Lument Finance Trust (LFT) 14 Nov 232023 Q3 Earnings call transcript

Good morning, and thank you for joining the Lument Finance Trust Third Quarter 2023 Earnings Call. Today's call is being recorded and will be made available via webcast on the company's website. I would now like to turn the floor over to [ Andrew Sang ] with Investor Relations at Lument Investment Management. Please go ahead.

Thank you, and good morning, everyone. our Financial discuss Results. joining Third Finance for XXXX Quarter you call Lument to Trust's Thank President; Senior With details to James Monday, the Briggs, results. Henson, SEC Flynn, quarter on November on CEO; Zachary me the our a James our CFO; call XX, we and and third XX-Q Management. Yesterday issued of provide Portfolio Director today filed are and on Halpern, with James release press

website. also be our We a found presentation, supplemental can which provided earnings on

forward-looking call Jim A speak this during the historical these these to When are contained words of to various are certain with financial can Securities conference similar with the nor like including and identify not statements filings The actual the outlook, presented to the remind forward-looking the forward-looking Risk its the Section intends meaning I'd call. of not handing made used risks. Act Reconciliations Before in be accessed Exchange which measures company to within section SEC this on statements in predict reliance and everyone this could for are those such the over most of XXXX that forward-looking financial of differ Section XXA, value comparable no the measures other results risks of reports particular, to and Such statements. These to Forms filed on our are XXE X-K, the discussed our will Flynn, all considered intended not be will, undue company's expects, information cause to XX-K. may identify indicate, the these a Listeners based materially www.sec.gov. obligation in to call, that and XXXX. call this place is of constitute The update intended non-GAAP in of to anticipates, statements, undertakes as certain the of and reports Securities Factors and of course GAAP. uncertainties only statements are information from through in GAAP XX-K, in be expressions in statements. Furthermore, date discussed SEC, subject and non-GAAP believes, statements. accordance uncertainties any risks on at with isolation or to It measures information compared Form not of XX-Q conference is hereof. forward-looking possible substitute presentation on as forward-looking financial cautioned with is accordance Act

third the third earnings per now we will share. reported income net paid Flynn. the October, respect quarter approximately with Jim we I per XX% Please represented go dividend which to quarter-over-quarter $X.XX the GAAP share increase. a For $X.XX over quarter, call of share, were of distributable to a per turn In while $X.XX ahead.

first higher Good the forecast. the a to mild continues Welcome everyone Andrew. call remains outcome be consensus the Finance everyone. seems half of us environment the Lument you, challenging rate for morning, Thank to appreciate We of to recession beginning third possible earnings quarter joining environment macroeconomic economic XXXX, longer a be A XXXX. one. in as today. The Trust for

government resiliency consumption to labor concerns. surprising continues outpace interest and the the Given of cost market, incomes and spending

its dramatic near-term also the modeling As geopolitical uncertainty, the faced to way are monetary the heightened policy recent and with we wait we impact the work system, tightening through of outlook. fully further

rent cap Despite by the to thinly. Overall, continue of and interest to and real estate volatility, real sector be year-over-year continues trade property growth sales rates, multifamily down supported was other widening than types deceleration Given the and is XX% volume year-over-year estate QX. commercial preferred U.S. investment commercial greater of strong rate multifamily fundamentals. in

this forward. Demand markets of supportive and multifamily we remaining rates certain supply move are construction year prices higher of as continues homeownership which in of term, muted X%. currently deliveries is values suggest mortgage elevated and new homes for by high single-family the asset residential next, gap with in limited to medium starts While driven affordability historic be north

Given volumes transactions long LST shareholder and through market to investment seeking these to remains its that during multifamily continues roots committed only positive CRE with to signs and year-to-date. in CLO significant prior quarter down the already managed the CRE in CLO year-over-year year. earnings middle-market accretive third from depressed XX% priced opportunities an October see two dysfunction are investment long-term the term, are Issuance value. The

markets, in sold to of for capacity proceeds floating approximately average loan subsequently the investment XX, relatively will terms mortgage was reference fees to over basis retained be The transaction by a issued allowed rate In were of with to of estimate LSC and approximately XXX the at approximately lender investment-grade SOFR, basis this discount notes was to floating and XXXX-X. an have July mortgage with the a million LMF which replacement the transaction increase placed of XX [lein] manager an costs. $XXX located XX-month approximately pool senior an initial mortgage private points. pool of over, proud secured aggregate our XXXX-X of of weighted we assets million $XX reinvested spread successfully affiliate subordinate transaction, period weighted term of financing allows million a cost across to to are basis qualified $X.X we majority as -- spread of from the conditions. Consummation that States. initial over notes XXX Given X.X%. The liabilities properties connection manager. north rate subject the external $XX capital XXXX-X $XXX LMF an of outstanding acquired rated of uncertainty executed of and collateral rate million LMF collateral on a provides to out portfolio that and consisted points transaction capital. United The collateral have average repayments transaction. The principal XX initial in an affiliate investment-grade works this XX to excluding mortgage financing first-lien assets of of we effective certain reinvestment of loans at points XX-day billion par incremental on that company was from an the XXX attractive collateral secured multifamily spread its the initial the XX-day financing

group. the matures us that, as believe in of higher we currently mortgage floating The for and strong sponsorship previously from will closing to CRE over There the and details the acquiring XXXX maintains a With the XXXX. environment. itself enter longer our loan, With of positions profile platform. We company of Jim? Briggs, multifamily cycle. LLP's well an an strategy culture investment results. uncertain in debt is long-dated rate rate it our attractively turn us company LMF continued on well middle-market opportunities, coupled from on corporate focus CLO XXXX-X, with positions [ORIX] of outstanding active and financial its which its provide broader that term priced consistently issued market peer I'd credit call who differentiates asset its asset for the Jim management like liabilities part to

we the filed remarks. investor during your a an Jim, Pages reference. On uploaded quarter. you, Last will provided our on you quarterly has supplemental Form presentation be key website, presentation everyone. X the XX-Q been morning, of our our we Thank and and evening, report will for as updates on summary for which webcast good well investor presentation, X the to earnings through Supplemental find and referencing

items stockholders to 'XX, third share. quarter the reported quarter of common like income I'd with For we third of a highlight net or few regard per P&L. $X.XX are to the $X.X million approximately to There

sequentially multifamily income X floating higher payoffs due financing a this were the cost basis transaction relatively of and rate increase interest X% X.XX%, flat of payoffs the quarter the increased during of in portfolio and as fees prior a in other to the our an the facilitated growth million of liabilities. $X.X on driving portion from larger was increase of being Exit the income an prepayment-related debt reimbursements the quarter LMF to portfolio terms XX Our QX $X.X XXXX-X in despite of in a points our our of interest are net result to million portion by the expense through income spot, the refinanced in execution July. SOFR the to compared affiliate the agreement. primarily QX excess management in pursuant loan with manager's Note waived such manager. of the situations, agency that than of being provided quarter

in million QX during $X.X million $X.X versus expenses total QX. Our operating were

QX in CLO incurred which LMF quarter-over-quarter transaction. This have of deal share of million a more XXXX-X $X.X broadly we the we which CRE primarily QX private the marketed by or in in $X.XX driven transaction pursuit of in executing and abandoned costs ultimately per securitization been expensed attractive decrease lieu was financing

difference loan reported changes the $X.XX net reported we of to the in was forecast size and the of macroeconomic million as as floating $X approximate in per The earnings to distributable QX, the portfolio overall reserves primary CECL For between quarter, approximately increase $XXX,XXX or net general due primarily in the share. in increase distributable period. income earnings well the rate the

item, purposes any take QX. unrealized provisions these noncash distributable asset-specific of earnings. are adjusted for out charges not We a did As in calculating

third up share QX. million. $X.XX equity book September from common per of with an quarter of or the value We million company's total was As the was Total unrestricted $XX $XXX $XXX approximately balance share, cash ended XX, approximately per $X.XX million.

to investment also capacity portfolio aggregate Jim call our Henson during now company's financings. through turn two activity provide over million the additional secured reinvestment an We on quarter Jim? details the the and had will performance. of $XX to I

microphone me, conference operator. mute. Pardon is Henson, your the on Mr. this is

of you. will a Thank portfolio. within now Thank thank and activity our provide I you, recent Briggs, brief Jim investment you. our summary Yes.

third our $XXX XX% short-term Loans loan to loan the represent annualized quarter The million. were the accounting experienced acquired of during of an an $XXX loan expectations. Of of relatively acquired properties. acquired payoff increase million million payoffs aggregate we were during net during quarter rate, by $X.X or a collateralized in of the the with payoffs. affiliate in XX% quarter, of -- at the XX% the investments par long-term from experienced for a historical our multifamily $XXX portfolio averages discount is manager funded the quarter, line loan approximately million $XXX million which During after and

of properties. consisted with portfolio rate As our portfolio unpaid rate XXX% floating XX% was of of aggregate portfolio collateralized by X-month XX of billion to $X.X of XX, approximately which rate balance -- an indexed floating principal September our SOFR. is loans multifamily

risk investment quarter X-rated the have the shifted quarter. to impacted rating factors the would offsetting loan acquiring XX% with loan company average of investments $XX an the investments and existing performed $XX portfolio average X% better, to X-rating quarter aggregate well. risk of risk the for balance toward a during portfolio and X.X% risk of maintained four improvement the third average balance we with new rated quarter-over-quarter. Several performance to one due or quarter million weighted totaling unpaid moving have a due We two principal of Our ended hand, rating million On property the metrics. principal the improved a during unpaid rating

In a migrated from migrated X X which are X from a had actual assets collateral aggregate unpaid We balance rated or $XX loans third an default. and the addition, to quarter. a property, several the rating collateralized a were loan expected million dependent to due of by rating. X monetary investments with assets X multifamily each to three These for two considered currently loan principal

not One we specific analysis available concluded collateral, these to reserves respect prior revenues we in to of to have with investments. -- we loan. After with discussed all continue the that pursue recorded three regard our and of loans have underlying conducting quarters, any we these have

portfolio, outcomes rely management to positive With of continue for We drive shareholder will while of depth our the proactively and our and back Jim manager value. health protecting to on some the that, capabilities I monitor to breadth Flynn we it pass remarks. asset closing

Jim up want I few interest. already for there's the open the Henson. I to call questions. Appreciate know you, and everyone's in time Thank queue. a

from Laws Stephen from comes James. today question Raymond first Our Instructions] [Operator

multifamily the that you've about performing different timeline -- recycling Can located? they kind us Are with what's before, resolving borrower where And with into one or capital loans. details are there? they kind of sponsors Start of the you the three and and investments? the some give but talked same where

have as the They're So on that different in but different the still sponsors, I'll underperformance. all talk comfortable details. all But stages Zach borrower. let and out, be all we're we locations Halpern going different repaid pointed to different on feel working we're the They issues. of with Jim collateral,

high level behind is the through the One and let cetera. et is partnership significant property ahead issues give this to give kind at are. And a and plan a Zack want high had you business Zack, of they one of insurance, so level? proceeds is and But I'll one working you is [dispute]. physical generally on go where primarily do

Sure.

consider and all cetera revenues the three we at three then So to information When first had that's assets site another asset, partnership the Florida, and [indiscernible] visits, on its the we've there's done last [an assets in one as asset that's in quarters that on sought Virginia look exception business pursuing the legal and there's about has of is some them et dispute off. and with for which find Ohio. not we're behind been in and plan. that Yes, the in also asset] that we talking

there -- leaves while with two the not at losses these we're resolution present lower the be other secure to the than issues monitary and loan some incentives present. that borrower/sponsors therefore, and appears work the expecting towards and is is value to The at

couple in expecting So variety at on and kinds how we're the least rate, -- of take all worse, principal, be is, longer. of seem or there of down you ways, them The had in There next to being three. know, at certainly and of you better paying -- or the is to things maybe a some two but timeline of these those kind all, for -- I'm things. sometimes Stephen, there's one resolved are interest But uncertainty one, as to on asked, payments looking it, it quarters made. paying the

ready partnership owners and the dispute a I whatever have or then the example, sale that between be it's to we through an do. think For really decide as that issue likely forward, dispute settle -- us is move their but they would impacting two lender, and you to it's to a own

to So conclusion. their to we're get pursuing our remedies to push them

example an longer. but So be through events, first some But -- process. the a hopefully, that's of could 'XX working legal half of just it

it sounds a asset, And at not it's Sure. that's? anything like each unique issues

the other It's [indiscernible] the Correct. -- assets not are that whose period ending. to securitization reinvestment thing a within

securitization if we too you to probably in there's so to off it's late can like term to much that And we're near pay with not -- XXXX. redeploy do going even anyway, have capital, deal

like not investment it's capacity. losing So we're

at in they none for Understood. And then did of income them some XQ? of end Or they quarter? did go contribute the nonaccrual on partial quarter? only interest Were full for or of the

We reversed accrual $XXX,XXX. put it when we an out around in

we mentioned, being about talk Jim As in cash our filing a them on just basis.

So we got get as income income It payments was of reflect in $XXX,XXX we in some reversed that will there, are around quarter. the which seeing it.

comes Steve from question next Delaney JMP from Our Securities.

billion, invested capital Do about Lument's to Flynn, equity. Jim your portfolio be Thanks. base? portfolio the $X.X fully X.X% to at based you on debt consider currently

Good hear Steve. Thanks, Yes. you. to from

or some cash. total take. billion give capacity, We -- yes, we answer the Obviously, it's have $X.X around the is is want

out like generally themselves of kind kind of liquidity, the speaking, couple upwards X We and where X obvious X discussed. liquidity and X close [ that reasons. we've maintain we've generally as made But obviously elevated to of -- have today. loans a things of decision work max ]. the to But that's for it's assets We're [ we portfolio ] have our the of the that,

it's as down many portfolio, discussed that really with other road asset about the we've positioned the to right As working sure want focused times, sponsors, of to growth. quality it obviously, our advantage making think here. improves take But you market we're now, on

it of over and would wait really point, quality emphasize we see. quantity in mean the kind this I seem helpful. just would at market, are That's

-- $X.X or quarter. So you $X.X had $X.X you interest Is accrual you income large had you that that that be million, the in there I on acceleration. fees to that had realize the get it on think, books? was, the million you net million revenue prior I point onetime discount out would repayments, that materially of in deferred either anything

Jim, to want ahead? you go

say Yes. No, in there. I there's wouldn't one-timer anything

there. flat about, prepayment talked relatively around the fees quarter-on-quarter. we and We're economics As

coming going in consider that through anything of reduction I be there, to Some is material in reimbursements, don't is there expense but Steve. a

And net one $X.X -- money there's XXXX-X. Should those into to the we approach LMF final a accreting just life, if discount you know originated, a X-year average be to that The at million income? specifically reasonable pointed point. Okay. that don't Great. -- already out, interest that loans were look would but I that would

I Yes, reasonable, that's think Steve.

Yes.

we Well, Okay. and quarter. very the fourth great Thank forward good to big quarter much. and on financing, job you look

Matthew Erdner from JonesTrading. from comes question next Our

talk just idea out an health at I are opportunities a know the you multifamily, but the just on you what moment the seeing what get bit at, So just currently? could guys looking guys pipeline? little there I focus the you and about you're of can of

Sure. than Well, as volume in just so we've prior less terms down. are transaction discussed, opportunities being look, I mean, significantly in they've quarters of the been

trading aren't assets So in.

declined. that opportunity new so But willing that lenders make either has to so has loans. lenders or -- significantly and So have can are

when impact. assets sponsors. come lower So does high-quality have we in, looking underwriting, are generally more leverage seen looking we conservative at an have It speaking,

towards lot a you've ] spreads low very you've I bridge [indiscernible], pressure X% seen pushing kind a be those loans. on for X%, pressure -- think on but I'm lot that of rates [ stabilized of kind and down have of you've to lower leverage that being high, loans high-quality with when around gone things seen of but with so I sorry, think

take see look those a low for I spread trade and risk. you'll little probably or lenders at deals think a risk

participate debt talked There's particular There's around a a market financing, we've in around things the of test subordinate looking and preferred around lot that market, the works today. lot equity, including both is in not In reality for at cetera. tremendous there's of products. to terms that, chatter those of amount about deals people some opportunities et us, platform. and in of LFT that that our broader of lenders past The a

be even. And you're a on hard where the it's that are debt to rates with in Xx mid-teens to product of expected digit mid-single with something your for Given if the teens, refinancing kind the preferred. replace prior capital

of just think speak, so seen haven't And to kind dam of break, there's yet -- so that we I the transactions.

except of I new I as for spread. rated some change opportunities. And to buyers it between really finishing at the in the some that was think narrow I of there, values opportunities we'll see XXXX, kind a also investment-grade of because we transitioning sellers assets delivered that these of pick then transactions bonds more mezz of will think last capital we'll bridge-to-bridge but gap loans. And for see where lease cap agreement loans, be you'll was And those accept an attractive that, -- flow some for to up. more and we but buyers are narrows, as to kind to buyers being that that you to sellers be to off XXXX hand that And and of low need strategy opportunity noted, opportunity see see going that as and both come and bridge and bridge space, our are transaction, we're values spread and opportunity start retained there I sellers and or [ actual other we going I are we do transaction space assets values, think prior stack in up on transactions, the need ] think off construction think a some see increase. to not of moving I different it's loans think

out market there opportunistic be that's to CLOs secondary these some going that -- be specific. but So trades are there, in there's of portfolio for very some might the

does it. then there know color much moment? period? don't how there. a the if I recent or mentioned open And Got if then appreciate good there of you on And that And it expire? but that. is, the at is That's it is I CLO, when not, reinvestment

is technically X It's financing transaction. clarify, it has CLO, have reinvestment CLO, just very I similar to And a to and a years. a said It's X-year may structure, be a not it's clear, period. it but but

Instructions] Chris Nolan [Operator from question Our next Ladenburg comes from Thalmann.

quarter? items Jim a Briggs, Were the in there clarification. nonrecurring any expense just

No, one-timer. nothing unusual or

for last nothing out, that the the pointed current expensed we consider I cost would As I CLO we distributed did quarter. big that for have public in a but quarter onetime one-timer in widely deal QX,

in then guess, And just I for to the any panel general, non-accruals in the change quarter fourth Great. in date?

Nothing to date.

Yes, no.

looking through evaluate so, on are haircut you applying rent those at looking XX%, the of then LTVs, And are and roughly when deck LTVs? you what or XX% which sort finally, the

through -- minus one maybe lot submarkets each same view whatever markets MAX somewhere to at market don't and I when are we're plans, is it's going have of Most looking X a in if evaluation, with at mean, or level, wanted. still be moving in-place to rents. the albeit are today slightly individual I and But assets, particularly different. are rents, at still think the there plus basically, be meaning -- conditions it's looking an -- changes but X what obviously, it's in-place have business the we'd the markets of some either these in general, their renovating assets a

units it data today. like for renting what And so on time new there's does look real

certainly. we're But

You're using rent, the right? stated

So rent doing -- it's right? often real rolls, We're this information. is

we're helpful perhaps type that it's something at that cetera. servicer that's asset way CMBS bond you're that's [indiscernible], versus et which from between make evaluating the it, been not rolls, a data the looking at distinction loans think directly necessarily rent looking through data, coming of passed at multifamily management to like in which looking borrower is I a information by the provided beta

might than ground a at it's looking see boots CMBS.[indiscernible]. you lot the more [indiscernible] So on

could inflate is, XX%, something FYI, the reported talk And if like New they space, with different York of And York sort in XXX or this simply in of because you portfolio month rent give free than if an LTV over apartment you're when the stated is to in value using doesn't for be your just City, one a haircut guess I is, of roll you rent bankers and like stabilized units. And their the rent rent least New get property roll rent-stabilized then actual City rent at on user to the what what basis? -- what that. in that a buildings reported

me So specifically. just address let that

things we when rents, taking So or for we within is like the and the month, We're concessions that the last context, this look So then or the of asset at charging is, what we're are free leases, our the rent not since we've are someone -- also account end every X but -- giving right? saying summer. just in not months by using the real and see right? into seen we'll portfolio July, concessions, June

over months, our asset the gone we've with out with visiting team someone So and visited and from X sponsor. every

X point, these years them. a We weekly, look asset, -- out our just quarterly, contact asset are transitional Zack's to every is to pay stabilized assets, are with a and go servicer that out are the had appropriate at So right, someone basis, a given seeing not to right? where there whatever business plan. They're on the monthly, regular in sponsors assets physically for

have know secondhand to you're portfolio not point data. the There's it it have more don't some is. there's of a the because real information financial where we you're assumptions. little there. a information what receiving And engagement a -- receiving making to large [indiscernible] real-time We make those a than So bit to and assumptions access is

time ongoing simply on any or evaluating what LCDs it underwriting or evaluating all that. supplemental taking be layering top all for would done on A the an underwriting our layer is things, that's couple or Yes. occupancy. of and these on as two We're is a free is is in earnings of our as But issues are nuances. and the these underwriting reported That's is a stabilization right? of that month at on not borrower into put us origination, the or LTVs I gives which underwriting analysis both we're issues on loans, at the not assets that rent there. basis. the nuance whether One

as gentlemen, conference today's session thank call. and question-and-answer for that, today's Ladies We we'll presentation. joining today's with as close well everyone

may lines. now disconnect your You