Release Date: January 30, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rithm Property Trust Inc (RPT, Financial) reported a positive economic result for the first time in three years, with $0.06 per diluted share in Q4 2024.
- The company successfully repositioned its balance sheet by selling down legacy residential positions and reinvesting in high-quality commercial real estate.
- RPT maintained its dividend at $0.06 per common share, reflecting confidence in future growth.
- The company plans to raise more capital through a preferred equity deal in Q1 2025 to strengthen its capital base and invest in growth opportunities.
- RPT is targeting low double-digit returns on new commercial real estate investments, indicating a strategic focus on high-yield opportunities.
Negative Points
- Rithm Property Trust Inc (RPT) trades at approximately 50% of its book value, indicating potential undervaluation concerns.
- The company acknowledges the need for more capital to achieve its growth objectives, which may involve issuing higher coupon preferred equity.
- RPT's balance sheet includes retained interests from older securitizations that cannot be sold, potentially limiting liquidity.
- The commercial real estate market remains challenging, with many office assets requiring significant capital for repurposing.
- RPT's forward-looking statements highlight uncertainties and risks that could materially differ from actual results.
Q & A Highlights
Q: Michael, now that you've been with Rithm Property Trust for over eight months, how has your view on commercial real estate evolved, and have the opportunities shifted over time?
A: Michael Nierenberg, CEO: We've deployed hundreds of millions into commercial real estate opportunities. While not everything works, we're seeing more opportunities, especially with large banks where we can provide notes that help them and yield double-digit returns for us. We expect more opportunities as we move forward.
Q: Were you surprised by the slower pace of loan sales from banks in 2024, and do you expect this to accelerate in 2025?
A: Michael Nierenberg, CEO: Yes, I expect it to accelerate in 2025. Banks typically hold onto assets unless forced to mark them down. With rates expected to stay higher for longer, more commercial real estate problems will arise, leading to more asset sales.
Q: Regarding the preferred equity, do you have a magnitude in mind, and will it be used for growth or addressing higher coupon notes?
A: Michael Nierenberg, CEO: It will be a combination of both. We aim to raise capital to address high-yield notes and have more capital to deploy for growth, avoiding issuing stock at current low prices.
Q: How do you plan to evolve your financing strategy as you move down the capital structure on the asset side?
A: Michael Nierenberg, CEO: We have access to ample financing and will ensure any move meets return hurdles. We won't set up the vehicle as a first-loss provider just to seek yield. Our focus is on credit and underwriting first.
Q: Can you discuss the relative attractiveness of using structural leverage like notes versus warehouse lines?
A: Michael Nierenberg, CEO: We consider both options. Structural leverage through securitization is attractive, but given our current small equity base, we'll focus on partnering with origination partners and leveraging our broader firm's capabilities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
