Rithm Property Trust, Inc. Q1 FY2025 earnings call

• The company was in good shape after repositioning, selling low coupon assets and redeploying into higher yielding commercial assets. It has no legacy commercial real estate exposure. • The team at Rithm Capital, with ~75 members focusing on Rithm Property Trust, has significant experience in resi and commercial spaces. • Deployed $65 million in CRE debt, including CMBS bonds and a loan on a midtown office building. • Sold $21 million of legacy resi assets and raised $52 million of capital. • Has a robust pipeline and aims for a diversified portfolio across CMBS, senior loans, mezz, and opportunistic investments.

For the first quarter, GAAP income was $1.1 million or $0.02 per diluted share, and earnings available for distribution was $0.75 million or $0.02 per diluted share. The first quarter dividend paid was $0.06. Cash and cash equivalents totaled $97 million, with total equity at $295 million and GAAP book value at $5.40. The stock trades at about $2.85, which is considered undervalued. In the quarter, $65 million was deployed in various CRE debt, including $47 million of AAA CMBS bonds with a roughly 11% yield and a $35 million loan plus $800 million on a midtown office building. $21 million of legacy resi assets were sold.

• Expect to continue growing earnings by deploying capital opportunistically. • Look for third-party partnerships or M&A transactions to scale the business and increase earnings power. • Confident in the undervalued equity and aim to create real shareholder value as the company grows. • Policy is to maintain dividends while growing out of the earnings situation through accretive capital deployment.

• Volatility in financial markets can impact equity prices. • Potential credit deterioration leading to banks selling non-performing loans. • Caution needed with spreads in certain markets like the conduit CMBS market, where activity has been quiet, leading to more single property deals at wider spreads.

Q: In terms of the volatility that we've seen, has that changed tellers' motivations? Has it changed the activity level in the market? Are you seeing any movement there?

A: You have wider spreads across the board. While there's been some stability, more opportunities are seen across platforms, but need to be careful with certain markets like the conduit CMBS market which has been quiet.

Q: Maybe starting with $17.5 million subordinate mortgage, this was your first investment in that subordinated mezzanine loan category on page eight that you highlighted, Michael. How is your $1 billion pipeline divided between that category and CMBS senior loans and opportunistic investments at this point?

A: This was an opportunistic investment. It's a diversified portfolio, not wanting to be all loans or all bonds. We underwrite each asset individually and are in the middle of another partnership with large money center banks.

Q: Maybe starting with $17.5 million subordinate mortgage... And then, you know, obviously you mentioned the preferred issuance in 1Q and then you're sitting on nearly a $100 million in the balance sheet of cash in the balance sheet. When are you thinking of starting to pay down that higher coupon corporate debt? And kind of beyond that, what are the next steps in the company's balance sheet evolution?

A: The corporate debt probably stays outstanding for a bit as long as we can deploy capital above it. The growth of the company could come from third-party partnerships or M&A, and the stock trading at half book value makes that more likely.

Q: Hey, good morning. I -- just a couple kind of balance sheet related questions. I guess the first one is, I think on the last call you had mentioned there'd be less sale activity or selling the legacy portfolio. And so I think it was $21 million this quarter and it sits at about $100 million. And so is that, I think I'm kind of putting all the comments together, but the ability to continue to move out from the legacy portfolio is, is it relatively limited going forward or is it pretty good? Like how should we think about that remaining amount that's going to kind of stay?

A: It's relatively limited. Where we can make headway, we will, as long as we don't give up value. After quarter end, down to about $25 million a UPB that potentially could be sold.

Q: Thank you very much. A bit of a follow-up to Randy's question, but just in terms of the balance sheet for those of us new to the story, you know, what percentage is a core longer-term hold, whether it be from the legacy assets or new investment, and what percentage of that is commercial real estate, the new debt investment strategy?

A: On the legacy hold, it's relatively limited. The goal is to deploy capital in commercial real estate assets, with about $50 million likely to be deployed into commercial real estate assets from the current cash.

Q: Thanks. Michael, can you talk about the balance between looking to grow to be able to scale the business and hopefully scale earnings power versus willingness to issue equity and dilute current book value?

A: It's about growing the business, potentially through third-party partnerships or M&A. The company doesn't trade at book value, and we'd consider issuing equity if it's highly accretive and generates more earnings, but the preferred route is to avoid diluting shareholders too much while growing.