Ready Capital (NYSE:RC) executives said the company made “significant progress” in the fourth quarter advancing a comprehensive balance sheet repositioning strategy first outlined in the third quarter, with management emphasizing liquidity generation, disposition of underperforming commercial real estate (CRE) assets, and steps aimed at positioning the platform for sustainable future growth.
Repositioning strategy centers on liquidity and shrinking legacy CRE book
CEO Thomas Capasse said the company’s plan is organized around three priorities: (1) strengthening liquidity to generate free cash flow in excess of 2026 debt maturities, (2) selling underperforming CRE assets to eliminate negative earnings drag, and (3) positioning the company for sustainable growth. He described a two-phase approach, with an initial focus on aggressive asset management followed by a streamlining of the CRE origination business into a lower-cost structure with greater reliance on the external manager, Waterfall.
Management projected an additional $500 million of free cash flow by year-end, sourced from:
- $250 million from portfolio runoff, which Capasse said is consistent with a 36% trailing 12-month repayment rate.
- Approximately $250 million from planned additional loan sales totaling about $1.5 billion, with an emphasis on non-performing loans (NPL) and sub-yielding assets.
Capasse said the loan sales are expected to be substantially complete by the end of the second quarter. Within the planned reduction of the legacy CRE book, management is targeting the sale or resolution of about $1.4 billion of sub-performing and non-performing loans and REO assets. Capasse said this subset is currently creating about $0.08 per share of quarterly negative earnings drag and $13 million in quarterly cash outflows.
He cautioned that continued execution of the liquidity plan could create additional book value pressure depending on actions taken to increase cash and reduce debt, while arguing the longer-term benefit would be a “more attractive portfolio” and a roughly one-turn reduction in leverage to about 2.5x.
Leadership changes and cost reduction targets
Capasse outlined organizational changes intended to support the repositioning plan. Dominick Scali was promoted to Chief Credit Officer and Co-President of ReadyCap Commercial, with responsibility for overseeing CRE strategy. In addition, Gary Taylor transitioned to focus on the SBA business as President of ReadyCap Lending, shifting from his prior role as Chief Operating Officer. Capasse also thanked Adam Zausmer for “a decade-long” contribution to the company.
Capasse said the plan includes a targeted 25% reduction in operating costs to align with a simplified CRE investment strategy. He also said the company intends to increase capital allocation to capital-light small business lending operations to 20% from 10%.
Debt maturities and refinancing approach
Management discussed near-term obligations and the role of liquidity in addressing them. Capasse cited immediate debt maturities of $67 million due in the third quarter and $450 million due in the fourth quarter. While the company is discussing refinancing a portion of maturities into a new debt offering, Capasse said the liquidity plan is designed to ensure free cash “significantly exceeding” those obligations.
He also said the company retired its 5.75% February senior unsecured note upon maturity. In the Q&A, executives reiterated that the liquidity plan could provide sufficient cushion to retire remaining maturities with cash if needed, while noting the company would prefer to refinance portions of the 2026 maturities “to the extent” execution levels are accretive from both earnings and cash flow perspectives.
Quarterly results: GAAP loss, book value decline, higher reserves and valuation allowances
Host Andrew Ahlborn said fourth-quarter results reflected the repositioning strategy. Ready Capital reported a GAAP loss from continuing operations of $1.46 per common share. Distributable earnings were a loss of $0.43 per share, and $0.09 per share excluding realized losses on asset sales, according to Ahlborn.
Book value ended the year at $8.79 per share, down from $10.28 per share in the prior quarter. Ahlborn attributed the decline primarily to a $173 million increase in combined valuation allowances and CECL reserves. He said:
- $23 million of valuation allowances related to $600 million of loans transferred to held-for-sale in the fourth quarter and subsequently sold in the first quarter of 2026.
- A $150 million increase in CECL reserves reflected more aggressive reserves on non-performing loans due to shortened resolution timelines.
Ahlborn added that the company anticipates additional valuation allowances as more loans are identified for sale.
On operating performance, Ahlborn said recurring revenue was $41.5 million, down from $47.3 million in the prior quarter. He said the change was primarily driven by a $7.7 million reduction in gain-on-sale revenue tied to lower SBA 7(a) and USDA loan sales due to a government shutdown, partially offset by a $2.5 million increase in net interest income as the company reduced negative carry on non-performing loans.
Operating expenses rose $7.4 million quarter-over-quarter to $59.9 million, driven by increased compensation expense, higher legal fees, and a reduction in tax benefit, Ahlborn said. He also cited realized losses of $29 million on asset sales, $15 million of REO charge-offs, and $9.1 million of unrealized losses.
On asset quality and accounting treatment, Ahlborn said the company significantly increased loans placed on nonaccrual, which totaled 27% at year-end. Capasse and Scali characterized the increase as largely strategic—linked to an emphasis on short-term resolutions and decisions not to extend certain loans—rather than broad-based “negative credit migration.”
Responding to questions about interest accruals, Ahlborn said the company reversed accrued interest in the fourth quarter for loans identified for sale and settled in the first quarter, or loans anticipated to be sold. He referenced roughly a $53 million reduction in accrued interest and said accrued interest at year-end was about $42 million, tied to loans expected to be held through maturity with full collectibility.
Portland Ritz asset update and SBA market commentary
Capasse provided an update on the company’s largest single equity allocation, the Ritz property, which he said represented 16% of year-end stockholders’ equity. He said the company has made progress since assuming control in August, including a phased condominium sales strategy with a new agent, Christie’s. Management said phase one launched in December with 16 units under contract and nine additional units under reservation agreements and deposits, representing a potential 27% sellout of 131 total units. The average pricing for the new sales was $737 per square foot.
For the hotel portion, Capasse said management adopted a strategy aimed at higher occupancy in an improving Portland market. He reported year-over-year occupancy increased 6.5%, ADR rose 5% to $492, and RevPAR reached $210. The office and retail components remained at 28% occupancy, though Capasse said tenant tours increased following a relaunch.
In the Q&A, Capasse said the company would “lean” toward an earlier disposition of the Portland asset after stabilization, depending on pricing. Separately, Ahlborn said loans sold in February were priced “in the high nineties,” and that carrying value and unpaid principal balance were “right on top of each other.”
On small business lending, Capasse said a prior-year government shutdown curtailed an estimated $5.3 billion of industry-wide SBA 7(a) originations, contributing to a 50% decline in Ready Capital’s quarterly originations to $84 million, which he said was “significantly below” 2026 volume targets. Capasse said the company remains a top-five SBA lender and anticipates its fourth SBA securitization during the second quarter.
Capasse closed by saying management remains confident in its ability to execute the liquidity plan and expects to emerge in the second half of the year positioned to improve the company’s fundamental earnings capacity.
About Ready Capital (NYSE:RC)
Ready Capital Corporation is a specialty finance real estate investment trust (REIT) that originates, acquires and manages commercial real estate loans and related assets. The company offers financing solutions across a variety of property types, including multifamily, office, retail, industrial, hospitality and mixed-use assets. Ready Capital focuses on delivering flexible loan structures to meet the diverse needs of borrowers in the small balance and middle-market sectors.
Through its small balance commercial real estate lending platform, Ready Capital provides loans typically ranging from $1 million to $15 million for acquisitions, refinancings, renovations and bridge financing.
