Rithm Property Trust, Inc. Q4 FY2024 earnings call

• Repositioned the balance sheet by selling legacy residential mortgage assets and reinvesting proceeds into commercial real estate.
• Reported first positive economic result in three years with $0.06 per diluted share in GAAP income.
• Intends to raise preferred equity in Q1 2025 to shore up capital base and deploy more capital.
• Will continue selling down legacy assets not meeting return thresholds.
• Seeks M&A opportunities to grow the company, similar to the playbook used with new residential.
• Targets low double-digit returns on new commercial real estate investments and works with a dedicated team to create value for shareholders.

For the fourth quarter of 2024, Rithm Property Trust reported $2.9 million in GAAP income, which equates to $0.06 per diluted share. Earnings available for distribution (EAD) was $0.01. Cash and liquidity on the balance sheet at the end of Q4 was $64 million, and total shareholder equity was $247 million. Book value was $5.44, essentially unchanged from Q3. The company sold down a little under $340 million of legacy residential mortgage assets and deployed $50 million into commercial real estate. Revenue contribution from commercial real estate investments is part of the repositioning strategy, with targets in the low double digits for new investments.

• Plans to raise preferred equity in Q1 2025 to strengthen capital base and enable more investment deployment.
• Will continue selling down legacy assets that don't meet return thresholds.
• Seeks M&A opportunities to grow the company, aiming for low double-digit returns on new commercial real estate investments.

• Market dislocations in the commercial real estate sector could impact investment outcomes.
• Interest rate changes may affect the value of assets and financing costs.
• Banking sector issues could slow loan sales pace, though expected to accelerate in 2025.
• Commercial real estate investments may not always meet return expectations, especially in office properties which often require repurposing.

Q: How has your view on commercial real estate evolved and have opportunities shifted?

A: View has evolved with more opportunities seen, especially working with large money center banks for B or mezz notes to get double-digit yields. Opportunities continue to come but are selective, focusing on loan side and distressed opportunities.

Q: Do you think loan sales out of banks will accelerate in 2025?

A: Yes, as banks will likely write down more problem real estate and rates stay higher for longer, leading to more assets coming out.

Q: Magnitude and use of preferred equity?

A: Combination of using it to shore up capital base, address high-coupon unsecured notes, and deploy more capital for growth.

Q: How does financing need evolve for hitting ROE and term financing of assets?

A: There is plenty of financing available, whether term financing or other methods, ensuring returns meet hurdles and working with partners while maintaining credit focus.

Q: Update on investment activity in January and CMBS vs loan opportunities?

A: Looking at both CMBS and loan opportunities, combination of bonds and putting out money, with focus on credit underwriting. January had some activity in top part of capital stack, and planning to raise preferred equity in Q1 to deploy more capital.

Q: Relative attractiveness of structural leverage vs warehouse lines?

A: Combination of both, with focus on underwriting first, and potential partnerships with other Rithm subs to leverage capabilities for commercial real estate opportunities