RCD

• Focus on returning to financial health via portfolio yield rehabilitation, Small Business Lending growth, and managing 2026 debt maturities.
• Completed 2 portfolio sales: sale of 21 loans for $665 million netting $85 million, and sale of 196 small balance loans for $93 million netting $24 million.
• Balance sheet repositioning with reductions in CRE loan exposure, core portfolio denominator effect, noncore portfolio liquidations, and REO management.
• Small Business Lending operations despite government shutdown challenges, with growth opportunities via warehouse facility and securitizations.
• Balance sheet management for 2026 debt maturities with unencumbered assets, net liquidity from portfolio maturities, asset sales, and potential new debt issuance.

• Evaluate dividend in December based on business plan progress, liquidity for 2026 maturities, and competing liquidity sources.
• Expect more conservative posturing regarding new investments and dividend policy as working through maturities.

Core portfolio: 94% of portfolio, levered yields increased 10 basis points to 11%, $40 million new core net delinquencies, $131 million core migrated to 60-day-plus with $91 million resolved. Noncore portfolio: 6% of portfolio, liquidated $503 million, had $8 million drag on earnings, $648 million REO across 28 positions. Small Business Lending operations: Originated $175 million of SBA 7(a) loans, $67 million USDA production, generated $11 million net income, adding 280 basis points return on equity before realized losses.

• Risks related to forward-looking statements with actual results differing from expectations.
• Risks from factors impacting quarterly results such as net interest income decline, gain-on-sale income change, operating cost movements, loan loss provisions, and valuation allowance reversals.
• Risks associated with managing 2026 debt maturities and potential impact on book value from delevering actions.

Q: You talked about having a more conservative posture for the company going forward. Can you talk about where you think the right level of leverage to run the business, and so in thinking about how much debt do you need to refinance versus pay down?

A: Current gross leverage around 3.5x, looking at turn less than that on pro forma basis.

Q: Can you tell me what the current covenant is on the unencumbered asset ratio?

A: Well covered within 1.2x range, covenant well in excess.

Q: The comment about the restoration of financial health is well taken. The dividend cost, as you know, around, I think, $80 million a year, seems unjustifiable to continue paying it, and also spending money to buy back stock in the face of these corporate maturities and the company's plans to reduce leverage. So it just doesn't seem justifiable to continue to pay dividend and to also buy back stock. Can you please explain the rationale and what the plan is going forward?

A: Company adopting aggressive balance sheet repositioning, evaluate dividend in December, rank order of liquidity is reduce leverage, exit low-yielding assets, then potential asset repurchases, then reinvestment.

Q: On the Portland property, is that being carried at fair value or at cost?

A: Fair value, property broken out into components, condos held for sale at fair value, other components held for use at cost.

Q: And would the Portland property be categorized as one of the unencumbered assets that Tom alluded to earlier?

A: No, currently leverage on that asset.

Q: I saw somewhere where there's a large office building in Portland, the Big Pink, I think it's called, I think it was the U.S. Bancorp headquarters. And they recently sold for $45 million. It was originally -- prior value was $373 million, like 5 or 10 years ago. And given that, and apparently it's a marquee property in Portland, doesn't that for -- as nice as this property seems, doesn't it seem like the valuations on these things is really going to take a dive? Just like your comments.

A: Apples and oranges comparison, office sector different, Ritz is luxury hospitality asset, unique in Portland, RevPAR increasing, new property manager best-in-class, 2 years into stabilization with positive trends