Lument Finance Trust Inc (LFT) Q1 2025 Earnings Call Highlights: Navigating Challenges with ...

GuruFocus News

Wed, May 14, 2025, 1:08 AM 4 min read

GAAP Net Loss: $0.03 per share.
Distributable Earnings: $0.08 per share.
Quarterly Dividend: $0.08 per common share.
Net Interest Income: $7.7 million, down from $9.4 million in Q4 2024.
Loan Payoffs: $55 million in Q1 2025.
Exit Fees: $700,000 in Q1, down from $1.1 million in Q4 2024.
Total Operating Expenses: $2.6 million in Q1, compared to $2.8 million in Q4 2024.
Allowance for Credit Losses: $5.7 million net increase.
Specific Reserves for Credit Losses: Increased to $11.1 million as of March 31.
Unrestricted Cash Balance: $64 million at the end of Q1.
Total Equity: Approximately $232 million at the end of Q1.
Book Value of Common Stock: $3.29 per share, down from $3.40 as of December 31.
Portfolio Composition: 61 floating rate loans with an aggregate unpaid principal balance of approximately $1 billion.
Portfolio Collateralization: 92% by multi-family properties.
Weighted Average Note Floating Rate: SOFR plus 355 basis points.
Risk Rated Loans: Seven loans risk rated five, totaling approximately $108 million.

Warning! GuruFocus has detected 6 Warning Signs with LFT.

Release Date: May 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Lument Finance Trust Inc (NYSE:LFT) reported distributable earnings of $0.08 per share, maintaining the quarterly dividend of $0.08 per share.
The multi-family sector, which constitutes a significant portion of LFT's portfolio, continues to demonstrate resilience with robust occupancy rates.
LFT has successfully executed several loan modifications and extensions, preserving value and enhancing downside protection.
The company maintains a strong liquidity position with $64 million in unrestricted cash, providing flexibility for future investments.
LFT is exploring new secured financing options, which are expected to provide adequate flexibility and position the company favorably in the CRE CLO market.

Negative Points

Lument Finance Trust Inc (NYSE:LFT) reported a GAAP net loss of $0.03 per share for the first quarter of 2025.
Net interest income declined to $7.7 million from $9.4 million in the previous quarter, primarily due to declines in the SOFR benchmark rate and deleveraging of secured financings.
The company increased its specific reserves for credit losses by $7.3 million, reflecting challenges in the portfolio.
Seven loans, representing approximately 11% of the unpaid principal balance, were risk-rated as 5, indicating significant credit risk.
The total book value of common stock decreased to $3.29 per share from $3.40, driven by an increase in the allowance for credit losses.

Q & A Highlights

Q: Can you characterize the current pipeline and discuss if there's a level of net originations needed to maintain the current dividend capacity? A: James Flynn, CEO: The origination level is not a concern at the moment. We have assets that can be deployed into LFT when there's capacity. While recent volatility could reduce opportunities, I don't foresee it drying up completely. We are seeing attractive assets, particularly in new construction and lease-up levels, although competition is high. There's been a modest slowdown in recapitalization and bridge-to-bridge deals, but opportunities remain, especially with the anticipated turnover in the wall of maturity.

Q: Are there other financing options available besides the CLO market? A: James Flynn, CEO: Yes, there are opportunities from both banks and private credit. These options offer more flexibility than traditional warehouses, such as longer asset duration and flexible terms. While the CLO market remains the most attractive for floating rate multifamily assets, we are exploring these alternatives as interim steps or potentially permanent solutions to maintain flexibility.

Q: Regarding the problem loans under asset management, do you anticipate any near-term resolutions? A: James Flynn, CEO: There is potential for resolutions in the next three to six months, as we've seen in previous quarters. The key issue is sponsorship, as some sponsors lack the capital to improve assets, leading to deterioration. Our strategy involves gaining control of assets or bringing in new sponsors to improve asset conditions. As we deleverage and maintain liquidity, the number of problem assets should decline, leading to more resolutions.

Q: Is the rise in non-accruals due to cash flow issues at the property level? A: James Flynn, CEO: Yes, it's a cash flow issue both at the asset and sponsor level. Lack of reinvestment leads to further cash flow deterioration and operational decline. Without control of the asset, we see continued decline unless reinvestment occurs. It's a combination of cash flow and management issues, with a correlation between asset performance and management quality.

Q: Given the rise in non-accruals, do you still believe in strong fundamentals and robust demand? A: James Flynn, CEO: Yes, strong fundamentals and demand remain true in the market and on average in our portfolio. However, some sponsors have not followed through on their goals, leading to quick deterioration. We believe that with better management, these assets could perform better, and we are evaluating scenarios to improve outcomes.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

Terms and Privacy Policy

Your Privacy Choices

Utah Privacy Notice

More Info