• GAAP Net Income: $0.11 per share

• Distributable Earnings: $0.15 per share

• Dividend: Declared at $0.07 per common share

• Net Interest Income: Increased to $13 million from $9.1 million in the previous quarter

• Loan Payoffs: Totalled $97 million, with exit fees of approximately $825,000

• Total Operating Expenses: $4.3 million in Q1, up from $2.7 million in Q4 of the previous year

• Unrestricted Cash: Ended Q1 with approximately $65 million

• Total Equity: Approximately $243 million as of March 31

• Book Value of Common Stock: Approximately $183 million, or $3.50 per share

• Warning! GuruFocus has detected 4 Warning Signs with LFT.

Release Date: May 10, 2024

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

Positive Points

• Lument Finance Trust Inc reported GAAP net income of $0.11 and distributable earnings of $0.15 per share of common stock for Q1 2024.

• Declared a dividend of $0.07 per common share of stock for the first or second quarter.

• Successfully resolved two five-rated assets from the December 31 report, maintaining a stable weighted average risk rating of 3.5 for the quarter.

• Increased available unrestricted cash quarter-over-quarter, ending Q1 with approximately $65 million compared to $51 million in December.

• Portfolio continues to be financed with long-dated secured financing that is not subject to mark-to-market margin calls.

Negative Points

• Multifamily sector faced challenges with muted property sales activity and limited acquisition financing opportunities due to elevated interest rates.

• Lending volume with multifamily was down 7% year over year in Q1 and down 29% from Q4 of 2023.

• Economic data suggests inflation has remained stubbornly elevated, impacting the lending environment.

• Total operating expenses increased to $4.3 million in Q1 from $2.7 million in Q4 '23, driven by the accrual of incentive fees.

• Two loans were risk rated five for default risks, indicating potential concerns about loan performance.

Q & A Highlights

Q: Can you discuss the drivers behind the lack of new investments this quarter and your expectations for new investments compared to payoffs in the coming quarters? A: (James Briggs, CFO) - The lack of new investments is largely due to our 2021 securitization (FL 1) being out of its reinvestment period and our 2023 financing transaction (LMF) being at capacity. We have significant cash reserves and are considering strategic refinancing options for FL 1. In the short term, we do not anticipate significant new investments until potential refinancing occurs, which will depend on market conditions.

Q: Given the resolutions of rated loans and stable credit metrics, can you provide your views on the credit quality in the portfolio and how it compares to competitors? A: (James Flynn, CEO) - We attribute our strong credit performance to our initial quality portfolio selection, effective asset management, and proactive sponsor engagements. Our team's diligent management and strategic resolutions have helped maintain credit quality, distinguishing us from some competitors facing challenges.

Q: With credit spreads tightening, is there an immediate opportunity to pursue refinancing for FL 1, and what are the general credit spread conditions? A: (James Flynn, CEO) - While current spreads and leverage conditions are favorable, we are continuously evaluating the market for refinancing opportunities. The decision to refinance will depend on achieving a balance between cost-effectiveness and maintaining advantageous capital conditions.

Q: Can you discuss the resolution path for the newly rated five loans and the overall strategy for managing these loans? A: (James Flynn, CEO) - Specific resolution strategies for the newly rated loans are currently under active discussion and are not disclosed. However, our approach remains consistent with past practices, focusing on hands-on management and swift, strategic resolutions with sponsors.

Q: How does the wind-down of FL 1 and its financing costs impact your financial strategy, and what are the implications for future refinancing? A: (James Flynn, CEO) - The wind-down of FL 1 involves managing decreasing leverage and potentially increasing financing costs. Our strategy includes monitoring the market closely for refinancing opportunities that make economic sense, considering both immediate costs and long-term benefits.

Q: Regarding the Brooklyn non-accrual loan, is it associated with rent-stabilized buildings, and how does this impact its status? A: (James Flynn, CEO) - The Brooklyn property involved is primarily market-rate, not rent-stabilized, which simplifies its financial handling and potential resolution strategies.

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

This article first appeared on GuruFocus.