Q1 2025 Lument Finance Trust Inc Earnings Call
Good morning, and thank you for joining the Lumina Finance Trust first quarter 'twenty 25 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 Chang with Investor Relations at Bloom and investment management.
Operator: Good morning and thank you for joining the Lument Finance Trust first quarter 2025 earnings call. Today's call is being recorded and will be made available via webcast on the company's website.
Andrew Tsang: 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.
Please go ahead.
Speaker Change: Good morning, everyone. Thank you for joining our call to discuss limit finance Trust's first quarter 2025 financial results.
Andrew Tsang: Thank you for joining our call to discuss Lument Finance Trust's first quarter 2025 financial results. With me on the call today are Jim Flynn, our CEO, Jim Briggs, our CFO, Greg Calvert, our President, and Zachary Halpern, our Managing Director of Portfolio Management. On Monday, May 12th, we filed our 10-Q with the FCC and issued a press release to provide details on our recent financial results. We also provide the supplemental earnings presentation, which can be found on our website.
Speaker Change: With me on the call today are Jim Flynn our CEO.
Speaker Change: Jim brings our CFO, Greg Calvert President <unk>.
Speaker Change: Zachary help her in our managing director and portfolio management.
Speaker Change: On Monday May 12.
Speaker Change: Their 10-Q with the FCC and issued a press release to provide details on our recent financial results.
Speaker Change: Also provided a supplemental earnings presentation, which can be found on our website.
Speaker Change: Before handing the call over to Jim I'd like to remind everyone that certain statements made during the call of course of this call are not based on historical information and May constitute forward looking statements within the meaning of section 27 eight.
Andrew Tsang: Before handing the call over to Jim Flynn, I'd like to remind everyone that certain statements made during the course of this call are not based on historical information and they constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those contained in forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, in particular, the risk factors section of our Form 10-K.
Speaker Change: Securities Act of 1933.
Speaker Change: 21 E of the Securities Exchange Act of 1934.
Speaker Change: Such forward looking statements are subject to various risks and uncertainties.
Speaker Change: Could cause actual results to differ materially from those contained in forward looking statements.
Speaker Change: These risks and uncertainties are discussed in the company's reports filed with the SEC and in particular, the risk factors section of our Form 10-K.
Andrew Tsang: It is not possible to predict or identify all such risks, and listeners are cautioned not to place undue reliance on these forward-looking statements. The company undertakes no obligation to update any of these overlooking statements.
Speaker Change: It is not possible to predict identify all such rests and listeners are cautioned not to place undue reliance on these forward looking statements.
Speaker Change: The company undertakes no obligation to update any of these forward looking statements are there certain non-GAAP financial measures will be discussed on this conference call.
Andrew Tsang: Further, certain non-GAAP financial measures will be discussed on this conference call. The presentation of this information is not intended to be considered in isolation, nor is it a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through our filings with the SEC.
Speaker Change: The presentation of this information is not intended to be considered in isolation, nor as a substitute for the financial information.
Speaker Change: As entered it in accordance with GAAP.
Speaker Change: Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP.
Speaker Change: Accessed through our filings with the SEC.
Andrew Tsang: For the first quarter of 2025, we reported a gap net loss of $0.03 per share and distributable earnings of $0.08 per share of common stock. In March, we declared a quarterly dividend of $0.08 per common share for the respective first quarter in line with the prior quarter.
For the first quarter of 2025, we reported a GAAP net loss of three cents per share and distributable earnings of eight cents per share of common stock.
Speaker Change: In March we declared a quarterly dividend up eight cents per common share perspective first quarter in line with the prior quarter.
James Flynn: I will now turn over the call to Jim Flynn. Please go ahead. Thank you, Andrew. Good morning, everyone. Welcome to the Lument Finance Trust earnings call for the first quarter of 2025. We appreciate all of you joining us today.
Speaker Change: I'll now turn over the call to Jim Flynn. Please go ahead.
Jim Flynn: Thank you Andrea good morning, everyone welcome to the limit Finance Trust earnings call for the first quarter of 2025, we appreciate all of you joining us today.
Speaker Change: Before we begin with the market update I would like to officially welcome Greg Calvert as our new President and.
James Flynn: Before we begin with the market update, I would like to officially welcome Greg Calvert as our new president and newest member of our management team. I've personally worked with Greg for almost 20 years. He has extensive experience in multifamily credit and nearly a 30-year tenure at Lument and its predecessor entities, making him an exceptional addition to our leadership team. Welcome, Greg. Thank you.
Jim Flynn: The newest member of our management team.
Jim Flynn: I've personally worked with Greg for almost 20 years. He has extensive experience in multifamily credit and nearly a 30 year tenure at <unk> and its predecessor entities make him an exceptional addition to our leadership team also Greg.
Jim Flynn: Hmm.
James Flynn: Turning to the economy and market. Despite ongoing uncertainty related to the pace and direction of interest rate policy, the broader U.S. economy has continued to show somewhat surprising resilience. The labor market remains tight. Consumer spending has held up much better than anticipated, and inflation, while easing from the peak, continues to be a focus for the Fed and, frankly, for investors and the economy.
Jim Flynn: Turning to the economy and market.
Jim Flynn: Despite ongoing uncertainty related to the pace and direction of interest rate policy the broader U S. Economy has continued to show.
Jim Flynn: Somewhat surprising resilience.
Jim Flynn: The labor market remains tight.
Spending has held up much better than anticipated.
Jim Flynn: Inflation, while easing from the peak continues to be a focus for the fed.
Jim Flynn: Frankly for investors that the economy.
Jim Flynn: However, the topic of the day continues to be trade and tariffs.
James Flynn: However, the topic of the day continues to be trade and tariff. Any developments, whether real or projected, have had significant impact on markets and sentiment, as we saw yesterday and also are seeing this morning in pre-market. As we move through 2025, we are mindful of the potential for volatility for this and all economic issues. But we do remain cautiously optimistic that good opportunities for investment will be present in 2025.
Jim Flynn: Any developments, whether real or projected I've had significant impact on markets and sentiment as we saw yesterday.
Jim Flynn: We also are seeing this morning.
Jim Flynn: Free market.
Jim Flynn: As we move through 2025, we are mindful of the potential for volatility for this and all economic issues, but we do remain cautiously optimistic that good opportunities for investment will be present in 2025.
James Flynn: Stability and monetary policy would provide a constructive backdrop for the returning health of the commercial real estate finance market. The multifamily sector continues to demonstrate relative resilience amid evolving market dynamics. No low reg growth remains muted, occupancy rates remain robust.
Jim Flynn: Stability in monetary policy will provide a constructive backdrop for the returning health for the commercial real estate finance market.
Jim Flynn: The multifamily sector continues to demonstrate relative resilience amid evolving market dynamics, although Iraq for us remains muted occupancy rate occupancy rates remained robust on.
James Flynn: On the supply side, multifamily construction starts have decelerated due to several contributing factors, including scarcity of attractive financing and increased construction costs. Looking ahead, the combination of steady demand, limited new supply, and the challenges faced by potential homebuyers due to mortgage rates suggest a favorable environment for multifamily investments over the medium to long term. As a result of improving conditions, we have seen greater financing origination opportunities. albeit choppy over the past 45 days, and the capital markets appear to be appear to continue to be engaged relatively significantly.
Jim Flynn: On the supply side multifamily construction starts have decelerated due to several contributing factors, including scarcity of attractive financing and increased construction costs.
Jim Flynn: Looking ahead, the combination of steady demand limited new supply and the challenges faced by potential homebuyers due to mortgage rates suggest a favorable environment for multifamily investments over the medium to long term.
Jim Flynn: As a result of improving conditions, we have seen greater financing origination opportunities.
Jim Flynn: Albeit choppy over the past 45 days 45 days and the capital markets appear to be appear to continue to be engaged.
Jim Flynn: Relatively significantly.
Throughout this environment active asset management has been and continues to be a priority.
James Flynn: Throughout this environment, active asset management has been and continues to be our priority. We take a proactive approach to monitoring borrower performance, market trends, and collateral value. Our team is in constant dialogue with our borrowers, ensuring that we can identify issues early and respond strategically in order to maximize recovery value. including foreclosure and REO strategies. As we mentioned previously, we have executed several successful loan modifications and extensions that preserve value and enhance our downside product. We remain committed to preserving capital and maximizing risk adjusted returns across this cycle. Our credit risk ratings have remained largely stable quarter over quarter and the sequential increases to our specific reserves are in line with our expectations for the portfolio.
Jim Flynn: You take a proactive approach to monetary borrower performance market trends and collateral values.
Jim Flynn: Our team is in constant dialogue with our borrowers ensuring that we can identify issues early and respond strategically in order to maximize recovery values, including foreclosure and Oreo strategies, where prudent.
Jim Flynn: As we've mentioned previously we have executed several successful loan modifications and extensions to preserve value and enhance our downside protection.
We remain committed to preserving capital and maximizing risk adjusted returns across the cycle.
Jim Flynn: Our credit risk ratings have remained largely stable quarter over quarter.
Jim Flynn: Sequential increases to our specific reserves are in line with our expectations for the portfolio performance.
James Flynn: Given our focus on optimizing recovery from our existing investments, we have appropriately managed liquidity to maintain flexibility, holding a considerable amount of unrestricted cash on our balance sheet rather than deploying it into new loan assets. We have also elected to use principal repayments received on assets held within the LMS financing structure to partially pay down outstanding liability. This voluntary partial delevering of the portfolio provides us with additional cushion in meeting various collateralization and interest rate coverage covenants within that structure, which we believe is an acceptable tradeoff as we continue to resolve the more challenged credits and seek to put more favorable secured financing in place later this year.
Jim Flynn: Given our focus on optimizing recovery from our existing investments, we have appropriately manage liquidity to maintain flexibility holding a considerable amount of unrestricted cash on our balance sheet, rather than deploying it into new loan assets.
Jim Flynn: We have also elected to use principal repayments received on assets held within the yellow vest financing structure departure, partially pay down outstanding liabilities.
Jim Flynn: This voluntarily voluntary partial delevering of the portfolio provides us with additional cushion and meeting various collateral.
Jim Flynn: <unk> and interest rate coverage covenants within that structure, which we believe is an acceptable trade off as we've continued to resolve the more challenged credits.
Jim Flynn: To put more favorable secured financing in place later this year.
Jim Flynn: We are currently reviewing options for our new secured financing for that portfolio and we expect to close in the coming months.
James Flynn: We are currently reviewing options for a new secured financing for that portfolio, and we expect to close in the coming. We expect the new financing will provide us with adequate flexibility to manage our season's credits while putting us in a favorable position to viably access the CRE CLO market as a returning issue.
Jim Flynn: We expect the new financing will provide us with adequate flexibility to manage our seasoned credits are putting us in a favorable favorable position survived we access the CRE CLO market as returning issuer.
James Flynn: following a lull in new deals post the Trump administration's April 2nd tariff announcement. There's been a flurry of new CRA CLO deals over the past several weeks, which has been encouraging and demonstrates a functioning capital market. Pending market conditions, we would anticipate a new issuance in the second half of 2025. We continue to leverage the origination, underwriting, and asset management expertise of our manager and its affiliates to identify and capitalize on compelling investment opportunities. Our ability to navigate the current environment, prudently manage our liquidity, optimize capital deployment on a levered basis, and manage our challenge assets will be key to delivering long-term value to our shareholders.
Jim Flynn: Following a lull in new deals post the Trump administration staple second tariff announcements.
Jim Flynn: Theres been a flurry of new series C of O deals over the past several weeks, which has been encouraging and demonstrates the functioning.
Jim Flynn: Hospital market.
Jim Flynn: Pending market conditions, we would anticipate the new issuance in the second half of 2025.
Jim Flynn: We continue to leverage the origination underwriting and asset management expertise of our manager and its affiliates to identify and capitalize a compelling investment opportunities our ability to navigate the current environment environment prudently manage our liquidity optima.
Jim Flynn: Optimized capital deployment on a levered basis.
Jim Flynn: And as our challenged assets will be key to delivering long term value to our shareholders.
James Briggs: With that, I'd like to turn the call over to Jim Briggs who will provide details on our financial results. Thanks, Jim. Good morning, everyone.
Jim Flynn: With that I'd like to turn the call over to Jim Briggs, who will provide details on our financial results Tim.
Speaker Change: Thanks, Jim good.
Jim Flynn: Good morning, everyone.
James Briggs: Last evening, we filed our quarterly report on Form 10-Q. provided a supplemental investor presentation on our website, which we'll be referencing during our remarks. The supplemental investor presentation has been uploaded to the webcast as well for your reference. In pages four through seven of the presentation, you'll find key updates and earnings summary for the quarter. For the first quarter of 2025, reported net loss to common stockholders is approximately 1.7 million or three cents per share. We also reported distributable earnings of approximately $4 million or $0.08 per share.
Jim Flynn: Last evening, we filed our quarterly report on Form 10-Q.
Jim Flynn: And provided a supplemental investor presentation on our website, which we'll be referencing during our remarks, the supplemental investor presentation has been uploaded to the webcast as well for your reference.
Jim Flynn: Pages four through seven of the presentation, you will find key updates an earnings summary for the quarter.
Jim Flynn: For the first quarter of 2025 reported net loss to common stockholders was approximately $1 7 million or <unk> <unk> per share.
Jim Flynn: Also we reported distributable earnings of approximately 4 million or <unk> <unk> per share.
James Briggs: A few items I'd like to highlight with regards to the Q1 P&A. Our key one net interest income was $7.7 million. declined from 9.4 million recorded in Q4 of 2024. The weighted average coupon and average outstanding UPB of the portfolio declined sequentially, largely due to declines in the SOFR benchmark rate and the deleveraging of our secured finance. I said fees were also lower as payoffs during Q1 totaled $55 million as compared to $144 million in Q4. Company recognized approximately $700,000 of exit fees during Q1 compared to approximately $1.1 in the prior quarter. Our total operating expenses, including fees to manager, were largely flat quarter on quarter, as we recognized expenses of $2.6 million in Q1 versus $2.8 million in Q4.
Jim Flynn: Two items I'd like to highlight with regards to the Q1 P&L.
Jim Flynn: Q1, net interest income was $7 7 million.
Jim Flynn: A decline from nine 4 million recorded in Q4 of 'twenty four.
Jim Flynn: The weighted average coupon and average outstanding new PD, if the portfolio declined sequentially.
Jim Flynn: Largely due to clients and so for benchmark rate and the deleveraging of our secured financings.
Jim Flynn: Exit fees were also lower as payoffs during Q1 totaled $55 million as compared to 144 million in Q4.
Jim Flynn: Company recognized approximately 700000 of exit fees during Q1 compared to approximately one one in the prior quarter.
Jim Flynn: Our total operating expenses, including fees to manager were largely flat quarter on quarter as we recognized expenses of $2 6 million in Q1.
Jim Flynn: Versus $2 8 million in Q4.
James Briggs: Approximately $450,000 of incentive fee that would have otherwise been incurred by the company as it relates to Q1 was waived by the manager.
Jim Flynn: <unk> 450000 of incentive fee would have otherwise been incurred by the company as it relates to Q1 was waived by the manager.
James Briggs: Primary difference between reported net income and distributable earnings was a $5.7 million net increase in our allowance for credit loss. As of March 31st, we had seven loans risk rated a five. including three assets newly downgraded to 5 and Q1. All seven loans are collateralized. Six of the loans are collateralized by multifamily assets, one by seniors.
Jim Flynn: Primary difference between reported net income and distributable earnings was a $5 7 million net increase in our allowance for credit losses.
Jim Flynn: As of March 31, we had seven loans risk rated a five.
Jim Flynn: Including three assets newly downgraded to five in Q1.
Jim Flynn: Also have been loans are collateralized.
So the loans are collateralized by multifamily assets one by seniors.
James Briggs: Greg will provide a bit more detail in his remarks. We evaluated these seven five-rated loans individually to determine whether asset-specific reserves for credit losses were necessary. And after analysis of the underlying collateral, we increased our specific reserves to $11.1 million as of March 31st, an increase of $7.3 million versus the prior quarter. Our general reserve for credit loss has decreased by 1.6 million during the period, primarily driven by payoffs of performing loans, loan modifications, and the move of certain assets to specific evaluation. We ended the first quarter with an unrestricted cash balance of $64 million, and our investment capacity through our two secured financings was fully deployed.
Greg Calvert: Greg will provide a bit more detail in his remarks.
Greg Calvert: We evaluated the 75 rated loans individually.
Greg Calvert: Determine whether asset specific reserves for credit losses, where necessary.
Greg Calvert: And after analysis of the underlying collateral we increased our specific reserves to $11 1 million as of March 31, an increase of $7 3 million versus the prior quarter.
Greg Calvert: Our general reserve for credit losses decreased by $1.6 million during the period, primarily driven by payoffs of performing loans loan modifications and the move of certain assets to specific evaluation.
Greg Calvert: We ended the first quarter with an unrestricted cash balance of $64 million and our investment capacity through our two secured financings was fully deployed.
James Briggs: The CRE CLO securitization transaction we issued in 2021 provided effective leverage of 75% to our loan assets and our weighted average cost of funds of SOFR plus 173 basis points. The LMF financing, completed in 2023, provided the portfolio with effective leverage of 81% at a weighted average cost of funds of SOFR plus 314 basis points. On a combined basis, the two securitizations provided our portfolio with effective leverage of 77% and a weighted average cost of funds of SOFR plus 225 basis points as a quarter.
Greg Calvert: The CRE CLO securitization transaction, we issued in 2021 provided effective leverage of 75% to our loan assets at our weighted average cost of funds so far.
Greg Calvert: Plus 173 basis points.
Greg Calvert: L. M. S financing completed in 2023 provided the portfolio with protective leverage of 81% at a weighted average cost of funds of sofa, plus 314 basis points on.
Greg Calvert: On a combined basis, the two securitizations provided our portfolio with effective leverage of 77% and a weighted average cost of funds of sofa, plus 225 basis points as of quarter end.
Greg Calvert: The company's total equity.
James Briggs: the company's total equity. At the end of the quarter, it was approximately $232 million. Total book value of common stock was approximately $172 million, or $3.29 per share, decreasing sequentially from $3.40 as of December 31st, driven primarily by the increase in the allowance for credit loss.
Greg Calvert: At the end of the quarter was approximately $232 million.
Greg Calvert: Total book value of common stock was approximately $172 million or $3 29 per share decreasing sequentially from $3 40 as of December 31.
Greg Calvert: Driven primarily by the increase in the allowance for credit losses.
Greg Calvert: We'll now turn the call over to Greg Calvert to provide details on the company's investment activity and portfolio performance during the quarter. Thank you, Jim. During the first quarter, LFT experienced a modest $55 million of loan payoffs.
Greg Calvert: I will now turn the call over to Greg Calvert to provide details on the Companys investment activity and portfolio performance during the quarter right.
Greg Calvert: Thank you Jim.
Greg Calvert: During the first quarter <unk> experienced some modest $55 million of loan payoffs as referenced and Jim Flynn earlier remarks, approximately $31 million of these payoffs were within LMS and although these principal repayments were eligible for reinvestment into new loan assets after much deliberation with the understanding that.
Greg Calvert: As referenced in Jim Flynn's earlier remarks, approximately $31 million of these payoffs were within LMS. And although these principal repayments were eligible for reinvestment into new loan assets, after much deliberation and with the understanding that the portfolio was currently in a transitory phase as we work to line up new secured financing sources, our team made the prudent executive decision to intentionally partially pay down a portion of the LMF bond in order to provide us additional cushion in satisfying the over-collateralization test as required by the LMF indenture. As of March 31st, our portfolio consisted of 61 floating-rate note loans with an aggregate unpaid principal balance of approximately $1 billion.
Greg Calvert: Portfolio.
Greg Calvert: It's currently in a transitory phase as we work to line up new secured financing sources.
Greg Calvert: Our team made the prudent executive decision to intentionally partially pay down a portion of the element bonds in order to provide us.
Greg Calvert: Cushion and satisfying the Overcollateralization tests, that's required by the <unk> and desert.
As of March 31, our portfolio consisted of 61 floating one.
Greg Calvert: 61 floating rate loans with an aggregate unpaid principal balance of approximately $1 billion, 100% of the portfolio was indexed to one month sulfur and 92% of the portfolio was collateralized by multifamily properties.
Greg Calvert: 100% of the portfolio was indexed to one-month SOFR, and 92% of the portfolio was collateralized by multifamily properties. As of the end of the first quarter, our portfolio had a weighted average note floating rate of SOFR plus 355 basis points. and an unamortized aggregate purchase discount of $3 million. The weighted average remaining term of our book as of quarter end was approximately 40 months, assuming all available extensions are executed by our borrower. As of March 31st, approximately 60% of the loans in our portfolio were risk rated at 3 or better, compared to 64% in the prior quarter.
Greg Calvert: As of the end of the first quarter, our portfolio had a weighted average note floating rate of sofa, plus 355 basis points.
And another amortized aggregate purchase discount of $3 million.
Greg Calvert: The weighted average remaining term of our book as of quarter end was approximately 40 months, assuming all available conventions are executed by our borrowers.
Greg Calvert: As of March 31, approximately 60% of the loans in our portfolio were risk rated at three or better compared to 64% in the prior quarter.
Greg Calvert: Our weighting average risk rating quarter on quarter remained flat at 3.5. We had 7 loan assets risk rated 5, with an aggregate principal amount of approximately $108 million. for approximately 11% of the unpaid principal balance of our investment portfolio. One was a $15 million loan collateralized by two multifamily properties in Philadelphia, Pennsylvania. This loan asset was risk-rated 5 due to monetary default. During Q1, the company recognized approximately $300,000 of cash received from the borrower as a reduction in our carrying basis of this loan. Another 5-risk-rated asset was a $20 million loan collateralized by multifamily property in Orlando, Florida.
Our weighted average risk rating quarter on quarter remained flat at three five we had seven loan assets risk rated five with an aggregate principal amount of approximately $108 million.
Greg Calvert: For approximately 11% of the unpaid principal balance of our investment portfolio.
Greg Calvert: One was a $15 million loan collateralized by two multifamily properties in Philadelphia, Pennsylvania. This loan.
Greg Calvert: Asset was risk rated five due to monetary default during Q1. The company recognized approximately 300000 of cash received from the borrower as a reduction in our carrying basis of this well.
Greg Calvert: Other five risk weighted asset was a $20 million loan collateralized by multifamily property in Orlando, Florida.
Greg Calvert: That was a monetary default. During Q1, the company recognized approximately $400,000 in interest from this loan. The third 5-risk-rated asset was a $15 million loan collateralized by a multifamily property in San Antonio, Texas. That was a technical default. This asset was foreclosed on within the 2021 FL1 CLO structure subsequent to quarter end. The fourth five risk rated asset was a $10.5 million loan collateralized by a multifamily property in Colorado Springs, Colorado, that was in monetary default. The fifth five risk rated asset was an $11.5 million loan collateralized by a multi-family property in Houston, Texas that was a monetary default.
Greg Calvert: The monetary default.
Greg Calvert: During Q1 the company recognized approximately 400000 in interest from this loan.
Greg Calvert: The third five risk weighted asset was a $15 million loan collateralized by a multifamily property in San Antonio, Texas that was in technical default.
Greg Calvert: This asset was foreclosed on within the two.
Greg Calvert: 2021, <unk> CLO structure subsequent to quarter end.
Greg Calvert: The fourth five risk weighted asset with a $10 $5 billion loan collateralized by a multifamily property in Colorado Springs, Colorado.
Greg Calvert: Monetary default the fifth.
<unk> risk rated asset with a $11 $5 billion loan collateralized by a multifamily property in Houston, Texas that was a monetary default.
Greg Calvert: The sixth five risk-rated asset was a $24.5 million loan collateralized by a multifamily property in Clarkston, Georgia that was in monetary default. And finally, the seventh five risk-rated asset was a $12 million loan collateralized by a multifamily property in Tulante, Michigan that was in monetary default.
Greg Calvert: The six 5% risk weighted asset with a $24 $5 million loan collateralized by multifamily properties and Clarks in Georgia that was in monetary.
Greg Calvert: Fault.
Greg Calvert: Finally, the seven five risk rated asset with a $12 million loan collateralized by multifamily property philosophy, Michigan that was the monetary default.
Greg Calvert: During the first quarter, we were successful in achieving positive outcomes on two of the six assets that were five risk-rated as of December 31st. These included a $32 million loan collateralized by a multifamily property in Dallas, Texas, and a $6 million loan collateralized by a multifamily property in Orlando, Florida. In one of these cases, our loan was assumed, and approximately $2 million of our loan principal was paid down by the new borrower sponsor. In the other case, we provided a three-month forbearance and agreed to extend the loan until November. Monthly debt service payments on our loan have since resumed as anticipated.
Greg Calvert: During the first quarter with success, we were successful in achieving positive outcomes are two of the six assets that were five risk rated as of December 31.
Greg Calvert: These included a $32 million loan collateralized by multifamily property in Dallas, Texas, and a $6 million loan collateralized by multifamily property in Orlando, Florida.
Greg Calvert: And one of these cases.
Greg Calvert: Our loan was assumed and approximately $2 million of our loan principal is paid down by the new borrower sponsor in the other case, we provided a three month forbearance on agreed to extend the loan until November monthly debt service payments on our long have since resumed as anticipated we had not previously recorded any specific reserves.
Greg Calvert: We had not previously recorded any specific reserves on either of these two resolved assets.
Greg Calvert: Neither of these two years all of the assets we.
Greg Calvert: We diligently continue to engage with our loan borrowers and see constructive resolutions with respect to our more challenged credit. We expect to proactively explore all strategies available to us, and we remain confident that the deep experience of our asset management team and broad capabilities of our manager and its affiliates will allow us to take advantage in whatever steps are necessary to preserve and recover recovery value. We expect to leverage our experienced asset management team to maximize recovery through modifications, foreclosure, and potential REO operations. As we move through these resolutions, we may provide non-market financing to experienced sponsors to maximize expectations for repayment.
Greg Calvert: We diligently continue to engage with our loan borrowers and see constructive resolutions with respect to our more challenged credits.
Greg Calvert: We expect to proactively explore all strategies available to us and we remain confident that the deep experience of our asset management team and broad capabilities of our manager and it's.
Greg Calvert: Affiliates.
Allow us to take advantage and whatever steps are necessary to preserve and recover recovery values.
Greg Calvert: We expect to leverage our experienced asset that it seemed to maximize recovery modifications foreclosure and potential Oreo operation as we move through these resolutions we may provide nonmarket financing to experienced sponsors to maximize expectations for repayment.
James Flynn: And with that, I will pass it back to Jim Flynn for closing remarks and questions. Thank you, Greg. I'd like to thank everyone for joining and appreciate your time and interest in the platform.
Speaker Change: With that I will pass it back to Jim Flynn for closing remarks and questions.
Jim Flynn: Thank you Greg I'd like to thank everyone for joining and appreciate your time and interest in the platform.
James Flynn: I look forward to answering some questions and we'll ask the operator to open the line. Thank you.
Jim Flynn: We look forward to answering some questions and we'll ask the operator to open the line.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone, you'll hear a prompt that your hand has been raised.
Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline your hand from the queue, please press star followed by two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment for your first question.
Jim Flynn: Should you wish to decline your hand from the queue. Please press star followed by <unk>.
Speaker Change: You're using a speaker phone please lift the handset before pressing any keys one moment for your first question.
Jason Weaver: And your first question comes from Jason Weaver with Jones Trading. Please go ahead. Hey, guys. Good morning. And thanks for taking my question. First, can you talk about what you're seeing? Can you characterize the pipeline today as well as a follow up?
Speaker Change: And your first question comes from Jason Weaver with Jones trading. Please go ahead hi.
Jason Weaver: Good morning, and thanks for taking my question.
Jason Weaver: First can you talk about what Youre seeing.
Jason Weaver: Can you characterize the pipeline today as well as a follow up is there a level of net originations that you need to see through the rest of the year to maintain the current dividend capacity.
James Flynn: Is there a level of net originations that you need to see through the rest of the year to maintain the current dividend capacity? Well, the second question, frankly, is... related more to AOS. And there's not, I wouldn't put it as, we have assets that we could put into, you know, that have been recently originated at Lument and continue to originate. So we have, we'll have assets to deploy into LFT when there's capacity. So, you know, there's not, I'm not really concerned at an origination level. Now, if If volatility kind of continued in the way that we've seen over the past, you know, 45, 60 days, you know, that would likely reduce the opportunities from where we think they will be.
Jason Weaver: Well the second question is exactly as is.
Jason Weaver: Related more to payoffs.
Jason Weaver: And there is not I wouldn't put it at we have assets that we could put into that.
Jason Weaver: That have been recently originated at.
Jason Weaver: At Lucent.
Jason Weaver: And continue to originate so we have to we'll have assets too.
Jason Weaver: Deploy into L. S T.
Jason Weaver: Then theres capacity so.
Jason Weaver: Theres not I am not really concerned in origination level now.
Jason Weaver: If volatility kind of continued and the way that we've seen over the past.
Jason Weaver: $45 60 days that would.
Jason Weaver: Akeley reduce the opportunities from where they were we think they will be but I don't think it drives up like we've seen in various points over the last couple of years. So from an origination standpoint, I think we're in pretty good shape.
James Flynn: But I don't think it dries up like we've seen in various points over the last couple of years. So, from an origination standpoint, I think we're in pretty good shape.
James Flynn: But, you know, whether we need a couple hundred million or 500 million, I think we'll be able to have the assets to replenish LFP as needed. In terms of the types of opportunities we're seeing on the origination side, you know, continue to see there's, you know, Attractive assets on the lease-up level, new construction, newer assets, those are certainly most desirable. From a credit standpoint, they tend to be priced tighter as we've seen relatively high competition for those assets. I would say a modest slowdown in recapping and bridge-to-bridge type of deals that we've seen a little bit more of over the last couple of quarters you know, that largely tracks with kind of what we've seen in our own portfolio.
Whether it's whether we need a couple hundred million dollars and a $500 million I think I think we will.
Jason Weaver: To be able to have the assets to replenish L. P as needed.
Jason Weaver: Sure.
Jason Weaver: In terms of the types of opportunities, we're seeing on the origination side.
Jason Weaver: Continue to see.
Jason Weaver: As you know.
Jason Weaver: Attractive assets at the on the lease up level of new construction new assets those are certainly most desirable.
Jason Weaver: From a credit standpoint.
Jason Weaver: Hence it would be priced tighter as.
Jason Weaver: As you've seen.
Jason Weaver: Relatively.
High competition for those assets.
Jason Weaver: I would say a modest slowdown in.
Recapping and bridge to bridge.
Jason Weaver: Type of.
Jason Weaver: Deals that we've seen a little bit more of over the last couple of quarters.
Jason Weaver: That largely tracks with kind of what we've seen in our in our own portfolio.
Jason Weaver: Those as you know there is some for the right sponsor and the right market. You can you can achieve a premium there.
James Flynn: Those have, you know, there's some, for the right sponsor in the right market, you can achieve a premium there, but definitely seen a little slowdown in that side on the construction and lease-up, continue to see those opportunities.
Jason Weaver: But definitely seen a little slowdown in that side on the construction and lease up continue to see those opportunities, but as I stated in my remarks.
James Flynn: But as I stated in my remarks, you know, deliveries have been on the decline, relative decline, and so over time those opportunities will start to decrease. But I do think we'll see some turnover in, you know, the wall of maturities that we've been talking about now for, you know, two or three years where we're going to see some resolutions and I think opportunities for reinvestment into assets by a new sponsor. Alright, thank you for that, Keller.
Jason Weaver: Oliver.
Oliver: Have been on the decline relative decline and so.
Oliver: Over time those opportunities will.
Oliver: Start to decrease.
Oliver: But I do think we'll see some turnover in the wall of maturities that we have been talking about now for two.
Oliver: Two or three years, we're going to see some resolutions and I think opportunities for reinvestment into assets by any sponsors.
Oliver: Alright, thank you for that color.
Oliver: Mhm.
Speaker Change: Your next question comes from Steve Delaney with citizens JMP. Please go ahead.
Steven DeLaney: Your next question comes from Steve DeLaney with Citizens GMP. Please go ahead. Good morning, Jim and team, and nice to meet you, Greg. I'm interested in your comments about financing. Now, you mentioned, obviously, looking at the CLO market, which has been your sort of traditional vehicle for your semi-permanent financing on the portfolio. But I picked up in your tone, Jim, that there are other options out there, whether it's private credit, whether it's banks, that might give you a more custom or flexible interim type of facility. Am I on the right track there, that there might be something to do?
Steve DeLaney: Hey, good morning, Jim and team and nice to meet you Greg.
Speaker Change: Interested in your.
Speaker Change: Comments about financing now you mentioned, obviously looking at the CLO market, which has been your sort of traditional.
Vehicle.
Speaker Change: For your semi permanent financing on the portfolio, but I picked up in your tone GM bit.
Speaker Change: There are other.
Speaker Change: Dancing options out there.
Speaker Change: Whether it's product credit, whether it's banks that might give you a more custom or are flexible.
Speaker Change: And in the.
Speaker Change: In the interim type of facility did I am I on the right track there.
Speaker Change: There might be something to do.
James Flynn: before you do your next CLL. Yeah, I think, yes, there's there are definitely opportunities in the market. really both from banks and private credit. Obviously, the bank providers are more closely structured like traditional warehouses with some different terms, duration, and some flexibility on how long assets can stay on the line, those types of things, which make them more attractive than a traditional kind of repo. So we're definitely looking at both, as you say, potentially as You know, they're an interim step and and likely something that we would want to keep permanently to to maintain flexibility if we can, if we can achieve the, you know, the right flexibility there.
Speaker Change: Before you do your next CLO.
Speaker Change: Yes, I think yes, there's there are definitely opportunities in the market.
Speaker Change:
Speaker Change: Really both from banks and private credit obviously the.
Speaker Change: Thanks providers are.
Speaker Change: More closely structured like traditional warehouses with some different times.
Speaker Change: Right.
Speaker Change: <unk>.
Speaker Change: Some flexibility on what how long assets can stay on the line those types of things, which makes them more attractive than a traditional kind of repo.
Speaker Change: So so yeah, we're definitely looking at both as you say you know potentially has.
Speaker Change: An interim step.
Speaker Change: And likely something that we would want to keep permanently to maintain flexibility. If we can if we can achieve.
The right flexibility there.
Speaker Change: The CLO market broadly is still remains.
James Flynn: The CLL market broadly is still remain. the most attractive financing, in our opinion, for, you know, floating rate multifamily assets. Occasionally we've seen the capital markets being disrupted either through lack of or no availability on the investor side or, you know, gapping on the bond spreads. But today, you know, we've seen continued interest. I know you've seen several deals here in the market in the last couple of weeks that, in our opinion, have either price kind of in line with where we might expect or, in some cases, talks of maybe even better than we expected.
Speaker Change: The most attractive financing in our opinion for floating rate multifamily assets occasionally we've seen the.
Speaker Change: The capital markets being disrupted either through.
Speaker Change: Lack of or no availability.
Speaker Change: On the Investor side.
Speaker Change: Gapping on the on the bond spreads.
Speaker Change: But today you know we've seen continued interest I know you've seen several deals here in the market in the last couple of weeks.
Speaker Change: In our opinion.
Speaker Change: Have either.
Speaker Change: Kind of in line with where we might expect or in some cases talks.
Speaker Change: Talks of of maybe even better than we expected.
James Flynn: And that suggests that there's a lot of capital on the side they're looking to get into the, you know, deploy into the CLO space. So, you know, it's hard to replace a permanent vehicle like a CLO securitization. So that will continue to be our primary focus. But I do think there are a lot of, or not say, there are a lot of providers that are offering, you know, alternatives and flexibility. And look, this is a derivative of, you know, the market continuing to extend loans, business plans taking longer, new sponsors stepping into older deals. Those types of things have provided an opportunity to do lenders on the back leverage side to, you know, offer some competing financing to the traditional securitization.
Speaker Change: And that suggests that there's a lot of capital on the on the sideline looking to get into the <unk>.
Deploy into the CLO space.
Speaker Change: So.
Speaker Change: It's hard to replace a permanent vehicle like a CLO securitization. So that will continue to be our primary focus but I do think there are a lot of not say there are a lot of providers that are.
Speaker Change: Offering.
Speaker Change: Alternatives and flexibility look this is a derivative.
Speaker Change: The market continued to extend loans business plans, taking longer new sponsors stepping into older deals those types of things have provided an opportunity to do.
Speaker Change: Two lenders.
Speaker Change: On the back leverage side too.
Speaker Change: Offer some competing financing to the traditional securitization market.
Speaker Change: Understood and appreciate those comments.
Steven DeLaney: understood and appreciate those comments.
Steven DeLaney: And just as far as your problem loans that are under, you know, asset management, seven loans, $108 million. Can you comment if there's any, you know, those things take, each one is a different story, right? Different borrower. But as far as, and you may have new fabricated loans or, you know, by the end of the year, it's a fluid process.
Speaker Change: And just as far as your problem loans that are under asset management seven loans of $180 million.
Speaker Change: Can you comment if there's any you know those things.
Speaker Change: Each one is a different story right different borrower, but.
Speaker Change: As far as and you may have new.
Speaker Change: Fabricated loans or.
Speaker Change: By the end of the year.
A fluid process, but are there sure.
James Flynn: But are there... Sure. market such and your relationship with these borrowers, do you anticipate, you know, any near-term resolutions, you know, say, you know, between now and the next three to six months, do you think some of these will be resolved and go away, or is it more a matter of just incremental increases in the five-rated bucket until we see, you know, a major, a larger turnaround in the market? I would, I would answer that. I would say one, there's certainly, you know, possibility of And personally, I do see the potential there for there to be resolutions in the next three to six months.
Speaker Change: Market sites and your relationship with these borrowers do you anticipate.
Speaker Change: Any near term resolutions.
Speaker Change: Say between now and the next three to six months do you think some of these will will be resolved and go away or is it more a matter of just incremental increases.
Speaker Change: In the five rated bucket until we see.
Speaker Change: A major.
Speaker Change: Larger turnaround in the market.
Speaker Change: I would I would answer that I would say one there's certainly.
Speaker Change: Possibility of.
Speaker Change: And personally I do see the potential for there to be resolutions in the next three to six months as we've seen over the past several quarters. We've continued to add on those so do I think that that is a real possibility, yes I do.
James Flynn: As we've seen over the past several quarters, you know, we've continued to have those. So do I think that that is a real possibility? Yes, I do. However, as you know, the market has been, you know, it's been choppy and, you know, sponsorship is really a fee. The common theme that we've seen among assets, obviously, business plans didn't pan out the way that people thought. And this program, I think by no means is bad or blare but in many cases due to you know what happened with the timing of acquisitions and expectations around rental growth, it's not achieving those even if even if there were some positive growth.
Speaker Change: However, as you know the market has been.
Speaker Change: It's been choppy.
Speaker Change: Sponsorship is really key.
Speaker Change: The common theme that we've seen among.
Speaker Change: Among assets, obviously business plans may be paying off the way that people thought that's clear, but in many cases D T.
Speaker Change: What happened with the timing of acquisitions and expectations around rental growth not achieving those even if even if there was some positive growth, but what what we've seen.
James Flynn: You know, whether these assets that we're talking about here, even in prior quarters, is typically a sponsor just basically coming to the conclusion, either voluntarily or often involuntarily, that they don't have the capital to, you know, improve the asset in a way that is, you know, the most ideal situation. And so when that happened. the lack of investment into these assets, you know, particularly those of older vintage, deterioration happens. So, you know, the way that we envisioned you know, potential outcomes in those situations is for us to gain control of the asset either directly or bringing in a new sponsor that is a known quantity of ours, potentially providing, you know, incremental capital, maybe non-market financing to a quality sponsor, which would allow for the asset to go from where it is today in this deteriorating kind of, you know, of property condition and in general performance to something that you know, has a greater value.
Speaker Change: Yeah.
But these assets that we're talking about here even in prior quarters. There is typically a sponsor just basically coming to the conclusion, either voluntarily or Austin and voluntarily that they don't have the capital T. You know.
Speaker Change: <unk> improved the asset in a way that is.
Speaker Change: The most ideal situation.
Speaker Change: And so.
Speaker Change: When that happens.
Speaker Change: The lack of investment into these assets.
Speaker Change: Particularly those of older vintage deterioration happens quickly.
Speaker Change: So the way that we envision.
Speaker Change: Potential outcomes in those situations is for us to gain control of the asset either directly or bringing in a new sponsor that is a known quantity of ours.
Speaker Change: Potentially providing.
Speaker Change: No incremental capital.
Speaker Change: Nonmarket financing to a to.
Speaker Change: Quality sponsor, which would allow for the asset to go from where it is today and this deteriorating.
<unk>.
Speaker Change: Property condition in general performance through something that.
Speaker Change: Has it has a greater value so that's.
James Flynn: So that's. That's really the strategy here. You know, in terms of, as you know, our portfolio has generally been declining as we de-leveraged and maintained liquidity. So what I'll call the legacy portfolio, you know, the number of opportunities for problem assets continues to decline as we work through those that are struggling. So, you know, whether it's this quarter or very soon, you know, we feel like you can see the shift in the market where you're going to start to see, I think, not just at LFT, but more broadly, a lot more resolutions to some of these assets that have remained outstanding for longer than, you know, lenders or sponsors anticipated.
Speaker Change: That's really the strategy here.
Speaker Change: In terms of as you know our our portfolio has generally been declining.
Speaker Change: We de Levered and maintain liquidity.
Speaker Change: So the what I'll call the legacy portfolio.
Speaker Change: The number of.
Speaker Change: Opportunities for problem assets continues to decline as we work through those that have struggled so struggling so whether it's this quarter or very soon we feel like you can see the shift in the market, where you're going to start to see I think a.
Speaker Change: Not just say Dallas T, but more broadly.
Speaker Change: A lot more resolutions too.
Speaker Change: Some of these assets that have remained outstanding for longer than lenders or sponsors anticipated.
Steven DeLaney: Got it. Interesting.
Speaker Change: Got it interesting I appreciate those insights into market conditions that we can observe from our seat. Thank you Jeff.
Steven DeLaney: Well, appreciate those insights into market conditions that we can't observe from AirSea. Thank you, Jim. Thanks.
Jeff: Thanks, Steve.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one.
Operator: As a reminder, if you'd like to ask a question, please press star 1.
Speaker Change: Your next question comes from Christopher Nolan with Ladenburg Thalmann. Please go ahead.
Christopher Nolan: Your next question comes from Christopher Nolan with Leidenberg Bauman. Please go ahead. All right, thank you. Following up on Steve's questions on the rise and non-accruals. Is this a cash flow issue for the sponsors where the property is simply not generated? It is a cash flow, broadly speaking, meaning I think it's true at the asset, but it's also true in the sponsor kind of investing in the property. And that cycle, you know, that's not universal, but as a broad... a broad comment, you know, that's a that's a bad cycle. Because as you don't reinvest in the asset, your cash flow deteriorates even further, your operations decline further, and that's, you know, that is the challenge that many of these sponsors face.
Speaker Change: Alright, thank you.
Speaker Change: Following up on Steve's questions on the rise in non accruals.
Speaker Change: Is this a cash flow issue for the sponsors where the property is simply not generating enough.
Speaker Change: Okay.
Speaker Change: <unk> to cover the interest.
Speaker Change: It is a cash flow broadly speaking, meaning I think it's true at the asset, but it's also true in the sponsor kind of investing in the property.
Speaker Change: And that cycle I was.
Speaker Change: Universal but as abroad.
Speaker Change: Amit that's a.
Speaker Change: That's a bad cycle, because you don't reinvest in the asset.
Speaker Change: Your cash flow deteriorates, even further your operations declined further.
Speaker Change: And that's.
Speaker Change: That is the challenge.
Speaker Change: The amount of your sponsors face and as a lender.
James Flynn: And as a lender in our, you know, we have a very experienced and seasoned team around, you know, workout resolutions and also REO management. But if we don't control the asset, you know, that we continue to see that decline if there's not reinvestment going into the property. So it is it is a. you know, some combination of cash flow and management and you know it's I won't say it's a chicken and egg exactly but there is there's certainly a correlation there obviously the assets were generating significantly more cost flow the management would likely be better or certainly if it weren't it would be certainly now.
Speaker Change: We have a very experienced and seasoned team around.
Speaker Change: Workout resolutions and also RVO management.
Speaker Change: But if we don't control the asset.
Speaker Change: We continue to see that decline if theres not reinvestment going into the property. So it is it is a.
Speaker Change: Some combination of cash flow.
Speaker Change: And management.
Speaker Change: And.
Speaker Change: Yeah.
Speaker Change: It's I won't say, it's a chicken and egg.
Speaker Change: Lastly, but there is there is certainly a correlation there obviously would be assets, where generating significantly more cash flow.
Speaker Change: I imagine it would likely be better or certainly.
If it wanted it would be certainly masked.
Speaker Change: Okay well.
James Flynn: Okay, well. on the March 20th call that you guys had for the fourth quarter. You use terms like strong sponsors, fundamentals remain strong, constrained supply, robust demand, resilient rental. And given the rise in non-accruals, it doesn't sound like... Well, I... I... No, I think that is true in the market and I think on average it is true in our portfolio. On a couple of these assets, you know, we've had Sponsors not follow through on. some of their... you know, stated. goals and intentions at the asset. And, you know, from, as I said, in you know, evaluating these deals if sponsors decide that they're going to not continue to support the asset in the way that they have historically, that deterioration can happen very quickly.
Speaker Change: On the March 20th call that you guys had for the fourth quarter.
Speaker Change: You use terms like strong sponsors fundamentals remains strong constrained supply robust demand resiliency and rent trends.
Speaker Change: And given the rise in non accruals it doesn't sound like that's the case.
Speaker Change: Am I wrong or what.
Speaker Change: No I think I think that is true in the market and I think on average it is true in our portfolio.
Speaker Change: On a on a couple of these assets.
Speaker Change: We had.
Speaker Change: Sponsors NAS followed through on.
Speaker Change: Some of them there.
Speaker Change: You have stated.
Speaker Change: Calls and intentions at the asset.
Speaker Change: From as I said in.
Speaker Change: Evaluating these deals if sponsors.
Speaker Change: Side that theyre going to not.
Speaker Change: We continue to support the asset and the way that they have historically that deterioration can happen very quickly.
James Flynn: And on a couple of these, we think that's a part of the issue. We also feel that while the values today and the reserves are appropriate, that, you know, we are looking at, you know, scenarios that we think should have been better managed by a sponsor, and we think that we or someone else could do a better job.
Speaker Change: And in a couple of years do you think thats.
Speaker Change: Part of the issue we also feel that.
Speaker Change: While the values today and.
Speaker Change: Our reserves are appropriate that we are.
Speaker Change: Looking at.
Speaker Change: You know scenarios that we think should be should have been better managed by the sponsor and we think that.
Speaker Change: We or someone else could do a better job.
Christopher Nolan: Okay, thank you.
Speaker Change: Okay. Thank you.
Operator: There are no further questions at this time.
Speaker Change: There are no further questions at this time I would like to turn the call over to Jim Flynn for closing remarks.
James Flynn: I would like to turn the call over to Jim Flynn for closing remarks. I just want to thank everyone for continuing support of LFT and joining us today. We look forward to speaking again next quarter. Thank you all.
Speaker Change: Just wanted to thank everyone for continuing support of LFC and joining us today and we look forward to speaking again next quarter.
Speaker Change: Sure.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].