Lument Finance Trust (LFT) 10 May 242024 Q1 Earnings call transcript

Good morning, and thank you for joining the Lument Finance Trust's First Quarter 2024 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 call over to Andrew Tsang, with Investor Relations at Lument Investment Management. Please go ahead.

Good morning, everyone, and thank you for joining our call to discuss Lument Finance Trust's First Quarter 2024 Financial Results. With me on the call today are Jim Flynn, our CEO. SEC Jim of President; X, on Portfolio the with CFO; our Zach we our our press XX-Q Director a Managing Management. On the first Briggs, quarter Henson, provide and our Halpern, filed release results. Jim to issued details and Thursday, May

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

to are historical during Before of forward-looking everyone to that the contained remind and are our subject handing those like SEC, the of Form XX-K. XXXX. Such These forward-looking uncertainties in the Factors various the I'd course to statements of the on Section the Securities forward-looking Exchange call that reported XXA meaning of Flynn, and over filings of statements not the in constitute may in materially of actual discussed XXE differ call particular, statements XXXX uncertainties Securities and information are Risk of to statements. made from based Act and Jim Act the within results with the results certain company's risks the could cause Section section

It is such not and these statements. forward-looking all place or not predict cautioned obligation on company are forward-looking any to undue reliance The undertakes of these identify to statements. listeners no risks update possible to

the through of accordance with SEC. GAAP the isolation presentation comparable Further, certain in in non-GAAP a most GAAP. filings the information this as information of with this presented A not financial discussed to is in accessed to call. be financial measures considered be measures accordance nor these will non-GAAP measures substitute conference intended be on for Reconciliations financial with can prepared our

turn the company the $X.XX with stock, In and Jim to March, now also net quarter ahead. a the first share quarter. I of $X.XX of declared Please we of reported first per $X.XX GAAP respect common per respectively. the to Flynn. of go call common dividend share over stock For of of will distributable earnings income XXXX,

Finance Thank you, We Call Andrew. Good the for morning, appreciate Lument quarter XXXX. today. everyone. first to joining everyone Trust's Earnings the Welcome of

XXXX, the Let's optimistic the of environment we are start during would we first as to begin lending year. half improve just the enter cautiously

May. hikes began have now are elevated. has yet despite the remained cuts the Fed has resilient early data for weeks future increases in view has a stubbornly financing otherwise. acquisition ago, prudent data economy sector any of over The of suggests to multifamily suggests ago. And years quarter broadly Fed property and We trend until in and although limited and activity consensus muted with in remarks, leading X first implement did its to inflation couple be sales market labor challenged economic The not this during The rates the to that economic remained that the higher short-term FERC indicated rate expect opportunities. longer continued seems the

do of interest to persistent reluctant their borrowers been also portfolios have the Given unless to compelled rates, elevated so. refinance

cause a credit, according new to the QX towards the and environment, level announced move challenging XXXX, focus provided this volume success strong middle-market asset QX by other property broader with platforms. and continues proposition. to multifamily of has to by billion an outperform value asset of deliberate on is XX% to LFT X% estimates. provides lending see in company expect volume maturity And to with CRE term. Multifamily in debt MBA the transaction opportunities in of combined And initial medium expected down we end mortgage a volume sales perhaps reason attractive normal we reach believe down class activity, our Lument the first is Just lending quarter sponsorship short-term multifamily MBA the types. year-over-year property from $XXX management long week, ORIX multifamily its shareholders with active XXXX. Despite and of a in -- unique a the nearly and this the the as return

outcomes to maintain able superior ending the dividend -- period. We stable deployed effectively as the during QX with dividends portfolio our result, has investment quarter-over-quarter, our positive with structures. In and to deposits allow provide to Having achieving given short-term a XX. securitization of within existing us of better-than-average elevated manage into a its As us with performance increased flexibility in investable half cash fully of capital the yield will potential on capital liquidity credit have increased unrestricted many deploy outside peers. company meantime, been $XX relative XXXX, and second rates. average of million our the December managing reserves in March this the XX on of shareholders million for focus to We cash with asset proactively XX the X.X the for $XX opportunities returns investment to to earned from a We relatively our attractive quarter attractive our X-rated report December was specific successfully weighted resolved our principle. approximately our and X our the quarter compared assets risk portfolio our rating available maintain protect recorded X the maintained ended we December in no shareholder believe stable

financing of with has closed beyond margin its repayments now CLO, in is Our costs. long-dated with subject period portfolio to financed back its mark-to-market begun we that It's collateral. not XXXX. continues delever CRE FLX, to reinvestment the be to secured and

to to refinance continue portfolio. the We opportunities explore

still period fully who to financial results. becomes extends details over reinvestment intend to July to we the and turn Jim funds SOFR to complete capital like into call alternatives LMF available executed and within remaining As transaction provide we financing Briggs, the financing attractive for reinvest as has in the believe approximately of available. With last that mid effective of portfolio of an XXX end, market. The the XXXX, plus levels, we advance rate on other quarter FLX cost relative year I'd will structure that, are Jim? was XX%, that which our

remarks. quarterly been Last provided our and webcast presentation filed during be Supplemental investor everyone. to our Jim. as report the we uploaded website, Thanks, your will XX-Q Form we supplemental on for reference. has morning, our which a well presentation on investor referencing Good evening,

X Pages you quarter. find will earnings X On for the and through updates the key summary presentation, of

we net quarter For common of or income 'XX, to share. the approximately reported first per stockholders of $X.X million $X.XX

distributable during reported million also or activity highlight earnings approximately period. a per to are $X.X There We of few I'd regarding share. like items the $X.XX

collateralized income million, million of related X $XX Our payoff to interest defaulted resolution was loans, of during which X Columbus, which and things, previously located passed was The QX driven prior to activity $XX current. Payoffs as through fee by to property $X.X office within we net to brought Virginia in current Beach, and Virginia, million greater to the multifamily X, value by sequential Ohio, $X an modified being primarily in QX other income 'XX. located among quarter-over-quarter was quarter. exit interest collateralized during portfolio in the million QX due in the higher in by reduced the property compared quarter increase compared other our million with, totaled $XX

borrowers, quarter. underlying payoffs compared $XXX,XXX we totaled in experienced driven either another QX the by to refinancing prior properties. selling the Associated recognized fees or majority loan with lender The $XXX,XXX as of approximately were exit

due fee an equal As to of provided the agreement. receive loans our our a borrower we fees affiliate when our reimbursable XX% of terms against expenses exit waived instances, of to In waived one our the manager, is the a our a are with of refinanced these do, permanent reminder, credit pursuant by however, management agency exit loan to manager.

Our credit exit was waived for quarter-on-quarter. flat -- fees

on fees $X.X in sequential to in total Our which threshold. $X.X incentive the core QX excess agreement expenses X% annum defined increase to million by accrued payable and of an of operating in accrual versus quarterly The our the expenses were a majority basis, equal XX% was of 'XX. of QX per are million return driven over our in earnings management due the as manager, of

was remain reserve with as be reserves. Property the market million earnings rates. of including visibility with higher current The difference to reflective general of for Distributable the in with as $X.X macroeconomic reported period. period. for as to continues it operating during can our respect earnings largely in to and in rates general valuation CECL all is respect earnings cap increase credit CRE limited to flat sentiment in to common our expenses that, and longer volume to leading were modeling well to approximately forecast in changes core The acquisition synonymously pricing depressed, this income quarter-on-quarter. in context. our the attributable this cautiousness relates net allowance losses, primary distributable between used increase Outside

X rated a for to As and million of default X in loan Brooklyn, York risk New XX, One risk-weighted loans we risks. maturity $XX imminent a is by X March property multifamily collateralized had default. due

monetary in multifamily basis. asset loans properties both collateralized which The their both is payments, Both that April risk-weighted cash on $XX be loan on due although of a near Georgia, X Augusta, interest income placed since -- to of of loans have default. is these while nonaccrual been made status, other have these these million by X a will recognized

an losses We reserves necessary. after XX. to necessary that of none for analysis And individually of March underlying evaluated both asset-specific credit the were of these determined are as collateral determine loans whether X-rated

to investment balance our of the share approximately was value year-end, capacity Jim call Total $X.XX secured $XXX was As Henson and stock equity now company's company's effectively share X turn $X.XX or the financings activity as provide of over our from portfolio million. with quarter year-end. million, We was up through $XX cash on first an ended per performance book per Jim? approximately common details total the the the during of of million $XXX unrestricted deployed. We'll quarter. investment and to fully

share now investment Thank portfolio. a I our you, of summary Jim. in recent brief activity will the

million acquire discussed the Jim We these earlier. quarter, to the any new related fund payoffs. the loan of defaulted quarter. during Briggs A first $XX loans or loan did not portion LFT During assets first experienced payoffs loan of by

of was was portfolio our supplement. of aggregate and XX loans collateralized term XX% As of SOFR our SOFR net $X.X appears interest XX, of an by analysis principal multifamily properties. An earnings indexed sensitivity X of portfolio to XXX% on shifts of the rate the approximately billion. floating XX Page in month balance consisted unpaid to portfolio of with March income the

with period more we the the the fourth rated improvement Our investment the well loans of portfolio of quarter, to portfolio and versus marking XX% XXXX. continued in a than better, AX slightly or during quarter perform slight ended risk first

stable at risk remains weighted rating Our X.X average sequentially.

loans year-end. X-rated Our exposure time approximately of quarter now we this $XX of versus decreased as resolved. had have the earnings X-rated X million At our call, last been to that loan aggregate million $XX fully

of value amount the proceeds X received property carrying the million first the we approximately $X.X taking and insurance this the income consideration in and to on legal of in of costs, loan reducing onetime additional into Columbus, during recognition quarter. the million after expected, resulting Ohio, on loan $XX.X defaulted other of As the in

the end balance Virginia other the the in asset loan a and borrower of that The accordance first XXXX modification Beach, modification. into the of defaulted week, during with full a X-rated was in principal million at entered borrower Virginia. received pay loan with Last the We property repaid loan down the multifamily a loan a on terms partial in quarter. $X.X remaining

have loans, of We deep team. for our outcomes experience efforts diligent are pleased achieved to to positive thanks management very asset and these

it With for to and Jim that, pass questions. Flynn closing I remarks will back

the our call and And Thank open please Thanks Jim. to you, your attendees for questions. interest. operator,

question first Crispin the from comes Piper [Operator Our line Instructions] Sandler. from Love of

did investments some new the no payoffs. you quarter, have but So in

anything you opportunities, So would the have that call you you lack drivers expectations how new to investments out? else cautiousness then in in forward payoffs it to of the speak in quarters? just the some quarter? compare Was to or market of coming would expect can And going

Okay. Yes.

our earlier, is as noted period. securitization its of out reinvestment is XXXX the -- call in So on FLX, which

were New investments often reinvestment that previously securitization. of

given looking cash transaction we're is a have So excess at is capacity accordingly. at LMF, And matter the XXXX of do FLX capacity. strategically cash. million to right We with that and finance just of out planning FLX. now, the basically that It's $XX-plus period of investment

to over that all consider to I something quarter couple market FLX condition we'll next FLX as quarters, refinance, of dependent. term that deleverage. X over But over see So but the know continues be the next quarters will don't near to -- the

the I obviously with think elevated fully effectively cash. so deployed we're

that there So slow question, I a market, the be to end reinvestment opportunities. would fill we to be at quarter, capacity it's -- expect unless reasonably of the are lending in your to very the -- relatively answer able able in have to any we'll despite --

Right.

that. appreciate portfolio. were bit other then in and tougher stable I the increased But competitors second late. as on were Provision you good Credit here. the been And makes views have That give us can question of see. just metrics a Okay. sense. are some for credit me, to your experiences having there resolutions

on So be better performing helpful. then peers be that might credit here? of you're anything would the you And in the why space seeing than think you some

putting Well, and had in sponsors the existing done do comfortable good with honest able we've feel And portfolio. be resolutions with up challenging of think good come quality to worked we job we'll continue together is I to that we've us confident pretty answer portfolio. that who the situations. a that very have a And to to

milestones terms plan others of job good end had that had that very, been good We've provided front we rate able secret in increases caps. and sponsors on asset have sure on general, for I to. In credit with making think sponsors have opportunities did of and timely sometimes management down We've really actual more work not lot in other new to have the and we're and drawing group top the a process had that sooner the a team. may loans a business the we than at issues. portfolio There's the capital rental with think spend were have time than assets very of structure milestones of -- management have always good and I that than something a our

JonesTrading. line comes next from Our the Jason of Weaver from question

this with is immediate all, out to opportunity curious the last quarter-to-date you tightened pursue you're in have and of spreads the refinancing spoke to that FLX. first in much wind of credit question I how down the the seeing was generalized spreads more quarter, and over there. regarding if First where here

public. there's on opportunity goes out, as time continue the XX% really I of to funds side, that's and by cost So no close will rather or increase. on But -- mean, over, to you from that point and even at -- credit XXX private the delever, as those

obviously, or potentially evaluating asked immediate. this you You on how and do there should I going a can that, But immediate, on markets. potential we think but really public refinance think, the capital shouldn't year I continue it's it early markets. the have is you in it be we think we're I to -- to define Obviously, so next I that to been refinance depending get like get say we dependent done, but can year on

take at the But perhaps comfortable can portfolio the coming at look answer and that long And working later. with markets I attractive they're outside mean billion note, been get would think refinancing. But today frankly, there's mentioned other $XXX structures with opinion, look to we to who and, private in does of so to have do of it banking to that leverage we or trigger or is we're than transactions we're not sooner of we we in as partners are compare be achieve higher closer same frankly, said we're new way getting also month, might a the our continue And term, maturities to might financing this, refinance to the something capital make advantage deal. But of cost otherwise what sense that. ways continuing feel doing. we the noncapital provide that is, the I want market, short up. our going but I I'll and economically a the today, pull for relative every in what with

we're through almost halfway already So XXXX.

with that just probably market have don't been data into So 'XX the is We that yet. extensions. in already pushed number

seeing where nowhere coming. but is near opportunity We're ago. it's it's of a sure, already been So more couple for years the

make just So that's have in at creating also as of that a refinancing opportunities of time more consideration and to that capacity terms taking advantage we attractive want we investment well. sure

part that's of well. as So the equation

we and meet. talked our internally that's every process. we direct with thought it time the not but answer, a And Board So about

taking with about answer with in your No, And posture any curious, into also build you're likely was you've how thinking see repayments, is account still very helpful. on possible share repurchases? your into change to there to seen the date, that's more that I you're what liquidity -- towards

the we of immediate number I and It's the of of on with benefits we something been a something investment -- value. there's might future capacity -- of it's the how something It's being the look, issues, the the it's Board. but -- weighing -- kind to benefit that of a impact one shareholders the It's table big one. long-term it's and certainly obviously consider. liquidity, size mean -- right, the globe

question line James. Raymond from Laws Stephen next of Our from comes the

Nice path know touch the April, to out said good of resolution start get X-rated on number X new loans the I to no the X-rated you've the year, the you for loans? a paid gate. reserves. specific Can resolved. I know both

But good X, X timing X can So you updates or resolution on path assets. guess, but talk I there. loans, about those

weigh -- Yes. Yes. on. It in actually

mean I resolutions. we're exact Yes. us very that from with in quick this you've the at present. seen towards prepared real-time the sponsors active a I path think don't share push hands-on But management just is the negotiation I like involves think to resolution conversation past, what

X pay forward? how with that little basis points that Or Is way? cost level prepays a was of the Is of repays structure or or it to then math I XXX with than only CLOs, back rata guess, help even I to increase and about that you financing that, surprised QX, looking going And there, the can by -- pro $XX-some-odd at FLX a was to with circle I that some it think more increased Okay. specifically, XXX. spread didn't sequentially. million in me

AAA flat where stack, with the pretty but the is then in that BBB say Yes. down have BBB XXX is, don't I XXXs. a it's big is mean spreads this the to I point want what offhand and spread, meaning that securitization XXXX I'd the exactly the basis say

You're be not fact mechanically that AAA excessively. shift a and pro the down, small AAA other from there paying to the the only seeing bigger is rata will continues the but the spread the increase down. the a as of just Frankly, ultimately for that a the your up is. It equity other -- AAA It's It marginal driver paying pay -- number less finance that what debt right, yes deleveraging, not issue the than down. just larger will Certainly, of in primary will. its size. It's you is securitization on have nature of that. ones and -- it the tranches,

do for what The other think are open those pretty bank those fully you financing levered to that, incorporating opportunities? compare the these if that to and mentioned, stays probably where for facilities, that growth it what ROE And route on go were opportunity? spreads along you lines, would time. look when kind banks I BBBs spreads the a to days, see of the are what you chose with about like if some investments rate attractive at advance you look lower charging you how at bank considering those on you lines, mean, guess, path as look and like lines I up structures

refinance X be of range. that wide a One asking, new refinancing termed X and we asset -- credit a it FLX there's it is were you're market, and negotiated, think -- out with line, spread -- X think range new the a there, spreads related don't -- and Well, I the I a as bank so questions is that the be just the leverage how -- answers. I there's think X to would -- wide warehouse. Those to think but the a be wouldn't spreads because correlated are there's would certainly I same if

-- new and in you have relatively taken that You an into low return, are mid- in are for trying of XXXs probably risk leverage recap sponsor, construction so much. But bridge you same higher years -- those getting you then what longer sponsor that leverage, to the maybe XXXs, probably versus some with typically the markets seen for done. go we're extra have are loans different of into high lease-up more and the XXXs that construction we're deals of credit out maybe where to the then are some above plans too pricing high-quality new coming have extended low as -- couple the and obviously, balance that, we've the not depending the and on business asset could at have -- spreads

opportunities. spreads LFT which bank relate a we'll like I what Those said. have in leverage think look you're those that have you spreads And and warehouse obviously, to when market, don't we at So the of thinking balance we about the and assets those do. credit response,

So deals think Andrew you there, the high XX% to would I have XX%, XXXs have, new are. for say, in you about XXXs add leverage Zach or but and to things I more anyway originated the say. deals, if where I'd market, low that's newly pretty or is guys

great that's for Thanks through walking I color, numbers comments really morning. the Well, appreciate Appreciate you this me. Yes. those for it. and

comes line question from from next Nolan Christopher Ladenburg Thalmann. of Our the

that The rent-stabilized Brooklyn nonaccrual, building? is a

check I -- is I'd on have sure it. the it don't answer. to there's I'm Yes, exact some.

Right. It's rate. primarily market

stay there's that not unequivocally I an issue. I'll value mean, on clear, that. This that -- ], on an no deal that be one, just -- the To state, I yes, -- not will is is there's it's issue is [

in the for have then do you And Okay. loans? any loan portfolio general, interest-only

interest-only. interest-only... floating They competitors bridge are they're purchased us rate the the But exist There it's for which or I stuff, sponsors. to all they're interest-only. downs X- they're bridge the a are do rate all interest is they underlying or then rate requirements portfolio are loans in -- are, require the rebalancing, I Well, apps what space, these interest have recap of that bridge they in and it's is primarily, mean mean portfolio. typically by principal those forms. And would terms the interest-only -- are is which X-year included. pay whether the and floating

these I methodology that, payment normally? And of a that affect than because does given end your at guess, have the how sort just borrowers reserving balloon larger

So an my I our perspective at is process. there active actual but of to process, Jim general, start our when value. loans in looking I our let analysis mean, -- I'll we is and when the so key just at we mean, from metric what's look basis of Briggs But the portfolio, we're could our to do

And so driver. that's primary the

some assets So we but that started maybe value, at not XX whether in be is obviously might XX pretty a meant equity have position cases, or has as and our is it good. that's LTV, today XX credit lost

So that's the the of obviously where kind we're market at and then and comps. evaluating looking

on So doing true asset-by-asset impairment risk or an there's we of analysis loss. we're a a whether think

On taken more -- the we've don't that Jim, is less focused of know analysis, and macro I side, And a specifics trends. focused the generally and is our macro on if industry general portfolio concern... CECL reserves a think on market-driven the we're that and further on

of this period general where in right? there's the and of done getting valuation. is a a rates lot a in going well. period driver forward to be. that LTVs, we it's collateral value to both choose observability CECL the the environment cap I on macro Jim's point, cautiousness X-year general a going about combination on is And our that Yes. that. But and forecast of talked seeing mean We I and for model our as to as look and big be not you're reserve, what activity a requires

and sort to collateral That's of right, speaking LTVs, value.

that we're cuts we're of need and losses saw And macroeconomic same the to life, as to about going to that forecasting. There going well the it's soon the Jim going year drivers more driver because that us, we expected look be macro see So as is come as in reserve. big we over forecast later be be is -- may of the we thought they're this potentially. and move a to to we talks going for going to to macro not rate

reserve. combination say a a both, is I would it's going of driver a LTV and So to but driver that of was there be

Our line question next UBS. from of [indiscernible] the from comes

building extraordinary like? recoveries share to numbers sort strip do what gain, gain. an If The I the me report. Good per distributable we look guess, on like commercial look out of income that

$X.XX to one-timers about Those work fee. incentive for out about one-timers. the I the be And spoke

that's going about sort So $X.XX. way for of the other

particular, -- $X.XX. the one-timers So but in about were

further at call this turn no questions time. ahead. will Please I to go now the over presenters. our There are

thank for to up next catching and Take quarter. everyone care. look want time I and your interest again to forward

your gentlemen, concludes this and Ladies Thank call. today's you conference for participation.

may disconnect. You now