RC Q1 Deep Dive: Asset Liquidations and Credit Repositioning Dominate Start to 2025

Real estate finance company Ready Capital (NYSE: RC) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 140% year on year to $31.32 million. Its non-GAAP loss of $0.09 per share was significantly below analysts’ consensus estimates.

Is now the time to buy RC? Find out in our full research report (it’s free).

StockStory’s Take

Ready Capital’s first quarter results for 2025 were met with a significant negative market reaction, as the company’s revenue and adjusted earnings per share both missed Wall Street expectations. Management attributed the quarter’s performance to a combination of ongoing asset liquidations in the non-core commercial real estate portfolio and continued pressure from non-accrual loans, which reduced net interest income. CEO Thomas Edward Capasse highlighted the impact of transitioning assets to non-accrual status and noted, “The dividend shortfall was primarily due to a reduction in net interest income as assets in the non-core portfolio transition to non-accrual status.”

Looking forward, Ready Capital’s management is focused on executing a balance sheet repositioning plan designed to stabilize earnings and restore net interest margin levels. The company expects its strategy of liquidating non-core assets and reinvesting proceeds into core higher-yield bridge loans to gradually improve earnings, with CFO Andrew Ahlborn stating, “The upward trend really will start upon reinvestment of that equity I just described.” Management also pointed to potential benefits from policy changes in Small Business Administration lending and the stabilization of key real estate assets.

Key Insights from Management’s Remarks

Management cited active portfolio repositioning, capital market execution, and sector-specific challenges as the main factors influencing the first quarter’s results and the company’s near-term outlook.

• Non-core asset liquidations: Ready Capital surpassed its first quarter liquidation targets in the non-core commercial real estate portfolio, generating $28 million in liquidity and reducing the portfolio by 6%. Management views these sales as key to reducing negative carry and creating capital for reinvestment.
• Core bridge loan stability: The core portfolio, which is heavily concentrated in multifamily assets, saw a 5% decline in volume due to payoffs, but credit metrics remained relatively healthy. Modifications increased, with 18% of loans now altered to accommodate borrower needs, supporting future net interest margin rebuilding.
• Portland mixed-use asset update: The previously performing construction loan in Portland shifted to non-accrual status, resulting in a $0.13 per share earnings reduction. Management is moving to obtain title and expects to sequentially exit the asset’s hotel, office, and condo components as they stabilize.
• SBA lending volume and policy changes: Small Business Administration (SBA) loan originations remained high but are expected to moderate due to capital constraints and administrative delays at the SBA. Management is monitoring policy updates and supports recent changes aimed at strengthening the program.
• Capital markets activity: Ready Capital completed a merger with UDF IV, generating $96 million in liquidity and a $102.5 million bargain purchase gain. The company also executed secured debt offerings and collapsed several collateralized loan obligations (CLOs) to extend maturities and improve liquidity.

Drivers of Future Performance

Ready Capital’s outlook centers on the pace of asset sales, reinvestment strategy, and the evolving landscape in SBA and multifamily lending.

• Execution of asset liquidation plan: Management expects continued reductions in the non-core portfolio throughout 2025, with proceeds targeted for reinvestment into core higher-yield loans. The timing and pricing of these asset sales will influence the recovery in net interest margin and distributable earnings.
• Stabilization of the Portland project: The company anticipates that the sequential stabilization and eventual exit of the hotel, office, and condo components in the Portland mixed-use asset will be critical for improving earnings, though management cautioned that full stabilization could take several years, especially for condo sales.
• Regulatory and policy impact on SBA volumes: SBA origination volumes are expected to remain below platform capacity due to administrative delays and changing guidelines, but management highlighted that successful adoption of new SBA policies and legislative changes could eventually support higher future origination volumes and gain-on-sale margins.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will be monitoring (1) the pace and pricing of non-core asset liquidations and reinvestment into the core loan portfolio, (2) progress toward stabilization of the Portland mixed-use asset and subsequent asset sales, and (3) shifts in SBA loan origination volumes as new policies and legislative changes take effect. The impact of capital market access and debt refinancing will also be closely tracked.

Ready Capital currently trades at $4.50, up from $4.37 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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