Rithm Property Trust, Inc. Q3 FY2024 earnings call

Key Points

• Mission: Sell down legacy negative carry residential assets and redeploy capital into cash flowing CMBS to be breakeven before dividends by end of Q1 2024.
• Dividend: Maintained at $0.06, dividend yield currently 7.2%.
• Asset Sales: Sold significant portions of legacy residential mortgage loans and securities since Q1.
• Name Change: Intend to change name to Rithm Property Trust in Q4.
• Team and Strategy: Strong team working aggressively on opportunities, similar to Fortress's new residential success; focus on cash flowing commercial real estate debt, avoiding large single property deals, and focusing on workouts and AAA CMBS.

GAAP net income loss was $8 million or $0.18 per diluted share. Earnings available for distribution was negative $5.4 million or $0.12 per diluted share. In the third quarter, $85 million of residential mortgage loans were sold generating nearly $18 million in cash. Since the end of Q1, 91% of legacy residential mortgage loans held for sale were sold, and $62.7 million of residential securities were sold generating $14 million in cash. $100 million of notional amount of AAA CMBS was deployed. Cash and equivalents on the balance sheet were $84 million, with roughly $30 million available for investment, a ~$50 million reserve, and stockholder equity under $250 million. Revenue contribution was focused on legacy residential asset sales and deployment into CMBS.

Forward-Looking Statements

• Expect to be breakeven before dividends by the end of Q1 2024.
• Aim to fully deploy approximately $20-25 million of remaining capital into commercial investments by the end of Q4 2024.
• Maintain current dividend policy, though no guarantees exist.

Risks

• Uncertainty in achieving breakeven and maintaining the dividend.
• Market risks related to commercial real estate transactions, including potential for reduced opportunity if borrowers ride out distress with lower interest rates.
• Small remaining assets on the balance sheet that are difficult to monetize quickly.

Q: What segments of the commercial real estate debt universe match a Rithm type investing strategy?

A: Focus on cash flowing, extremely solid assets; avoid low yielding/low cap rate multifamily; look at workouts, data centers, student housing; target loans coming up against maturity walls over the next year or so.

Q: Is there a scenario where lower rates lead to less transaction opportunity?

A: Rates will still spur transaction activity as banks want to exit distressed assets regardless of rate levels; banks will continue to clean up balance sheets by moving distressed assets out.

Q: Deploying remaining capital and monetizing small investments?

A: Approximately $20-25 million of equity available for deployment; balance sheet has small odd lot positions, but patient in cleaning up; focus on refinancing or short selling small remaining assets