Earnings call transcript Q4 2022

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Operator

Good morning and thank you for joining the Lument Finance Trust Fourth Quarter 2022 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 Charles Duddy with Investor Relations at Lument Investment Management. Please go ahead.

Charles Duddy

Thank you and good morning everyone. our financial discuss results. joining fourth Finance for XXXX quarter you call Lument to Trust’s Thank CFO. With James Larsen, Briggs, Flynn, on CEO; me the Michael President; call and today are James the On SEC which Thursday, details fourth our results. on our we XX-K provided and a press filed issued release, quarter with

We be on also earnings website. our can a which supplemental provided presentation, found

only to no or of is not undertakes place speak of possible forward-looking actual cause materially X-K, the all are and in historical are during in Before XX-K. forward-looking everyone that company to remind It and Listeners XXXX company’s and results to differ any could identify date and expressions The handing statements. used like the SEC, Form of Risk forward-looking its as and obligation the When the would words uncertainties that to identify course as to statements the on are cautioned of section XX-Q Such Section these Securities XXXX. forward-looking such Factors subject are these forward-looking call XXA contained reports reports meaning risks. and I over of risks intends XX-K, of XXE outlook, risks which not in the evaluate, this constitute may of Act including on statements. call statements, discussed will, not with to statements information of to other predict of particular, hereof. are made such from undue this update the based on Act believes, Jim, within various conference, certain our the Securities the Section intended These in statements. indicate, those reliance filed to statements the expects, anticipates,

accordance financial in with through financial the be measures with on www.sec.gov. this non-GAAP in discussed to information be as in will not the to GAAP isolation the considered Presentation of most measures at our these intended of accordance a prepared can non-GAAP information substitute measures with presented this be SEC to is GAAP. filings Furthermore, Reconciliations nor call. certain comparable accessed

I over call Flynn. the now to Please go ahead. will turn James

James Flynn

today Finance Welcome Good quarter and you. I’d morning, like news the everyone. the you capital volatility. higher for Obviously, first to as Lument attention we transition react to. addressing market the fourth overall more to continued for investors lenders the paying are all markets, But interest earnings thank of the call and multifamily the has Trust experience to to and economic XXXX begin the uncertainties, by rates, environment. that economic Thank joining. a

buyers Investment to XX sellers declined as ago valuations to reassess relative new and a asset financing activity financing and structures. normal for to months costs of levels has work find

investment decline year-over-year side quarter, saw if anecdotally seen decline. XX% quarter-over-quarter. on volume have almost just the the fourth go you But We sales you transaction in back XX% to

seen So decline you a have obviously in activity. just market significant

growth ongoing slower X see for employment assets, lending the we we crisis, relatively strong rent supportive of market have the years. of over potential rate despite and remains and many banking the do impacts recessionary However, increasing previous than the seen a continued negative indicators multifamily although

opportunity attractive housing outpace housing may expenses to That supply-demand quality to spinning, and rents do asset create investment the of demographics believe our expect attractive. be credit trends dynamics, create shareholders growth markets and margin we the middle-market continue the an remains long-term long-term. And rent while most continue generally the for and over to in workforce do of middle-market

Our multifamily has investment portfolio performed well.

lending spread have bridge the LFT’s do Pricing quarter, the continues last during continued the past within sole quarters. which discuss new which While investment to the book average the over well of office has we ultimately standards We loan an lending on unrealized expect realized increased we later on remainder several reserve to call, we loss overall. our our book additional and tighten. More did month this against industry-wide portfolio loans to market, specifically, continue will perform increase. to

grows, showed able portfolio backdrop, CLO. the we been. As payoffs broader experienced Conditions they that have to volatile. encouraging CRE/CLO markets extremely to in of trends market the reinvest remained the are all very With and existing our where relative capital have in recently signs

these market become the past for industry. uncertain in development the to the few However, due issuances more significantly weeks just new over banking

of our advantage In capital the origination and to focused capabilities, to grow financing loans. our a loan we our continue deploy fully to acquired remain executing transaction order on leverage manager’s to to actively portfolio basis, newly take levered on

market finance while to as that, are transactions, to financing We leverage to have private And market including attractive provides structures investments we to CRE/CLO alternative prepared the and A utilized due that actively are we to and extent believe favorable options, execute the quickly, note-on-note well facilities. source non-recourse features. change financing continue a our improve, the market the and historically note warehouse non-mark-to-market as exploring conditions CLO an financings,

regard to over quarterly is quarters. declared of line dividend our share. the dividend, quarter prior per a XXXX with of our dividend With the in for first level This we on common $X.XX March XX, four

financing are will dividend that a we have that at able continue execute we to the our to such increase a ability transaction. loan to time We anticipate

continue multifamily. the We deploying focus to with CRE our debt a on on focus into investments, capital

year know, nation’s broad That XXX is largest and one XXXX, transaction capital over continue expertise nationwide. to portfolio investors and of As billion executing of multifamily offices manager’s the billion employees housing platform the in servicing space, benefit LFT. in of a the and providers in total will seniors scale manager the in $XX you our over XX volume approximately calendar employing $XX

over financial I’d some provide our Jim? Jim that, the on to with And who to Briggs, like call details turn results. will

James Briggs

a presentation will be and updates during been and investor to remarks. on and investor Thursday uploaded which your will XX-K an we the the for Thank evening, through our Jim earnings everyone. for as presentation on provided summary you, supplemental morning Report On webcast our Annual key supplemental X referencing reference. website, Pages find our has The Form good the presentation, On quarter. filed X of well you we

For of common $X.XX quarter approximately $XXX,XXX we of fourth to the income share. stockholders or net ‘XX, per reported

We also favorably quarter. in distributable reported prior million earnings of This the share of earnings compares million to $X.X per $X.X approximately $X.XX the share. per distributable or $X.XX or

compared There XX% driven quarter-over-quarter. Beginning increase regards was and are higher QX interest few QX a income, our items QX interest of million P&L. ‘XX, by like $X.X million increase with significant net with to primarily a in highlight This $X.X rates. represents to income to which was LIBOR net our I’d SOFR

to average which LIBOR continue we LFT’s QX, versus During will X.XX% earnings profile the over an expect rates to continue averaged X.XX% Short-term interest benefit QX. coming during increase, quarters. of

of payoffs, $XX During $XX payoffs represents loan annualized represents relative payoff a million the QX. QX, we The of increase million an payoffs million of rate. XX% which $XX to loan during experienced experienced during quarter

rate and our to speeds over long-term payoff we continue volatility expect to below quarters interest uncertainty. is this historical the rate experiencing persistent due economic averages, While coming similar payoff

for to time million The loss date QX collateralized loan we July and reported extending in $X.X year office million of net difference office borrower, and our an quarters. investment. provision LFT’s prior a entered a loan per $X.X income past In share in December of by property have to the We the allow for of recorded or as market originated end was QX a borrower to with was provision sell loan million only loss. more Chicago, maturity the previously property. loan this year, this in XXXX agreement discussed into property Primary the the distributable was had year, of $XX.X forbearance which $X.XX we during between of and on

board execute that unable a sale was the time in However, to frame.

accepted property for sold on of the year-end, GAAP borrower result payoff total payoff $X incur and to from negative of amount. allowance the as in established borrower discounted ultimately auction of discounted loan, that not – XX, accepted. to any that in value will we ‘XX million, Subsequent a a XXXX we the was February Having a $X.X course the we million the EPS or further on impact book during via

this or in in expect QX, negative we from reflecting to XXXX, do earnings distributable on value realized the expect to and While million impact EPS book no disposition we impact $X.X recoverable. a GAAP asset losses

asset. are identified $XX.X XX, period No additional underlying to pursuing evaluated we collateralized been and on default analysis a property and we multifamily ended individually the and as we million with one collateral that of December non-accrual of has this the on status, recorded on meds an reserve loan, slowness due balance During by unpaid principal monetary over asset. impaired based an

the portfolio loan, now this provision have any remainder the the remarks, opening not perform. his in on mentioned loss And we than of continues which loan to Jim provisions. other quarter other office our resolved, is taken As taken

Moving on expenses. to

QX, $X.X during expense total a were during of decline QX. million expenses million which relative total Our represents $X.X to

December of XX, $XXX or $XXX per $X.XX share. was value book common Total million. company’s equity million the As approximately total was approximately book

in as defined a company, quarters, to that As as smaller I’ve prior everyone discussed like would I reporting by remind SEC. the

adopted is a XX, recognize XXXX-XX, as XX-K, instruments. losses, losses commonly As have expected to and credit which not to of yet referred comprehensive on amendment December CECL, we ASC through financial recurring of this credit how gap

million X, incurred will as credit funding loan XX-K as disclosed the prepared upon of of loss opening that points filed We loan earnings $X.X Our impact accumulated on allowance an balance. commitments, including balance points January economic general year, December on our adjustment recently be This adoption or the future loans XXXX of XX. expectations conditions, of company’s of for and losses future be basis this on between basis financial held on $X million million recorded current CECL $X implementation commitment investment, statements expect an we XX and will based XX were model in basis. XXXX’s for total to of

portfolio Mike over call and composition details will our activity. the turn now Larsen, provide investment on who to I’ll

Michael Larsen

Thank morning, good you, Jim, everyone. and

anticipate which broader Jim the cost payoff earlier, also reset have opportunities same and trend XXXX, and At continue new in rate and we And near-term, As conditions, temper of of We have to financing seen to in-place bridge current that that while support volatile moderate the number in investments driven new previous to speeds loan markets new the throughout touched to the general relative the expressed uncertain, for increases quarters real the interest years. continued a acquisition our exists market. interest to in activity. higher time, capacity be have estate the Flynn environment. expect rate in on it economic that reducing decline

loans to unpaid a by supported indexed by meaningful senior new were were During $XX.X period of XX-day terms previous housing QX, basis to Four That million. multifamily with represents investments asset. and The had level a five investments this new these was balance spread principal points. of of total SOFR assets directly average secured new originated average XXX a spread portfolio relative LFT the one acquired current basis points. and weighted a XXX weighted increase of

basis to believe, our point New relative The acquisitions had floor rate also average had basis LTV loans XX.X%. origination our of is of a XX%, average increase average we XX acquired at of portfolio points, points. average weighted LTV is, of and a attractive below index portfolio leverage an weighted of XX which our

quarter relative experienced principal increase increase quarter $X.X end, total a in quarter portfolio That’s to billion. XXXX. quarter-over-quarter we during the at X% payoffs portfolio million mentioned, As loan announcing loan size and $XX a fourth of of the and X% of balance our

The an for of significant size continues with million, asset loans provide portfolio which to consists diversity. $XX average loan of XX

quarter total only office retail portfolio. property at and of to X% exposure to at after our remain the continued low office our was last the at and XX% note, important It’s portfolio end year-end X% and Our to of multifamily. very payoff

our in no exposure continue the loan focus will portfolio. currently, and we housing, classes. multifamily majority to be again, the So seniors we in activity asset our of office to related Due to anticipate have strong manager’s those

a investment rates. rising correlation strong with profile positive interest Our has return

X.XX% interest to to benefit pressures. sensitivity supplemental term continues presentation. table battle overall, rate elevated we rate XX Page as short-term expect from increased inflationary a included to quarter Fed has SOFR the rates end, from have LFT And our of Since on the X.XX% today. We X-month earnings

in currently elevated impact there increases around short-term While LFT. P&L rates rates, at uncertainty short-term a positive anticipate in further is from continued the we

of qualified over financed one As was XX.XX%. has average of assets through advanced securitization of basis repayments portfolio of with and points of our proceeds various XX/XX, weighted in and reinvestment series conditions. CLO replacement an to a reinvested be loan has spread period LIBOR a CLO running rate that XXXX assets, principal from to XXX allows X-month December subject

for that, with the closing back And call Jim remarks. I’ll some to pass

James Flynn

changing our Obviously, open but forward market. daily to look in to things stability Well, like to look questions continuing it from basis And some Thanks forward Mike. the a that, we are and participants. more progress. update to to on – I’d with up on the

Operator

comes ahead. go Stephen Our from from James. Laws first question Instructions] [Operator Please Raymond

Stephen Laws

good Briggs, the answered start, on a Hi, questions all I’ll modeling. I morning. loans. guess color my the That office from appreciate I Jim lot of the

through I that only Then impact, that So QX implementation, I any I’m make The appreciate then to statement million the income back through will $X change CECL that. would and run added the the clear to just income X that with there. or million run want sure adjustment be $X January in statement? versus

James Briggs

that change a just number. Stephen, it be will from

that earnings in be change with And that P&L from forecast calculation. because factors of impact quarter within the anticipating So be portfolio, retain no moves the in adjustment it then our and equity will will go that moves other in we’re the the range. into to opening economic any

Stephen Laws

as Great. to you originations, multifamily? the you’re in were into talk more focused That a always XXX activity, in things unique how kind clearly a Was metric four new just about that you loans the on the on think, will maybe that loans, it out focused make bps new understand put sample I those to investments low. anything seeing sure of states I healthcare. to a Are focus. another And on LTV maybe under can the makes for and multifamily investment talk Obviously, prioritize move you are you XX% and to makes what most and remain the from that about read that, To or wanted deck? there Can floors pushing correctly. just maybe I small relative surprised attractive too primary you things? LIBOR you not this little size maybe quarter a sense. then follow-up

James Flynn

I mean I housing Sure. piece will first seniors it. the on take of

points of Just there. couple a

have of housing the past financing in discussed largest and – healthcare space. We the manager in one seniors providers is of the our

And do significant see in space. opportunities so that we

this properties opportunities, significant for multifamily the we higher in as we lower us we multifamily. to tend in investments, did on thought to There yields said, our those opportunity have expect see. Although to made on We the focus grow these be in we that portfolio healthcare expect continue good support are last focused you market. of attractive investments were much assets, And the and to a a seniors leverage housing decline debt recently despite quarter. see some increase – and financing and dynamics dynamics that transaction activity continued don’t bridge

Stephen Laws

might. are and modeling? about Any or to one think And done the that Great. the one, last I you seasonality CLO if to QX get expenses filing looking

James Flynn

I Can a that had bit little question? you trouble. repeat

Stephen Laws

related to include market expenses to potentially CLO the we we QX model the in operating deal in with standpoint? an Any that’s year-end from expense that or with auditing or Sure. SEC should in need about seasonality our think filings

James Flynn

don’t you Briggs, to seen past Jim than years. speak in anything different the I we what can believe audit. that’s have

James Briggs

I No, correct. think that’s

Stephen Laws

the color this Appreciate Alright. morning.

Operator

Instructions] next question Our Stewart Please from [Operator JonesTrading. comes ahead. go from Jason

Jason Stewart

Thank you. guys. morning Good

portfolio? talk can of how If On seeing B the to impacts are multi what you that transition to from you A Class to maybe and kind C? rates side, that your

James Flynn

transition you rates, opportunities? say When investment available you mean

Jason Stewart

resident I color the – Well, on looking at am for underlying movement.

occupancy, going physical, is A B C? improve Does to who Class to that So, from etcetera?

James Flynn

Yes.

which in workforce and demographics largely is space, for is – at found general market. is obviously each described supply-demand as you we historically, you to look, at – that mean In have have that to there occupancy if I whack. – reason into and flip primary the B, the the we what affordable less be C market you even or housing, there out have think of volatility far – balance the micro look I is

downturn know than And just I time the fully are distress, than a you more to but trend, that see going housing other affordable identify where typically whether currently don’t a they of there or are it’s more economic looking likely that yet for so way. more people live kind in recessionary we to of

So, markets, – also do new you I I certain And do to going online and expect. they builds be have continue to have would – in we coming are nicer. and newer

they in the improves obviously of the but more a better so times the will levels comp which we area. the generally in distress. word or and will probably is maybe the in is lower-level stable And operate at probably cases, of in many apartments, or, majority to is the occupancy But up, general, detriment of lease set remains where mid that

Jason Stewart

Yes. too. I would expect that,

you little And would right mean takeout does to you any to helpful. the How That’s would get projects a for characterize any bit it transitional for of how case project? characterize I Okay. then seems out now? the financing ability a illiquid. be

James Flynn

certainly only to said an that’s regionals, the the sides I past interest history, ongoing. deals. on community – I have folks uptick – more impact more of on. banks exacerbate with described on think coming that recent around at are problem banking takeout what crisis, also, very – you financing looking you And lot seen months, of in going cash put think borrower is that The to true I of agencies. long-term again think a just expectation financing. further is and And couple there we and They certainly that is of

accepting in easy. that to our perhaps able financing. acceptance or that of to same from group of may way. the owners I raise in It asset at some the think of give they think And can be is at fairly gains feel I trends have equity it’s reasonable multifamily common naturally a they cash you their there and prognosis attractive in the and are equity optimistic bit order the more capitalized what still, can attractive trying to at a potential that meeting capital well Certainly look from the general, up long-term in level. you need perspective, space, long-term form look a in in the long-term we lock our get standpoint seen, in or if and to and be also for the

preferred the significant I throughout equity think for mezz we seen interest the uptick and/or a have in industry.

have We that and a I to to – longer maybe are in borrowers term see plan longer XX going equity execute originally even there know an of get bridge XX debt. are XX-year asset, more we not the LTV done, getting going new looking is I business seen bring they deals bridge lot to that a just lot is but XX a hold partner, than for planned, with An but most loan new and or need do XX loan. think to loans. that LTV an the

there, value is there standpoint being do cash or a they of so. other infusion or some raised a And common going either from so that’s subordinate good borrower is others protection are capital. lenders is in need expressing lot is, there news to interest that form either but The there the and capital to out of

Jason Stewart

Thank Got you. it. That’s helpful.

Operator

like to management over conference concludes I for This our session. would closing turn back to remarks. any question-and-answer the

James Flynn

And I just know want to for another morning. thank it’s I hectic everyone joining.

speaking forward soon. you. again be to all to continue look will touch and Thank to We in you

Operator

presentation. The conference you attending has now for concluded. Thank today’s

disconnect. now may You

Lument Finance Trust (LFT) 24 Mar 232022 Q4 Earnings call transcript