of Freddie, small balance, and multi-family affordable products, and $333 million of bridge production. Small Business Lending: Originated $494 million, with a dual strategy of legacy SBA large loans and fintech small loans, targeting $1 billion in annual production in 2-3 years. Contributes 18% to full-year distributable earnings with a 5% equity allocation. Residential Mortgage Banking: Discontinued operation, with assets/liabilities in held for sale, and distributable TOE at 1.8% in 2023.

• Expect distributable ROE to increase 250bps over 2 years through reallocation of Broadmark equity, leverage increase, exit of residential, growth of small business, and cost structure optimization.
• Target 10% distributable ROE, with actions including monetizing Broadmark assets, raising debt, exiting residential, growing small business lending, and right-sizing OPEX.

• CRE macro environment risks, including potential delinquency increases, especially in office and large sponsors.
• CLO performance risks due to static structures, longer asset resolution times, and potential yield compression.
• Market and interest rate risks affecting refinancing and portfolio valuation.

Q: Crispin Love asks about credit trends and potential losses A: Andrew and Adam discuss CECL reserves and expected losses Q: Stephen Laws asks about CLO process and interest income quality A: Adam and Andrew provide details Q: Douglas Harter asks about capital deployment A: Tom and Andrew discuss investment opportunities and liquidity Q: Jade Rahmani asks about multifamily delinquencies and office collateral A: Tom and Adam provide insights Q: Steven Delaney asks about CLO loans and specific reserves A: Tom and Adam respond Q: Christopher Nolan asks about EPS accretion and dividend coverage A: Andrew and Tom discuss Q: Sarah Barcomb asks about CLO performance and loan foreclosures A: Tom and Adam answer Q: Matt Howlett asks about corporate debt issuance and buybacks A: Andrew and Tom discuss Q: Jade Rahmani asks about corporate debt use A: Andrew and Tom respond