Ready Capital: Light At The End Of The Tunnel As Cleanup Efforts Show

Company Performance - Ready Capital Corporation (RC) reported poor Q2-2024 results with distributable income at 7 cents per share, significantly below the 30 cents per share distribution [3] - GAAP and non-GAAP metrics both showed poor performance, with GAAP reflecting the company's poor investment decisions [3] - The company's tangible book value per share declined to $12.97, and total leverage stood at 3.5x [3] - RC's distributable return on equity (ROE) was 2.6%, and the dividend yield was 14.7% [3] - The company's 60+ days past due loans improved to 6.3%, a positive trend compared to previous quarters [6] Financial Metrics - RC's net book value per share was $12.97, and the total leverage ratio was 3.5x [3] - The company's distributable ROE was 2.6%, and the dividend yield was 14.7% [3] - RC's loan portfolio included $9.3 billion in unpaid principal balance (UPB) with a weighted average coupon of 9.1% [32] - The company's originated loans had a weighted average loan-to-value (LTV) ratio of 65.6%, while acquired loans had an LTV of 62.7% [32][30] Strategic Actions - RC modified 25 loans totaling $801 million in its originated CRE bridge portfolio, with 82% of modifications completed in Q2-2024 [32] - The company focused on selling underperforming assets where liquidation exceeded in-house asset management strategies [32] - RC sold its residential mortgage banking business as part of its cleanup efforts [34] Leverage and Capital Structure - RC's total leverage ratio increased marginally by 0.1x to 3.5x, with recourse leverage also rising slightly [33][34] - The company plans to deliver a 10% return on tangible equity, which would require increasing leverage beyond the current 3.5x ratio [34] - RC's historical performance shows a sub-4% annual return over the last decade when distributions were not reinvested [34] Market Reaction and Valuation - The stock reacted positively to the company's cleanup actions, despite the poor financial results [36] - RC's price-to-tangible book value remains low, making it difficult to assign a bearish rating [36] - The company's high-yield bonds, such as the 6.125% April 30, 2025 bonds, are preferred over common shares due to their higher position in the capital structure [36] Industry Context - RC is a multi-strategy real estate finance company that originates, acquires, and services loans, primarily in the commercial real estate sector [3][32] - The company's performance is closely tied to credit spreads and the broader real estate market conditions [34]