NYSE:LFT Lument Finance Trust Q2 2024 Earnings Report $2.64 +0.01 (+0.19%) Closing price 05/7/2025 03:59 PM EasternExtended Trading$2.64 0.00 (0.00%) As of 05/7/2025 05:49 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Lument Finance Trust EPS ResultsActual EPS$0.09Consensus EPS $0.11Beat/MissMissed by -$0.02One Year Ago EPS$0.04Lument Finance Trust Revenue ResultsActual Revenue$30.64 millionExpected Revenue$9.82 millionBeat/MissBeat by +$20.82 millionYoY Revenue GrowthN/ALument Finance Trust Announcement DetailsQuarterQ2 2024Date8/12/2024TimeAfter Market ClosesConference Call DateTuesday, August 13, 2024Conference Call Time1:00PM ETUpcoming EarningsLument Finance Trust's Q1 2025 earnings is scheduled for Thursday, May 8, 2025Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Lument Finance Trust Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 13, 2024 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00Good afternoon, and thank you for joining the Lumin Finance Trust Second Quarter 2024 Earnings Call. Today 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 at Lumin Investment Management. Please go ahead. Speaker 100:00:19Good afternoon, everyone. Thank you for joining our call to discuss Lumin Finance Trust's Q2 2024 Financial Results. With me on the call today are Jim Flynn, our CEO Jim Briggs, our CFO Jim Henson, our President and Zachary Halpern, our Managing Director of Portfolio Management. On Monday, August 12, we filed their 10 Q with the SEC and issued a press release to provide details on our 2nd quarter results. We also provided a supplemental earnings presentation, which can be found on our website. Speaker 100:00:55Before 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 may 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 the statements in the forward looking statement. 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 ks. 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 forward looking statements. Speaker 100:01:47Further, certain non GAAP financial measures will be discussed on this conference call. A presentation of this information is not intended to be considered in isolation nor as 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. For the Q2 of 2024, we reported GAAP net income of $0.07 and distributable earnings of $0.09 per share of common stock, respectively. In June, we also declared a dividend of $0.08 per share with respect to the 2nd quarter, which represented a 14% increase over the Q1 dividend of $0.07 per share of common stock. Speaker 100:02:32I will now turn the call over to Jim Flynn. Please go ahead. Speaker 200:02:38Thank you, Andrew, and good day, everyone. Welcome to the Lumin Finance Trust earnings call for the Q2 of 2024. We appreciate everyone joining today. Through the first half of 24, the U. S. Speaker 200:02:55Economy largely outperformed consensus expectations. However, the CPI measured in June showed a declining rate of growth in the consumer price index and August jobs reports were weaker than expected. As a result, the market seems to have renewed confidence that the Fed will start its easing cycle in September. As reflected in the 10 year, treasury remaining below 400 basis points since the beginning of August. While such easing will likely be beneficial to a number of sectors, including commercial real estate, we expect to proceed cautiously as the economy remains at elevated risk of recession. Speaker 200:03:36While the economic data has generally outperformed, commercial real estate has suffered due to high rate and inflationary environment. Improvements in the rate environment and the bottoming of property values should translate into a thawing of capital markets and an uneven recovery of transaction flow in the commercial real estate sector. Despite the modest softening of multifamily fundamentals impacted by a large supply of newly constructed units coming online over the last 6 months, we believe that multifamily and particularly middle market multifamily will continue to remain a strong performing asset class in the long term. We firmly believe that LSP has differentiated itself from its peer group through its deliberate focus on middle market multifamily credit, which has enabled the company to deliver a sustainable, stable dividend to our shareholders and preserve shareholder capital during this challenging part of the cycle. Our expertise in the origination, underwriting and active asset management of multifamily mortgage investments has been and we expect will remain central to the company's identity for the foreseeable future. Speaker 200:04:48Coupled with the strong sponsorship from the broader Lumin and ORIX platforms, we believe LFT represents a truly unique value proposition in the public markets today. In an environment where others have found it challenging to sustain stable dividend levels, we are proud to have been able to benefit our shareholders and raise the common dividend in June by $0.01 which represents a 14% sequential increase over Q1. Approximately a year ago, we closed the LMF secured financing transaction, which provided the company with additional investment capacity and extended our runway for future reinvestment. By the end of 2023, we were successful in fully deploying our capital into strong, predominantly multifamily credits. Since that time, we've been focused on actively managing our loan investment portfolio. Speaker 200:05:42Although we experienced a slight decline in our weighted average risk rating to 3.6 as compared to 3.5 as of March 31, we believe our investments have continued to perform well on a relative basis. Thanks to our heavy focus on multifamily, which has generally outperformed other CRE asset classes, our prudent upfront underwriting and our active approach to asset management. We continue to maintain a strong liquidity position ending the quarter with approximately $65,000,000 of unrestricted cash on our balance sheet. The persistence of elevated short term rates has allowed us to generate attractive returns on our cash balances, while we continue to intentionally take a defensive cash position to provide us with flexibility in managing the more challenging credits in our portfolio. As discussed on prior earnings calls, our loan portfolio is financed with long dated secured financings that are not subject to mark to market or margin calls. Speaker 200:06:41The LMF financing transaction has a reinvestment period that continues into July 2025 and we intend to reinvest capital into new loan investments as liquidity becomes available through repayments of existing collateral. On the other hand, the reinvestment period of our 2021 CLO ended in December of 2023, and we are actively exploring alternatives to recapitalize this structure. As of quarter end, the cost of funds for FL1 was swaps plus 1.61 and the effective of Chauffeur swaps and the effective advance rate was approximately 80%, which we believe will represent attractive terms relative to other secured financing options currently available in the market. We have observed that the issuance of new CRE CLO transactions remain muted with just one managed vehicle pricing in the market last quarter and just 3 since the start of the year. With that, I'd like to turn the call over to Jim Briggs, who will provide us details on our financial results. Speaker 200:07:44Jim? Speaker 300:07:46Thanks, Jim. Good afternoon, everyone. Yesterday, we filed our quarterly report on Form 10 Q 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. On Pages 4 through 7 of the presentation, you will find key updates and earnings summary for the quarter. Speaker 300:08:10For the Q2 of 2024, we reported net income to common stockholders of approximately $3,400,000 or $0.07 per share. We also reported distributable earnings of approximately $4,800,000 or $0.09 per share. There are a few items I'd like to highlight regarding the activity during the period. Our Q2 net interest income was $9,500,000 compared to $13,000,000 in Q1 of 2024. Sequential decrease was primarily attributable to the company recognizing in the prior quarter approximately $3,000,000 of one time pass through income related to the resolution of 2 defaulted loans, 1 collateralized by an office property located in Columbus, Ohio, in which we reduced our carrying value to 0 and another collateralized by a multifamily property located at Virginia Beach, Virginia, which was modified and brought current through Q1 and which remains performing in risk rating of 4. Speaker 300:09:09One component of the sequential variance in net interest income was also a result of average outstanding loan portfolio size increasing versus the prior quarter as we received approximately $98,000,000 of principal payoffs within the FL1 securitization, which is no longer within its reinvestment period. Aggregate payoffs and paydowns during Q2 totaled $98,000,000 as mentioned, as compared to $97,000,000 in the prior quarter with exit and other fees similarly comparable quarter on quarter. Total operating expenses were $3,500,000 in Q2 versus $4,300,000 in Q1. The majority of the decrease in expenses was driven primarily by a lower sequential accrual of incentive fees due to our manager, which are payable on a quarterly basis equal to 20% of the excess of core earnings as defined in the management agreement over an 8% per Other general operating expenses were largely in line quarter over quarter. Approximately 1 point $4,000,000 difference between reported net income and distributable earnings to common was attributable to an increase in our allowance for credit losses. Speaker 300:10:25As of June 30, we had 4 loans risk weighted to 5. 1 was a $17,000,000 loan collateralized by multifamily property in Brooklyn, New York and was risk weighted of 5 due to maturity default. Other was a $20,000,000 loan collateralized by 2 multifamily properties near Augusta, Georgia that was risk rated 5 due to monetary default. 3rd was a $15,000,000 loan collateralized by 2 multifamily properties in Philadelphia, Pennsylvania that was risk rated 5 due to monetary default. All 3 of these loans have been placed on non accrual status with cash received on Philadelphia property to be recognized on a cost recovery basis. Speaker 300:11:084th, 5 risk rated asset was a $32,000,000 loan collateralized by a multifamily property in Dallas, Texas that was in technical default. We evaluated these 4 or 5 risk rated loans individually to determine whether asset specific reserves or credit losses were necessary. And after an analysis of the underlying collateral, we recorded a specific an allowance in Q2 of approximately 900,000 dollars The general CECL reserve increased by approximately $500,000 during the period, driven primarily by changes in the macroeconomic forecast as well as Monnex risk rating migration in the portfolio. Company's total equity at the end of the quarter was approximately 242,000,000 dollars Total book value of common stock was approximately $182,000,000 or $3.48 per share, largely flat from 3.5 $0 per share as of March 31. We ended the 2nd quarter with an unrestricted cash balance of $65,000,000 and our investment capacity through 2 secured financings was effectively fully deployed. Speaker 300:12:17I will now turn the call over to Jim Henson to provide details on the company's investment activity and portfolio performance during the quarter. Jim? Speaker 400:12:27Thank you, Jim. Good afternoon, everyone. I will now share a brief summary of the recent activity in our investment portfolio. During the Q2, LFT experienced 98 dollars 1,000,000 of loan payoffs. A portion of these payoffs related to the defaulted loans discussed by Jim just Speaker 300:12:43a few moments ago. We did Speaker 400:12:45not acquire or fund any new loan assets during the period. As of June 30, our portfolio consists of 78 floating rate loans with an aggregate unpaid principal balance of approximately $1,200,000,000 100% of the portfolio was indexed to 1 month SOFR and 93% of the portfolio is collateralized by multifamily properties. While we endeavor to actively manage the maturity risk within our portfolios, it is worth noting that we had the foresight at the time of loan origination to include extension features within our loan investment documents. As a result, the weighted average remaining term of our book is approximately 30 months, if all available extensions were to be exercised by our loan borrowers. As of the end of the second quarter, our portfolio had a weighted average floating note rate of SOFR plus 3.59 basis points and an unamortized aggregate purchase discount of $5,600,000 As mentioned earlier, our secured financing remained attractive. Speaker 400:13:53The quarter ended with FL1, our CRE CLO transaction providing effective leverage of 79.5% at a weighted average cost of funds of so 4 plus 161. The LMS financing provided the portfolio with effective leverage of 82.2 percent at a weighted average cost of SOFR plus 3 14 basis points. On a combined basis at the end of the quarter, our 2 securitizations provided our portfolio with effective leverage of 80.4% and a weighted average cost of funds of SOFR plus 2 12 basis points. As of June 30, approximately 63% of the loans in our portfolio were risk rated 3 or better, down from 77% in the prior quarter. Our weighted average risk rating was 3.6, a slight deterioration from 3.5 sequentially. Speaker 400:14:51While both loan assets had been risk rated that had been risk rated 5 as of March 31 were fully resolved during the Q2. Our aggregate loan exposure on the 4 risk newly risk rated 5 loans was approximately $84,000,000 at the end of the second quarter, up from an aggregate $38,000,000 at the end of the first quarter. As Jim Briggs outlined earlier, we evaluated the 4 5 rated loans individually to determine whether asset specific reserves for credit losses were necessary. And after an analysis of the underlying collateral, we recorded a specific allowance of approximately $900,000 in the 2nd quarter. We expect to continue to rely on the expertise of our talented asset management team to actively resolve these 5 rated loan assets, protecting our investors' capital and maximizing value for our shareholders. Speaker 400:15:51I will now pass it back to Jim Flynn for closing remarks and questions. Speaker 200:15:58Thank you, Jim and Jim. And appreciate everyone joining, but we'll open the call to questions. Operator00:16:08Thank Your first question comes from the line of Kristin Love of Piper Sandler. Please go ahead. Speaker 500:16:43Thanks and good afternoon everyone. Just first off on credit quality. You have had pretty stable credit for several quarters now, but did see some degradation here in the Q2 related to some non performers migration, rate 5 loans and then the allowance build that you discussed. Can you just discuss the credit outlook as we stand today? Do you believe that we've reached peak stress in multifamily credit during this cycle? Speaker 500:17:11Just your intermediate term outlook, just given the environment and how you look at the portfolio? Speaker 200:17:18Yes. I think, I mean, it's hard to we've all kind of been a little bit off here for the last 6 quarters on predicting the market, but there does seem to be some expectation that we're kind of at or near that peak stress period. We do see rate reductions on the horizon, both obviously long term, we've seen their 10 year come down and expectations around sulfur, which sulfur cuts, which will or fed cuts, which will impact directly impact these floating rate borrowers. So those things are obviously beneficial to the credit quality of the portfolio, certainly in a vacuum. They come on the heels of other economic data and news, which generally isn't positive. Speaker 200:18:18But I think if you take a look at multifamily and how it's performed throughout cycles, near term and long term, it's done pretty well. And the supply demand dynamic in the country isn't changing, in fact, probably getting worse. And so there's some stability even in times of economic stress. Now that being said, with respect to our portfolio, and Zach and others can provide some more detail. I'm sure we'll have some other questions. Speaker 200:18:51We've seen more stress over the last couple of quarters as we've gone continue to go through this cycle. And we've continued to actively manage those and feel pretty good about our ability to do so, but we have to work through issues. We've had elevated risk assets in the past that we've been able to resolve. From a value standpoint, we still feel pretty good. We did take a reserve on one asset as was noted in the K, that is consistent with how we've looked at value throughout our history managing this entity. Speaker 200:19:40We do and we'll continue to work toward resolution of that without a loss or minimizing a loss, but from a GAAP and consistent standpoint, we felt it was appropriate to take a reserve on that asset. And with respect to the other assets, there's we have a great team here that is daily managing those and speaking to the sponsors on those assets and helping to participate in creating plans to improve the assets performance. And as we've discussed in the past, we do have the ability to really add operational expertise where needed with our sponsors or without. So yes, we're in a period of elevated stress. We still continue to feel pretty confident in the quality of our portfolio, but do need to continue to work through some of these more challenging assets. Speaker 500:20:45Great. Thank you, Jim. I appreciate the comments there. And then just on deployment, for the 2nd quarter, didn't add any new investments, but I think you had nearly $100,000,000 of pay off. So, what's keeping you from being more active here? Speaker 500:20:59Is it a concerted effort as you focus on asset management on the current portfolio? Or are there also a lack of opportunities out there? And how would you expect kind of the opportunity landscape to change as rates do come down in the coming months? Speaker 200:21:18Sure. So first on the capacity standpoint, so as I mentioned at the end of my remarks, the larger CLO, the 2,001 CLO is through its investment reinvestment period. And so that securitization is delevering. It's still an attractive financing swap, sulfur plus 16180% leverage even with those payoffs. So we do intend to continue to evaluate options there as we move through the next few quarters. Speaker 200:21:54But that's part of the reason, right, that capacity is just really deleveraging. On the LMF transaction, we've generally remained fully deployed, some timing as an asset pays off. And we've kept for the size of our entity relatively high cash position, in large part just to ensure that when needed, we can offensively, manage the portfolio, with our sponsors. In terms of the market, we are seeing more opportunities today than what we've seen over the last handful of quarters of high quality deals. There's it's competitive. Speaker 200:22:43It's not the volume that you would like to see, but it's starting to appear. There is anecdotal evidence out there and on some of the calls from the peer group you've heard of the competitive environment for acquisitions. The thing that's really slowed this market down has been the lack of asset changing hands. There's very active buyer community out there and there does seem to be some loosening on the seller side for folks to exchange assets and that will help find good deals for the bridge market. The other tailwind on the transaction side is these deliveries, particularly in the Sunbelt of all those construction assets coming online or at least coming through the construction period and maybe need a lease up period and that provides some opportunity in the bridge space. Speaker 200:23:51So I do think that we're going to continue to see transaction opportunities increase over the coming quarters. It may be a little slower than we'd like to see, but it will at least be going forward, which is a welcome change to where it's been. Great. Thank you so much. That's all Speaker 500:24:11I have for questions. Appreciate Operator00:24:15it. Your next question comes from the line of Matthew Erner of Jones Trading. Please go ahead. Speaker 600:24:22Hey, good afternoon guys. Thanks for taking the question. Could you talk about the timing of the payoffs this quarter and kind of what led to the sequential decline in commercial loan income? Speaker 200:24:36Sure. Jim and Zach, I guess, do you guys want Speaker 300:24:46Zach, you want to touch just timing? I mean, I think it was just sort of normal quarter. Speaker 600:24:52Yes. Well, were the payoffs kind of towards the beginning of the quarter rather than the end, which led to it kind of being $5,000,000 less than the prior quarter? Speaker 700:25:03Yes. I mean, when I look at sort of loan balance the REIT by month, really somewhere around 1.3@march31, 1.3 April 30 and then a drop off to 1.25 May 31 and 1.2 June 30. So I don't know. I think it sequentially moved down pretty steadily throughout. Speaker 600:25:43Okay. Got you. And then as a follow-up, what are you guys seeing within your portfolio in the secondary and tertiary markets, given the 2 Augusta multifamily's, the default and then the kind of move to non accrual there? And then following up on that, how are you guys working through these loans once they defaulted? Are you looking to get more equity in the deal? Speaker 600:26:05Are you guys making the borrowers kind of list the market or list the property on the market? Just how are you guys working through the process and going after these loans? Speaker 700:26:17So as it pertains to secondary, tertiary, I wouldn't say that we have specific issues that I'd point to there. I'd say that all the issues that we have have been idiosyncratic. Things like upcoming maturities and needs for interest rate caps, which have brought borrowers back to the table in terms of negotiation. As it pertains to working through these assets, if and when they default, our asset management team is taking a very active proactive approach with our sponsors Speaker 800:27:04and all of the above in terms Speaker 700:27:05of bringing them back to the table, whether that be cash contributions or negotiating top line recourse, reviewing business plans, aiming for lower interest rate caps such that they prepaid debt service or pushing them along towards refinancing somewhere else. All the above our options, initiating foreclosure is an option but we continue to be active and proactive as it pertains to deal with the comps. Got it. Thank you, guys. Operator00:28:06Your next question comes from the line of Steve Delaney of Citizens JMP. Please go ahead. Speaker 800:28:13Good afternoon, everyone. Thank you for taking the question. We noticed that you don't at this point have any REO real estate owned on your balance sheet. There is a investment related receivable for about $33,000,000 Could you tell us what that asset represents? Speaker 300:28:34Sure. I can take that, Steve. It's Jim Briggs here. When we've gotten borrower proceeds, but it's past the remittance state from servicing, so it's cash sitting with them that we haven't received from servicing yet. We'll put it as an investment related receivable. Speaker 300:28:49So there's not risk to the borrower there. We just haven't received the cash from our servicer yet. Speaker 900:28:56From the servicer. Okay. So it Speaker 800:28:58could be a mixture of principal interest, all of that? Speaker 300:29:03That's going to be we'll still have the interest accrual on the books, but we'll record that as a pay down from the bar. So you won't see it in the loan balance. You'll see it as the investment related receivable we actually received the cash. So think of that as money good, we just haven't gotten an impact. Speaker 200:29:22Just timing. Yes, correct. Spending liquidity. Just inter quarter timing, like, yes. Speaker 300:29:28Yes. All right. And that is related, just to go back to Kristen's question before, that $33,000,000 is related to an FL1 asset. So that will be used to pay down bonds once the cash is Speaker 800:29:44Okay, great. And it sounds like you're having some maturity defaults, some business plans not working out. But as evidenced and by the way, that disclosure in the Q on the 4 new 5 rated loans, That was exceptional. We're not accustomed to receiving that kind of detail and really understanding the story. So thank you for that. Speaker 800:30:07But the those sound like there is a workout or resolution. But are you guys do you envision that as we are, as Jim Flynn said, in a challenging market, it's probably could get a little worse before it gets better. But do you envision that either any of those 4 loans or that you may end up having to take a property back in the next year? I know that's sort of a what if question, but just curious how much you all think about that and whether you see that as a likelihood that you will have some REO on your books at some point? Speaker 200:30:51Thank you, Steve. The way I would answer that is obviously our strong desire is to not have any REO. And in most cases, and as you know, Lumen and its broader sponsorship and we have a $51,000,000,000 servicing book, we're seeing a lot of activity in assets across the country outside of just what we have here in LFT. When we've had good borrowers, who have done the right thing and worked with us and are still capable of managing their assets and improving operations, we've been able to work with them to find resolution to what we hope are short term issues, whether it's valuation, cash flow or both. Where we've discussed REO broadly as a or foreclosure broadly as a platform, not just of LT is where we don't have cooperative borrowers. Speaker 200:31:57And in the overwhelming majority of those cases, it's not something that ends up having to come to fruition. And so I would like to think that that will be the case here. But we do have a very seasoned, capable and sizable group that manages our special servicing and in particular REO for LFP and for Lumin as a whole. And what we've shown is that we're more than capable operators, but more importantly with our sponsors, we say, hey, we're here to help and work with you, but we're not going to go down the path of using default as kind of a negotiating technique. I remember several quarters ago, I think, Ivan Kaufman and Barbara mentioned that in a call that you saw borrowers, kind of strategically defaulting or trying to use that as a negotiation tactic. Speaker 200:33:08It may have been 4 or 5 quarters ago. Yes. And I think that largely went away. But I will say that I think with this most recent decline in the 10 year and the rate cuts on the horizon in the very near term and probably fairly extensive over the next 18 months. I feel like I've seen a little bit of that from some borrowers trying to maybe see if they can take advantage of that. Speaker 200:33:41We feel very confident in our ability to manage the borrowers and manage the assets. So our goal is to not have any REO. But if we did if we were to have REO, it would mean that we've done the math on what's the highest value to our shareholders, and concluded that that's the action we can take and we're capable of doing so. But obviously, the goal is to not have that happen. Appreciate, Jim. Speaker 200:34:10That's helpful. Operator00:34:15Your next question comes from the line of Stephen Laws of Raymond Jones. Please go ahead. Speaker 900:34:21Hi, good afternoon. Just one quick one on the 3 new non accruals and covered a good bit. But can you let us know when those went on non accrual or asked another way how much interest income did they contribute to the Q2? Speaker 300:34:36Yes, I mean actually even 2 of those were 4s last quarter or 5 last quarter, so only 2 new ones. The 2 new fives are the Philadelphia loan that I talked about that's going to be on a cost recovery basis And the Dallas loan that's in technical default, we actually came out of last quarter with the other 2. We are receiving payments on a cash basis Speaker 400:35:14for a Speaker 300:35:14couple of those. And I believe it was about $200 was the impact for non accrual in the current quarter, right. It's tough to predict those that are in non accrual, whether we're going continue to get cash payments or not. But in the current quarter, we're looking at about a couple of 100,000 shortfall net for non accrual. Speaker 900:35:36Great. Switching over the financing side, another competitor out of CLO done, I think, last week or this week with some legacy stuff, but that market is there. Can you talk about what you would like to see to grow? Do you have a financing facility with the parent you could use to ramp to pool assets ahead of a deal? Would you look to get one possibly at the mortgage REIT level, a bank line to allow you to use to pull some loans, new investments? Speaker 900:36:08Or how do you think the market how do you look at potentially doing another deal to grow even I realize the CLO-one is still attractive, but it is going to continue to delever. So just curious to get your thoughts on how you may manage the balance sheet in order to price a new deal sometime over the next say 6 or 12 months? Speaker 200:36:31I think so. Well, let me just say one thing. So since we just on the ramp and then Zach can give you some more detail. But the since we took over management of this vehicle when Han took it over and then since Oryx acquired Hunt and we became Lumin. We've always continued to originate bridge assets on our corporate balance sheet outside of LFT, and we'll continue to do so. Speaker 200:37:09LFT is a vehicle that has the first look and where we always looking to place assets, but obviously has full capacity, we continue to originate. And for all of our securitizations, these 2 plus the others we've done historically, the at least some, if not the majority of the assets included in those securitizations were assets that were pooled on the corporate balance sheet and when the REIT LC had capacity would be transferred as part of that securitization to the REIT. So from that standpoint, we'll continue to operate that way. We operate that way today and nothing about that will change. And I'll let Zach handle the capital markets aspect there. Speaker 700:38:00Yes. From capital market standpoint, we're continuing to explore really starting to explore options as FL1 dips below 80% advance rate. Options include an entirely new securitization or a combination of warehouse financing with a smaller securitization or warehouse financing remains to be decided based on prevailing market conditions. These are active conversations at least internally and things we're exploring. Speaker 900:38:39Okay. And then I guess to follow-up with that, I mean around timing, it sounds like it depends a lot on repayments. So can you give us an outlook over the back half of the year of what your repayment expectations are? I've been running about $90,000,000 a quarter. Is that level likely to continue? Speaker 900:38:55Or do you expect more or less than that over the back half of the year? Speaker 700:39:02I think that's a good estimation at the moment. Just over the near term, in the next month or 2, it looks like another $70,000,000 to $80,000,000 So it's right in that range. Speaker 900:39:16Great. Appreciate it. It's possible Speaker 700:39:18that it accelerates. Yes, it's possible that it accelerates as maturities are upcoming, but tough to say at present. Speaker 900:39:28Yes, great. I appreciate the comments this afternoon. Thank you. Operator00:39:34Your next question comes from the line of Christopher Nolan of Ladenburg Thalmann. Please go ahead. Speaker 400:39:41Hi, thanks for taking the question. The loan to value ratios on your 10 Q, are those at the time of origination of the loan? Speaker 700:39:55Yes. Speaker 400:39:57Okay. And then if I'm looking at the table correctly, it looks like a lot of the loans were originated in 2021 and then to 2022. So it looks like a fair number of your loans sort of predate the Fed tightening cycle. Is that a correct view of that? Yes. Speaker 400:40:15And so on that basis, is it fair to say that the loan to value ratio is now significantly higher than what's shown in the Q? Speaker 700:40:25It depends. Keep in mind, these are all transitional properties with business plans. And so when you do a bridge loan, you have a as is valuation and you also receive a stabilized valuation from the appraiser assuming that the business plan has been executed. And so as an example, if it has the valuation of 75 and the stabilized valuation was 65, You would assume that if the borrower asked you their business plan and market conditions did not change the value would or the asset would then be $65,000,000 LTV. To your point overlaying market movements on there, the LTV could be higher. Speaker 700:41:17So it's a kind of convoluted way of saying it depends on how well the borrower executed their business plan relative to market movements and submarket movements. Speaker 400:41:29Okay. I guess just a logical follow-up to that is, and just sort of dovetails into your earlier comments that sounds like a lot of these borrowers are upside down on their loans potentially. Speaker 200:41:45I would say it's more of the case that their equity has been impacted, right? So yes, maybe their expected LTVs when they entered the deals are higher than what they thought they would be. But their equity, I don't know if I'd say upside down, but their equity has been impacted. There's no question about that and that's probably true on most assets. But that doesn't necessarily translate to the loan being upside down. Speaker 200:42:24I think it is fair to say that perhaps the value today the loan to value today is higher than where it was projected to be, it may not be that much higher depending on which loan in the performance than where it was entering. The reality is those owners invested capital into the deals and haven't gotten the full recognition of value that they anticipated, at least not yet, which is frankly why I think we've seen so many multifamily deals being held because of the expectation that if you're able to hold on to assets, you will realize that value over the next couple of years, just not necessarily the full value today. I don't think that trend is going to dramatically change, but I do think there is with this reduction in rates and you may see more transactions, more people putting current financing on things like that, but that's where we are. Okay. Speaker 400:43:40And Jim Briggs, so were there any non recurring items in earnings? Speaker 300:43:46Not for this quarter. There was a big impact from the non recurring from last quarter. So if you were looking sequentially, as I spoke to, interest income or net interest income has come down pretty significantly from last quarter. But we had a bunch of one timers last quarter for catch up on a couple of resolutions that we spoke about last quarter. So outside of that, no, I do speak to the operating expenses came down. Speaker 300:44:21If you recall, the incentive fee that we accrued last quarter was about $1,300,000 It was around $700,000 for this quarter. So that came down. I'd expect that $700,000 as it's trailing 12 month calc that takes into account payments over those 12 months, but that'll come down. So you can maybe look at that as a bit of a one timer on the expense side That will come down for the next quarter or 2 before it normalizes. Okay. Speaker 200:44:57That's it Speaker 400:44:57for me. Thank you. Operator00:45:15There are no further questions at this time. I'd now like to turn the call back over to our speakers for final closing remarks. Please go ahead. Speaker 200:45:25I just want to thank everyone for joining today. We look forward to speaking again next quarter. Thanks all. Operator00:45:35Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallLument Finance Trust Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Lument Finance Trust Earnings HeadlinesLument Finance Trust Announces Quarter-End Earnings Release and Investor Call DatesMay 7 at 4:30 PM | prnewswire.comInvesting in Lument Finance Trust (NYSE:LFT) five years ago would have delivered you a 181% gainMay 2, 2025 | finance.yahoo.comWhite House to reset Social Security?Elon Musk's parting DOGE gift looks set to shock America... A single announcement by July 22nd could soon bring Elon Musk's DOGE operation to its final, dramatic conclusion - with huge consequences for millions of investors. So if you have any money in the market... you're almost out of time to prepare. This plan has already been put in place... and can operate even if Elon's long gone from Washington. May 8, 2025 | Altimetry (Ad)Lument Continues To Delever And Future Earnings Will See That ImpactApril 1, 2025 | seekingalpha.comAnalysts’ Top Real Estate Picks: Blackstone Mortgage (BXMT), Lument Finance Trust (LFT)April 1, 2025 | markets.businessinsider.comLUMENT FINANCE TRUST Earnings Results: $LFT Reports Quarterly EarningsMarch 21, 2025 | nasdaq.comSee More Lument Finance Trust Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Lument Finance Trust? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Lument Finance Trust and other key companies, straight to your email. Email Address About Lument Finance TrustLument Finance Trust (NYSE:LFT), a real estate investment trust, focuses on investing in, financing, and managing a portfolio of commercial real estate (CRE) debt investments in the United States. The company primarily invests in transitional floating rate CRE mortgage loans on middle market multi-family assets; and other CRE -related investments, including mezzanine loans, preferred equity, commercial mortgage-backed securities, fixed rate loans, construction loans, and other CRE debt instruments. Lument Finance Trust, Inc. is qualified as a real estate investment trust (REIT) under the Internal Revenue Code of 1986. As a REIT, it would not be subject to federal income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was formerly known as Hunt Companies Finance Trust, Inc. and changed its name to Lument Finance Trust, Inc. in December 2020. Lument Finance Trust, Inc. was incorporated in 2012 and is headquartered in New York, New York.View Lument Finance Trust ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Disney Stock Jumps on Earnings—Is the Magic Sustainable?Archer Stock Eyes Q1 Earnings After UAE UpdatesFord Motor Stock Rises After Earnings, But Momentum May Not Last Broadcom Stock Gets a Lift on Hyperscaler Earnings & CapEx BoostPalantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release? 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There are 10 speakers on the call. Operator00:00:00Good afternoon, and thank you for joining the Lumin Finance Trust Second Quarter 2024 Earnings Call. Today 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 at Lumin Investment Management. Please go ahead. Speaker 100:00:19Good afternoon, everyone. Thank you for joining our call to discuss Lumin Finance Trust's Q2 2024 Financial Results. With me on the call today are Jim Flynn, our CEO Jim Briggs, our CFO Jim Henson, our President and Zachary Halpern, our Managing Director of Portfolio Management. On Monday, August 12, we filed their 10 Q with the SEC and issued a press release to provide details on our 2nd quarter results. We also provided a supplemental earnings presentation, which can be found on our website. Speaker 100:00:55Before 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 may 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 the statements in the forward looking statement. 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 ks. 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 forward looking statements. Speaker 100:01:47Further, certain non GAAP financial measures will be discussed on this conference call. A presentation of this information is not intended to be considered in isolation nor as 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. For the Q2 of 2024, we reported GAAP net income of $0.07 and distributable earnings of $0.09 per share of common stock, respectively. In June, we also declared a dividend of $0.08 per share with respect to the 2nd quarter, which represented a 14% increase over the Q1 dividend of $0.07 per share of common stock. Speaker 100:02:32I will now turn the call over to Jim Flynn. Please go ahead. Speaker 200:02:38Thank you, Andrew, and good day, everyone. Welcome to the Lumin Finance Trust earnings call for the Q2 of 2024. We appreciate everyone joining today. Through the first half of 24, the U. S. Speaker 200:02:55Economy largely outperformed consensus expectations. However, the CPI measured in June showed a declining rate of growth in the consumer price index and August jobs reports were weaker than expected. As a result, the market seems to have renewed confidence that the Fed will start its easing cycle in September. As reflected in the 10 year, treasury remaining below 400 basis points since the beginning of August. While such easing will likely be beneficial to a number of sectors, including commercial real estate, we expect to proceed cautiously as the economy remains at elevated risk of recession. Speaker 200:03:36While the economic data has generally outperformed, commercial real estate has suffered due to high rate and inflationary environment. Improvements in the rate environment and the bottoming of property values should translate into a thawing of capital markets and an uneven recovery of transaction flow in the commercial real estate sector. Despite the modest softening of multifamily fundamentals impacted by a large supply of newly constructed units coming online over the last 6 months, we believe that multifamily and particularly middle market multifamily will continue to remain a strong performing asset class in the long term. We firmly believe that LSP has differentiated itself from its peer group through its deliberate focus on middle market multifamily credit, which has enabled the company to deliver a sustainable, stable dividend to our shareholders and preserve shareholder capital during this challenging part of the cycle. Our expertise in the origination, underwriting and active asset management of multifamily mortgage investments has been and we expect will remain central to the company's identity for the foreseeable future. Speaker 200:04:48Coupled with the strong sponsorship from the broader Lumin and ORIX platforms, we believe LFT represents a truly unique value proposition in the public markets today. In an environment where others have found it challenging to sustain stable dividend levels, we are proud to have been able to benefit our shareholders and raise the common dividend in June by $0.01 which represents a 14% sequential increase over Q1. Approximately a year ago, we closed the LMF secured financing transaction, which provided the company with additional investment capacity and extended our runway for future reinvestment. By the end of 2023, we were successful in fully deploying our capital into strong, predominantly multifamily credits. Since that time, we've been focused on actively managing our loan investment portfolio. Speaker 200:05:42Although we experienced a slight decline in our weighted average risk rating to 3.6 as compared to 3.5 as of March 31, we believe our investments have continued to perform well on a relative basis. Thanks to our heavy focus on multifamily, which has generally outperformed other CRE asset classes, our prudent upfront underwriting and our active approach to asset management. We continue to maintain a strong liquidity position ending the quarter with approximately $65,000,000 of unrestricted cash on our balance sheet. The persistence of elevated short term rates has allowed us to generate attractive returns on our cash balances, while we continue to intentionally take a defensive cash position to provide us with flexibility in managing the more challenging credits in our portfolio. As discussed on prior earnings calls, our loan portfolio is financed with long dated secured financings that are not subject to mark to market or margin calls. Speaker 200:06:41The LMF financing transaction has a reinvestment period that continues into July 2025 and we intend to reinvest capital into new loan investments as liquidity becomes available through repayments of existing collateral. On the other hand, the reinvestment period of our 2021 CLO ended in December of 2023, and we are actively exploring alternatives to recapitalize this structure. As of quarter end, the cost of funds for FL1 was swaps plus 1.61 and the effective of Chauffeur swaps and the effective advance rate was approximately 80%, which we believe will represent attractive terms relative to other secured financing options currently available in the market. We have observed that the issuance of new CRE CLO transactions remain muted with just one managed vehicle pricing in the market last quarter and just 3 since the start of the year. With that, I'd like to turn the call over to Jim Briggs, who will provide us details on our financial results. Speaker 200:07:44Jim? Speaker 300:07:46Thanks, Jim. Good afternoon, everyone. Yesterday, we filed our quarterly report on Form 10 Q 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. On Pages 4 through 7 of the presentation, you will find key updates and earnings summary for the quarter. Speaker 300:08:10For the Q2 of 2024, we reported net income to common stockholders of approximately $3,400,000 or $0.07 per share. We also reported distributable earnings of approximately $4,800,000 or $0.09 per share. There are a few items I'd like to highlight regarding the activity during the period. Our Q2 net interest income was $9,500,000 compared to $13,000,000 in Q1 of 2024. Sequential decrease was primarily attributable to the company recognizing in the prior quarter approximately $3,000,000 of one time pass through income related to the resolution of 2 defaulted loans, 1 collateralized by an office property located in Columbus, Ohio, in which we reduced our carrying value to 0 and another collateralized by a multifamily property located at Virginia Beach, Virginia, which was modified and brought current through Q1 and which remains performing in risk rating of 4. Speaker 300:09:09One component of the sequential variance in net interest income was also a result of average outstanding loan portfolio size increasing versus the prior quarter as we received approximately $98,000,000 of principal payoffs within the FL1 securitization, which is no longer within its reinvestment period. Aggregate payoffs and paydowns during Q2 totaled $98,000,000 as mentioned, as compared to $97,000,000 in the prior quarter with exit and other fees similarly comparable quarter on quarter. Total operating expenses were $3,500,000 in Q2 versus $4,300,000 in Q1. The majority of the decrease in expenses was driven primarily by a lower sequential accrual of incentive fees due to our manager, which are payable on a quarterly basis equal to 20% of the excess of core earnings as defined in the management agreement over an 8% per Other general operating expenses were largely in line quarter over quarter. Approximately 1 point $4,000,000 difference between reported net income and distributable earnings to common was attributable to an increase in our allowance for credit losses. Speaker 300:10:25As of June 30, we had 4 loans risk weighted to 5. 1 was a $17,000,000 loan collateralized by multifamily property in Brooklyn, New York and was risk weighted of 5 due to maturity default. Other was a $20,000,000 loan collateralized by 2 multifamily properties near Augusta, Georgia that was risk rated 5 due to monetary default. 3rd was a $15,000,000 loan collateralized by 2 multifamily properties in Philadelphia, Pennsylvania that was risk rated 5 due to monetary default. All 3 of these loans have been placed on non accrual status with cash received on Philadelphia property to be recognized on a cost recovery basis. Speaker 300:11:084th, 5 risk rated asset was a $32,000,000 loan collateralized by a multifamily property in Dallas, Texas that was in technical default. We evaluated these 4 or 5 risk rated loans individually to determine whether asset specific reserves or credit losses were necessary. And after an analysis of the underlying collateral, we recorded a specific an allowance in Q2 of approximately 900,000 dollars The general CECL reserve increased by approximately $500,000 during the period, driven primarily by changes in the macroeconomic forecast as well as Monnex risk rating migration in the portfolio. Company's total equity at the end of the quarter was approximately 242,000,000 dollars Total book value of common stock was approximately $182,000,000 or $3.48 per share, largely flat from 3.5 $0 per share as of March 31. We ended the 2nd quarter with an unrestricted cash balance of $65,000,000 and our investment capacity through 2 secured financings was effectively fully deployed. Speaker 300:12:17I will now turn the call over to Jim Henson to provide details on the company's investment activity and portfolio performance during the quarter. Jim? Speaker 400:12:27Thank you, Jim. Good afternoon, everyone. I will now share a brief summary of the recent activity in our investment portfolio. During the Q2, LFT experienced 98 dollars 1,000,000 of loan payoffs. A portion of these payoffs related to the defaulted loans discussed by Jim just Speaker 300:12:43a few moments ago. We did Speaker 400:12:45not acquire or fund any new loan assets during the period. As of June 30, our portfolio consists of 78 floating rate loans with an aggregate unpaid principal balance of approximately $1,200,000,000 100% of the portfolio was indexed to 1 month SOFR and 93% of the portfolio is collateralized by multifamily properties. While we endeavor to actively manage the maturity risk within our portfolios, it is worth noting that we had the foresight at the time of loan origination to include extension features within our loan investment documents. As a result, the weighted average remaining term of our book is approximately 30 months, if all available extensions were to be exercised by our loan borrowers. As of the end of the second quarter, our portfolio had a weighted average floating note rate of SOFR plus 3.59 basis points and an unamortized aggregate purchase discount of $5,600,000 As mentioned earlier, our secured financing remained attractive. Speaker 400:13:53The quarter ended with FL1, our CRE CLO transaction providing effective leverage of 79.5% at a weighted average cost of funds of so 4 plus 161. The LMS financing provided the portfolio with effective leverage of 82.2 percent at a weighted average cost of SOFR plus 3 14 basis points. On a combined basis at the end of the quarter, our 2 securitizations provided our portfolio with effective leverage of 80.4% and a weighted average cost of funds of SOFR plus 2 12 basis points. As of June 30, approximately 63% of the loans in our portfolio were risk rated 3 or better, down from 77% in the prior quarter. Our weighted average risk rating was 3.6, a slight deterioration from 3.5 sequentially. Speaker 400:14:51While both loan assets had been risk rated that had been risk rated 5 as of March 31 were fully resolved during the Q2. Our aggregate loan exposure on the 4 risk newly risk rated 5 loans was approximately $84,000,000 at the end of the second quarter, up from an aggregate $38,000,000 at the end of the first quarter. As Jim Briggs outlined earlier, we evaluated the 4 5 rated loans individually to determine whether asset specific reserves for credit losses were necessary. And after an analysis of the underlying collateral, we recorded a specific allowance of approximately $900,000 in the 2nd quarter. We expect to continue to rely on the expertise of our talented asset management team to actively resolve these 5 rated loan assets, protecting our investors' capital and maximizing value for our shareholders. Speaker 400:15:51I will now pass it back to Jim Flynn for closing remarks and questions. Speaker 200:15:58Thank you, Jim and Jim. And appreciate everyone joining, but we'll open the call to questions. Operator00:16:08Thank Your first question comes from the line of Kristin Love of Piper Sandler. Please go ahead. Speaker 500:16:43Thanks and good afternoon everyone. Just first off on credit quality. You have had pretty stable credit for several quarters now, but did see some degradation here in the Q2 related to some non performers migration, rate 5 loans and then the allowance build that you discussed. Can you just discuss the credit outlook as we stand today? Do you believe that we've reached peak stress in multifamily credit during this cycle? Speaker 500:17:11Just your intermediate term outlook, just given the environment and how you look at the portfolio? Speaker 200:17:18Yes. I think, I mean, it's hard to we've all kind of been a little bit off here for the last 6 quarters on predicting the market, but there does seem to be some expectation that we're kind of at or near that peak stress period. We do see rate reductions on the horizon, both obviously long term, we've seen their 10 year come down and expectations around sulfur, which sulfur cuts, which will or fed cuts, which will impact directly impact these floating rate borrowers. So those things are obviously beneficial to the credit quality of the portfolio, certainly in a vacuum. They come on the heels of other economic data and news, which generally isn't positive. Speaker 200:18:18But I think if you take a look at multifamily and how it's performed throughout cycles, near term and long term, it's done pretty well. And the supply demand dynamic in the country isn't changing, in fact, probably getting worse. And so there's some stability even in times of economic stress. Now that being said, with respect to our portfolio, and Zach and others can provide some more detail. I'm sure we'll have some other questions. Speaker 200:18:51We've seen more stress over the last couple of quarters as we've gone continue to go through this cycle. And we've continued to actively manage those and feel pretty good about our ability to do so, but we have to work through issues. We've had elevated risk assets in the past that we've been able to resolve. From a value standpoint, we still feel pretty good. We did take a reserve on one asset as was noted in the K, that is consistent with how we've looked at value throughout our history managing this entity. Speaker 200:19:40We do and we'll continue to work toward resolution of that without a loss or minimizing a loss, but from a GAAP and consistent standpoint, we felt it was appropriate to take a reserve on that asset. And with respect to the other assets, there's we have a great team here that is daily managing those and speaking to the sponsors on those assets and helping to participate in creating plans to improve the assets performance. And as we've discussed in the past, we do have the ability to really add operational expertise where needed with our sponsors or without. So yes, we're in a period of elevated stress. We still continue to feel pretty confident in the quality of our portfolio, but do need to continue to work through some of these more challenging assets. Speaker 500:20:45Great. Thank you, Jim. I appreciate the comments there. And then just on deployment, for the 2nd quarter, didn't add any new investments, but I think you had nearly $100,000,000 of pay off. So, what's keeping you from being more active here? Speaker 500:20:59Is it a concerted effort as you focus on asset management on the current portfolio? Or are there also a lack of opportunities out there? And how would you expect kind of the opportunity landscape to change as rates do come down in the coming months? Speaker 200:21:18Sure. So first on the capacity standpoint, so as I mentioned at the end of my remarks, the larger CLO, the 2,001 CLO is through its investment reinvestment period. And so that securitization is delevering. It's still an attractive financing swap, sulfur plus 16180% leverage even with those payoffs. So we do intend to continue to evaluate options there as we move through the next few quarters. Speaker 200:21:54But that's part of the reason, right, that capacity is just really deleveraging. On the LMF transaction, we've generally remained fully deployed, some timing as an asset pays off. And we've kept for the size of our entity relatively high cash position, in large part just to ensure that when needed, we can offensively, manage the portfolio, with our sponsors. In terms of the market, we are seeing more opportunities today than what we've seen over the last handful of quarters of high quality deals. There's it's competitive. Speaker 200:22:43It's not the volume that you would like to see, but it's starting to appear. There is anecdotal evidence out there and on some of the calls from the peer group you've heard of the competitive environment for acquisitions. The thing that's really slowed this market down has been the lack of asset changing hands. There's very active buyer community out there and there does seem to be some loosening on the seller side for folks to exchange assets and that will help find good deals for the bridge market. The other tailwind on the transaction side is these deliveries, particularly in the Sunbelt of all those construction assets coming online or at least coming through the construction period and maybe need a lease up period and that provides some opportunity in the bridge space. Speaker 200:23:51So I do think that we're going to continue to see transaction opportunities increase over the coming quarters. It may be a little slower than we'd like to see, but it will at least be going forward, which is a welcome change to where it's been. Great. Thank you so much. That's all Speaker 500:24:11I have for questions. Appreciate Operator00:24:15it. Your next question comes from the line of Matthew Erner of Jones Trading. Please go ahead. Speaker 600:24:22Hey, good afternoon guys. Thanks for taking the question. Could you talk about the timing of the payoffs this quarter and kind of what led to the sequential decline in commercial loan income? Speaker 200:24:36Sure. Jim and Zach, I guess, do you guys want Speaker 300:24:46Zach, you want to touch just timing? I mean, I think it was just sort of normal quarter. Speaker 600:24:52Yes. Well, were the payoffs kind of towards the beginning of the quarter rather than the end, which led to it kind of being $5,000,000 less than the prior quarter? Speaker 700:25:03Yes. I mean, when I look at sort of loan balance the REIT by month, really somewhere around 1.3@march31, 1.3 April 30 and then a drop off to 1.25 May 31 and 1.2 June 30. So I don't know. I think it sequentially moved down pretty steadily throughout. Speaker 600:25:43Okay. Got you. And then as a follow-up, what are you guys seeing within your portfolio in the secondary and tertiary markets, given the 2 Augusta multifamily's, the default and then the kind of move to non accrual there? And then following up on that, how are you guys working through these loans once they defaulted? Are you looking to get more equity in the deal? Speaker 600:26:05Are you guys making the borrowers kind of list the market or list the property on the market? Just how are you guys working through the process and going after these loans? Speaker 700:26:17So as it pertains to secondary, tertiary, I wouldn't say that we have specific issues that I'd point to there. I'd say that all the issues that we have have been idiosyncratic. Things like upcoming maturities and needs for interest rate caps, which have brought borrowers back to the table in terms of negotiation. As it pertains to working through these assets, if and when they default, our asset management team is taking a very active proactive approach with our sponsors Speaker 800:27:04and all of the above in terms Speaker 700:27:05of bringing them back to the table, whether that be cash contributions or negotiating top line recourse, reviewing business plans, aiming for lower interest rate caps such that they prepaid debt service or pushing them along towards refinancing somewhere else. All the above our options, initiating foreclosure is an option but we continue to be active and proactive as it pertains to deal with the comps. Got it. Thank you, guys. Operator00:28:06Your next question comes from the line of Steve Delaney of Citizens JMP. Please go ahead. Speaker 800:28:13Good afternoon, everyone. Thank you for taking the question. We noticed that you don't at this point have any REO real estate owned on your balance sheet. There is a investment related receivable for about $33,000,000 Could you tell us what that asset represents? Speaker 300:28:34Sure. I can take that, Steve. It's Jim Briggs here. When we've gotten borrower proceeds, but it's past the remittance state from servicing, so it's cash sitting with them that we haven't received from servicing yet. We'll put it as an investment related receivable. Speaker 300:28:49So there's not risk to the borrower there. We just haven't received the cash from our servicer yet. Speaker 900:28:56From the servicer. Okay. So it Speaker 800:28:58could be a mixture of principal interest, all of that? Speaker 300:29:03That's going to be we'll still have the interest accrual on the books, but we'll record that as a pay down from the bar. So you won't see it in the loan balance. You'll see it as the investment related receivable we actually received the cash. So think of that as money good, we just haven't gotten an impact. Speaker 200:29:22Just timing. Yes, correct. Spending liquidity. Just inter quarter timing, like, yes. Speaker 300:29:28Yes. All right. And that is related, just to go back to Kristen's question before, that $33,000,000 is related to an FL1 asset. So that will be used to pay down bonds once the cash is Speaker 800:29:44Okay, great. And it sounds like you're having some maturity defaults, some business plans not working out. But as evidenced and by the way, that disclosure in the Q on the 4 new 5 rated loans, That was exceptional. We're not accustomed to receiving that kind of detail and really understanding the story. So thank you for that. Speaker 800:30:07But the those sound like there is a workout or resolution. But are you guys do you envision that as we are, as Jim Flynn said, in a challenging market, it's probably could get a little worse before it gets better. But do you envision that either any of those 4 loans or that you may end up having to take a property back in the next year? I know that's sort of a what if question, but just curious how much you all think about that and whether you see that as a likelihood that you will have some REO on your books at some point? Speaker 200:30:51Thank you, Steve. The way I would answer that is obviously our strong desire is to not have any REO. And in most cases, and as you know, Lumen and its broader sponsorship and we have a $51,000,000,000 servicing book, we're seeing a lot of activity in assets across the country outside of just what we have here in LFT. When we've had good borrowers, who have done the right thing and worked with us and are still capable of managing their assets and improving operations, we've been able to work with them to find resolution to what we hope are short term issues, whether it's valuation, cash flow or both. Where we've discussed REO broadly as a or foreclosure broadly as a platform, not just of LT is where we don't have cooperative borrowers. Speaker 200:31:57And in the overwhelming majority of those cases, it's not something that ends up having to come to fruition. And so I would like to think that that will be the case here. But we do have a very seasoned, capable and sizable group that manages our special servicing and in particular REO for LFP and for Lumin as a whole. And what we've shown is that we're more than capable operators, but more importantly with our sponsors, we say, hey, we're here to help and work with you, but we're not going to go down the path of using default as kind of a negotiating technique. I remember several quarters ago, I think, Ivan Kaufman and Barbara mentioned that in a call that you saw borrowers, kind of strategically defaulting or trying to use that as a negotiation tactic. Speaker 200:33:08It may have been 4 or 5 quarters ago. Yes. And I think that largely went away. But I will say that I think with this most recent decline in the 10 year and the rate cuts on the horizon in the very near term and probably fairly extensive over the next 18 months. I feel like I've seen a little bit of that from some borrowers trying to maybe see if they can take advantage of that. Speaker 200:33:41We feel very confident in our ability to manage the borrowers and manage the assets. So our goal is to not have any REO. But if we did if we were to have REO, it would mean that we've done the math on what's the highest value to our shareholders, and concluded that that's the action we can take and we're capable of doing so. But obviously, the goal is to not have that happen. Appreciate, Jim. Speaker 200:34:10That's helpful. Operator00:34:15Your next question comes from the line of Stephen Laws of Raymond Jones. Please go ahead. Speaker 900:34:21Hi, good afternoon. Just one quick one on the 3 new non accruals and covered a good bit. But can you let us know when those went on non accrual or asked another way how much interest income did they contribute to the Q2? Speaker 300:34:36Yes, I mean actually even 2 of those were 4s last quarter or 5 last quarter, so only 2 new ones. The 2 new fives are the Philadelphia loan that I talked about that's going to be on a cost recovery basis And the Dallas loan that's in technical default, we actually came out of last quarter with the other 2. We are receiving payments on a cash basis Speaker 400:35:14for a Speaker 300:35:14couple of those. And I believe it was about $200 was the impact for non accrual in the current quarter, right. It's tough to predict those that are in non accrual, whether we're going continue to get cash payments or not. But in the current quarter, we're looking at about a couple of 100,000 shortfall net for non accrual. Speaker 900:35:36Great. Switching over the financing side, another competitor out of CLO done, I think, last week or this week with some legacy stuff, but that market is there. Can you talk about what you would like to see to grow? Do you have a financing facility with the parent you could use to ramp to pool assets ahead of a deal? Would you look to get one possibly at the mortgage REIT level, a bank line to allow you to use to pull some loans, new investments? Speaker 900:36:08Or how do you think the market how do you look at potentially doing another deal to grow even I realize the CLO-one is still attractive, but it is going to continue to delever. So just curious to get your thoughts on how you may manage the balance sheet in order to price a new deal sometime over the next say 6 or 12 months? Speaker 200:36:31I think so. Well, let me just say one thing. So since we just on the ramp and then Zach can give you some more detail. But the since we took over management of this vehicle when Han took it over and then since Oryx acquired Hunt and we became Lumin. We've always continued to originate bridge assets on our corporate balance sheet outside of LFT, and we'll continue to do so. Speaker 200:37:09LFT is a vehicle that has the first look and where we always looking to place assets, but obviously has full capacity, we continue to originate. And for all of our securitizations, these 2 plus the others we've done historically, the at least some, if not the majority of the assets included in those securitizations were assets that were pooled on the corporate balance sheet and when the REIT LC had capacity would be transferred as part of that securitization to the REIT. So from that standpoint, we'll continue to operate that way. We operate that way today and nothing about that will change. And I'll let Zach handle the capital markets aspect there. Speaker 700:38:00Yes. From capital market standpoint, we're continuing to explore really starting to explore options as FL1 dips below 80% advance rate. Options include an entirely new securitization or a combination of warehouse financing with a smaller securitization or warehouse financing remains to be decided based on prevailing market conditions. These are active conversations at least internally and things we're exploring. Speaker 900:38:39Okay. And then I guess to follow-up with that, I mean around timing, it sounds like it depends a lot on repayments. So can you give us an outlook over the back half of the year of what your repayment expectations are? I've been running about $90,000,000 a quarter. Is that level likely to continue? Speaker 900:38:55Or do you expect more or less than that over the back half of the year? Speaker 700:39:02I think that's a good estimation at the moment. Just over the near term, in the next month or 2, it looks like another $70,000,000 to $80,000,000 So it's right in that range. Speaker 900:39:16Great. Appreciate it. It's possible Speaker 700:39:18that it accelerates. Yes, it's possible that it accelerates as maturities are upcoming, but tough to say at present. Speaker 900:39:28Yes, great. I appreciate the comments this afternoon. Thank you. Operator00:39:34Your next question comes from the line of Christopher Nolan of Ladenburg Thalmann. Please go ahead. Speaker 400:39:41Hi, thanks for taking the question. The loan to value ratios on your 10 Q, are those at the time of origination of the loan? Speaker 700:39:55Yes. Speaker 400:39:57Okay. And then if I'm looking at the table correctly, it looks like a lot of the loans were originated in 2021 and then to 2022. So it looks like a fair number of your loans sort of predate the Fed tightening cycle. Is that a correct view of that? Yes. Speaker 400:40:15And so on that basis, is it fair to say that the loan to value ratio is now significantly higher than what's shown in the Q? Speaker 700:40:25It depends. Keep in mind, these are all transitional properties with business plans. And so when you do a bridge loan, you have a as is valuation and you also receive a stabilized valuation from the appraiser assuming that the business plan has been executed. And so as an example, if it has the valuation of 75 and the stabilized valuation was 65, You would assume that if the borrower asked you their business plan and market conditions did not change the value would or the asset would then be $65,000,000 LTV. To your point overlaying market movements on there, the LTV could be higher. Speaker 700:41:17So it's a kind of convoluted way of saying it depends on how well the borrower executed their business plan relative to market movements and submarket movements. Speaker 400:41:29Okay. I guess just a logical follow-up to that is, and just sort of dovetails into your earlier comments that sounds like a lot of these borrowers are upside down on their loans potentially. Speaker 200:41:45I would say it's more of the case that their equity has been impacted, right? So yes, maybe their expected LTVs when they entered the deals are higher than what they thought they would be. But their equity, I don't know if I'd say upside down, but their equity has been impacted. There's no question about that and that's probably true on most assets. But that doesn't necessarily translate to the loan being upside down. Speaker 200:42:24I think it is fair to say that perhaps the value today the loan to value today is higher than where it was projected to be, it may not be that much higher depending on which loan in the performance than where it was entering. The reality is those owners invested capital into the deals and haven't gotten the full recognition of value that they anticipated, at least not yet, which is frankly why I think we've seen so many multifamily deals being held because of the expectation that if you're able to hold on to assets, you will realize that value over the next couple of years, just not necessarily the full value today. I don't think that trend is going to dramatically change, but I do think there is with this reduction in rates and you may see more transactions, more people putting current financing on things like that, but that's where we are. Okay. Speaker 400:43:40And Jim Briggs, so were there any non recurring items in earnings? Speaker 300:43:46Not for this quarter. There was a big impact from the non recurring from last quarter. So if you were looking sequentially, as I spoke to, interest income or net interest income has come down pretty significantly from last quarter. But we had a bunch of one timers last quarter for catch up on a couple of resolutions that we spoke about last quarter. So outside of that, no, I do speak to the operating expenses came down. Speaker 300:44:21If you recall, the incentive fee that we accrued last quarter was about $1,300,000 It was around $700,000 for this quarter. So that came down. I'd expect that $700,000 as it's trailing 12 month calc that takes into account payments over those 12 months, but that'll come down. So you can maybe look at that as a bit of a one timer on the expense side That will come down for the next quarter or 2 before it normalizes. Okay. Speaker 200:44:57That's it Speaker 400:44:57for me. Thank you. Operator00:45:15There are no further questions at this time. I'd now like to turn the call back over to our speakers for final closing remarks. Please go ahead. Speaker 200:45:25I just want to thank everyone for joining today. We look forward to speaking again next quarter. Thanks all. Operator00:45:35Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.Read morePowered by