Rithm Property Trust - Earnings Call - Q2 2025

Executive Summary

• GAAP comprehensive income was $1.4 million, or $0.03 per diluted share; non‑GAAP Earnings Available for Distribution (EAD) was $0.1 million, or $0.00 per diluted share. Book value per share was $5.37, and the company paid a $0.06 common dividend for Q2 2025.
• Versus estimates: EPS came in at $0.00 vs Wall Street consensus of $0.01 (miss); revenue was $4.69 million vs consensus of $5.64 million (miss). Management reiterated focus on prudently deploying capital; no formal revenue/EPS guidance provided (*Values retrieved from S&P Global).
• Sequentially: comprehensive income rose to $1.4 million from $1.1 million, but EAD fell to $0.1 million from $0.7 million; net income attributable to common improved to $0.6 million from a Q1 loss of $(3.7) million.
• Stock reaction catalysts: management flagged ~$50 million of capital deployment targeted for Q3 with “double‑digit returns,” a robust ~$2 billion pipeline, and intent to bring in third‑party capital on larger transactions to avoid dilution—all potential re‑rating drivers as execution scales.

What Went Well and What Went Wrong

What Went Well

• Return to positive GAAP common profitability: net income attributable to common was $0.6 million and diluted EPS was $0.01; comprehensive income per diluted share was $0.03. Management highlighted the turnaround: “Q2 of 2024, the company lost $0.35 per diluted share. If you look at where we are now, we made $0.03 per diluted share”.
• Balance sheet and liquidity positioned for opportunity: ~$98.6 million in cash and cash equivalents; CMBS and other investments provide optionality for redeployment as spreads evolve.
• Dividend maintained: paid $0.06 per common share in Q2; management emphasized: “We do not intend to reduce [the dividend] anytime here soon”.

What Went Wrong

• Core earnings softness: EAD declined to $0.1 million ($0.00 per diluted share) from $0.7 million ($0.02) in Q1, reflecting lower core operating performance despite positive GAAP marks.
• Expense pressure: total expenses rose modestly to $3.96 million from $3.75 million, with management and professional fees steady to higher, constraining EAD.
• Estimates miss: EPS was below consensus by $0.01 and revenue below consensus by ~$0.95 million, suggesting slower-than-anticipated scaling of income‑generating assets (*Values retrieved from S&P Global).

Transcript

Speaker 1

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rithm Property Trust Inc. Second Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Emma Bolla, Associate General Counsel. Emma, you may begin.

Speaker 2

Thank you, and good afternoon, everyone. I would like to thank you for joining us today for Rithm Property Trust's Second Quarter 2025 Earnings Call. Joining me today are Michael Nierenberg, Chairman, CEO, and President of Rithm Capital Corp. and CEO of Rithm Property Trust, and Nick Santoro, Chief Financial Officer of Rithm Capital Corp. and Rithm Property Trust. Throughout the call, we're going to reference the earnings supplement that was posted this afternoon 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 some 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. With that, I will turn the call over to Michael.

Speaker 0

Good afternoon. Thanks, Emma. Good afternoon, everyone, and thanks for joining the call. You know, the way one year ago we took over the management contract of this REIT, which was formerly known as Great Ajax. The company was losing money, needed more liquidity, and quite frankly, a new leadership team and a new mission. We renamed the company to Rithm Property Trust. We sold down legacy assets, which were not accretive for shareholders, and we repositioned the company to be an opportunistic commercial real estate REIT. Over the course of the past year, we went out and deployed $300 million or bought $300 million in commercial real estate assets. We raised a new pool of capital without diluting shareholders. We did that via a prep offering, and we put the company on a path towards success and profitability.

While the numbers this past quarter are similar to last, we have a ton of deals and investments in the pipeline. When we were at Fortress, we took a company at that time, which was known as New Residential, which is currently Rithm Capital Corp. today, from $1 billion of equity in 2013. Today, we stand at almost $8 billion of permanent capital or equity. We manage over $80 billion of assets across all of our various business lines. We intend to do the same here. Unfortunately, it takes some time. If you think about the company this way, I'm confident you will be rewarded well in the future. One, that we do not have any legacy commercial real estate assets. Two, the equity trades at a 50% discount of book.

We believe as we continue to execute on our plan, there'll be huge upside in the valuation of the equity. Three, with what's going on in the real estate market, whether it be on the equity or debt side, we have very large pipelines of deals we are currently evaluating. We also have a number of deals that should close here in the third quarter. Net-net, while we're not thrilled with the current stock price, obviously, I believe the value proposition here is a good one. I'll now refer to the supplement, which we have posted online. I'm going to start on page three. Again, the way to think about this is an opportunistic equity investment in a publicly traded commercial real estate REIT, and it doesn't have to be commercial. It could be opportunistic as well.

Current pipeline is in and around $2 billion of assets that we're currently evaluating. We have a little under $300 million in total equity. Our real estate portfolio is $300 million, and we're sitting on approximately $100 million of cash and liquidity. As you flip to page four, earnings, kind of fairly similar to where it was last quarter, $1.4 million in GAAP income or $0.03 per diluted share. The EAD is about $100,000 or effectively, you know, virtually zero. Second quarter common stock dividend is $0.06 per common share. We do not intend to reduce that anytime here soon. Cash equivalents about $98.6 million and total equity of $295 million. GAAP book value is $5.37 with the stock trading, I believe, something around $2.70. So about a 50% discount to book. The opportunity for Rithm Property Trust. Why now?

We're entering what we think the real estate market at a very attractive time. We've been pretty vocal about that. While saying that, not every real estate asset's the same, and we need to be extremely diligent and careful in our underwriting and how we deploy capital in this and every other vehicle that we manage. Why Rithm Property Trust? One, again, no legacy commercial real estate exposure. Two, again, the company's trading at a sizable discount to book value. Three, the amount of employees and management team here at Rithm, and this does not include our Green Barn subsidiary or Sculptor. There's approximately 75 to 100 folks in the house here that work on our various vehicles.

When we think about the commercial real estate landscape, one, the repricing of commercial real estate assets, the continuous debt maturities and dislocations in the market are and will continue to create opportunities across the capital stack. As we look at changing capital structures, there's a huge need for pref equity in a number of the different assets and things that we're looking at, and that'll continue to create what we think are extremely attractive opportunities to deploy capital. As we go forward, the pipeline as of the end of June was $2 billion of different types of real estate investments that include senior mortgages, subordinate loans, mezzanine loans, and other opportunistic investments. The emphasis, and finally, our emphasis on growth. As we achieve scale, that is something that's going to enable us, in our own opinion, to drive the valuation of the company higher.

The asset profitability, if you have a look at page six, when we took over the company, as I mentioned before, the company was losing money. Q2 of 2024, the company lost $0.35 per diluted share. If you look at where we are now, we made $0.03 per diluted share. Continued risk discipline around, one, the asset side of the balance sheet, and then two, as we think about growing earnings. Like I pointed out in my opening remarks, it will take some time because the equity base here is $300 million, and we intend to take this same vehicle or this vehicle like we did at Fortress, where we started New Residential with $1 billion of assets, and we grew it to $8 billion over time.

When you look at, as we think about Q2 investment activities and you look at where we are today, one, the deal source of approximately $6.5 billion, and as I pointed out, we have a number of deals that we believe we're going to close here in the third quarter, and that should deploy about $50 million of equity here with double-digit returns. We look at the investment opportunities. There's a number of different things we look at. Again, as I pointed out, whether it be debt, preferred equity, mezzanine, and opportunistic equity across the stack. Strength of the platform, you know, we are at Rithm, obviously, we take our performance extremely seriously. You know, when you look at Rithm as a whole from a parent perspective, typically our ROEs are anywhere from 15% to 20%.

We'd like to try to position this company to be able to do the same thing over time. Page eight, just looking at the potential, excuse me, portfolio over the future between commercial mortgage-backed securities, senior loans, opportunistic investments, and subordinated and mezzanine loans, we believe that we're going to generate target yields of in and around 15%. Before I turn it over to Q&A, what I would say is we love the optionality in this platform. We're very happy with where the balance sheet stands. We are working on a number of situations that I believe will enable us to deploy significant amounts of capital. We do not intend to dilute shareholders to the extent that we don't need to. That will likely be bringing in third-party partners on some of the larger things that we're looking at.

With that, I'll turn it back to the operator, and we'll open it up for Q&A.

Speaker 1

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star one again. Your first question comes from Jason Stewart with Janney Montgomery. Please go ahead.

Thank you. Thank you, Michael. In terms of the near-term opportunities in the pipeline, could you talk about how that splits up between the different sectors, loans, securities, etc.?

Speaker 0

Sure. Most of the stuff, you know, when we look at securities today, for example, when you look at our portfolio, most of it's floating rate around the on the real estate side. When we look going forward, most of that is up in the capital stack in AAA commercial mortgage-backed securities. We do have some loans on the balance sheet that we made. We did a small SRT deal with one of our larger bank counterparties. Going forward, looking at pipelines, we have anything from something that'll fund, we're hopeful in the next couple of weeks, which is a retail asset up in Seattle, anchored by some very strong tenants, including Albertsons, Staples, et cetera. We're looking at stuff in the multifamily space. We have some nice opportunities, we believe, on the office side as well.

We're looking at some larger M&A opportunities that we think could change the landscape of this organization for years to come.

Okay. That's helpful. On the last point, I think you've started to perhaps talk about this in your comments. You said commercial and opportunistic, but not necessarily doesn't have to be commercial. Maybe you could elaborate a little bit more on what you meant there in terms of opportunistic?

You know, it's going to be right now, the intent is for this vehicle to be focused on commercial opportunities. I think back to our Fortress days when we bought a little under $4 billion of consumer loans into our REIT, along with some other capital vehicles we had. That was the beginning of what became OneMain Financial. I'm just using that as an example. Right now, what I would say is the focus for all of us here at Rithm is to build this as a dedicated opportunistic commercial REIT.

Got it. Okay, thanks for taking the questions. Appreciate it.

Thanks, Jason.

Speaker 1

Your next question comes from the line of Randy Binner with B. Riley Securities. Please go ahead.

Hi. Thank you for taking the question. This is Tim D’Agostino on for Randy Binner. When we think about the go-forward plan for the portfolio, what should we think about in terms of capital being put to work per quarter, and where we may see that capital be putting to work?

Speaker 0

It's the capital that's going to where it's going to go. It's going to be the very same assets that I just described. You'll have the pipeline between retail, multifamily, office. We have some industrial things we're looking at. We did an SRT deal with one of our, like I pointed out, one of our larger bank counterparties. It's going to be in those very same pockets. When you think about capital deployment, the good news is we're sitting with roughly $100 million of cash and liquidity on balance sheet. As much as we want to deploy that capital yesterday, and we could, we want to make sure that we find the right opportunities to create what we're really striving to do, which is going to be something with teens-type returns.

That $100 million that sits there, I think our projections are we'll be deploying about $50 million this quarter here in the third quarter, assuming that all the different loan opportunities we're working on close here in the third quarter. Going forward, obviously, we'd like the stock to right itself, but we'll likely continue to tap into the pref market as well so we don't dilute shareholders.

Okay. Great. Thank you so much. That's all from me.

Thank you.

Speaker 1

Your next question comes from the line of Tom Catherwood with BTIG. Please go ahead.

Thank you, and good afternoon, everybody. My question is, I want to kind of try to tie a couple of ends together here. It really does sound like your pipeline of opportunities has scaled up. You took us through the cleanup that you did on legacy Great Ajax over the past 12 months. As far as that pipeline, it seems like you've gotten to the point in time when it'll really be an execution opportunity right now. Was it just a matter of time of building that, or was there a shift in what you were looking at that helped that scale, or were you missing out on deals and you've gotten more aggressive and some more is dropping to the bottom line? What's kind of changed between 1Q and 2Q that's helped that pipeline scale the way it has?

Speaker 0

Yeah. No, I think those are great questions. One is the team is out hunting and having lots of conversations, whether it be with our large bank friends, with some third-party origination platforms, or just stuff where we get calls directly from sponsors. We're seeing a lot more of that. I think part of it is building the, not the Rithm brand, because I think the Rithm brand resonates extremely well in the investment community, but the Rithm Property Trust brand, which wasn't really as well known, other than when we initially took over the platform. The pipelines are building, the teams are having a ton of conversation. What I would say, though, on the flip side of that is we're not going to compete for the last dollar to drive cap rates extremely low on, for example, an office if we don't think it makes sense for the vehicle.

Our goal here is to take what we have, which is this clean, in our opinion, a clean balance sheet, sitting on some liquidity, we could use more, and deploy that capital prudently with teams-type returns. We're not going to get into a bidding war with somebody, at least for now, on things that we don't think make a lot of sense. I think it's a combination of, one, we are seeing a lot more directly from sponsors. Two, we're having a lot more conversations with our banking partners, of which we have a lot. Three, the brand is the Rithm Property Trust brand overall, with the great job the team is doing, is getting out there. The teams are getting the call on these, not just, for example, the largest real estate players in the industry.

Got it. Appreciate that, Michael. If we think of sources and uses here, the opportunity set scales, there's more deals falling to the bottom line. You've obviously built this large book of commercial mortgage-backed securities. You did it over a period of time where spreads were wider. They've obviously tightened down towards record levels again. How do you think about either taking on more debt, using the cash on your balance sheet, or even selling the securities, which again, we assume you would have a gain on, in order to put them into more of this direct lending opportunity, which is what it sounds like that's more of that's in that pipeline right now? How do you think of the securities book as a funding source?

It could easily be that, right? Because one of the reasons why, and thanks for leading me to the answer here, one of the reasons why we stayed up in the cap stack was as we continue to grow this, we wanted to deploy capital to create some earnings for the balance sheet. As we look at some of the opportunities we're seeing and typically, the way we're going to grow this company, honestly, is by doing things that are a little bit more meaningful and larger over time. Yeah, we'll hit our singles, but we have to do something that's meaningful and be able to raise a bunch of capital around that. If you look, we did a, I think it was a $50 million pref offering kind of a few months back. We don't want to dilute shareholders to the extent that we don't need to.

I think what we're going to likely do is bring in third-party capital alongside a larger transaction, which is going to help get this platform off the ground. I think once we do that, you're going to see the stock really write itself. I think the optionality in this company and the stock, I think, is extremely high and significant to the upside.

Got it. Appreciate that. Last one for me. If we think of kind of once you allocate that, let's assume the $50 million in opportunities that are near-term close, if we do a quick back of the envelope, that looks to us like just about maybe a little bit over a penny a share per quarter. Does that check out? Is this the kind of thing where to get up to that dividend level, you're going to need to put out $300 million of incremental capital, or are there other catalysts that help you kind of boost earnings back to that dividend level?

I think in your math, it's about $0.02 a quarter. Again, we're going to have to create some scale around our capital formation size. I think we'll get to whatever our current dividend that we're paying. We came into this thing not looking to cut the dividend because folks have suffered a lot of pain prior to us acquiring the management contract here. We're going to do all we can to maintain this dividend and continue to try to grow earnings.

Understood. Appreciate all the answers. That's it for me. Thanks.

Thanks, Tom.

Speaker 1

Your next question comes from the line of Doug Harter with UBS. Please go ahead.

Speaker 0

Hey, Doug.

Thanks, Michael. I'm hoping you could just talk about trying to square all the things you've said about a growing pipeline, lack of interest in diluting shareholders, and how you think about the patience that you have to try to scale the business while looking at those two factors and how you think that plays out.

I think the scale of the business is going to be around a larger scale transaction. That's how we're going to be able to raise capital to create a vehicle that's where we're going to start generating significant earnings. While saying that, I alluded to likely bringing third-party capital alongside us. I think you'll see that without going out to truly dilute the shareholders here, with the stock trading at, again, give or take $2.70. Quite frankly, you can't raise enough stock around that level to make a significant dent in this company. Pipeline-wise, I'm looking at 11 different transactions on a sheet in front of me right here. They range anywhere from a large M&A opportunity to a retail loan that I pointed out.

I gave you some color with Albertsons and Staples as some of the anchor tenants, to looking at some multifamily stuff in Florida, to some New Jersey office, to some local office. Our pipelines are pretty robust. The one thing we want to make sure that we do, though, is obviously be extremely thoughtful on deploying the capital.

Great. Appreciate it. Thanks, Michael.

Thanks, Doug.

Speaker 1

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

Speaker 0

Thanks so much for the questions, guys. Look forward to updating you next quarter or during the quarter. I do like where we sit. We're going to be patient, but we need to try to grow our stock price here, and we're extremely mindful of that. Have a great rest of the summer if we don't chat, and have a good weekend. Thank you.

Speaker 1

This concludes today's conference call. Thank you for your participation, and you may now disconnect.