Good morning and thank you for joining the Lument Finance Trust Third Quarter 2024 Earnings Call. Today's call is being recorded and will be made available via webcast on the company's website. I would now like to turn the call over to Andrew Tsang at Lument Investment Management. Please go ahead.

Good morning, everyone. Thank you for joining our call to discuss Lument Finance Trust's third quarter 2024 financial results. With me on the call today are Jim Flynn, our CEO, Jim Briggs, our CFO, Jim Henson, our President, and Zach Halpern, our Managing Director of Portfolio Management. On Tuesday, November 12, we filed our 10-Q with the SEC and issued a press release to provide details on our third quarter results. We also provided a supplemental earnings presentation, which can be found on our website. 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 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 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. 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. Furthermore, certain non-GAAP financial measures that we will discuss 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 third quarter of 2024, we reported GAAP net income of $0.10 and distributable earnings of $0.10 per share of common stock, respectively. In September, we also declared a dividend of $0.08 per common share with respect to the third quarter, in line with the prior. I will now turn the call over to Jim Flynn. Please go ahead.

Thank you, Andrew. Good morning, everyone. Welcome to the Lument Finance Trust earnings call for the third quarter of 2024. We appreciate all of you joining us today. We'll start with the US economic outlook. We remain cautiously optimistic, and notwithstanding the new administration and the uncertainties that come with recent cuts; in short-term rates, continued signs of cooling inflation and relatively low unemployment figures all point toward the likelihood of a soft landing. Long-term multifamily market fundamentals remain strong, and we are starting to see stability in asset cap rates, which is translating into a modest increase in property acquisition activity as investors come off the sidelines. As we transition to the new government, we will continue to monitor each of these metrics but continue to have confidence in the future of the multifamily market. We expect to continue to deliver a stable, sustainable dividend to our investors by focusing on multifamily credit. We continue to see a steady ramp-up of the manager's origination pipeline, a trend that we expect to continue into the coming year. The ability of our manager and its affiliates to actively pursue and close on attractive lending opportunities, regardless of whether LFT currently has investment capacity, is a significant competitive advantage for the company. During the quarter, LFT experienced only $51 million of payoffs, and we were able to quickly and effectively redeploy this capital into two multifamily loan assets acquired from an affiliate of the manager. We rely on the deep experience and expertise of our manager's dedicated asset management team to continue to achieve positive outcomes for the company and maximize shareholder value. During Q3, our portfolio continued to perform well on a relative basis. The weighted average risk rating of our book held steady versus the prior quarter at 3.6, and we had no new loans added to the five-risk rating category during the period. We also determined that no additions needed to our specific loss reserves levels were appropriate as of quarter-end. We're also pleased to share that late last week, we achieved a positive resolution on one of our 45 rated assets that existed as of the end of the quarter. On 9:30, we received full payment of all outstanding loan principal plus accrued interest from the borrower. As mentioned on our last call, we are actively evaluating alternatives to recap our 2021 CLO securitization transaction, which had a reinvestment period that ended in December 2023. As of quarter end, the CLO had a weighted average cost of funds of SOFR plus 164, with an effective advance rate of approximately 79%. We have observed relatively favorable new pricing on new CRE issuances over the last couple of months, which is an encouraging sign that investor demand may be returning to more normal levels. Securitization via a CLO remains one of the potential paths in financing the portfolio, but we will carefully consider the alternatives to ensure our ultimate choice best aligns with our overall financing strategy and creates long-term value for our shareholders. With that, I'd like to turn the call over to Jim Briggs, who will provide us with details on our financial results.

Thanks, Jim. Good morning, everyone. Yesterday evening, we filed a 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 four through seven of the presentation, you will find key updates and an earnings summary for the quarter. In the third quarter of 2024, we reported net income to common stockholders of approximately $5.1 million or $0.10 per share. We also reported distributable earnings of approximately $5.5 million or $0.10 per share. A few items I'd like to highlight regarding the activity during the period: our Q3 net interest income was $9.5 million, largely flat through Q2 2024. While net interest income was generally in line with the prior quarter, the weighted average coupon and declining outstanding portfolio UPB drove slightly lower interest income recognition versus the prior quarter, which was substantially offset by approximately $500,000 of additional accelerated purchase discounts in connection with loan payoffs. Total operating expenses were $2.9 million in Q3 versus $3.5 million in Q2. 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 annum return threshold. Other general operating expenses were largely in line quarter-over-quarter. The approximately $350,000 difference between reported net income and distributable earnings to common stock was primarily attributable to an increase in the allowance for credit losses. As of September 30, we had four loans risk-rated five. One was a $17 million loan collateralized by a multifamily property in Brooklyn, New York, which was risk-rated five due to maturity default and was on non-accrual status with income recognized on a cash basis. During the period, the company recognized approximately $400,000 of interest on this loan. The second was a $20 million loan collateralized by two multifamily properties near Augusta, Georgia, which was risk-rated five due to monetary default and was on non-accrual status with income recognized on a cash basis. During the period, the company recognized approximately $700,000 of interest on this loan. The third was a $15 million loan collateralized by two multifamily properties in Philadelphia, Pennsylvania, risk-rated five due to monetary default and was on non-accrual status, with cash received from the borrower recognized on a cost recovery basis. During the period, the company recognized approximately $300,000 of cash received from the borrower as a reduction in our carrying basis of this loan. The fourth, five-risk rated asset was a $32 million loan collateralized by a multifamily property in Dallas, Texas, that was and is in technical default. We evaluated these four or five graded loans individually to determine whether specific reserve or credit losses were necessary and after analyzing the underlying collateral, we maintained but did not add to the approximately $900,000 in specific reserve that we recorded during the second quarter of this year. The general CECL reserve increased by approximately $300,000 during the period, driven primarily by changes in the macroeconomic forecast. The company's total equity at the end of the quarter was approximately $243 million. The total book value of common stock was approximately $183 million or $3.50 per share, increasing slightly from $3.48 per share as of June 30th. We ended the third quarter with an unrestricted cash balance of $46 million, and our investment capacity through secured financing was fully deployed. We'll now turn the call over to Jim Henson to provide details on the company's investment activity and portfolio performance during the quarter.

Thank you, Jim. During the third quarter, LFT experienced $51 million in loan payoffs, and we acquired two new loans with an initial principal balance of $45 million and a weighted average coupon of SOFR plus 323 basis points. As of September 30, our portfolio consisted of 75 floating rate loans with an aggregate unpaid principal balance of approximately $1.2 billion. 100% of the portfolio was indexed to one-month SOFR and 93% of the portfolio was collateralized by multifamily properties. At the end of the third quarter, our portfolio had a weighted floating note rate of SOFR plus 353 basis points and an unamortized aggregate purchase discount of $4.3 million. While we endeavor to actively manage the maturity risk in our portfolio, it is worth noting that we had the foresight at the time of loan origination to include appropriate extension features in our transactions. As a result, the weighted average remaining term of our book continues to be approximately 28 months. If all available extensions are exercised by our loan borrowers, as mentioned earlier, our secured financing remains attractive at the end of the third quarter. The FL1 CRE CLO transaction completed in 2021 provided effective leverage of 79% at a weighted average cost of funds of SOFR plus 164 basis points. The LMF financing completed in 2023 provided the portfolio with effective leverage of 82% at a weighted average cost of funds of SOFR plus 314 basis points. On a combined basis at quarter end, the two securitizations provided our portfolio with effective leverage of 80% and a weighted average cost of funds of SOFR plus 214 basis points. As of September 30, approximately 60% of our loans in the portfolio were risk-rated three or better compared to 63% at the end of the prior quarter. Our weighted average risk rating was unchanged sequentially at 3.6. As of the end of September, we had four loans risk-rated five with an aggregate loan exposure at the end of the quarter of approximately $84 million, or approximately 7% of the carrying value of our total portfolio. As alluded to previously, subsequent to the quarter end, we had a positive resolution of the $20.3 million five-rated loan collateralized by two multifamily properties near Augusta, Georgia last Friday. The loan, which had been in monetary default, was paid off in connection with repayment. The company recorded interest income of approximately half a million dollars in the quarter ending. I'm sorry, we will record interest income of approximately half a million dollars in the quarter ending December 31, 2024, representing interest and other fees collected from the borrower at payoff. Since this loan was held by the company on an unlevered basis outside of our financing structures, this repayment will increase cash and cash equivalents by approximately $20.8 million. Our manager's investment team continues its proactive management of the company's investment portfolio, working closely with borrowers to manage all of our positions and monitor the financial performance of our collateral assets and our borrowers' progress in executing their business plans. With that, I will pass it back to Jim Flynn for closing remarks and questions.

Thank you, Jim. I appreciate everyone's interest and would like to open the call up to any questions you might have.

Thank you, everyone. We will now start the question-and-answer session. One moment for your first question. Your first question comes from Jason Weaver from JonesTrading. Your line is open. Please proceed with your question.

First of all, I wondered if you could comment on your visibility into the pipeline after quarter-end today. And as a follow-up, we just noticed some whispers among possible prospective borrowers. Hearing some comments that sponsors might be possibly thinking about delaying projects. And this is only in the last week alone, so it may be too soon to tell?

Yeah, I'll give a general overview of my thoughts there, and maybe Zach can give some specifics. But certainly, the election has provided some uncertainty. The market has reacted with some conflicting patterns in terms of the overall stock market's performance compared to where the ten-year has gone. We saw the rate cut, which was expected, but I think expectations have moderated in some ways until, from my perspective, until we see what the new administration looks like, who the key players are, and other factors like the balance in the House and the committee chairs. All of these things have led to a situation where borrowers have expressed caution, stating they want to see what happens here before transacting in this volatile market. However, I've also seen and heard that some sponsors may be waiting out this uncertainty. There are still expectations that there's business that they need to get done over the next year, whether that's refinancing or exiting an asset. I don't foresee a slowdown resembling what we saw in the early part of 2023, which experienced major setbacks in the market. I have observed some delays and pauses from borrowers, asking themselves if they need to transact now or wait for the first quarter. The short-term rate is expected to continue decreasing, helping the bridge market significantly, although long-term rates remain a strong driver. From a broader standpoint, our pipeline is looking strong. This hasn't been the case since 2021 in most of our products. So yes, we are in a transition period, but I don't think it's dire because the economic outlook is still quite positive.

I would echo everything that Jim said. The important distinction to make is between pre-rate cuts and the first rate cuts which occurred in August. Since that time, activity has picked up tremendously. We've got a couple of hundred million expected to close in December and additional activity into Q1.

All right, thank you for that color. And then one sort of clarification during your prepared remarks. I get that the blended CLO financing cost of funds is SOFR plus 214. But I heard another comment regarding the current market at plus 174. Was that just characterizing what you see as where a similarly rated transaction might clear today?

Yeah, I'm looking at the current situation. The comment I made earlier was about the existing CLO, which has a cost of funds at SOFR plus 164 with a 79% advance rate. So relative to the market, while that cost is still attractive, it is not permanent, as we deleverage, this will continue to increase. We do see an opportunity in the market to potentially secure somewhat higher leverage, but the cost of funds would be expected to rise above current levels.

Thank you, your next question comes from the line of Stephen Laws of Raymond James. Your line is now open. Please ask your question.

Hi, good morning. Congrats on the five-rated resolution in November. I know that was good to see. I wanted to follow up on the CLO question. How do you think about FL1 regarding the slightly higher cost of funds versus similar advance rates being in the mid-80s, along with the two- to three-year replenishment periods in some of the deals that have been completed recently? How do you think about that as far as the timing of collapsing that deal and putting a new one in place? Is that a first-half '25 event? Additionally, what are your repayment expectations for the next one or two quarters?

Sure. Regarding repayment expectations, it's been inconsistent. We've seen fluctuations with up and down months. We haven't had much this quarter, and we're reverting back to historical norms of around 30%. While there's always an element of uncertainty, I don't anticipate a rush for exits in 2025. In both scenarios, whether the market improves or deteriorates, I believe the owners will hold onto assets a bit longer. We are actively engaging with capital markets partners for public transactions while also considering other ways to recap portions of our portfolio. One factor is the weighted average life of the portfolio, which impacts pricing on new deals. We're assessing if we should contribute more assets into a larger deal or take some out of transactions that already exist. Appetite exists for new transactions to enter the market. Historically, we've had positive receptions to our deals, so I would expect this to be no different, although we're ensuring we come to market with the most efficient transaction possible. The timing could align with the first half of '25, but currently, we are still fully evaluating our options.

Thank you for the color. I wanted to touch on the four-rated loans, roughly a third of the portfolio, with expectations for repayment likely being in 2025. Could you elaborate on which portion of these loans may pay off as four-rated versus which loans might be at risk of moving to three or five ratings?

Certainly! As we go through our risk rating every quarter, we model each loan individually and only adjust it when we see major unforeseen errors. We've maintained consistency in how we report risk ratings over the years. The four-rated assets have been affected by rising rates, declining values, and slow business plans, indicating elevated risk relative to their origination status. However, based on our current market expectations and the resolutions we've achieved before, we remain cautiously optimistic about full repayments on all those assets. We believe in maintaining our ratings because it's critical to accurately reflect the risk associated with these loans throughout their life.

No, I think you covered it from a process perspective. Certainly, we are taking the specifics into consideration, and yes, some of these loans could potentially be reassessed based on developments.

Thank you. Your next question comes from the line of Steve Delaney from Citizens JMPO Capitals. Your line is now open. Please ask your question.

Thank you, operator. Good morning, Jim. Jim Flynn, I would like you to discuss the runoff in 2021 versus reinvestment in 2023. You made a comment regarding Oryx being active in the bridge market. Based on Oryx's activity, how would you compare today's opportunity set in multifamily bridge lending in terms of risk and return to what we saw in 2021 and 2022? Start with the overall multifamily bridge loan market, followed by how this can impact LFT moving forward.

Sure. I believe that the current risk-return profile for deals is indeed better than before. There has been a tightening in lending standards, leading to more conservative growth assumptions. We are no longer experiencing extraordinary growth in rents or an extremely low cap rate environment. Additionally, we have seen more demand for lease-up bridge loans in high-performing and growing markets, which I believe will perform well over the next two to five years. In summary, taking on risk with new assets in strong markets at relatively low leverage points proves to be advantageous. Traditional bridge and value-add loans have better credit metrics due to lower leverage and more favorable growth. Regarding returns, spreads may be somewhat lower than previous periods, but they are compensated by overall improvements in the qualitative aspects of these deals.

That's really great color. With Lument's portfolio at $1.2 billion, it seems this won't increase until you decide to pursue a refinancing, likely in early 2025. As you assess your balance sheet and potential financing over the next six months, how does this impact your capital base against a new financing? Is there upside to the portfolio beyond the $1.2 billion figure, based on improved financing?

The short answer is yes. Current market financing opportunities could enable us to achieve slightly higher leverage than we have at present. We have various assets that our manager can acquire to expand the portfolio. However, the critical factor here is timing. The sooner we determine to pursue refinancing, the closer we are to this disruption period we've been experiencing. With this in mind, we have maintained significant cash reserves relative to our size, so we will have to balance leverage with ensuring we retain liquidity. I do expect the portfolio to trend back toward $1.5 billion as opposed to decreasing. While it may not occur in one transaction, there remains potential to add to the portfolio.

We do not have further questions at this time. Presenters, please continue.

Okay, well, look, we appreciate everyone's interest here and look forward to speaking during the quarter and on our next call. And we'll see you then. Thank you for joining.

This concludes today's conference call. Thank you for your participation. You may now disconnect.