Good morning, and thank you for joining the Lument Finance Trust First Quarter 2025 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 with Investor Relations at Lument Investment Management. Please go ahead.

Good morning, everyone. Thank you for joining our call to discuss Lument Finance Trust’s first quarter 2025 financial results. With me on the call today are Jim Flynn, our CEO Jim Briggs, our CFO, Greg Calvert, our President, and Zachary Halpern, our Managing Director of Portfolio Management. On Monday, May 12, we filed our 10-Q with the SEC and issued a press release to provide details on our recent financial 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. Further, certain non-GAAP financial measures will be discussed on this conference call. 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 first quarter of 2025, we reported a GAAP net loss of $0.03 per share and distributable earnings of $0.08 per share of common stock. In March, we declared a quarterly dividend of $0.08 per common share, respective first quarter in line with the prior quarter. I will now turn over the call to Jim Flynn. Please go ahead.

Thank you, Andrew. Good morning, everyone. Welcome to the Lument Finance Trust earnings call for the first quarter of 2025. We appreciate all of you joining us today. Before we begin with the market update, I would like to officially welcome Greg Calvert as our new President and newest member of our management team. I’ve personally worked with Greg for almost twenty years. He has extensive experience in multifamily credit and nearly a thirty year tenure at Lument and its predecessor entities, making him an exceptional addition to our leadership team. Welcome Greg. Turning to the economy and market. Despite ongoing uncertainty related to the pace and direction of interest rate policy, the broader US economy has continued to show somewhat surprising resilience. The labor market remains tight. Consumer spending has held up much better than anticipated and inflation, while easing from the peak continues to be a focus for the Fed and frankly for investors and the economy. However, the topic of the day continues to be trade and tariffs. Any developments, whether real or projected have had significant impact on markets and sentiment as we saw yesterday and also are seeing this morning in pre-market. As we move through 2025, we are mindful of the potential for volatility for this and all economic issues, but we do remain cautiously optimistic that good opportunities for investment will be present in 2025. Stability and monetary policy would provide a constructive backdrop for the returning health of the commercial real estate finance market. The multifamily sector continues to demonstrate relative resilience amid evolving market dynamics. Although low rent growth remains muted, occupancy rates remain robust. On the supply side, multifamily construction starts have decelerated due to several contributing factors, including scarcity of attractive financing and increased construction costs. Looking ahead, the…

Thanks, Jim. Good morning, everyone. Last evening, 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. In pages 4 through 7 of the presentation, you’ll find key updates and earnings summary for the quarter. For the first quarter of 2025, reported net loss to common stockholders of approximately $1.7 million or $0.03 per share. We also reported distributable earnings of approximately $4 million or $0.08 per share. A few items I’d like to highlight with regards to the Q1 P&L. Our Q1 net interest income was $7.7 million, a decline from $9.4 million recorded in Q4 of ‘24. The weighted average coupon and average outstanding UPB of the portfolio declined sequentially, largely due to declines in SOFR benchmark rate and the deleveraging of our secured financings. Exit fees were also lower as payoffs during Q1 totaled $55 million, as compared to $144 million in Q4. Company recognized approximately $700,000 of exit fees during Q1, compared to approximately $1.1 million in the prior quarter. Our total operating expenses, including fees to manager, were largely flat quarter-on-quarter as we recognized expenses of $2.6 million in Q1 versus $2.8 million in Q4. Approximately $450,000 of incentive fee that would have otherwise been incurred by the company as it relates to Q1 was waived by the manager. Primary difference between reported net income and distributable earnings was a $5.7 million net increase in our allowance for credit losses. As of March 31, we had seven loans risk rated to five, including three assets newly downgraded to five in Q1. All seven loans are collateralized. Six of the loans are collateralized by multifamily assets, one…

Thank you, Jim. During the first quarter, LFT experienced a modest $55 million of loan payoffs. As referenced in Jim Flynn’s earlier remarks, approximately $31 million of these payoffs were within LMS. And although these principal repayments were eligible for reinvestment into new loan assets, after much deliberation and with the understanding that the portfolio currently in the transitory phase as we work to line up new secured financing sources, our team made the prudent executive decision to intentionally partially pay down a portion of the LMF bond in order to provide us additional cushion in satisfying the overcollateralization test as required by the LMF indenture. As of March 31, our portfolio consisted of 61 floating one - 61 floating rate note loans with an aggregate unpaid principal balance of approximately $1 billion. 100% of the portfolio was indexed to one month SOFR and 92% of the portfolio was collateralized by multifamily properties. As of the end of the first quarter, our portfolio had a weighted average note floating rate of SOFR plus 355 basis points and an unamortized aggregate purchase discount of $3 million. The weighted average remaining term of our book as of quarter end was approximately 40 months, assuming all available extensions are executed by our borrowers. As of March 31, approximately 60% of the loans in our portfolio were risk rated at three or better compared to 64% in the prior quarter. Our weighted average risk rating quarter-on-quarter remained flat at 3.5. We had seven loan assets risk rated “5” with an aggregate principal amount of approximately $108 million or approximately 11% of the unpaid principal balance of our investment portfolio. One was a $15 million loan collateralized by two multifamily properties in Philadelphia, Pennsylvania. This loan asset was risk rated “5” due to monetary default.…

Thank you, Greg. I’d like to thank everyone for joining and appreciate your time and interest in the platform. I look forward to answering some questions and we’ll ask the operator to open the line.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And your first question comes from Jason Weaver with JonesTrading. Please go ahead.

Hi, guys. Good morning and thanks for taking my question. First, can you talk about what you’re seeing? Can you characterize the pipeline today? As well as a follow-up, is there a level of net originations that you need to see through the rest of the year to maintain the current dividend capacity?

I mean, well, the second question frankly is related more to payoffs. And there’s not I wouldn’t put it as - we have assets that we could put into that have been recently originated at Lument and continue to originate. So, we’ll have assets to deploy into LFT when there’s capacity. So there’s not - I’m not really concerned at an origination level. Now, if volatility kind of continued in the way that we’ve seen over the past 45, 60 days, that would likely reduce the opportunities from where we think they will be. But I don’t think it dries up like we’ve seen in various points over the last couple of years. So, from an origination standpoint, I think we’re in pretty good shape. Whether we need a couple hundred million or $500 million, I think we’ll be able to have the assets to replenish LFT as needed. In terms of the types of opportunities we’re seeing on the origination side, continuing to see there’s attractive assets on the lease up level, new construction, newer assets, those are certainly most desirable. From a credit standpoint, they tend to be priced tighter as we’ve seen relatively high competition for those assets. I would say a modest slowdown in recapping and bridge-to-bridge type of deals that we’ve seen a little bit more of over the last couple of quarters, that largely tracks with kind of what we’ve seen in our loan portfolio. Those have - there’s some for the right sponsor in the right market, you can achieve a premium there. But definitely seeing a little slowdown in that side on the construction and lease up, continue to see those opportunities. But as I stated in my remarks, deliveries have been on the decline, relative decline. And so over time, those opportunities will start to decrease. But I do think we’ll see some turnover in the wall of maturities that we’ve been talking about now for two or three years where we’re going to see some resolutions and I think, opportunities for reinvestment into assets by new sponsors.

All right. Thank you for that color.

Your next question comes from Steve Delaney with Citizens JMP. Please go ahead.

Good morning, Jim and team and nice to meet you, Greg. I’m interested in your comments about financing. Now you mentioned, obviously, looking at the CLO market, which has been your sort of traditional vehicle for your semi-permanent financing on the portfolio. But I picked up in your tone, Jim, that there are other financing options out there, whether it’s product credit, whether it’s banks that might give you a more custom or flexible interim type of facility. Did I hear - am I on the right track there that there might be something to do before you do your next CLO?

Yeah, I think yes, there are definitely opportunities in the market, really both from banks and private credit. Obviously, the bank providers are more closely structured like traditional warehouses with some different terms, duration and some flexibility on what how long assets can stay on the line, those types of things, which make them, more attractive than a traditional kind of repo. So we’re definitely looking at both, as you say, potentially as an interim step and likely something that we would want to keep permanently to maintain flexibility if we can achieve the right flexibility there. The CLO market broadly still remains the most attractive financing in our opinion for floating rate multifamily assets. Occasionally, we’ve seen the capital markets being disrupted either through lack of or no availability on the investor side or gapping on the bond spreads. But today, we’ve seen continued interest. I know you’ve seen several deals here in the market in the last couple of weeks that in our opinion have either priced kind of in line with where we might expect or in some cases, talks of maybe even better than we expected. And that suggests that there’s a lot of capital on the side by looking to get into the - deploy into the CLO space. So, it’s hard to replace a permanent vehicle like a CLO securitization. So, that will continue to be our primary focus. But I do think there are a lot of or not saying there are a lot of providers that are offering alternatives and flexibility. And look, this is a derivative of the market continuing to extend loans, business plans taking longer, new sponsors stepping into older deals. Those types of things have provided an opportunity to lenders on the back leverage side to offer some competing financing to the traditional securitization market.

Okay. Understood. And I appreciate those comments. And just as far as your problem loans that are under asset management, seven loans $180 million. Can you comment if there’s any those things take each one is a different story, different borrower. But as far as and you may have new fabricated loans or by the end of the year it’s a fluid process. But are there, is the market such and your relationship with these borrowers, do you anticipate any near term resolution, say between now and the next three to six months, do you think some of these will be resolved and go away? Or is it more a matter of just incremental increases in the “5” rated bucket until we see a major – a larger turnaround the market?

I would answer that. I would say, one, there’s certainly possibility of - and personally, I do see the potential there for there to be resolutions in the next three to six months. As we’ve seen over the past several quarters, we’ve continued to have those. So, do I think that that is a real possibility? Yes, I do. However, as you know, the market has been, it’s been choppy and sponsorship is really a key. Common theme that we’ve seen among assets, obviously business plans didn’t pan out the way that people thought. That’s clear. But in many cases due to, what happened with the timing of acquisitions and expectations around rental growth, it’s not achieving those even if there were some positive growth. But what we’ve seen, in the - whether these assets that we’re talking about here or even in prior quarters is typically a sponsor just basically coming to the conclusion either voluntarily or often involuntarily that they don’t have the capital to improve the asset in a way that is the most ideal situation. And so, when that happens, the lack of investment into these assets, particularly those of older vintage, deterioration happens quickly. So, the way that we envision, potential outcomes in those situations is for us to gain control of the asset either directly or bringing in a new sponsor that is a no quantity of ours, can potentially providing incremental capital, maybe non market financing to a quality sponsor, which would allow for the asset to go from where it is today in this deteriorating kind of property condition and general performance to something that has a greater value. So that’s really the strategy here. In terms of, as you know, our portfolio has generally been declining as we delevered and maintain liquidity. So, what I’ll call the legacy portfolio, the number of opportunities for problem assets continues to decline as we work through those that are struggling. So, whether it’s this quarter or very soon, we feel like you could see the shift in the market where you’re going to start to see, I think, not just at LFT, but more broadly a lot more resolutions to some of these assets that have remained outstanding for longer than lenders or sponsors anticipated.

Got it. Interesting. Well, appreciate those insights into market conditions that we can’t observe from ARC. Thank you, Jim.

Thanks, Steve.

[Operator Instructions] Your next question comes from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Hi. Thank you. Following up on Steve’s questions on the rise in non-accruals, is this a cash flow issue for the sponsors where the property is simply not generating enough AFFO to cover the interest?

It is a cash flow broadly speaking, meaning I think it’s true at the asset, but it’s also true in the sponsor kind of investing in the property and that cycle - I won’t and that’s not universal, but as a broad comment, that’s a bad cycle because as you don’t reinvest in the asset, your cash flow deteriorates even further, your operations decline further. And that is the challenge that many of these sponsors face and as a lender and our we have a very experienced and seasoned team around workout resolutions and also OREO management. But if we don’t control the asset, we continue to see that decline if there’s not reinvestment going into the property. So it is a - some combination of cash flow and management. And it’s - I won’t say it’s a chicken and egg exactly, but there’s certainly a correlation there. Obviously, the assets were generating significantly more cash flow. The management would likely be better or certainly if it weren’t, it would be certainly masked.

Okay. Well, on the March 20th call that you guys had for the fourth quarter, you used terms like strong sponsors, fundamentals remains strong, constrained supply, robust demand, resiliency, and rent trends. And given the rise in non-accruals, it doesn’t sound like that’s the case. Am I wrong or what?

Well, no. I think I think that is true in the market, and I think on average, it is true in our portfolio. On a on a couple of these assets, we’ve had sponsors not follow through on some of their stated goals and intentions at the asset. And from - as I said, in evaluating these deals, if sponsors decide that they’re going to not continue to support the asset in the way that they have historically, that deterioration can happen very quickly. And on a couple of these, we think that’s a part of the issue. We also feel that while the values today and the reserves are appropriate that, we are looking at scenarios that we think should have been better managed by the sponsor and we think that we or someone else could do a better job.

Okay. Thank you.

There are no further questions at this time. I would like to turn the call over to Jim Flynn for closing remarks.

I just want to thank everyone for continuing support of LFT and joining us today. And we look forward to speaking again next quarter. Thank you all.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.