RPT - NYSE

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rithm Property Trust, Inc. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] I would Now like to turn the conference over to Emma Bolla, Associate General Counsel. Emma, you may begin.

Thank you, and good afternoon, everyone. I would like to thank you for joining us today for Rithm Property Trust's Second Quarter 2025 Earnings Call. Joining me today are Michael Nierenberg, Chairman, CEO and President of Rithm Capital and CEO of Rithm Property Trust; and Nick Santoro, Chief Financial Officer of Rithm Capital and Rithm Property Trust. Throughout the call, we're going to reference the earnings supplement that was posted this afternoon to the Rithm Property Trust website, www.rithmpropertytrust.com. If you've not already done so, I'd encourage you to download the presentation now. I would like to point out that some statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non- GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement. With that, I will turn the call over to Michael.

Good afternoon. Thanks, Emma. Good afternoon, everyone, and thanks for joining the call. The way -- 1 year ago, we took over the management contract of this REIT, which was formerly known as Great Ajax. The company was losing money, needed more liquidity and quite frankly, a new leadership team and a new mission. We renamed the company to Rithm Property Trust. We sold down legacy assets, which were not accretive for shareholders, and we repositioned the company to be an opportunistic commercial real estate REIT. Over the course of the past year, we went out and deployed $300 million or bought $300 million in commercial real estate assets. We raised a new pool of capital without diluting shareholders. We did that via a pref offering, and we put the company on a path towards success and profitability. While the numbers this past quarter are similar to last, we have a ton of deals and investments in the pipeline. When we're at Fortress, we took a company at that time, which was known as New Residential, which is currently Rithm Capital today from $1 billion of equity in 2013. Today, we stand at almost $8 billion of permanent capital or equity, and we manage over $80 billion of assets across all of our various business lines. We intend to do the same here. Unfortunately, it takes some time. If you think about the company this way, I'm confident you will be rewarded well in the future. One, that we do not have any legacy commercial real estate assets. Two, the equity trades at a 50% discount to book. So we believe as we continue to execute on our plan, there'll be huge upside in the valuation of the equity. Three, with what's going on in the real estate market, whether it be on the equity or debt side, we have very large pipelines of deals we are currently evaluating. And then we also have a number of deals that should close here in the third quarter. So net-net, while we're not thrilled with the current stock price, obviously, I believe the value proposition here is a good one. I'll now refer to the supplement, which we have posted online. I'm going to start on Page 3. So again, the way to think about this is an opportunistic equity investment in a publicly traded commercial real estate REIT, and it doesn't have to be commercial. It could be opportunistic as well. Current pipeline is in and around $2 billion of assets that we're currently evaluating. We have a little under $300 million in total equity. Our real estate portfolio is $300 million, and we're sitting on approximately $100 million of cash and liquidity. As you flip to Page 4, earnings kind of fairly similar to where it was last quarter, $1.4 million in GAAP income or $0.03 per diluted share. The EAD is about $100,000 or effectively -- virtually 0. Second quarter common stock dividend is $0.06 per common share. We do not intend to reduce that anytime here soon. Cash and cash equivalents, about $98.6 million and total equity of $2.95 million. GAAP book value is $5.37 with the stock trading, I believe, something around $2.70, so about a 50% discount to book. The Opportunity for Rithm Property Trust, why now? We're entering what we think the real estate market at a very attractive time. We've been pretty vocal about that. While saying that, not every real estate asset is the same, and we need to be extremely diligent and careful in our underwriting and how we deploy capital in this and every other vehicle that we manage. So why Rithm Property Trust, one, again, no legacy commercial real estate exposure. Two, again, the company is trading at a sizable discount to book value; three, the amount of employees and management team here at Rithm, and this does not include our GreenBarn subsidiary or Sculptor, there's approximately 75 to 100 folks in the house here that work on our various vehicles. When we think about the commercial real estate landscape, one, the repricing of commercial real estate assets, the continuous debt maturities and dislocations in the market are and will continue to create opportunities across the capital stack. As we look at changing capital structures, there's a huge need for pref equity in a number of the different assets and things that we're looking at, and that will continue to create what we think are extremely attractive opportunities to deploy capital. As we go forward, the pipeline as of the end of June was $2 billion of different types of real estate investments that include senior mortgages, subordinate loans, mezzanine loans and other opportunistic investments. The -- and finally, our emphasis on growth. As we achieve scale, that is something that's going to enable us, in our own opinion, to drive the valuation of the company higher. Path to Profitability, if you have a look at Page 6, when we took over the company, as I mentioned before, the company was losing money. Q2 of '24, the company lost $0.35 per diluted share. If you look at where we are now, we made $0.03 per diluted share. So continued risk discipline around, one, the asset side of the balance sheet; and then two, as we think about growing earnings. Like I pointed out in my opening remarks, it will take some time because the equity base here is $300 million, and we intend to take the same vehicle or this vehicle like we did at Fortress, where we started new residential with $1 billion of assets, and we grew it to $8 billion over time. When you look at 7, as we think about Q2 investment activities and you look at where we are today, one, the deal source of approximately $6.5 billion. And as I pointed out, we have a number of deals that we believe we're going to close here in the third quarter, and that should deploy about $50 million of equity here with double-digit returns. We look at the investment opportunities. There's a number of different things we look at. Again, as I pointed out, whether it be debt, pref equity, mezz and opportunistic equity across the stack. Strength of the platform, we are -- at Rithm, obviously, we take our performance extremely seriously. When you look at Rithm as a whole from a parent perspective, typically, our ROEs are anywhere from 15% to 20%. We'd like to try to position this company to be able to do the same thing over time. Page 8, just looking at the potential portfolio over the future between CMBS senior loans, opportunistic investments and subordinated and mezzanine loans, we believe that we're going to generate target yields in and around 15%. So before I turn it over to Q&A, what I would say is we love the optionality in the platform. We're very happy with where the balance sheet stands. We are working on a number of situations that I believe will enable us to deploy significant amounts of capital. We do not intend to dilute shareholders to the extent that we don't need to. So that will likely be bringing in third-party partners on some of the larger things that we're looking at. And with that, I'll turn it back to the operator, and we'll open up for Q&A.

[Operator Instructions] Your first question comes from Jason Stewart with Janney.

In terms of the near-term opportunities in the pipeline, could you talk about how that splits up between the different sectors, loans, securities, et cetera?

Sure. So most of the stuff -- when we look at securities today, for example, when you look at our portfolio, most of it is floating rate around the -- on the real estate side. When we look going forward, and most of that is up in the capital stack in AAA CMBS. We do have some loans on the balance sheet that we made. We did a small SRT deal with one of our larger bank counterparties. Going forward, looking at pipelines, we have anything from something that will fund, we're hopeful in the next couple of weeks, which is a retail asset up in Seattle, anchored by some very strong tenants, including Albertsons, Staples, et cetera. We're looking at stuff in the multifamily space. We have some nice opportunities, we believe, on the office side as well. And then we're looking at some larger M&A opportunities that we think could change the landscape of this organization for years to come.

Okay. That's helpful. And then on the last point, and I think you started to perhaps talk about this in your comments, you said commercial and opportunistic, but not necessarily doesn't have to be commercial. Maybe you could elaborate a little bit more on what you meant there in terms of opportunistic.

It's going to be -- right now, the intent is for this vehicle to be focused on commercial opportunities. I think back to our Fortress days when we bought a little under $4 billion of consumer loans into our REIT along with some other capital vehicles we had, and that was the beginning of what became OneMain Financial. I'm just using that as an example. Right now, though, what I would say is I'd focus the focus for all of us here at Rithm is to build this as a dedicated opportunistic commercial REIT.

Your next question comes from the line of Randy Binner with B. Riley Securities.

This is Tim D'Agostino on for Randy Binner. When we think about the go-forward plan for the portfolio, what should we think about in terms of capital being put to work per quarter and where we may see that capital be putting to work?

So again, it's the capital that's going to -- where it's going to go is going to be the very same assets that I just described. So you'll have the pipeline between retail, multifamily office. We have some industrial things we're looking at. We did an SRT deal with one of our -- like I pointed out, one of our larger bank counterparties. So it's going to be in those very same pockets. When you think about capital deployment, the good news is we're sitting with roughly $100 million of cash and liquidity on balance sheet, where as much as we want to deploy that capital yesterday, and we could, we want to make sure that we are -- we find the right opportunities to create what we're really striving to do, which is going to be something with teens type returns. So that $100 million that sits there, I think our projections are we'll be deploying about $50 million this quarter here in the third quarter, assuming that all the different loan opportunities we're working on close here in the third quarter. And then going forward, obviously, we'd like the stock to right itself, but we'll likely continue to tap into the pref market as well, so we don't dilute shareholders.

Your next question comes from the line of Tom Catherwood with BTIG.

So my question, I want to kind of try to tie a couple of ends together here. So it really does sound like your pipeline of opportunities has scaled up. And you took us through the cleanup that you did on legacy Great Ajax over the past 12 months. But as far as that pipeline, and it seems like you've gotten to the point in time when it's -- it will really be an execution opportunity right now. Was it just a matter of time of building that? Or was there a shift in what you were looking at that helped that scale? Or were you missing out in deals and you've gotten more aggressive and so more is dropping to the bottom line? What's kind of changed between 1Q and 2Q that's helped that pipeline scale the way it has?

Yes. No, I think those are great questions. One is the team is out hunting and having lots of conversations, whether it be with our large bank friends with some third-party origination platforms or just stuff that -- where we get calls directly from sponsors. So we're seeing a lot more of that. And I think part of it is building the -- not the Rithm brand because I think the Rithm brand resonates extremely well in the investment community, but the Rithm Property Trust brand, which wasn't really as well known since -- other than when we initially took over the platform. So the pipelines are building. The teams are having a ton of conversation. Certain -- what I would say, though, on the flip side of that is we're not going to compete for the last dollar to drive cap rates extremely low on, for example, on office, if we don't think it makes sense for the vehicle. Our goal here is to take what we have, which is as clean, in our opinion, a clean balance sheet, sitting on some liquidity, we could use more and deploy that capital prudently with teens type returns. We're not going to get into a bidding war with somebody at least for now on things that we don't think make a lot of sense. So I think it's a combination of, one, we are seeing a lot more directly from sponsors. Two, we're having a lot more conversations with our banking partners, which we have a lot of. And three, the brand is -- the Rithm Property Trust brand overall with the great job the team is doing is getting out there. So the teams are getting the call on these, not just, for example, the largest real estate players in the industry.

Got it. Appreciate that color, Michael. And then if we think of sources and uses here, right? The opportunity set scales, there's more deals falling to the bottom line. You've obviously built this large book of CMBS securities. You did it over a period of time where spreads were wider. They've obviously tightened down towards record levels again. How do you think about either taking on more debt, using the cash on your balance sheet or even selling the securities, which again, we assume you would have a gain on in order to put them into more of this direct lending opportunity, which is what it sounds like that's more of -- that's in that pipeline right now. How do you think of the securities book as a funding source?

It could easily be that, right? Because one of the reasons why -- and thanks for leading me to the answer here. One of the reasons why we stayed up in the cap stack was as we continue to grow this, we wanted to deploy capital to create some earnings for the balance sheet. As we look at some of the opportunities we're seeing and typically -- and the way we're going to grow this company, honestly, is by doing things that are a little bit more meaningful and larger over time. Yes, we'll hit our singles, but we have to do something that's meaningful and be able to raise a bunch of capital around that. And that -- and the way that -- if you look, we did a -- I think it was a $50 million pref offering kind of a few months back. We don't want to dilute shareholders to the extent that we don't need to. I think what we're going to likely do is bringing third-party capital alongside a larger transaction, which is going to help get this platform off the ground. And then I think once we do that, you're going to see the stock really right itself. So I think the optionality in this company and the stock, I think, is extremely high and significant to the upside.

Got it. Appreciate that. And last one for me. If we think of kind of once you allocate that, let's assume the $50 million in opportunities that are near-term close. If we do a quick back of the envelope, that looks to us like just about maybe a little bit over $0.01 a share per quarter. Is that -- does that check out? And is this the kind of thing where to get up to that dividend level, you're going to need to put out $300 million of incremental capital? Or are there other catalysts that help you kind of boost earnings back to that dividend level?

I think in your math, it's about $0.02 a quarter. Again, it's -- we're going to have to create some scale around our capital formation side. But I think we'll get to whatever our current dividend that we're paying. We came into this thing not looking to cut the dividend because folks have suffered a lot of pain prior to us acquiring the management contract here. So we're going to do all we can to maintain this dividend and continue to try to grow earnings.

Your next question comes from the line of Doug Harter with UBS.

Hoping you could just talk about kind of trying to square all the things you've said about a growing pipeline, lack of interest in diluting shareholders. And just how you think about kind of the patience that you have to try to scale the business while kind of looking at those 2 factors and kind of how you think that plays out?

I think the scale of the business is going to be around a larger scale transaction. That's how we're going to be able to raise capital to create a vehicle that's where we're going to start generating significant earnings. While saying that, I alluded to likely bringing third- party capital alongside us. I think you'll see that without going out to truly dilute the shareholders here that with the stock trading at, again, give or take, $2.70, I don't -- you can't -- quite frankly, you can't raise enough stock around that level to make a significant dent in this company. Pipeline-wise, I'm looking at 11 different transactions on a sheet in front of me right here. They range anywhere from a large M&A opportunity to a retail loan that I pointed out. I gave you some color with Albertsons and Staples as some of the anchor tenants to looking at some multifamily stuff in Florida to some New Jersey office to some local office. So our pipelines are pretty robust. The one thing we want to make sure that we do, though, is obviously be extremely thoughtful on deploying the capital.

And that concludes our question-and-answer session. And I will now turn the conference back over to Michael Nierenberg for closing comments.

Thanks so much for the questions, guys. Look forward to updating you next quarter or during the quarter. Again, I do like where we sit. We're going to be patient, but we need to try to grow our stock price here, and we're extremely mindful of that. So have a great rest of the summer, if we don't chat, and have a good weekend. Thank you.