Ready Capital NYSE: RC said its first-quarter 2026 results reflected continued pressure from a balance sheet repositioning plan aimed at raising liquidity, reducing leverage and addressing underperforming commercial real estate assets.
Chief Executive Officer Thomas Capasse said the company has generated $1.4 billion in cash year to date from loan sales and liquidations, allowing it to pay down more than $1.1 billion of warehouse debt and create $270 million of net liquidity. That liquidity was used in part to retire $184 million of corporate debt.
Capasse said the company’s liquidity plan, first outlined in the fourth quarter of 2025, is expected to span four quarters. Ready Capital began the year with $650 million of corporate debt across four 2026 maturities. It retired a $117 million, 5.75% senior unsecured bond in February and a $67 million, 6.2% senior unsecured bond in April, leaving $450 million of maturities due in the fourth quarter of 2026.
“We are continuing to resolve non- and sub-performing positions to reduce earnings drag and facilitate recycling into current market-yielding opportunities,” Capasse said. He added that Ready Capital is moving toward “a lower leverage, more capital-efficient platform” intended to support long-term earnings growth.
Loan sales and runoff drive liquidity plan
Capasse said Ready Capital’s year-to-date liquidity has come from two primary sources: the sale of 48 loans with approximately $1 billion of unpaid principal balance across four transactions, producing $177 million of net liquidity, and $550 million of portfolio runoff, producing $93 million of net liquidity. The loan sales consisted of 66% performing loans and 30% non- and sub-performing loans, according to management.
Looking ahead, Capasse said the company’s plan contemplates an additional $400 million of liquidity from the sale and runoff of $2 billion to $2.5 billion of commercial real estate loans and real estate owned assets through year-end. He said current projections indicate those actions, together with current liquidity, should be sufficient to retire the remaining 2026 maturities and meet future cash flow needs.
After completion of the liquidity plan and repayment of fourth-quarter debt maturities, Ready Capital expects its remaining legacy CRE portfolio to total about $2 billion. Capasse said that portfolio is expected to include $800 million to $900 million of sub- and non-performing loans and REO assets. Management believes those assets have better net present value through “aggressive asset management strategies” rather than sales at current market discounts.
Capasse said that sub-portfolio currently creates a quarterly earnings drag of approximately $0.06 per share and cash outflows of $9.3 million per quarter. He said the company expects leverage to stabilize around 2.5 times after the repositioning plan is completed.
First-quarter losses reflect asset sales, reserves and lower revenue
Chief Financial Officer Andrew Ahlborn said Ready Capital reported a GAAP loss from continuing operations of $1.25 per common share for the first quarter. Distributable earnings were a loss of $1.00 per common share, or a loss of $0.33 per common share excluding realized losses on asset sales.
Book value per share was $7.43 at quarter-end, down from $8.79 at year-end. Ahlborn said the decline was primarily due to a $0.42 per share loss on loan sales settled during the quarter, a $0.47 per share loss from additional CECL reserves and valuation allowances, and a $0.36 per share loss from operations.
Recurring revenue was $16.2 million, compared with $41.5 million in the prior quarter. Ahlborn said the decline was driven by a $28.5 million reduction in net interest income, partly offset by a $3 million increase in other income. The lower net interest income reflected the liquidation of approximately $1.8 billion of loans over the past two quarters, reduced cash receipts on nonaccrual loans and timing differences between asset liquidations and corporate debt paydowns.
“We expect net interest income to be negative as we move through this transition period,” Ahlborn said, citing expected improvement from reductions in nonaccrual loans and REO, lower asset-level and corporate debt financing, and the recycling of capital into market yields.
Operating expenses increased $7.8 million from the prior quarter to $67.7 million. Ahlborn said the increase was primarily due to $6.7 million of non-recurring advance payments made to servicers after the collapse of the company’s remaining CLOs and a $3.9 million decrease in tax benefit.
Ready Capital ended the quarter with $200 million of liquidity and $730 million of unencumbered assets. Ahlborn said first-quarter liability actions included collapsing three CLOs totaling $900 million of collateral, adding a new $500 million CRE warehouse facility and renewing two additional facilities. Current total leverage was 3 times.
Company plans narrower business focus
Capasse said Ready Capital intends to simplify its business model through greater integration with external manager Waterfall Asset Management and a renewed focus on two core areas: middle-market CRE debt investing and SBA 7(a) lending.
During a period of constrained investing, Capasse said the company can generate fee income in place of net interest margin by originating loans for Waterfall, where it has funded $172 million year to date, and for third parties, including through a new $1 billion flow arrangement.
Capasse said Ready Capital expects to focus future investment activity on CRE sectors where it sees the best relative value, with average investment size expected to double from its historical average of $17 million. He also said the company expects its financing strategy to be “more opportunistic and less securitization driven,” referring later in the call to CRE CLOs rather than SBA securitizations.
Ready Capital also plans to increase capital allocation to its small business lending platform, which Capasse said is expected to represent 20% of company capital going forward. He said the platform has historically provided 300 to 500 basis points of core return on equity alongside CRE net interest margin.
SBA securitization expected to support second-half production
Capasse said lower SBA 7(a) originations in the first quarter reflected the prioritization of capital toward debt repayment, which limited new SBA deployment to existing warehouse capacity. He said the pending launch of a $158 million SBA 7(a) securitization is expected to generate capacity for $500 million of incremental go-forward volume.
Management expects SBA production in the second half of the year to move toward historical levels. Capasse cited 2024 production of $1.1 billion.
In response to a question from KBW’s Jade Rahmani about deferred tax assets, Ahlborn said Ready Capital had a deferred tax asset of $201.6 million and a tax receivable of $16.7 million. He said management believes the deferred tax asset has value, while acknowledging its magnitude, and pointed to expected growth in the SBA business as warehouse capacity opens.
Management addresses St. Regis asset and credit trends
Capasse also provided an update on the St. Regis property, which he said remains Ready Capital’s largest single equity allocation at 18% of stockholders’ equity. The company has sold 43 condominium units and has four additional units under contract, which would bring the sellout to 36% of the 132 total units.
The average selling price for the 32 condos sold year to date was $745 per square foot, compared with $900 per square foot for all condos sold. Capasse described the pricing as a deliberate strategy to build momentum toward a full sellout at higher average prices. Hotel occupancy rose 5% year over year to 46%, while average daily rate increased 1% to $482 and revenue per available room rose 13% to $221.
During the question-and-answer session, Ladenburg Thalmann analyst Christopher Nolan asked about an increase in non-performing assets. Capasse said traditional metrics such as loans 60-plus days delinquent are becoming less central as Ready Capital executes asset sales and asset-management strategies intended to improve sale prices. Chief Credit Officer Dominick Scali said part of the increase reflected credit migration, but the majority was tied to a denominator effect as the company sold performing loans.
Ahlborn said Ready Capital recorded an additional provision of just under $71 million in the quarter. He said future reserve changes could include marginal increases on remaining non- and sub-performing loans, but the larger remaining effect is expected to be tied to execution of planned sales in the $2 billion to $2.5 billion portfolio.
When asked about the company’s eventual size, Ahlborn said total assets, currently about $6.3 billion, are expected to decline closer to $4 billion after the planned loan portfolio reduction.
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.
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