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Ready Capital: Trading At A Deeper Discount Than Is Warranted

Jun. 08, 2020 8:06 PM ETReady Capital Corporation (RC)19 Comments


  • This diversified mortgage REIT originates, acquires and services commercial loans, conducts residential mortgage banking and serves as a lender for the SBA’s Paycheck Protection Program.
  • Ready Capital is trading at a 43.4% discount to book value.
  • RC has a $4.2B loan portfolio composed of approximately 4500 loans with an average balance of about $900,000.
  • 90% of these loans are current on payments as of April 30th.
  • 99% of the loan portfolio are 1st liens with a 60% average LTV.
  • This idea was discussed in more depth with members of my private investing community, Retirement Income Solutions. Get started today »

Investment Thesis

During the recent market selloff, Ready Capital (NYSE:RC) saw its share price plummet from $16.35 on February 21st (the day before the market collapse began) to a low of $3.99 on March 24th. Although RC has sharply bounced back off the recent lows, it has only thus far recovered to a price of $8.24 (as of 06/04/2020). This deflated share price presents an opportunistic entry point, given that the magnitude of the decline in book value (from $16.14 to $14.55 during Q1 2020) was markedly smaller. It is possible that RC will see further declines in book value throughout the remainder of the year due to the on-going impact of economic recession, but these declines are likely to be modest, suggesting that the current discount to book value is far larger than is warranted.

Ready Capital’s Primary Operating Segments:

Source: Company Investor Presentation (Data as of 03/31/2020)

SBC Originations

Small to medium balance commercial (SBC) loans are originated by RC’s wholly-owned subsidiary, ReadyCap Commercial, LLC. Some of these loans are placed into securitized structures, whereas others are held on the balance sheet as investments. Freddie Mac’s (OTCQB:FMCC) small business loan program is also utilized to originate and service multifamily loans, which RC typically sells.

Source: Company Investor Presentation (Data as of 03/31/2020)

SBA Originations, Acquisitions and Servicing

Ready Capital also originates, acquires and services U.S. Small Business Administration (SBA) loans through its wholly-owned subsidiary ReadyCap Lending, LLC. These loans are guaranteed by the SBA 7(a) loan program. RC holds an SBA license as one of only 14 non-bank small business lenders and maintains preferred lender status with the SBA. Of the loans RC originates under this program, some are held on its balance sheet as investments, some are securitized and others are sold off. As can be seen in the charts below, the collateral for these loans is diversified across many

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This article was written by

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Simon Bowler is the Chief Communications Officer at 2nd Market Capital Advisory Corporation (2MCAC).  2MCAC specializes in the analysis and trading of real estate securities. Through a selective process and consideration of market dynamics, we aim to construct portfolios for rising streams of dividend income and capital appreciation.Our Portfolio Income Solutions Marketplace service provides stock picks, extensive analysis and data sheets to help enhance the returns of do-it-yourself investors.Investment Advisory Services
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Learn more about our REIT Total Return Portfolio.Simon Bowler, along with fellow SA contributors Dane Bowler and Ross Bowler, is an investment advisory representative of 2nd Market Capital Advisory Corporation (2MCAC), a state-registered investment advisor.Full Disclosure. All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of the specific person. Please see our SA Disclosure Statement for our Full Disclaimer.

Analyst’s Disclosure: I am/we are long RC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

2nd Market Capital and its affiliated accounts are long RC. I am personally long RC. This article is provided for informational purposes only. It is not a recommendation to buy or sell any security and is strictly the opinion of the writer. Information contained in this article is impersonal and not tailored to the investment needs of any particular person. It does not constitute a recommendation that any particular security or strategy is suitable for a specific person. Investing in publicly held securities is speculative and involves risk, including the possible loss of principal. The reader must determine whether any investment is suitable and accepts responsibility for their investment decisions. Simon Bowler is an investment advisor representative of 2MCAC, a Wisconsin registered investment advisor. Positive comments made by others should not be construed as an endorsement of the writer's abilities as an investment advisor representative. Commentary may contain forward looking statements which are by definition uncertain. Actual results may differ materially from our forecasts or estimations, and 2MCAC and its affiliates cannot be held liable for the use of and reliance upon the opinions, estimates, forecasts and findings in this article. Although the statements of fact and data in this report have been obtained from sources believed to be reliable, 2MCAC does not guarantee their accuracy and assumes no liability or responsibility for any omissions/errors.

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