RPT - NYSE

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rithm Property Trust Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Emma Hoelke, Associate General Counsel. Emma, please go ahead.

Thank you, and good morning, everyone. I would like to thank you for joining us today for Rithm Property Trust Third Quarter 2025 Earnings Call. Joining me today are Michael Nierenberg, Chief Executive Officer of Rithm Capital and Rithm Property Trust; and Nick Santoro, Chief Financial Officer of Rithm Capital and Rithm Property Trust. Throughout the call, we are going to reference the earnings supplement that was posted this morning 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 certain 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. And with that, I will turn the call over to Michael.

Thanks, Emma. Good morning, and thanks for joining us today for the Rithm Property Trust call. There's -- during the quarter, we didn't have a ton of activity. What I would say is that when we took over this company last June, we stabilized the company, which at that time, I think was losing in and around $10 million a quarter. Today, the company essentially is flat when you take into account earnings and we're still paying a $0.06 dividend. Along the way, we've liquidated what I would say a bunch of resi assets. We've added some commercial real estate floaters or CMBS floaters, which are higher yielding top part of the capital stack with some reasonable yield. The other thing about these assets from a liquidity standpoint, they're very easy to create liquidity. So when we take a step back and we look at the assets that we've added, the assets that we've sold to the extent that we find an interesting opportunity, and we're always on the hunt as everybody knows, we'll be able to liquidate these -- a number of these assets and then use some of that capital to redeploy into either higher-yielding assets or something that's more strategic for the company. The real question for the company is where do we go from here? So we have a few options. One, we can recap the vehicle with an offering of equity associated with a pool of assets or other types of instruments that could be in the fixed income world that will provide real income for investors. Two is, we could explore some kind of liquidation of the company. And I bring that up because with book value at $5.30 and the stock trading at $2.40-odd, clearly, there's a huge value play for equity investors in this. Or three is, stay the course. And what I would say on three is we're not going to just stay the course and leave something outstanding for the sake of leaving something outstanding. If you listen to our Rithm earnings call yesterday, we discussed our most recent acquisition at Rithm and our affiliates, which is the Paramount transaction, where we agreed to take private one of the large office REITs here in New York City and San Francisco. Quite frankly, we're really excited about that deal and really excited about the returns on that deal. So one of the questions we got on yesterday's call, is it something that we consider adding some Paramount to the -- adding to the Rithm Property Trust and the answer, what I said was yes. Longer term, as we look at this vehicle, we are developing a direct lending business, and this platform would be perfect for Rithm Property Trust. So as we think about that, we'll work in conjunction with our Genesis partners, which -- and Genesis, so everybody knows, is our residential transition loan organization where we make construction loans to kind of mid-tier type sponsors and not some of the larger players. So when we look at that, our experience there, we grew a company that was doing $1.7 billion in production. Today, we're going to -- this year, we'll probably do north of $5 billion. The asset yields on those are great, and we have a real business around it and what we'll likely do is grow that and some of those products could be perfect for our direct lending business. What I do think one more time as we look at the equity and where it trades relative to book value and some of the things that we do, it's -- just to reiterate, we're not going to leave this thing outstanding for the sake of leaving a company outstanding. We need to either figure out a way to grow it or at some point, we'll likely think about an auction process for the company and realize what I think is going to be true book value. So with that, I'll turn -- I'll flip -- we'll start -- we have a small deck. There's not a ton in there, quite frankly. We'll start on Page 3, and then we'll have a Q&A, and then we'll go from there. So as I mentioned earlier, Rithm Property Trust, we -- it was formerly known as Great Ajax. It was a residential mortgage REIT. Quite frankly, it was a little bit broken. We took over the management of that, rebranded it to Rithm Property Trust, set out on a mission to deploy more capital in the commercial real estate business. We did a small preferred offering, which helped us raise a bunch of cash. So when you look at the company today, we're sitting with in and around $100 million of cash. The company has about $300 million in total equity. And the pipelines look great. The portfolio is about $308 million today. But what I think this vehicle will do is afford us the ability to continue to hunt for things to try to grow the vehicle. And I've used in the past what happened with BXMT, which is Blackstone's mortgage REIT, where they actually created a vehicle around a pool of assets and really grew it. So hopefully, we could do that. And if not, well, I gave you the other options before. Looking at on Page 4, your financial highlights. Effectively, the company was flat quarter-over-quarter, still maintained a $0.06 dividend. Cash and cash equivalents on balance sheet at the end of the quarter, $81 million and total equity is $292 million. When you look at Page 5, the opportunity we -- during the quarter, we actually originated a $21 million loan on a retail -- a grocery-anchored retail center outside Seattle. The yield on that will likely be in the mid-teens. So when we look at that and we think about our ability to grow in some of the lending activities, that's something that gets us excited here. But we got to -- quite frankly, we have to execute on that plan. When you look at Rithm Property Trust on this page, on Page 5, you might say why Rithm Property Trust. There's no legacy anything, quite frankly, in the company. And I think it's truly -- this is truly upside as we -- to the extent that we could grow the vehicle. Page 6, just talks about how when we first took over the company, we stabilized earnings. As we go forward again, earnings are pretty flat. We need to do something more material to actually generate earnings, and that's something we're keenly focused on. Page 7 is our typical slide, which illustrates what the future state of the portfolio could be. I would look at this vehicle as more being opportunistic in nature than some of the other things out there. So with that, I'll turn it back to the operator. We'll open up for some Q&A. And if anybody has any questions, please don't hesitate to ask.

[Operator Instructions] Your first question comes from the line of Tom Catherwood with BTIG.

Michael, obviously, you laid out a bunch of different avenues that you could go forward with, with the 3 that you laid out at the beginning. But maybe just take the stay the course one for this question. You talked last quarter about $50 million of loans kind of being pretty close to the finish line. You did $21 million this quarter. What does that kind of pool in closing look like right now?

There's a couple of things here. One is I brought up the Paramount deal. That's a big deal. I mean there's $6.60 on 13 million square feet. So it's likely this company, depending upon Board approval, could participate in that transaction. One thing we're working on in conjunction with our Genesis partners, when you think about that business, we make multifamily loans, we make residential transitional loans. And then at Rithm and Rithm Property Trust, we're doing more in the direct lending space. We'd really like to grow our direct lending presence. We've been adding some bodies around the house. And I think this vehicle could be perfect for that. So some of the things when we mentioned last quarter, we spoke about $50 million in loans, we did this $21 million loan, which we like very much. We have passed on what I would say, more of and some of this is, as you think about the mayoral election here, when we think about some rent-stabilized stuff that we were looking at, we're not going to do rent-stabilized loans in New York City right now. We also passed -- initially, we were down the path on a Rosewood Hotel in Dallas. We went down and did a bunch of diligence on that and just couldn't get comfortable on that. So we passed on that. So in the quarter, we did -- obviously, the $21 million loan, we're sitting with roughly $100 million of cash and liquidity. We look at what's sitting on balance sheet on the retained side. And as we go forward, it's really going to be about direct lending, the growth there and some more opportunistic situations.

Great. Appreciate that. And then on Paramount more specifically, and I know the deal is still coming together, obviously, hasn't closed, so all options are on the table. But when we think of that company, it had historically had a part of its business that was dedicated to making opportunistic commercial real estate loans, whether that was mezz positions, preferred positions, so be it. Is the potential thought to carve off whatever may be remaining of that or whatever capacity that exists within their funds? Or is this potentially RPT taking a position somewhere else in the capital stack as you go towards that closing? And again, if you can't talk about it, I fully understand, just trying to get ideas of what this might look like.

Yes. No, it's a good question. They had some legacy funds. I would assume for purposes of this discussion, there's nothing to do with Rithm Property Trust and those funds. It would likely be a position that would be pari passu alongside Rithm, the parent -- our parent company, obviously, on the underprop goes. So when you think about it, there's 13 assets between New York and San Francisco, and it would be a position in those specific assets on the property side.

Got it. Got it. And then last one for me, Michael, you make this comment about the discount to book value and all of that, and it makes sense. But when we look across kind of all of the commercial real estate mortgage space, the discounts are huge have gotten more so, obviously, since Tricolor since their bankruptcy since first brands, since we had the regional banking issue a couple of weeks ago. In general, commercial mortgage REITs have just been lumped together with this existential fear about credit. Now you sit kind of at the nexus of a bunch of different credit vehicles. What's your view right now on kind of what's real out there risk-wise for credit, be it real estate or otherwise? And what's kind of overdone right now? Because I think that's -- it's not just hitting RPT, it's hitting everybody. What are your thoughts on the market right now?

So I think it's bifurcated. I think there's a couple of situations. One is a lot of the legacy commercial real estate REITs were still saddled with bad loans that need to get and I'm not saying bad loans, let's just say, underwater loans that need to get worked out. We do not have any of those here at our firm. And that goes for both on the Rithm level and on the Rithm Property Trust level. So when we set out on a mission to kind of rebrand this vehicle, we said we're going to get into the commercial real estate space again because we don't have any legacy issues. So I think when you look across the spectrum, there's a number of, what I would say, REITs out there that are still working through some of their issues and this vehicle is clean. So I think that's one. Two, when you think about credit and you think about like even when we think about this Paramount deal, why office? Not everybody can do office because a lot of folks are still reworking their existing office portfolio. So we looked at that as a real opportunity for us because, one, we -- as a company, we have a need for 100,000 square feet. So we're in the market looking at office pretty much every day, and we have a really good pulse on what's happening in the market. As we think about credit, the capital markets for commercial real estate are wide open. You're seeing more and more CMBS get done prior to us announcing this deal, the company did a CMBS deal on 1301 Sixth Avenue. So I think the credit markets are wide open with the breadth of the Rithm team and our other affiliates, there's a ton of things to look at. I will say in commercial real estate, and I'm sure you know this, you got to be really, really careful, not just in commercial real estate and everything, but in commercial real estate, particularly when you have one-way risk on a single type of property. So when we think about where we could go with this in the direct lending space and create more diversified pools of assets or diversified lending around the business, it gives us pretty good comfort that we're going to be able to do wonderful things here. What I would say on the discount to book, quite frankly, if we could all get paid in equity at these kind of levels, I think we'd love to do that. So the net of it is we're extremely optimistic on where we could go. The thing is you need capital to grow. And with the stock trading at whatever, 50-odd percent of book, it's very difficult. My view and our view is not to dilute shareholders. But if there's a way to kind of grow out of this with something meaningful and some sizable offering associated with a pool of assets, we'll consider that.

Your next question comes from the line of Craig Kucera with Lucid Capital Markets.

I wanted to circle back to the Paramount transaction. Can you give us a sense of what the economics of that might look like for RPT? I mean, is that sort of in the ballpark of what you've done this year with the, call it, the office senior sub deal of maybe 12% or the retail asset at 11%?

The Paramount deal is more equity based. We're playing around with a couple of different structures. Are there different ways to think about this. So I don't have a specific answer. But on the surface, when you look at the Paramount deal and the way that we're doing this, we paid $6.60 for the company. That equates to about $1.6 billion before some of the, what I would say, fees and noise around this. So that gets you roughly $1.8 billion. The amount of cash that sits on balance sheet is a little south of $500 million, that gets you to $1.3 billion. Rithm, the parent will put in, give or take, about $300 million of equity. The contemplation, again, subject to Board approval would be for Paramount to put in about $50 million. So that gets you to a little under $1 billion. Rithm, the parent will then be raising, and we're in the market now, a fund around the remaining, call it, $1 billion. And that's the so-called funding of the vehicle. When we look at economics, here's how to think about this. We are assuming going in a cap rate a little bit south of 7% are going in so-called cost per foot is about a little under $600 a foot. When you think about replacement costs, the replacement cost, including land in New York City is likely something around $3,000 a foot. So effectively, you're going in to acquire Class A office buildings at a 75% discount-ish to replacement cost. When you look at the stabilized cost, you're in the low 700s, and we think our exit strategy here, just to give you a sense, is something around 6% on New York and 6.5% to 6.75% on San Fran. What that does based on a -- let's use Rithm Property Trust, a $50 million equity check gives you about a 2x MOIC on that $50 million and a 20-plus percent return based on our assumptions. So we are extremely excited about this transaction. This is in investing, and we like to think of us and our business as a more opportunistic investing. You very rarely have the opportunity to deploy a large amount of capital in Class A office assets that are located in 2 of the gateway cities in the U.S., which are obviously in New York and San Francisco in a dislocated market where we think we're going to generate outsized returns for our investors. So that's the investment thesis here. We'd love for Rithm Property Trust to participate in that. And hopefully, we have a good result around it.

I appreciate the color. That was very thorough. I'd like to think about the flip side of that, though. Could you envision a scenario where Rithm Capital could potentially deploy capital into RPT in order to sort of jumpstart the scale of the company?

It's a really good question. I mean I think that when you think about equity offerings or you think about preferred offerings or something like that, and we've had a number of conversations, what I would say, our banking partners on the street about this, how to think about a potential rights offering where Rithm backs us that against a pool of assets. I don't know -- quite frankly, those conversations go on all the time. I don't know that there's anything to do right now today. There is one deal that's happening in the marketplace, but it's small in nature. I think there's -- I don't have all the details, but I think it's between an $80 million and $100 million offering that one of the banks is doing against either a pool of assets or that's guaranteed by a parent at a discount, I think, of 10% to 15% to -- the backstop, I think, is 10% to 15% where the offering is coming. So we have to be thoughtful about how this works for both Paramount and -- I mean, Rithm Property Trust and how it would work for Rithm the parent. I think to keep it clean, we'd prefer to do something that's not like that, but I don't know yet just to where we ultimately go.

Got it. And just one more for me. Just in the process of raising capital around this Paramount transaction, I know you're looking for other third-party sources of capital. Has that opened up any potential partners for RPC? Because I believe like in the past, you've said that you are looking for a third party to sort of jumpstart the company.

Yes. I mean the amount of conversations we as a firm have and when you think about the firm, I can tell you whether it be at the Rithm level, whether it be at the -- even Crestline, which hasn't closed, we expect that deal to close on December 1 or even at the Sculptor level. There's a lot of what I would say, cross-pollinization around the firm as we have a ton of conversations with LPs and other partners. So this deal has opened up conversations that truly we wouldn't have had 6 months ago. So we're super excited about that. There's a ton of opportunity. If we wanted to fund this entire Paramount deal yesterday with third-party capital, we could do that in a heartbeat. It's just how do we think about, as an organization, maximizing returns for our shareholders.

That concludes our question-and-answer session. I will now turn the call back over to Michael Nierenberg for closing remarks.

Great. So thanks for dialing in, and guys, I appreciate the questions. Again, just to be clear, we're going to do anything and all we can to figure out a way to grow earnings in the company, not just grow the company but grow earnings in this company. We do feel that the equity is fundamentally mispriced. I think to some of the questions we heard, a number of these REITs have equity that's fundamentally mispriced. The difference here is we do not have any legacy issues, and it should be onward and upward. We'll keep you posted throughout the quarter and other things that we're doing around the company. And if you have any questions, don't hesitate to follow up. With that, happy Halloween. Have a great weekend and look forward to updating everybody soon. Thank you.