Rithm Property Trust Inc. Common stock

Thank you for standing by. At this time, I would like to welcome everyone to the Rhythm Property Trust second quarter 2026 earnings 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, press star one again. Thank you. I would now like to turn the call over to Emma Holke, Deputy General Counsel. You may begin.

Thank you and good evening, everyone. I would like to thank you for joining us today for Rhythm Property Trust Second Quarter 2026 Earnings Call. Joining me today are Michael Nierenberg, Chief Executive Officer of Rhythm Capital and Rhythm Property Trust, and Nic Santoro, Chief Financial Officer of Rhythm Capital and Rhythm Property Trust. Throughout the call, we're going to reference the earnings supplement that was posted this afternoon to the Rhythm Property Trust website, www.rhythmpropertytrust.com. If you've not already done so, I'd encourage you to download the presentation now. I would like to point out that certain 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.

Good evening, everyone. So we're going to chat about Rhythm Property Trust. I'll give you my opening comments, then we'll go through the supplement, and then we'll open up for some Q&A. Thanks for joining the call. Since Rhythm took over the management of the contract, which was formerly known as Great Ajax, we've transformed this company pretty dramatically. We changed the name from Great Ajax to Rhythm Property Trust, set out on a mission to actually grow this into a dedicated commercial real estate vehicle. During that time, we have improved liquidity. We've cleaned up the balance sheet. We grew earnings so the company no longer loses money. During the quarter in Q2 and subsequent to Q2, we've invested in multifamily transitional loans which have been originated by our affiliate Genesis Capital with the intent to grow earnings and transform the business further. We've also attempted during the quarter up a couple weeks back to raise equity in the public markets and based on the stock performance at the time, and some of the shorts that were put in the market by the hedge funds, we decided it was in the best interest of shareholders to pull the offering. To grow the company, quite frankly, we'll need to raise capital. In the event we're not able to do so, we'll explore different avenues which could include buying back equity, M&A, as well as tendering for the shares of the underlying company. Our whole goal here is to protect our shareholders figure out ways that we could actually either grow the company, but more importantly, make money for our shareholders. So with that, I'll refer to this supplement, which has been posted online. We'll start on page three. We have a few short pages, but I think the real story is here. We have a very, very clean balance sheet, which is very different than a lot of mortgage REITs out there. We've gotten the company from where it was not making any money and actually losing money to where today it's breakeven. And now the path forward has to be where we can grow earnings and grow the capital base. When you think about Rhythm Property Trust, it's managed by an affiliate of Rhythm, which is, quite frankly, us. Rhythm has $9 billion of permanent capital north of $100 billion of assets. It's led by our seasoned team here who have been working together for many, many years at both Rhythm and Rhythm. Going back to the Great Ajax, when we took over Great Ajax. When we look at the pipeline, we have a world-class origination business in Genesis Capital that makes these residential transition loans as well as multifamily transition loans. Currently today, we have the origination business at Genesis supplies loans to funds to third-party funds, to different SMAs we have, as well as to the Rhythm Balance Sheet, and now we're doing it with Rhythm Property Trust. These loans are very high-coupon, short-duration senior loans, which we think are great for this vehicle, and hopefully we can figure out a way to raise capital to grow the vehicle. When we look at our dividend yield, we're currently at 10%, and again, we have no legacy commercial real estate exposure, which differentiates us, I think, from the PAC in the commercial real estate space. When you look at Q2 financial highlights, essentially earnings were flat. Book value is $30.17, which is comparable to where it was the quarter before, which I think was $30.33. So overall, flat. Dividend paid is $0.36 for dividend yield at 10%. Priorities, how do we unlock shareholder value? How do we create real value out of this vehicle? How do we reset the vehicle? That is truly what our goal is. When we look at page 5, the strategic evolution, I pointed out how we took over the management contract from Great Ajax. We took it from where it was losing a little under $10 million on a quarterly basis to where it's breakeven. We've taken actions to position the vehicle for growth. We've sold down the legacy assets that we don't think we can make money on here. And then again, the future state of this is to actually figure out a way to either grow capital or at some point potentially retire the vehicle. Bottom part of the page, you can look at the balance sheet between Q2 of 24 and Q2 of 26. Very, very clean, and I would tell you that we have a world-class investment team managing this vehicle. Page 6 talks about what we've done in Q2. This is just the profile of the assets purchased by Rhythm Property Trust, $117 million of RTL and MTL loans, 9.1% gross WAC, very, very short duration, levered return of about 14%. Could have future funding down the road, so what that effectively means is we're not in any chase to actually replace the assets as they amortize down. Advance rate on the underlying assets are 75%, and the dollar price paid a little bit under 101 with a cost of funds of about 565. So that really is the story here. It's the story of of resetting this vehicle, raising capital so we could actually deploy capital and grow earnings to the extent that we can. We'll have to explore alternative avenues to figure out a way to maximize shareholder value. One of the main reasons we did not do the equity offering was it was substantially below the dollar price where the equity is trading today. So with that, I'll turn it back to the operator. We'll open up for Q&A, and hopefully we can figure out a way to reset the vehicle.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. And your first question comes from Tom Catherwood with BTIG. Please go ahead.

Thanks, and good afternoon, Michael. I just wanted to touch on, so you added on slide five, The Future Estate, you added this comment about explore opportunities to enhance shareholder value, which was different than the wording you've used in the past. What exactly does that entail and why not follow Apollo and KKR in their CMREIT vehicles and conduct a formal strategic review?

So here's what I would say. Apollo's vehicle is different. It was a much larger capital base. and I think the direction of that organization and I can't speak for their leadership team is probably a little bit different. We're still in a position where we'd like to see us reset or grow this vehicle. As we look at KKR, that vehicle is definitely not as clean as anything that we have on ours. Our whole goal here is how do we create real shareholder value We took over this thing. Book value is substantially higher than where the equity is trading. But while saying that, this will be a board decision as far as the direction of what we do here, whether this thing gets cleaned up, whether we tender for shares, whether we try to do M&A deals, et cetera. I think when we did this initially, we did this with the intent of trying to grow the vehicle. Clearly, we haven't been able to do that. And obviously, that's been illustrated by the latest attempt to raise equity. and there's no lack of effort on this. So it'll be a board thing. In the meantime, if we could raise some equity here, that would be great. But if not, you know, we'll go back to the board and we'll try to figure out the best way to clean this thing up.

Got it. I appreciate it. And then maybe sticking on that whole concept of growing the vehicle, we're trying to figure out how much more investment capacity that balance sheet can support. And I think you've got 111 million of future funding for the Genesis loans that you took on this quarter, which at a 75% advance rate is roughly 28 million of equity. What's the minimum cash balance you're comfortable carrying and how much equity is left in the 84 million of CMBS loans that could be redeployed into these Genesis loans?

There's something north of $50 million, I believe, in common right now, or I shouldn't say in common, in equity that remains in the vehicle. You know, we could, quite frankly, we could do a preferred if we wanted to. We could do another debt deal if we wanted to. So, you know, we're not fussed about that. Obviously, these things pay down in turnover, so we feel that there's enough liquidity in the vehicle today to take care of any potential draws that we may see in over the next couple of years.

So if it's $50 million of equity, $28 million is already sort of committed to that $111 million. So that leaves you with $20, $22 million.

After the deployment of the $20 odd million of the loans that I believe funded today.

Okay, so with that, again, thinking of the same 75% advance rate that you used to take the loans on this past quarter, you could take down another $200 million of loans from Genesis. Is that the near-term plan, or are you holding that liquidity for something else?

Yeah, we'll keep more liquidity. We might deploy a little bit more capital into more loans to try to grow earnings. But the net of it is if we can't raise equity here or capital in the near term, we'll go back to the board and we'll have to make a board decision and do something different. Got it. Appreciate the answers.

Thanks, Michael. Thank you.

Your next question comes from the line of Craig Cucero with Lucid Capital Markets. Please go ahead.

Yeah. Hey, good evening, guys. You made mention in the deck that you're looking to sell some subordinate positions in several securitizations. Can you give us a sense of how much capital that might free up?

Yeah, we're not, you know, I think we've sold everything that we can. We got to hold on to a number of these retained interests for, you know, for purposes of Dodd-Frank. You know, there's some stuff that we could potentially call and then liquidate. That would create a little bit of a loss here. But I think for now we should assume that whatever has been able to be sold has been sold from the legacy side. I think the total equity remaining, and Nick, correct me if I'm wrong, on the Reggie side is give or take about $100 million. Is that right?

It's $170 million after the last transaction.

So this is not that much there. But most of them are just retained interest that we have to hold for because they were securitized years ago and the coupons are low and they're not in the money now to be called. I think some of them actually come up here in the fall. just based on time and factors, and we'll have another hard look at those. But for now, I would assume they sit here until we figure something different out. Okay, got it.

In changing gears, I mean, just given the highly accretive nature of the residential transition loans and the multifamily transition loans, was there any thought to selling ownership in Paramount back to Rhythm to deploy more of a higher current yielding product, or do you feel that investing in Paramount is best for the vehicle?

I think we did that at a time when we thought we were going to be able to raise capital for the vehicle. Honestly, we were extremely excited about the so-called Paramount slash Alicor investment. While saying that, I don't know that that gets us over the hump, no matter what we do here, because you still need to raise capital. The challenge of raising equity, and this is our second bout of trying to raise equity over the course of the past six months or so, is once you go out with a potential equity offering and we've had a ton of conversations and supported by the, you know, what I would say are large money center bank friends who have actually given it all they can to try to help us raise equity is that as soon as you do that, the stock gets hit. You know, we started when the stock was at 14 bucks and a deal would have, to do a deal would have had to be south of $10. and it wouldn't have been distributed and we went out where Rhythm was going to backstop it and it just wouldn't have been a good solution for what I would say Rhythm Property Trust shareholders. So, yeah, there's the $50 million that sits there and we can deploy a little bit more capital but we should assume unless we raise equity that this vehicle, and we'll go back to the board and make recommendations, obviously it'll be a board decision, the vehicle will get cleaned up some way somehow. Going back to the earlier comments from Tom, what Apollo did with ARI.

Okay, got it. And just the fact that you were willing to put $200 million in as a backstop, I think makes it common and convertible preferred. Is some capital raise similar to that a possibility, or would you need the market's involvement?

No. I mean, if you looked at the rhythm earnings today, as of the end of 6-30, we had $2.1 billion of cash and liquidity. It's more about, I think, where the equity comes. We're extremely sensitive about taking a $14 stock, issuing equity at $9, and then seeing the stock pop a few dollars. That doesn't work for shareholders. And that's not who we are.

Okay. Thanks. That's it for me. Thank you.

Your next question comes from the line of Henry Coffey with Wedbush Securities. Please go ahead.

Good afternoon, everyone. Mike, it seems however hard we push you on the idea of putting on more assets, putting more on assets, the answer is no, we're not going to ramp up our leverage beyond anything that's reasonable. We need more capital. And that could come in a lot of different forms. I think we all know that. So I guess A is how quickly would you move on one front or the other? What does the final clock look like in terms of how you're thinking about this business, whether it should be acquired and folded back into rhythm, whether you should tender for the stock, or however you want to ultimately resolve the thing. It's kind of like, A, you're going to get some form of capital in here, or B, you're going to take it privately.

I think it's a 26th event. We begin August here. It'll be something that we'll continue to work with our board to the extent that we can bring in a sleeve of capital. The stock is trading a little bit better here. Great. But I would assume it's a 26th event.

All right. Thank you.

Thank you, Henry.

Your next question comes from the line of Jason Stewart with CompassPoint. Please go ahead.

Jason Stewart All right. Thank you. Michael, you started to, I think, address part of my question, which is, you know, how would a raise look different next time? Is there a way to structurally address the perceived market concerns like a wrap or a backstop? And I think you started to address that with the rhythm backstop. Is there any other option on the table that you're considering in terms of structural enhancement?

If you have an idea, call me. I don't know. We've tried to bring in third-party capital alongside this. We've tried to obviously work through a backstop. The equity is fundamentally extremely cheap. It's just one of these things. There's no float. It's trading a little bit more volume these days, but with a stated book value of $30. We do need to reset the vehicle, but you don't want to reset it with $25 or $50 million because you're going to be in the same boat as we look down the road. The idea initially was to go out with a reasonable-sized offering. Rhythm would participate because we believe in it. We believe in what we do, but we need to get real participation in from others away from Rhythm. We've had a ton of conversations. There is some participation away. It's a question of where does the equity come?

Yeah. Okay. And then I think from the beginning here, we've talked about the potential for, you know, like a transformative commercial real estate transaction outside of the Genesis book. Is it your feeling now that there's just too much capital chasing those opportunities and that's unlikely to happen? Or do you think it's still based on the flow you're seeing possible?

Yeah, you know, we're doing some different debt deals. I think if you go back to the rhythm earnings call that we did this morning, and you look at some of the monetizations we were in the middle of or things that we've done, you know, we had put out prior to, you know, and we did that off rhythm, we put out a couple 100 million, those returns have been very good on both the debt and equity stuff that we've done there. We're hunting, and it doesn't have to be specific to office, quite frankly. We're looking at some public company stuff. We're looking at some private company stuff. And I think the runway alone, even in the Genesis business, gives us plenty of ability to create kind of mid-teens levered assets with real cash flow that hopefully we can figure out ways to fund those in our PT. You know, some of that stuff goes in funds now. Some of it, you know, sits under the balance sheet, but That's what we're working towards. So I think there's plenty of stuff to look at. Banks are back in lending. I think that's very healthy for the market. But there's opportunities. We work with our broker friends. We see a ton of different things. We just got to figure out what's right.

Okay.

Thank you. Thanks, Jason.

There are no further questions at this time. I'll now turn the call back over to Michael Nierenberg for closing remarks.

appreciate everybody's thoughtful questions if you have any real good ideas that we're not thinking about quite frankly give us a buzz and we're always happy to listen we want to protect our shareholders in this one and not just come out and do a deal that doesn't make any sense to the extent that we can get a deal done we will and if not we'll try to figure out what plan B is and our intent is to have all that stuff done by the end of the year no later than the end of the year Have a great rest of the summer and appreciate your thoughtful questions. Take care. Bye-bye.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.