Lument Finance Trust Inc Aktie

Good morning, and thank you for joining the Lument Finance Trust Second Quarter 2026 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 second quarter 2026 financial results. With me on the call today are James Flynn, our CEO, James Briggs, our CFO, [ Greg Calvert ], our President, and [ Zach Halpern ], our Portfolio Manager. Last evening, we filed our Form 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 James 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.

Thank you. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results that differ materially from those contained in the forward-looking statements. These results and uncertainties are discussed in the company's reports filed with the SEC, in particular the risk factor section of our Form 10-K and Form 10-Qs. 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. Our presentation of this information is not intended to be considered in isolation or 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 second quarter of 2026, we reported a GAAP net loss of $0.18 and distributable loss of $0.10 per share of common stock. In June, we had declared a quarterly dividend of $0.04 per share with respect to the second quarter in line with the prior quarterly dividend. I'll now turn the call over to James Flynn. Please go ahead.

Thank you, [ Andrew ]. Good morning, everyone. Welcome to the Lument Finance Trust earnings call for the second quarter of 2026. We appreciate you joining us today. We also wanted to express our appreciation to our investors for their patience, support, and continued engagement as we work through issues in the legacy portfolio. We recognize the challenges that the company has faced, and we remain focused every day on improving outcomes for our shareholders. Looking at the economic and market conditions in the country today, conditions remain generally stable. There is continued uncertainty around monetary policy, weighing on investment activity. Recent economic data has increased uncertainty regarding the path of the Fed, including whether short-term rates may remain elevated for longer than previously expected.

Long-term rates also remain elevated, continuing to pressure transaction activity and real estate valuations. Within multifamily, fundamentals continue to improve as the sector moves beyond peak supply levels. Rent growth remains modest. Long-term demand drivers, including housing affordability challenges, continue to support the multifamily rental sector. Capital markets remain active with liquidity available across warehouse securitization and institutional lending channels strong through the first half of this year. The CRE CLO market continues to be an important source of financing for multifamily mortgage assets, and investor demand for floating rate credit remains relatively strong, particularly for repeat issuers with proven track records.

Active asset management remains our highest priority. We continue to work closely with borrowers and operating partners to maximize outcomes across both performing and non-performing investments. We continue to proactively evaluate resolution strategies for legacy assets while maintaining a disciplined approach to credit. While the market for certain legacy assets remains soft, we are beginning to see an acceleration in resolution activity, including both negotiated sales and other paths, monetized or stabilized challenge positions. We continue to work tirelessly to resolve these assets in a manner that protects value, improves liquidity, and positions the company to reinvest capital efficiently.

On the portfolio side, during the quarter, we were intentional about managing liquidity on our balance sheet to support ongoing portfolio management efforts while selectively redeploying CLO capital when available. We generally held on to cash from non-securitized assets when in payoffs. Our financing profile remains well-positioned following the refinancing initiatives completed earlier this year. We believe our current liquidity position remains appropriate to support asset resolution activities, portfolio management, and selective capital deployment opportunities. As capital becomes available through resolutions and repayments, our objective is to redeploy it efficiently into investments that meet our credit standards and are expected to be accreted to earnings. We are being disciplined on timing and asset selection, but we are also focused on ensuring that the company's capital is put back to work as efficiently and quickly as possible.

Our Board of Directors recently approved a 10-for-1 reverse stock split of our common stock after having determined that such actions were in the best interest of the company and its stockholders, providing flexibility to maintain compliance with the applicable New York Stock Exchange listing requirements and support an efficient public market for the company's common stock. The reverse stock split is expected to become effective at the close of business on Wednesday, September 9th, and the company's common stock is expected to begin trading on a split-adjusted basis on the New York Stock Exchange at the opening of trading on Thursday, September 10th under the existing ticker symbol LFT. The reverse stock split will affect all stockholders uniformly and will not alter any stockholders' percentage ownership interest in the company, except with respect to treatment of fractional shares, which will be paid out in cash. We have also posted for our investors a reverse stock split FAQ document on our website.

We believe the reverse stock split is an important step toward reducing technical pressure on the public stock price and supporting a more orderly market for our shares. While this action does not change the underlying economics of the company, we believe it helps address one of the external pressures on the stock and allows investors to focus more clearly on the value of the portfolio or asset resolution progress and our earnings trajectory. Our priorities remain unchanged. We are committed to resolving legacy assets, protecting book value, and thoughtfully redeploying capital into high-quality multifamily investments. We appreciate the continued patience and support of our investors and capital partners as we execute on this plan.

While we recognize the resolution of our non-performing and REO assets remains challenging, we are seeing improving momentum in deal resolutions and sales activity. As those resolutions occur, we intend to reinvest capital efficiently and on a disciplined basis. We remain committed to fully deploying our capital in 2027, which we believe will be an important driver of improved earnings and, over time, enhanced shareholder value. We recognize there is still work to do and the timing of certain NPL and REO resolutions remain subject to sub-market conditions. That said, we believe the company has the support of its capital partners, a clear path to redeployment, and the platform capabilities necessary to move forward constructively. With that, I'd like to turn the call over to James Briggs, who will provide details regarding our financial results.

Thanks, Jim. Good morning. Last night we filed our quarterly report on Form 10-Q and provided a supplemental investor presentation on our website, which we'll be referring to during our remarks. The supplemental investor presentation has been uploaded to the webcast as well for your reference. On pages 4 through 7 of the presentation, you'll find key updates and an earnings summary for the quarter. For the second quarter of 2026, we reported net loss to common stockholders of $9.2 million, or $0.18 per share. We reported a distributable loss of $5.3 million or $0.10 per share. A few Q2 P&L items I'd like to highlight. Your Q2 net interest income was $4.5 million, a sequential decline from $5.7 million recorded in Q1. This was primarily driven by a lower average performing loan balance, loan portfolio balance quarter over quarter as we chose to build liquidity during the quarter rather than reinvest principal repayment from loans held outside of CLO.

The ending outstanding UPB of the total portfolio was approximately $1 billion compared to $1.13 billion as of March 31st. The weighted average coupon of our loan portfolio declined to 704 basis points compared to 709 basis points in the prior quarter. Payoffs of higher spread loans relative to newly acquired assets, as well as a slight decline in the average SOFR rate during the period. Although we had greater payoffs compared to Q1, our exit fee income was relatively flat to prior quarter, and recognition of extension fee income was down by about $300,000 quarter over quarter. Our total operating expenses, including fees to our manager, were higher quarter on quarter at $3.9 million versus $3.7 million. Primary driver was higher reimbursable expenses compared to Q1 driven primarily by resource allocation.

The difference between reported GAAP net loss and distributable loss during the quarter was primarily attributable during the $8.6 million net provision for credit losses recorded in the period, $5.1 million of realized losses on mortgage loans and REO included in distributable, and $390,000 of depreciation on REO. The $8.6 million in net provision for credit losses recorded during the quarter, which is excluded from distributable earnings, was driven primarily by specific reserves and risk-rated 5 loans. As of June 30th, we had 6 loans risk-rated 5, all collateralized by multifamily assets. Greg will provide a bit more detail in his remarks. We evaluated our risk-rated 5 loans individually to determine whether asset-specific reserves were necessary. In the quarter, we recorded specific provisions related to 2 loans downgraded to a 5 risk rating in the quarter, and 3 loans that were already risk-rated 5 at March 31st, including 1 property that was foreclosed upon and transferred to REO during the period.

Specific reserves totaled $7.4 million at quarter end, representing approximately 18% of the associated UPB of specifically evaluated assets. $5.1 million in realized losses included in distributable earnings related to 3 assets that were fully resolved in the quarter. These included discounted payoffs on 2 previous 5 risk-rated loans, 1 in Philadelphia and 1 in Des Moines, with proceeds generally consistent with their March 31st net carrying values. In addition, we sold 1 REO property in San Antonio for $12.1 million and recognized a small GAAP gain on that sale. The realized losses reflected in distributable earnings this period were primarily attributable to prior period reserves and impairments recorded on those assets. At quarter end, our CLO's capital was substantially fully deployed at an 88% advance rate and a cost of funds of SOFR plus 191.

As of June 30, a portion of our loan and REO portfolio were pledged to warehouse facilities that provided financing and an effective advance rate of 68% and a weighted average cost of funds of SOFR plus 209. We ended Q2 with an unrestricted cash balance of $29 million, and FL3 was substantially fully deployed. The company's total book equity at the end of the quarter was approximately $205 million. The total book value of common stock was approximately $145 million, or $2.76 per share, decreasing sequentially from $2.97 a share on March 31st. I will now turn the call over to [ Greg Halbert ] to provide details on the company's investment activity and portfolio performance during the quarter. Greg?

Thank you, Jim. During the second quarter, LFT acquired or funded 4 loans with an aggregate UPB of $91 million and experienced $184 million of loan payoffs. As of June 30th, our total loan portfolio consisted of 51 floating rate loans with an aggregate unpaid principal balance of approximately $1 billion, a weighted average floating rate of 330 basis points over SOFR and an unamortized aggregate purchase discount of approximately $800,000. The weighted average remaining term of our book as of quarter end was approximately 18 months, assuming all available extensions are exercised by our borrowers. 100% of the portfolio was indexed at 1-month SOFR, and 91.7% of the portfolio was collateralized by multifamily properties. As of June 30th, approximately 81% of the loans in our portfolio were risk-rated at 3 or better, compared to 77% as of March 31st. Our weighted average risk rating quarter over quarter remains stable at 3.1.

Within the quarter, we had several positive asset resolutions, including the resolutions of the 2 loan assets Jim mentioned in his remarks, which had been risk-rated 5 as of March 31st, and for which we received payoff proceeds consistent with March 31st net carrying values. As of June 30th, we had 6 risk-rated 5 loans with an average rate of $98 million, or approximately 10% of the unpaid principal balance of our quarter-end investment portfolio. 4 of these loans with an aggregate UPB of $62 million were also risk-graded as of the prior quarter due to either maturity or monetary default. 2 of these loans with an aggregate UPB of $36 million were downgraded to a 5 risk rating for the first time due to monetary default.

As of quarter end, the REO portfolio in total consisted of 4 multifamily properties with an aggregate carrying value of approximately $61.6 million and a weighted average occupancy rate of approximately 67%. During the period, we completed a sale of 1 San Antonio REO asset with a carrying value of $12.2 million. We also foreclosed on a multifamily property in Arlington, Texas. The $15.7 million loan associated with that property had been risk-graded a 5 as of March 31st. When it went to quarter end, we foreclosed on a multi-family property in Dallas, Texas. This property had a $21.9 million mortgage loan associated with it and was risk-rated 5 as of June 30th. We have been very active in seeking positive asset resolutions and maximizing recovery values and are pleased with the significant progress we have made so far, yet we understand that there is still more work to be done on behalf of our shareholders. With that, I'll pass it back to James Flynn for his closing remarks and questions.

Thanks, Greg. I'd like to thank everyone for joining us today and for your continued partnership and support. We recognize and appreciate the patience of our investors as we work through our legacy assets and reposition the company for improved earnings. We remain focused on resolving those challenge assets, redeploying capital efficiently, and moving the company toward a fully invested higher earning portfolio in 2027. Important we continue to have the support of our capital partners as we move forward and we believe the actions we are taking today position LFT to create value for our shareholders over time. With that, I'll ask the operator to open the call for questions.

[Operator Instructions] Your first question is from [ Steven ]. Your line is now open.

Yes, hello. Morning. I've been a shareholder for many, many years and I see the book value declining, you know, considerably, along with the stock price, which is what I'm concerned about, and your dividend, which I bought many years ago, has declined also significantly. I see what you're paying now and my question is, I don't know how you're going to continue to pay that. And a very simple question I have, it's just a size of scale. I don't think there's any company that's smaller than your company as far as assets and market cap in this particular space. There's another company I own, Cherry Hill, which recently made a merger with MITT. And my question is, I see your expenses going up. I don't blame you. Inflation is there. People got to earn money. Everything costs money these days. But you see an opportunity to merge with another company because of the scale just doesn't make sense or just sell the assets since you said the book value is $2.70. That's...

Thank you for the question. Thank you for your time as a shareholder. We appreciate that support. I think that you've certainly identified a challenge, which we've discussed in the past, is our size and compared to many of the larger competitors in the space that is accurate. It's also one of the reasons our portfolio probably on average has distressed assets in the same relative percentages as the peer set. Our challenge is our size, and so we've held liquidity on our books and not redeploy that capital. So that's further suppressed earnings in addition to, you know, losses that have been taken on underperforming loans. So that's one of the drivers as you point out. And as we move through these assets and redeploy capital, we should be able to improve earnings as we move forward.

In terms of evaluating potential M&A opportunities or other strategic alternatives, that is something that we continue to do with our bankers, with anyone that has discussions with us, with our board. All of those options are evaluated as they come up. Unfortunately, over the past couple of years, we've been unable to execute on any of those that were discussed. And to the extent something came forward, we certainly would discuss that with the board and take any alternatives that could create shareholder value seriously, continue to do so as we move forward.

The other question is how about just wrapping up and selling the assets at $2.75 before they get any lower?

So that's a fair question, certainly a consideration of our board and the management and discussions with the board. The one, if you take a look at the market, the market for selling portfolios of assets of this type, particularly some of the older vintage multifamily assets, is very, very... If we were to attempt to sell that into the market, it might be difficult to sell the entire portfolio at those recoverable values. But as you point out, I think, you know, to the extent there is a strategic investor or someone that we were able to find, it would be something we would have to consider as a management team and a board.

The concern I have is the book value, not just of you, but of many of these companies in the space, that they are overinflated. The book value should be what you should be able to receive, in my opinion.

Well, we believe that our book value does represent what we will receive on these assets.

Okay. I appreciate you answering my questions. As I said, I've been a shareholder prior to when you raised money if you were a REITs offering. So you can see how long I go back. And this has been the most disappointing REIT that I have. I have a significant portfolio of REITs and this is the most significant. You know, hopefully, you know, you can turn this around. I remember when I bought this, everybody said you were conservative and that this would be a very, very good management company. That's why I bought the stock. So hopefully you guys can turn it around or make a decision to sell, you know, look out for the shareholders and you know, instead of having the increase in expenses, that's sort of like an insult to me as a shareholder. You know, everybody has to suffer. The stock is down, but I think the employees, the management should take some responsibility. The best responsibility is 1 word, money. That's all the questions I have. I appreciate the time that I had here. I appreciate your answers. I hope you look out for the shareholders. That's my concern. Thank you very much.

Thank you. We appreciate both your questions and your time as an investor.

Your next question is from [ Lee Zulch ] from [ UberCap ]. Your line is now open.

Good morning. Is the 12/15/25 stock repurchase program still in effect? Is the $10 million there to buy common shares?

I will defer to James Briggs on the timing of that agreement, but in general, the question around repurchasing shares and other strategic alternatives are all on the table in discussions with our board. To answer, I think the underlying question is, the technical question on whether that agreement is...

That is still open. Yes.

Your next question is from [ John Power ] from [ Redwood Fund ]. Your line is now open.

Good morning. Thank you for your time. So if the stock buyback plan is still open and your stock is trading for 25% of NAV, why hasn't the board and management actually made any stock repurchases in the open market?

So, any discussion around stock repurchases or other alternatives also has to reflect a full view of liquidity and maintain liquidity to make sure that we can resolve underperforming assets. But certainly our current stock price does not reflect what we believe is the fair value of our assets, and it is something that we will continue to discuss with the board around whether we take any action in that regard. So any thoughts on how to close that gap? I mean, there are several, right? So certainly, you know, you mentioned stock repurchase would certainly help. The primary way for us to improve book value is to work through assets, get them resolved off our books and redeployed efficiently. Today we have roughly $1 billion of assets outstanding, including non-performing loans, should be closer to $1.4 billion. That's a significant drag on earnings, not to mention that, you know, a portion of those assets are some $300 million, including REO, are inefficiently financed or not financed at all.

That is the biggest drag on our earnings and so working through these assets, you know, it should point out, you know, having 3 resolutions last quarter, we expect to have several more here over the next quarter or 2 and really move through that legacy portfolio which will allow us to move forward with redeploying that capital efficiently. That's the biggest drag, but along the way, we're going to continue to see if there are certain other potential opportunities to enhance the book value or trading price of our shares relative to book value.

Okay, thank you. And we appreciate you holding these calls and talking to shareholders and investors. Thank you.

Your next question is from Greg Bennett.

Hey, good morning. On your supplemental data, when you have a closing date for a loan and then you have a maturity date, you look at some of these loans that were done in '21, let's say, I take it this is the problem portfolio. Am I correct that most of these problem loans are the ones that were done in '21 and '22? Would that be correct?

That would generally be correct, maybe into early 2023, but that is generally the time, kind of across the industry and our portfolio, the time of the most challenged assets, typically valuation issues, meaning they were overvalued to begin with.

So when we're looking at these in the maturity date, there's some that I'll see that the closing date was '21, they will have an, how many of these have an extension? I guess what I'm trying to get at. You take a loan that was done in '21 and you see that the maturity date is '27 now, that would have been a 6-year loan. That maturity date, shouldn't there be an asterisk next to that tells us that you actually did a loan extension that we can identify maybe these were the weaker loans. Yes. The maturity date, does the maturity date include a loan extension or is that what the original term was?

So, it would be what the current maturity date is in the supplemental, and if I... I'll ask the team to step in if I say anything wrong, but most of our bridge loans have a total maturity of 5 years, usually 3 years initial term with 2 1-year extensions. Occasionally it's 2 with 3 1-year extensions. And the outside maturity date is listed as that 5-year period, but for any loan that has gone through a modification with an extended maturity date, the maturity date and the supplemental would be listed as the current maturity date. So we can provide that data in future supplementals to be clear. For loans that were done in '21 that have a maturity date of '27, that would be an extension because we don't have any loans that have an initial maturity beyond 5 years.

Okay. I don't know if anyone's back or... Okay, go ahead.

Go ahead and finish. I was just going to say I suspect that someone doesn't have the data right at their fingertips, but we can certainly provide that in the future. So if anyone else on the team has that, meaning the number of extensions.

Some of them extend it for more too, right? At the end of the 3 years and then they get an initial period because of some agreement that they've reached with us on an extension, typically a pay down. Yes, so the problem loans have to do with... just the management of a property that has finished its remodeling or construction or that they're just not managed well or is it because they're still using a loan to put capital renovation in the property.

So any trouble loan we're generally no longer advancing on in terms of the last question. In terms of management, it's a bit of a mixed bag. Certainly in some cases it's due to management. Most often it's because sponsors have themselves run out of capital, that these are not their only properties or only loans, and they just no longer have the capital to commit to the assets that they have whether in our portfolio or others. And what happens when you no longer invest capital even minor things is, you know, properties deteriorate which make it harder to rent new units. And so, you know, I think the answer to your question is in many cases it is bad management. It's not necessarily that sponsors don't know how to do it or what to do. It's that they no longer have the resources as they've held on to these assets for an extended period of time waiting for the market to turn better, the sub-market that they're in. Thinking places like Houston or San Antonio and those types of city markets. And so they just kind of run out of money and resources. It doesn't mean they don't know, in many cases, it doesn't mean that they don't know what they're doing. It just means that they no longer have capital.

And, you know, that's a challenging environment where you've had cap rates expand, you've had increases in interest rates. And so, you know, that sponsor doesn't have capital to put into the asset, we are trying to work with them to exit the asset, hopefully at our loan proceeds, but at this point in many cases, as we've seen below loan proceeds. And that process is frankly a challenging one with some sponsors who are unwilling to, you know, cut their losses so to speak and move on. That's something that has accelerated a bit here in 2026 moving toward a resolution, but that is the biggest problem, that sponsors acquired assets at valuation levels that have since declined meaningfully, their expenses have gone up, and their resources have been drained.

Going forward, when you do commit to loans, I mean, obviously there's a lack of confidence based on the stock price. So I'm wondering from a management point of view or from, you know, from ORIX, your sponsor, if there's some way of, well, first of all, you know, the commitment going forward that maybe you only invest in 2-rated loans, you know, to try to improve, I guess, what the quality of the portfolio is. I don't know if that would matter or not. And then the other thing is, go ahead.

Well, I was going to say, we've certainly evaluated investment criteria and have considered sponsor strength as 1 of the key components here in terms of common themes among struggling assets. Again, I think the portfolio for multifamily assets across the entire industry, not just LFT's portfolio, has seen even significant struggles in assets that were acquired during that period of, identified in the '21 to '23 period. They were acquired at a time of lower interest rates, lower expenses, and lower cap rates. 3 of those things have moved meaningfully against those owners. And so we've taken a particularly, you know, closer look and identify stronger sponsors on newer assets. Those with deeper pockets, more capital, more experience, and those that have not necessarily grown as significantly as many sponsors did during that period. So that is certainly something that we have done. And if you look at our portfolio that's been invested since that period, it's performed quite well.

One thought I have, and I don't know if this is available or not, but part of the reason for investing, your company had to have been, you know, the relationship with Lument and then the parent company, you know, ORIX. And I don't know, I mean, this would be self-serving, but since the insiders own roughly, if you think about it, the insiders own roughly 45% of this company, the publicly traded company with ORIX, I guess the largest shareholder. If there's some way from a, to build investor confidence back in the price of, or the sponsor basically, I don't know how you would do it, but taking back these assets, you know, for like a preferred stock in the company and allow the parent company to work this out. They're the ones who put these loans on. I mean, they were the ones that... You didn't buy these from a broker. I mean, part of the appeal investing in this says that you weren't relying on third parties to bring you these deals. These were all underwritten and done in-house by the parent company, which we pay a management fee.

That might be a crazy idea, but the idea of closing the discount, it's not going to happen until we see the tide turning. And the way to turn the tide faster would be to, I think, to eliminate the lack of confidence that investors, we're a small group now and with the reverse split, we're going to be even smaller. So is that possible to do that?

Well, is it possible? I'm sure it's possible, but in terms of looking at the portfolio and finding ways for, whether through our parent or other investors, to find ways to, basically, what I would say is to kind of box that risk or move that risk of those, you know, what is now a shrinking part of the portfolio but still having a meaningful impact on earnings, both again as they said in losses and from effectively and efficiently deploying capital. You know, what you describe, you know, minus the, you know, I won't say all the parent is committing to doing anything like that, but the idea of trying to box that risk into a portfolio of loans that could be set aside and worked through is something that we certainly have been and are evaluating. To the extent we can figure something out that's accretive to the shareholders, we certainly like to do so and we'll explore that opportunity as we, you know, move forward here. So, you know, I think your question and your thought is a good one, and there are opportunities we're looking at with investors about ways that we could possibly do that or something like that.

You know, yes, you know, you in your comments, you frame that outlook is starting to look more positive for some of these problem loans. But, I mean, I see the San Antonio property paid off $11 million, whatever, but... So you have that, so now you're down to what, $50 million of real estate owned. I mean, I don't know if, I don't have a sense necessarily that real estate owned or problem assets is necessarily getting better. Is that... I think, yes. You indicated...

So what's happening, what's starting to turn, again, we're looking at markets that have not seen good news for several years, that we're seeing occupancy increasing, vacancy declining, absorption increasing, limited supply contracting or being limited. So those dynamics are starting to happen in markets that haven't seen that for years. So to clarify maybe my remarks, what we're starting to see is some positive momentum in markets that have struggled for years, in rental growth, occupancy, vacancy and deal momentum. We're starting to see a few deals get done. What we've seen for a couple of years now is assets go under contract or at least initial LOIs for sale, either performing and non-performing, and those sales fall through. For whatever reason usually something in diligence comes up or the market just moves against and the buyer walks away. What we've seen in a couple of instances including this quarter is that we got to a resolution.

It's not positive relative to the original loan amount, but it's positive to move the asset off our books, to recapture that liquidity and to be able to redeploy it into performing assets. So to be clear, it's more about resolving, right? Having these assets continue to remain on the books and linger is a drag at any value. So optimistic's the wrong word, but there are signs in these markets that we could see some deal momentum. Now I would also offer that we're not the only lender that are trying to sell or dispose of assets in these markets and so that has put some pressure on going back quarters now. But even as we go forward, we'll continue to see, you know, other lenders kind of having the same experience which means we might see some struggling or distress assets coming to market from several lenders in the same places. That would be the only caveat but to be clear, I'm not suggesting that these are complete turnaround stories. It's just relative to where we are, we're starting to see some aspects change.

Okay. Hey, 1 other comment for trying to build the investor confidence. Is there any way of these loans that are underwritten by the parent? Is there any provision in there going forward? These aren't bought from brokers. You guys are underwriting it. Where the trust has a put provision that if we don't like the way this is turning out, you know, we do have the ability to put some of these loans back to the parent. I mean, that would be something that would...

I mean, the loans are underwritten by Lument. It was owned by ORIX, and we underwrite the loans, obviously. I don't think that is a market provision. You know, I don't... having a put rate back to the manager when the loan goes bad would be a challenge to get our parent or probably any parent to accept, agree to, but certainly evaluating when assets have gone bad, how we can revise underwriting standards or look at assets differently we'll continue to do. And as I said earlier, we will continue to explore all opportunities and options to speedily move these resolutions off the balance sheet with the help of existing and or new investors. But we have, you know, we have not found an opportunity to date that has been something that we feel would be accretive to share. Hopefully we can do so here in the coming quarters, but we haven't been able to as of.

Okay. One other question. Distributable loss. I don't think I'm familiar with that term. What does that mean to a shareholder in a company, the terminology distributable loss? It sounds like free cash flow, but this is, that's something when you get your year-end taxes 1099 that that's considered a loss. Do you know for individual investors what that might mean?

So the distributable loss in, you know, I'm not a tax expert, but distributable loss is a GAAP concept and it's not a tax concept.

Okay, that's fine. All right. That's good. Thank you for having me. Yes. Thank you for having the call. Hopefully... I guess I'm getting off this call and I'm not sensing that necessarily the tide is necessarily turning, but... But I guess we'll see in the next couple quarters.

Yes, thank you and really appreciate your support.

Your next question is from Martin Brody.

Hi, good morning. On the last call I asked many questions that I was going to ask. I'm a long suffering shareholder too. I go back to several name changes. Five Oaks I think it was originally. In the middle of June, June the 15th, the quarter was almost over. They declared a second quarter dividend of $0.04, which thrilled me at the time, but it sort of misled me a little bit because I was assuming if he was paying $0.04, then at least you had some positive income or earnings available for distribution. Can you tell me why you did that when you're in the quarter, as I said, the quarter was almost over, so it's clearly near the end of the state's income and expenses at that point.

So whenever we discuss the dividend, we share with our board and discuss with the board the current projections for the quarter and for the year and for, frankly, the future. Based on the projections at the time, we felt that $0.04 dividend was appropriate for the quarter based on where we expected things to be. A few of the resolutions resulted in bigger losses upon ultimate sale or payoff than we were expecting. And as we go through the dividend discussion in our next quarter with the board, we'll evaluate the current projections for this quarter and for the next several quarters and go through the same discussion we do each quarter. It's a quarterly discussion based on not just that quarter, but the year anticipated and expected returns.

Okay. The next question is, this is probably impossible, but you have an outside manager of which you pay a considerable fee to. I understand that. But that's not the case, taking a larger and larger percentage of the population. Income, is it possible to internalize management?

I'm sorry, is it possible for, can you, I missed the last part. Internalized management.

No, well, yes. Internalized. Internalized. Both, actually. Thanks for bringing that up. Lower the fee and internalize management. Both ways would save money, of course.

Yes, well, I don't think that is likely, but what I would point out, I think internalizing management would actually increase fees. You know, there's a cap on reimbursable fees and expenses that, you know, a standalone public company of this size would likely go beyond. But there's currently no plans to internalize the manager.

I'm not quite sure it would, I mean, seems like a fairly simple business, but maybe I'm wrong. One last question has to do with, so at the end of June, I think it was the day before they went ex-Dividend, there was a 5 million share print at the end of the day, which is, as you know, massive. And in fact, a year ago, approximately at the same time, there was also a 5 million share print and I was surprised that there was no reporting of this. Can you shed any light on that? I'm sure you're aware of it.

Yes, I can answer that, Jim. LFT a year ago, a little over a year ago at this point, and as you point out, there was a big print at the end of June, had been added to the FTSE Russell 3000. So what you saw a year ago in change and what you saw this past June was the effects of any actually from that rebalancing and index funds that were indexing to the Russell 3000 that we were in. So, yes, that explains that big print June of '25 when LFT was added. And when LFT was pulled out, that became effective at the close of business on that day that you saw the big print. So, there was a lot of activity that day as well.

Okay, great. That answers that question. I had no idea they were removed. Okay, thanks so much. Good luck with the future. Thank you.

There are no further questions at this time. Please proceed with the closing remarks.

I want to thank our investors for joining today. Again, for your patience. Appreciate the questions and feedback and support. And we'll continue to work to improve the earnings profile and increase our revenue. We intend to increase our trading price relative to book value. Thank you all, and we'll speak next quarter.

Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.

Good afternoon, and thank you for joining the Lument Finance Trust First Quarter 2026 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 afternoon, everyone. Thank you for joining our call to discuss Lument Finance Trust's First Quarter 2026 Financial Results. With me on the call today are Jim Flynn, our CEO; Jim Briggs, our CFO; Greg Calvert, our President; and Zach Halpern, our Portfolio Manager.

This morning, we 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. We intend to file our 10-Q with the SEC this afternoon after market close.

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 the forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, in particular in the Risk Factors sections of our Form 10-K and Form 10-Qs. 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 also undertakes no obligation to update any of these forward-looking statements.

Further, certain non-GAAP financial measures will be discussed on this conference call. A presentation of this information is not intended to be considered in isolation or 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 2026, we reported a GAAP net loss of $0.02 and distributable earnings of $0.02 per share of common stock. In March, we declared a quarterly dividend of $0.04 per common share with respect to the first quarter in line with the prior quarterly dividend.

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

Thank you, Andrew. Good afternoon, everyone. Welcome to the Lument Finance Trust Earnings Call for the First Quarter of 2026. We appreciate everyone joining us today. Looking at the market economic conditions in the U.S. continue to remain fundamentally stable, although uncertainty continues to outweigh momentum. And while the Fed reserve has shifted toward a more accommodative stance, the pace and extent any future rate cuts remain data dependent, including inflation, labor, market conditions and broader financial stability. Geopolitical uncertainty continues to weigh on investment environment, reinforcing a cautious approach to capital allocation.

Within multifamily, operating fundamentals are gradually stabilizing as the sectors move through the later stages of an elevated supply cycle. Construction starts have declined sharply, setting the stage for a meaningful reduction in new supply through '26 and '27. Rent growth remains modest at the national level, but improving performance in supply-constrained markets. There is some continued pressure in high delivery regions to continue to work through. Long-term demand drivers for rental housing remain intact, affordability constraints, limited for-sale inventory and elevated single-family mortgage rates continue to support renter demand.

Longer-term interest rates remain a central constraint. Although short-term rates have declined from peak levels, elevated long-term rates continue to anchor cap rates, pressure asset values and limit asset to attractively priced permanent financing. As a result, financing conditions have become more functional, but still remain selective. Liquidity across securitization markets, warehouse facilities and select balance sheet lenders has improved, supporting refinancing activity for well-capitalized assets with strong sponsors. The CRE CLO market remain a critical source of liquidity with issuance continuing into 2026 amid strong investor demand for floating rate exposure.

In the asset management side, portfolio management continues to be a central focus of our strategy. We remain closely engaged with borrowers across the portfolio and are actively managing our REO portfolio to protect shareholders' capital and long-term values. During the quarter, overall portfolio credit performance remained relatively stable. We continue to take a disciplined approach to reserve management, increasing reserves on certain legacy positions to reflect revised expectations and prevailing market conditions.

In terms of activity and liquidity, we continue to execute on our intended financing strategy, as discussed on the prior quarter's call, this past February, we redeemed the remaining debt outstanding under LMF 2023-1 and refinanced the collateral through our warehouse facilities, as well as amended our secured corporate loan, extending the maturity to 2030 and upsizing to $50 million. We have been carefully managing equity and are selectively redeploying investable capital within FL3. During Q1, we generated $47 million of aggregate payoffs and used reinvestment principal proceeds to acquire 2 new multifamily loan assets for $47 million and a $1 million minority participated participation related to an existing loan asset.

We ended the quarter with unrestricted cash of approximately $21 million, combined with our available warehouse capacity and ability to reinvest FL3's capital over the course of its 30-month reinvestment period, we believe our liquidity position remains appropriate to support portfolio management, asset resolution and select capital deployment. Our priorities remain making progress on resolving legacy assets and thoughtfully redeploying investable capital into attractive new loan asset opportunities.

While credit markets become more constructive, the recovery across commercial real estate remains uneven. Performance differentiation by asset quality, location, sponsorship and capital structure continues to widen, underscoring the importance selectivity. In this environment, we remain cautious and deliberate in deploying capital, emphasizing strong underwriting, protective structures, compelling risk-adjusted returns and strong sponsors.

With that, I'd like to turn the call over to Jim Briggs, who will provide details on our financial results.

Thanks, Jim. Good afternoon, everyone. This morning, we provided a supplemental investor presentation on our website, which we'll be referring to during our remarks. The supplemental investor presentation has been uploaded to the webcast as well for your reference.

On Pages 4 through 7 of the presentation, you will find key updates in the earnings summary for the quarter. Today, after market closes, we intend to file our quarterly report with the SEC on Form 10-Q. For the first quarter of 2026, we reported net loss to common stockholders of $1 million or $0.02 per share. We reported distributable earnings of $1.1 million or $0.02 per share. There are a few Q1 P&L items I'd like to highlight. Our Q1 net interest income was $5.7 million, a sequential improvement from $5.4 million recorded in Q4, this was largely driven by improved leverage and cost of funds through the FL3 CRE CLO, redemption mid-quarter of our LMF financing, which had a weighted average cost of funds at year-end of SOFR plus 331 and utilization of our other facilities.

On the other hand, weighted average coupon of our loan portfolio declined to 709 basis points compared to 717 basis points in the prior quarter, due to payoffs of higher spread loans relative to newly acquired assets as well as a decline in the SOFR benchmark rate during the period. Given the active management of reinvestment capacity within FL3 ending outstanding UPB of the total portfolio remained materially flat quarter-over-quarter at $1.1 billion.

Our total operating expenses, including fees to our manager were slightly lower quarter-on-quarter at $3.7 million versus $3.8 million in Q4. Within these expenses, other operating expenses were lower sequentially, primarily due to discontinued deal costs we recorded in Q4, this was partially offset by reimbursable expenses being slightly higher this past quarter due to fewer waived exit fees on loan payoffs. As a reminder, when one of our loan asset pays off via an agency right refinancing, provided by an affiliate of our manager, the borrower's exit fee is waived pursuant to the terms of our management agreement, and the company receives a credit against expenses reimbursable to our manager equal to 50% of the waved exit fee.

The difference between reported GAAP net loss and distributable earnings during the quarter was primarily attributable to $1.3 million unrealized impairment expense on REO assets held for sale, a $1.2 million loss on extinguishment of debt relating to the remaining unamortized deferred financing costs associated with the LMF financing structure that was redeemed in February, and $732,000 net release of provision for credit losses as well as $305,000 of depreciation on REO.

As of March 31, we had 7 loans risk rated to 5, all of these loans are collateralized by multifamily assets. Greg will provide a bit more detail in his remarks. With respect to our allowance for credit losses, we evaluated these 7 risk-weighted 5 loans individually to determine whether asset-specific reserves were necessary. After an analysis of the underlying collateral, we recorded a provision for specific reserves of approximately $550,000. This increase in specific reserves was offset by a $1.3 million decrease in our general allowance primarily driven by changes to the macroeconomic forecast.

After factoring in $2.4 million charge-off to our specific allowance for an asset that transferred to REO, our specific reserves at 3/31 amounted to $15.8 million or approximately 15% of the associated loan UPB of specifically evaluated assets. During the period, we also remeasured the fair value of the San Antonio and Houston REO properties classified as held for sale and recorded a $1.4 million unrealized impairment expense on those 2 properties. We will be noting in our subsequent events in the 10-Q that we completed the sale of the San Antonio property at the beginning of May for net proceeds of $12.4 million. There will be no Q2 P&L related to that REO sale.

At quarter end, we were substantially fully invested in our FL3 CLO, an approximate 88% advance rate and the cost of funds of SOFR plus 191. Period-end financing of performing and nonperforming and REO assets on the repurchase facility was at a weighted average advance rate of 69% and a weighted average cost of SOFR plus 200. Period-end financing of nonperforming an REO on our bank facility was at a weighted average advance rate of approximately 53% and a cost of SOFR plus 350. We ended Q1 with an unrestricted cash balance of $21 million and FL3 was substantially fully deployed [indiscernible] at the end of the quarter was approximately $216 million. Total book value of common stock was approximately $156 million or $2.97 per share, decreasing sequentially from $3.03 at December 31.

We'll now turn the call over to Greg Calvert to provide details on the company's investment activity and portfolio performance during the quarter. Greg?

Thank you, Jim. During the first quarter, LFT acquired or funded $48 million of loan assets, effectively redeploying approximately the same amount of aggregate principal loan repayments received during the period. As of March 31, our total loan portfolio consisted of 57 floating rate loans with an aggregate unpaid principal balance of approximately $1.1 billion, a weighted average floated rate of 331 basis points over SOFR and an unamortized aggregate purchase discount of $1.3 million. The weighted average remaining term of our book as of quarter end was approximately 19 months, assuming all available extensions are exercised by our borrowers. 100% of the portfolio was indexed to 1-month SOFR and 93% of the portfolio is collateralized by multifamily properties.

As of March 31, approximately 77% of the loans in our portfolio were risk rated at 3 or better, compared to 83% as of December 31. Our weighted average risk rating quarter-over-quarter improved to 3.1% from 3.2%, primarily driven by 1 risk rated 5 loan asset as we'll discuss in a moment. This loan was being transferred to REO during the period. As of March 31, we had 7 risk-rated 5 loans with an aggregate principal amount of approximately $108 million or approximately 10% of the unpaid principal balance of our quarter end investment portfolio. These loans were also risk-rated 5 as of the prior quarter. They included 3 loans in maturity default with an aggregate UPB of $51 million collateralized by multifamily properties in Philadelphia, Pennsylvania; Arlington, Texas; Cedar Park, Texas. and also 4 loans in monetary default with an aggregate UPB of $57 million collateralized by multifamily properties in Tampa, Florida; Des Moines, Iowa; Tallahassee, Florida and Ypsilanti, Michigan.

During Q1, the company foreclosed on 1 loan asset collateralized by a multifamily property located in Colorado Springs. This asset had an aggregate net carry value of $8.2 million, net of specific reserves of $4.2 million. As of quarter end, the REO portfolio in total consisted of 4 multifamily properties with an aggregate carry value of $57 million and a weighted average occupancy rate, 72%. As Jim noted previously, we completed the sale of San Antonio REO property at the beginning of May. Additionally, we note in our filing that subsequent to quarter end in Arlington, Texas defaulted loan asset was foreclosed on, that asset had a net carry value of $18.2 million, net of specific reserves of $3.6 million, achieving positive asset resolution and maximizing recovery values remains our priority.

And with that, I will pass it back to Jim Flynn for closing remarks and questions.

Thank you, Greg. I appreciate everyone joining us today and the continued support and partnership. I appreciate all of you attending today and would now like to open the call to questions.

[Operator Instructions] Your first question comes from Jason Weaver with Jones Trading.

This is [indiscernible] here filling in for Jason Weber. How are you guys thinking about the dividend sustainability and what kind of combination of redeployment SOFR environment or credit normalization would be needed to recover the current dividend on a run rate basis?

So the first -- the answer to the first question is, our expectations are to ensure that our annual earnings are covering our annual dividend. And so we do look at the transition and have been as we moved from underdeployed for much of 2025 and even going back a little bit further, deleveraging in our 2 CLOs and managing liquidity for some of the troubled assets, which, as you heard today, we're working through those in a pretty good fashion, maintaining value, but certainly taking a little bit more time in order to do so.

So that transition, we're hopeful to see the ability to execute a new securitization transaction at some point in the relative near future. It is dependent on some of the resolutions that we have planned occurring at the asset level. And so the biggest driver of returning to a fully covered and higher dividend that we've seen in the past is to be able to deploy our capital in an efficient way. And that requires us to be able to use the capital markets to be able to use the capital that's not currently invested in the securitization to put that into a securitization. So that is the biggest trigger for coverage in my opinion, and how we're anticipating doing that in the coming quarters.

In terms of SOFR, it's -- obviously, that has an impact on earnings. But again, the bigger impact is the leverage you can get in the securitization, finding appropriate deals with good spreads or decent spreads and having a capital markets environment that is healthy on the liability side, which it continues to be as of today, and we expect it to in the future. So we certainly are talking to the Board and looking at our projections and looking at our midterm view over the next several quarters and long-term view over the next several years, and ensuring that our expectations and the projections are to be able to cover -- fully cover a dividend and obviously, hopefully, as we continue to resolve the portfolio and reinvest it to be able to eventually grow the dividend.

[Operator Instructions] There are no further questions at this time. I will now turn the call over to James for closing remarks.

I'm sorry, there's a question from Lee Zulch with Overcap.

Very positive news on the San Antonio property. Can you provide a little color on the other REO properties? What characteristics did San Antonio have that it's sold these other ones? Is there issues that, just how did that work out and how the ones going forward? How do you see them being sold in the future?

Sure. Let me answer that from a little bit more of a macro level. And then Greg and Zach can give you maybe a little more color on those. But from a macro level, the path of action is it's somewhat simple. So the first is we have a -- with the support of the sponsor for LP, a much larger organization, we have a very sophisticated group of asset managers of REO experts and people who can run and manage property within the manager.

And when we're looking at an asset, the first question is, are we able to improve this asset in any meaningful way over a, call it, 6 months or last period without too much capital? And if the answer is yes, then we're going to hold the asset for those couple of quarters, maybe 2 or 3 quarters, improve on the low-hanging fruit that's been typically neglected by the existing sponsor and then market the asset for sale at the appropriate kind of market timing, that's another piece of it. So typically, we're not going to -- the winter is like the worst time to trying to be renting and things like that. So we have to take that into account.

The second longer-term view is if we invest capital, can we have a return -- an appropriate return on capital for the investors that incremental capital and return a greater value to the current shareholders because our team has a view in that market and that asset that it is far undervalued and has been poorly managed, and with some limited reinvestment, we can really improve the bottom line for the shareholders. In that case, we might hold a bit longer, so a year plus.

And then for those assets where we feel that they're really struggling. It's a difficult market. And the best course of action is to resolve it and get out of it as quickly as possible. So it's really asset and market specific, which would, frankly, answer the question at hand here. But maybe Greg and Zach, you can add a little more color on those couple of deals.

Well, I think you did a good job, Jim, of the macro approach. But the one thing I will add is, and Jim was alluding to this, our business on the REO and the disposition and asset management side of the micro business, it's driven by the specific assets at the specific locations and the market fundamentals that we're up against at the time. Spring is a good time to dispose of assets, right at the leasing season, so many of them we're looking at now, we've kind of plotted out when our best exit would be.

Back to the market specifics. We have a pretty broad broker network and investor network in these markets. Rising interest rates puts downward pressure on our exit abilities, but we've overall seen a real general interest in our multifamily assets that we're bringing to market. I'll stop there for now.

[Operator Instructions] There are no further questions at this time. I will now turn the call over to James for closing remarks.

Thank you, operator, and thank you all for joining and expressing interest in the platform. We appreciate your investments. Look forward to speaking to you in the coming quarters.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Good morning, and thank you for joining the Lument Finance Trust Fourth 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, and thank you for joining our call to discuss Lument Finance Trust's Fourth Quarter and Full Year 2025 Financial Results. With me on the call today are Jim Flynn, our CEO; Jim Briggs, our CFO; Greg Calvert, our President; and Zach Halpern, our Portfolio Manager. Last evening, we filed our 10-K 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 the 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 and Form 10-Qs. It is not possible to predict or identify all such risks and listeners are cautioned not to place undue reliance on our 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 the conference call. Presentation of this information is not intended to be considered in isolation nor as a substitute for financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the more comparable measures prepared in accordance with GAAP can be accessed through our filings with the SEC.

For the fourth quarter and financial -- fiscal year of 2025, we reported GAAP net loss of $0.17 and $0.14 per share of common stock, respectively. For the fourth quarter of fiscal year 2025, we reported distributable earnings of approximately $0 and $0.14 per share of common stock, respectively. In December, we declared a quarterly dividend of $0.04 per common share with respect to the fourth quarter, bringing our cumulative declared dividends for 2025 to $0.22 per common share. And then last Thursday, we declared a quarterly dividend of $0.04 per common share with respect to the first quarter of 2026, unchanged from Q4's quarterly dividend.

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 fourth quarter of 2025. We appreciate everyone joining us today. Taking a quick look at the market, the U.S. economy continues to remain resilient, although growth is moderating and uncertainty has increased modestly due to evolving monetary policy, fiscal dynamics and geopolitical risks and considerations. While the Federal Reserve began easing in 2025, the forward path of rates is expected to remain gradual and data dependent with inflation and labor market trends continuing to influence policy.

Within commercial real estate, capital market conditions have improved with increased liquidity across both securitized and warehouse financing channels. However, transaction activity remains below historical averages as buyers and sellers continue to navigate pricing discovery and an elevated cost of capital environment.

In multifamily, fundamentals are stabilizing following the peak of the recent supply cycle. New deliveries remain elevated in certain Sunbelt markets but are now expected to decline meaningfully into late '26 and '27, due to the sharply reduced starts over the past 18 months. As a result, rent growth remains modest, but is showing early signs of reacceleration in supply-constrained markets, while occupancy has remained relatively stable overall, albeit with some continued pressure in a few high delivery regions. Importantly, structural demand drivers for rental housing remain intact. Affordability constraints in the single-family housing market, coupled with the limited for-sale inventory and still elevated mortgage rates continue to support rental demand and long-term multifamily fundamentals.

From a financing perspective, lower short-term interest rates relative to peak levels, combined with the still positive forward curve are constructive development for our borrowers. While debt service coverage remains under pressure for certain transitional assets, the modest easing in index rates and improved operating trends are helping to stabilize credit performance across the sector.

The CRE CLO market remains an important source of liquidity with issuance volumes in 2025 exceeding $30 billion and a solid pace of activity continuing into 2026. Investor demand for floating rate exposure remains healthy, particularly for well-structured transactions backed by institutional quality collateral. Spreads have tightened modestly, reflecting improved sentiment, though they remain wide relative to long-term averages.

Asset management -- active asset management remains our top priority. We continue to work closely with borrowers to drive outcomes that preserve capital and enhance long-term value, including modifications, extensions and asset level strategies where appropriate. Given the still uneven operating and financing environment, particularly for assets impacted by the recent supplier capital structure challenges, we remain proactive and disciplined in managing each position.

During the quarter, portfolio credit metrics improved sequentially, primarily driven by the acquisition of additional performing assets associated with our recent CLO execution. At the same time, we increased reserves on select challenged legacy positions to reflect updated expectations and current market conditions. We have remained active in executing our financing strategy, taking advantage of improved but still selective capital market conditions while maintaining a disciplined approach to leverage and cost of capital.

As referenced on last quarter's earnings call, in November of 2025, we entered into an uncommitted master repurchase agreement with JPMorgan Chase, which provides the company with up to $450 million borrowing capacity to finance first mortgage loans, controlling loan participations and other commercial mortgage loan debt instruments secured by commercial real estate.

Further, in early December, we entered into a new loan agreement with Northeast Bank that provides the company with up to $50 million in advances to finance portions of our investment portfolio. This match term financing facility provides us with additional flexibility to resolve our REO holdings and achieve positive asset management outcomes. On the same day, the Northeast Bank facility closed, we executed the LMNT 2025-FL3 CLO transaction, a $664 million transaction with an effective advance rate of 88% and a weighted average cost of funds of approximately 191 basis points over SOFR, excluding fees and transaction costs.

The initial collateral pool consisted of 32 first lien floating rate mortgage loans with participation secured by 49 multifamily and commercial real estate properties located across the United States. A portion of the collateral was owned by LFT prior to the closing and the remaining collateral was acquired by the company at fair market value plus accrued interest from an affiliate of Lument Investment Management LLC, the company's external manager. The weighted average collateral spread of the entire pool was approximately 321 basis points over 1-month SOFR. The FL3 CLO includes a 30-month reinvestment period, which allows us to redeploy loan principal repayments into new loan investments until June of 2028.

In February, we redeemed the remaining outstanding loans and notes of LMF 2023-1 financing transaction and refinanced the underlying pool with our existing warehouse facilities. Given the relatively high weighted average cost of capital and the low current leverage of LMF, the redemption provided the company the ability to redeploy a portion of its investable capital into levered loan assets at more attractive financing terms over time. Finally, subsequent to quarter end, we also amended the terms of our existing secured corporate term loan, extending the maturity date to 2030 and providing us with an incremental $2.3 million of liquidity before fees and deal expenses. The term loan going forward bears an interest rate of 9.75%.

During Q4, we generated approximately $104 million of payoffs with proceeds primarily used to reduce securitization liabilities. We also deployed approximately $400 million into loan assets, largely in connection with the FL3 transaction. We ended the year with approximately $23 million of unrestricted cash, combined with our available warehouse capacity, we believe our liquidity position remains appropriate to support portfolio management, asset resolution and selective capital deployment.

Our near-term focus remains on active asset management, efficient resolution of legacy positions, and disciplined balance sheet management. While we are encouraged by improving conditions across commercial real estate credit markets, the recovery remains uneven and will likely take time to fully normalize. We continue to expect a market characterized by selectivity with outcomes increasingly differentiated by asset quality, sponsorship and capital structure. Against this backdrop, we remain cautious and highly selective in deploying capital with a focus on strong credit fundamentals, structural protections and risk-adjusted returns. We believe this approach positions us well to navigate the current environment while preserving flexibility to capitalize on opportunities as market conditions continue to evolve.

With that, I'd like to turn the call over to Jim Briggs, who will provide us details on our financial results.

Thanks, Jim. Good morning. Last night, we filed our annual report on Form 10-K and provided a supplemental investor presentation on our website, which we'll be referring to during our remarks. Supplemental investor presentation has been uploaded to the webcast as well for your reference. On Pages 4 through 7 of the presentation, you'll find key updates and an earnings summary for the quarter.

For the fourth quarter of '25, we reported net loss to common stockholders of $8.9 million or $0.17 per share. We also reported distributable earnings of approximately $0. There are a few items I'd like to highlight with regards to the Q4 P&L. Our Q4 net interest income was $5.3 million, a slight improvement from $5.1 million recorded in Q3. The weighted average coupon of our loan portfolio declined sequentially to 717 basis points compared to 777 basis points in the prior quarter due to lower spreads on newly acquired loans and a decline in the SOFR benchmark rate. The ending outstanding UPB of the portfolio increased due to the execution of the previously discussed FL3 CLO transaction in December, which we acquired approximately $383 million in assets from an affiliate of our manager.

Total operating expenses, including fees to our manager, were elevated quarter-on-quarter at $3.8 million versus $3.1 million in the prior quarter, primarily attributable to onetime legal expenses related to REO assets, the previously mentioned FL1 redemption in November, as well as the financing initiative we elected not to proceed with after securing more attractive terms with the previously mentioned facilities. Primary difference between reported net income and distributable earnings for the fourth quarter was primarily attributable to $8.6 million of unrealized provision for credit losses, $200,000 realized loss on the sale of REO and approximately $296,000 of depreciation on REO.

As of December 31, we had 8 loans risk rated 5. All of these are collateralized by multifamily assets. Greg will provide a bit more detail in his remarks. With respect to the allowance for credit losses, we evaluated these 8 risk-rated 5 loans individually to determine whether asset-specific reserves were necessary. After an analysis of the underlying collateral, we recorded a provision for credit losses in the quarter of approximately $8.6 million. Our specific allowance for credit losses has increased as a result to $17.6 million compared to $8.3 million as of September 30. And our general allowance for credit losses decreased $5 million -- decreased to $5 million from $5.7 million in the prior quarter, primarily driven by certain transfers to specific evaluation, payoffs during the quarter and changes to the macroeconomic forecast.

We ended 2025 with unrestricted cash balance of $23 million and FL3 -- the CLO we closed in December was fully deployed. As Jim referenced earlier, FL3 provided effective leverage of 88% at a weighted average cost of funds of SOFR plus 191 basis points. The company's total book equity at the end of the quarter was approximately $219 million. Total book value of common stock was approximately $159 million or $3.03 per share, decreasing sequentially from $3.25 per share as of September 30.

I'll now turn the call over to Greg Calvert to provide details on the company's investment activity and portfolio performance during the quarter. Greg?

Thank you, Jim. During the fourth quarter, LFT acquired or funded $400 million of loan assets, the majority of which were obtained as initial collateral for the FL3 transaction. During the period, the company experienced $104 million of loan payoffs. As of December 31, our total loan portfolio consisted of 61 floating rate loans with an aggregate unpaid principal balance of approximately $1.1 billion, a weighted average floating rate of 333 basis points over SOFR and an unamortized aggregate purchase discount of $1.7 million. The weighted average remaining term of our book as of quarter end was approximately 21 months, assuming all available extensions are exercised by our borrowers. 100% of the portfolio was indexed to 1-month SOFR and 93% of the portfolio was collateralized by multifamily properties.

As of December 31, approximately 83% of the loans in our portfolio were risk rated at 3 or better compared to 46% as of September 30. Our weighted average risk rating quarter-over-quarter improved to 3.2 from 3.6. This is primarily driven by the acquisition of additional loans for the period from an affiliate of the manager in connection with the FL3 transaction. During the period, we transitioned 1 loan with a UPB of $9.8 million from a 5 risk rating as of September 30 to a 4 or better rating as of December 30 due to an execution of a loan modification, which included a partial paydown of the loan by the borrower in exchange for an extension until Q4 2026.

As of December 31, 2025, we had 8 risk-rated 5 loans with an aggregate principal amount of approximately $117 million or approximately 10% of the unpaid principal balance of the quarter end investment portfolio. These included one loan in maturity default that was downgraded to a risk rating of 5 during the quarter with a balance of $22 million collateralized by a multifamily property in Arlington, Texas; 1 loan in monetary default that was downgraded to a risk rating of 5 during the quarter with a balance of $18 million collateralized by a multifamily property in Tampa, Florida; 3 loans in maturity default that continue to be risk rated 5 with an aggregate principal balance of $40 million collateralized by multifamily properties in Philadelphia, Colorado Springs and Cedar Park, Texas; and 3 loans in monetary default that continue to be risk rated 5 with an aggregate principal balance of $38 million collateralized by multifamily properties in Des Moines, Iowa, Tallahassee, Florida and Ypsilanti, Michigan.

During 2025, the company foreclosed on 4 REO assets. In late December, we sold one of the properties located in San Antonio, Texas to a third party for $8.2 million and recognized a $500,000 loss in the fourth quarter on the sale. As of December 31, our REO was comprised of 3 multifamily properties. Two of these remaining properties are located in San Antonio and the other is in Houston, Texas. As of quarter end, the properties had a weighted average occupancy rate of 69%. Achieving positive asset management resolutions and maximizing recovery values remains our priority.

With that, I will pass it back to Jim Flynn for closing remarks and any questions.

Thank you, Greg. Thank you all for joining, and we appreciate your continued partnership and support. And with that, I'd like to ask the operator to turn the call over to questions.

[Operator Instructions] Your first question comes from Jason Weaver with JonesTrading.

I was wondering, can you give some context on how you view the risk reward and opportunity today for new capital deployment against the last few weeks' backdrop of elevated rate volatility?

Sure. I mean, obviously, the very current market environment has created some incremental challenges when reviewing the assets. But the starting point is still what is focused on the sponsor in the market, what the expectations are for growth in that market and what the supply dynamics are along with the demand. So that is certainly an evaluation or part of the evaluation kind of the geopolitical volatility here. But we do still firmly feel resolved in the strength of the multifamily market and have to take a bit of a longer view. Our deals are typically structured with interest rate caps. So on the short-term basis, we're protecting ourselves during the initial term of the loan. But we do stress those scenarios, but I think the most important aspects of evaluating the risk around sponsor and market still carry the day even in the most volatile of times.

And then structurally, you do your best to protect yourselves both from a leverage standpoint and an interest rate volatility standpoint with structure and caps. But again, sponsor market are going to be critical to that. Certainly, the hope is that over the 2- to 3-year period of a bridge loan that you have some stability return to the market, hopefully sooner than later, but it's obviously a consideration as we deploy capital. And again, I think it makes those first components even more important.

Got it. And to that point, with the new CLO closed, is there an updated comfort zone for leverage over the near term?

On a loan level basis? Is that what you mean or...

Yes. Well, just overall, really.

I mean on the loan level basis, I would say, on average, over the last couple of years since, call it, '23, really '24, average leverage at the asset level has declined relative to historical bridge lending activity. So you're seeing particularly on the lease-up side, construction deals coming on construction, but you're seeing regularly seeing assets in the 60s and low 70s, pretty much across the board. And you're seeing very few in the -- up in the -- into the 80% or higher range. So you've come down pretty meaningfully from what we were seeing in the late teens and early 2020s on a loan level basis. And overall, I mean, corporately, we've been around the same leverage. The leverage available in CLOs is slightly higher than historic norms that obviously we would want to take advantage of. But aside from that, we're not anticipating any material changes to the fully deployed leverage of the LC vehicle.

The next question comes from Chris Muller with Citizens Capital Markets.

So it looks like nonaccruals as a percent of the portfolio improved in the quarter, which I assume is mostly due to the $400 million of new loans. What was the balance of nonaccruals at year-end? And do you guys have how much of a drag on earnings those assets are?

Chris, the nonaccruals, which we touched on in the footnotes individually is -- let me just quickly add this up. I don't have -- sorry -- the drag is about $0.02 and the UPB is $102 million.

Got it. And then I guess on a similar note, how are you guys thinking about the path to dividend coverage this year? And I guess how it's related is, can you guys get there by cleaning up the existing portfolio in REO? Or do we need to see some portfolio growth to get back to that $0.04 level?

So that is the primary topic that we've been focused on and focused on with our Board. The short answer is it's probably a little bit of both. I think on a fully deployed level, we feel that the dividend would be more than covered. What we've looked at is the timing for -- the anticipated timing that we see on the horizon for some of these assets, including those, but also some other payoffs that are anticipated, and then redeploying that capital into newer performing assets, along with the potential for a future financing -- of a future portfolio level financing, whether that be a new CLO, which certainly we'd like to be able to do. But if not a CLO, some broader performing loan portfolio financing to basically have 2 large vehicles similar to the current CLO that we have outstanding.

So when we put together kind of the schedule of the timing for resolution and payoffs in the portfolio, the redeployment into performing loans and the potential for more attractive financing in the future, we weigh those things together and feel that it's appropriate to keep the dividend where it is and move through this year and move back toward full coverage of that dividend.

The next question comes from Lee Zulch with Overcap.

Could you give some color on Q1 2026?

I mean I can't give you too much, obviously, as that's forward-looking. But our -- most critically, I suppose I would say is our asset management and where we see resolutions and asset performance, and it's in line with our expectations on a timing standpoint, as we kind of evaluated the plan for the dividend and earnings release, et cetera. So that's kind of, I guess, what I would say, where we've had the ability to redeploy capital with payoffs, we've been able to do so successfully with new performing loans. And obviously, the flurry of new financing activity between the CLO, the 2 warehouses, the refinancing of the term loan have all stabilized the credit side of our balance sheet. And now we're really fully focused on resolving some of these legacy assets that have been on the books for a while, and they're moving forward. We'd like to see everything move a little bit more quickly, but they are moving according to plan and relatively on schedule.

I would just mention as well as Jim Briggs mentioned in the earnings call, we did call that 2023 financing transaction with that at a higher cost of funds.

Thank you. As there are no more questions, I will pass back to James Flynn for any closing remarks. Please go ahead.

Thank you. Again, thank you for your participation and continued interest in the platform, and we look forward to speaking to you again next quarter.

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

Good morning, and thank you for joining the Lument Finance Trust Third 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 Third Quarter 2025 Financial Results. With me on the call today are Jim Flynn, our CEO; Jim Briggs, our CFO; Greg Calvert, our President; and Zach Halpern, our Managing Director of Portfolio Management. On Wednesday, November 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 the forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, in particular in the Risk Factors section of our Form 10-K and Form 10-Qs. It is not possible to predict all 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 or 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 of GAAP can be accessed through our filings with the SEC.

In the third quarter of 2025, we reported a GAAP net income of $0.01 per share and distributable earnings of $0.02 per share of common stock. In September, we declared a quarterly dividend of $0.04 per common share with respect to the third quarter.

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 2025. We appreciate everyone joining us today. Starting out, just taking a look at where the market stands. The economy has remained resilient through this period of shifting monetary policy and geopolitical uncertainty. On October 29, the Fed funds cut the fed funds rate by 25 basis points to a range of 3.75% to 4%. But at the same meeting, the Fed made clear that additional cuts remain far from a forgone conclusion, leading lingering uncertainty in the near term punctuated by the ongoing geopolitical volatility and the fast-moving trade and tariff policy shifts in the U.S.

Additionally, we now are dealing with the economic drag from the recent federal government shutdown and uncertainty about the future negotiations as we look to reopen the government, hopefully, in the coming days. The multifamily sector fundamentals remain constructive. Rent growth is modest and stable. Occupancy remains strong. New supply, as we've discussed in past calls, is slowing meaningfully all conditions that support balance and potential rent recovery over the medium and long term.

Affordability challenges in the single-family market, among many other factors also continue to sustain multifamily demand and credit quality at the asset level. We view the recent Fed funds cut as a cautionary positive development for multifamily lending as lower short-term index rates should, in general, help improve our borrowers' ability to meet their outstanding debt obligations as they work towards completion of their business plans.

Meanwhile, the CRE CLO market continues to remain open for issuers. Year-to-date issuance now exceeds $25 billion, reflecting a healthy level of liquidity and investor confidence. This rebound compared to the prior year supports our outlook for the company's potential to return to the securitization market as a repeat issuer in the future, subject to market and pricing conditions, of course.

On the asset management side, we remain focused on actively managing the portfolio. Our team is closely engaged with our borrowers, proactively seeking positive resolutions through modifications, extensions and REO strategies where appropriate. On a weighted average basis, the portfolio of credit ratings relatively stable quarter-over-quarter and reserves remain consistent with reasonable expectations. We continue to prioritize capital preservation and disciplined risk management across every position.

Liquidity and financing standpoint, we continue to see a conservative liquidity posture this quarter, holding ample unrestricted cash to preserve flexibility while resolving legacy credits and working towards refinancing of the portfolio. Loan payoffs totaled approximately $49 million, and those proceeds were primarily used to reduce securitization liabilities.

As we've alluded to in prior quarters, the company has been very focused on putting new portfolio financing in place that provides us with flexibility to more effectively manage our capital as we work through legacy credit challenges. Last week, we entered into a new repurchase agreement with JPMorgan, providing the company with up to $450 million in aggregate advances. With this warehouse capacity now in place, last week, holders of securities issued by our 2021 CRE CLO we notified that the company intends to redeem the associated notes and preferred shares later this month. Closing the JPM facility was a critical step in repositioning our existing portfolio and subject to market conditions, enabling us to take advantage of new financing opportunities.

Our near-term focus is clear: driving value through active asset management, resolving legacy positions efficiently, in executing our financing strategy. Looking ahead, we intend to redeploy capital into our core lending strategy focused on middle market multifamily. We believe this disciplined approach will position the company well as the market stabilizes and new opportunities emerge. Our managers origination and asset management expertise remain a key differentiator, and we are confident that our focus prudence and flexibility will translate into lasting shareholder value.

With that, I'd like to turn the call over to Jim Briggs, who will provide details on our financial results. Jim?

Thanks, Jim. Good morning, everyone. Last night, we filed our quarterly report on Form 10-Q and provided a supplemental investor presentation on our website, which we will be referencing during our remarks. Supplemental investor presentation has been uploaded to the webcast as well for your reference on Pages 4 through 7 of the presentation, you'll find key updates and an earnings summary for the quarter.

For the third quarter of '25, we reported net income to common stockholders of approximately $700,000 or $0.01 per share. We also reported distributable earnings of approximately $1 million or $0.02 per share. There are a few items I'd like to highlight with regards to the Q3 P&L.

Our Q3 net interest income was $5.1 million, a decline from $7 million recorded in Q2. Weighted average coupon of our loan portfolio remained relatively flat sequentially. The average outstanding UPB of the portfolio declined and principal loan repayments were used to pay down a portion of our secured financings, contributing significantly to the reduction in net interest income for the period. Additionally, the reversal of certain accrued interest and the nonrecording of interest on nonaccrual loans contributed approximately $800,000 to the decrease.

Our total operating expenses, including fees to our manager, were down slightly quarter-on-quarter as we recognized expenses of $3.1 million in Q3 versus $3.2 million in Q2. The reduction was primarily attributable to less fees paid to our manager sequentially. Primary difference between reported net income and distributable earnings was primarily attributable to $345,000 of depreciation on real estate owned.

As of September 30, we had 7 loans risk rated of 5. All of these loans are collateralized by multifamily assets. Greg will provide a bit more detail in his remarks on those loans. With respect to our allowance for credit losses, we evaluated these 7 risk-rated 5 loans individually to determine whether asset-specific reserves were necessary. After analysis of the underlying collateral, we recorded a provision for credit losses of approximately $900,000. We also charged off approximately $200,000 of reserves recorded in prior quarters against the allowance for an asset that went REO in Q3. Our general allowance for credit losses decreased to $5.7 million from $6.6 million in Q2, with the decrease driven primarily by a decrease in portfolio balance, largely offsetting the specific reserve increase.

We ended the second quarter with an unrestricted cash balance of $56 million and our investment capacity through our two secured financings was fully deployed. The CRE CLO securitization transaction we issued in 2021 provided effective leverage of 72% to our loan assets at a weighted average cost of funds of SOFR plus 179 basis points. The 2023 LMF financing provided the portfolio with effective leverage of 77% at a weighted average cost of funds of SOFR plus 325. On a combined basis, the two securitizations provided our portfolio with effective leverage of 74% and a weighted average cost of funds of SOFR plus 230 as of quarter end. As Jim previously mentioned, noteholders in our 2021 CRE CLO were notified that we intend to redeem the associated notes and preferred shares later this month.

The company's total equity at the end of the quarter was approximately $230 million. Total book value of common stock was approximately $170 million or $3.25 per share decreasing sequentially from $3.27 a share as of June 30.

I will now turn the call over to Greg Calvert to provide details on the company's investment activity and portfolio performance during the quarter. Greg?

Thank you, Jim. During the third quarter, LFT experienced $49 million of loan payoffs. As of September 30, our total loan portfolio consisted of 51 floating rate loans with an aggregate unpaid principal balance of approximately $840 million, a weighted average floating rate of SOFR plus 355 basis points and an unamortized aggregate purchase discount of $1.9 million. The weighted average remaining term of our book as of quarter end was approximately 16 months, assuming all available extensions are exercised by our borrowers. 100% of the portfolio was indexed to 1-month SOFR and 90% of the portfolio was collateralized by multifamily properties.

As of September 30, approximately 46% of the loans in our portfolio were risk rated at a 3 or better compared to 63% this prior quarter. Our weighted average risk rating quarter-over-quarter remained flat at 3.5. During the period, we transitioned two loans with an aggregate UPB of $44.1 million from a 5 rating as of June 30 to a 4 or better rating as of September 30.

As of September 30, we had 7 loan assets risk-rated 5 with an aggregate principal amount of approximately $86.4 million or approximately 10% of the unpaid principal balance of our quarter end investment portfolio. Of these, were 4 risk rated 5 in the prior quarter, and these included an $11.9 million loan collateralized by a multifamily property in Ypsilanti, Michigan, a $10.3 million loan collateralized by a multifamily property in Colorado Springs, a $13.7 million loan collateralized by multifamily property in Cedar Park, Texas, an $8.2 million loan collateralized by a multifamily property in Des Moines, Iowa. All of these loans risk-rated 5 were in monetary default as of quarter end. The other 3 loan assets that were risk-rated 5 this quarter included a $10.3 million loan collateralized by a multifamily property in Clearfield, Utah, a $15 million loan collateralized by two multifamily properties in Philadelphia, Pennsylvania, a $17 million loan collateral by two multifamily properties in Tallahassee, Florida. Of these three 5 risk-weighted loans, one was in maturity default and the other two were in monetary default as of quarter end.

As of September 30, our REO comprised of four multifamily properties. Three of these properties are located in San Antonio and one is located in Houston. As of quarter end, these properties had a weighted average occupancy rate of approximately 73.5%, achieving positive asset management outcomes and maximizing our recovery values remains our priority.

With that, I will pass it back to Jim Flynn for his closing remarks and questions. Jim?

Thank you, Greg. I'd like to thank our guests for joining. And at this point, I would like to open the call to questions. Looking forward to hearing from you.

[Operator Instructions] Your question comes from Chris Muller with Citizens Capital Markets.

So I guess on the risk ratings, do you guys feel that you've identified the bulk of the issues in the portfolio at this point? Or are you still kind of going through things and we could see some further downgrades coming forward?

So I think we have a good handle on the portfolio you know where all of the assets are and feel very comfortable with where the risk ratings are today. Obviously, subject to market conditions or things changing that could change. But from our standpoint and from our active management of all of these assets, we feel that we've identified all of the known issues. And if conditions kind of continue and each of the markets as they stand today, there's no expectation that there would be further change as we all know, and we look around at the market and things that are going on. Obviously, any kind of market conditions are subject to change, but we certainly feel like we've done a deep dive in the portfolio across the board.

Got it. And then maybe on the flip side of that, how are you guys thinking about portfolio growth in the coming quarters? Is the primary focus going to be on asset management? Or could we see some new loans coming on, especially given the new financing?

Yes. Look, I think the new financing certainly gives us more flexibility to add assets having a little more -- we're having more clarity and certainty around where we feel the portfolio stands will provide us with certainly more of an opportunity to look to add to the portfolio. We've been certainly very focused on asset management and cash preservation and liquidity to make sure that we position ourselves for, frankly, where we feel we are today. So yes, certainly, we hope that things remain, and that gives us an opportunity to put more assets on the books in the coming quarters.

Got it. If I could just squeeze one more in. Is there anything you guys can share on timing for expectations for REO sales? And can you just remind me, is there any financing against that REO? Or is it held unlevered?

So today, the REO -- I'll answer the second part first. Today, we've consistently held the REO that we have. This is also true at the manager unlevered. We do have flexibility to put some financing against the value of those assets debt providers and facilities, both that we entered in through JP and on potential other providers. So the extent we are planning to hold an asset. And in most cases, our REO sales wholly dependent on our view of the overall credit of the asset. So typically in these situations when you've had deterioration and you're taking an asset back. There's some very regular upgrades and improvement in management that usually needs to occur in the 3- to 6-month period at a minimum and then go forward from there as more of a value judgment. And because of the team we have in place and the size and scope of the sponsor for LFT, we've typically decided it's better to at least perform those actions on behalf of the LFT shareholders and perhaps then some to pre -- more value. So the timing for the REOs is very asset specific. We may dispose of some quickly in that kind of 3- to 6-month period as we just kind of clean up the asset make sure it's as occupied as it can and then perhaps sell. But typically, our REO team that as their job manages assets takes a look at these and feels like there's some pretty good opportunity for improvement in value, and those might be a bit longer-term hold. And that's where we would look to some of our providers to give us some leverage against those on a value basis. Relatively low levered, lower than a traditional new loan for sure.

Your next question comes from Greg Bennett, an investor.

Could you -- is there any change in your relationship with your sponsor, ORIX USA? I understand they acquired a company called Hilco, and Hilco, I think, does lending asset back funding. Could you describe if there's any comp with...

I can speak to that. First, no, there's no change in the relationship between ORIX and Lument. The acquisition of Hilco is -- they are an asset-backed lender. Their business model does not really overlap with in any material level with LFT in the first mortgage bridge lending business. So I don't think there's a major conflict there. They do have some asset-backed real estate lending. And of course, their parent, ORIX is a large lender and so in terms of expanding the overall footprint of our real estate lending business across the parent company, Lument and LFT. I do expect that to continue to expand which is a positive for LFT and for the whole company. But I don't think there's any reason to think that the Hilco acquisition would have a material impact and certainly not a negative impact on LFT.

Okay. Second question, on real estate owned, if you -- if the value of that real estate own actually increases over what the amount that is owed and you sell it, do we reap the benefit of that? Or does some of that go back to the previous owner or lender?

Yes. So let me clarify one thing on the REO that -- to the extent that those are currently held in the securitization, they technically still have leverage against them in the pooled concept? I know I said earlier, but looking forward, as an example, when we call FL1 or if we were to call, our second securitization and bring those on balance sheet, that's where we would use the other credit facilities to put leverage on those. And then answering your question, once it's REO, meaning we foreclosed and we own it, any increase in value would go to the shareholders of LFT corporate.

Okay. On the new financing with JPMorgan, it said something about SOFR plus to be determined and I guess I was trying to understand, you mentioned on the call that you're planning on redeeming the 2021 CLO. I think that's what you said. And I think -- Yes. I think that's SOFR plus 175, am I correct?

Correct me if that's where -- it's been delevering. So it changes kind of every time the loan pays off, the cost changes because it goes to pay down the debt?

Yes, Jim mentioned during the remarks, it's at SOFR plus 179. And the important thing to note there, it's at a leverage of 72% as well.

Yes. I guess why would you pay that off versus the 2023? Unless I guess it's still in the investment period, which is SOFR plus 355. [indiscernible] paying off are less expensive?

So the strategy is for us to reenter the securitization market. We are -- the size of the FL1 provides us a better opportunity to enter that in a meaningful way. And it's in an order of operations. I mean we've been working towards -- we've been working toward the refinance of our portfolio that includes FL1, that includes LMS, that includes our term loans. So this is a first step that unlocks close to $170 million of equity at FL1 that can be redeployed in a different vehicle, whereas LMS is under $70 million. So there's significantly more capital trapped in FL1. And to give you like a context of the securitization market leverage in that market today is in the high 80s.

And you're in the 70s. Is that correct?

That's correct.

So is the cost of funds from a new agreement with JPMorgan is SOFR plus, we don't know what?

It's that -- it's dependent on the asset. So that's why -- there's not a step spread. It's an asset-by-asset look. But it's in the -- broadly speaking, the high 100s to the low 200s over depending on the asset.

Okay. So can you use -- you have a term loan, I think coming due in '26 corporate debt matures in 2026. Can you use the JPMorgan line to retire that debt or not?

I mean indirectly, we can in the sense that the JPMorgan line provides us with leverage and liquidity that is fungible, meaning we can have the term loan with it or reinvest or otherwise. So the direct answer is no, not directly. The indirect answer is, yes, the purpose of this vehicle is to provide us with flexibility and liquidity across the platform. And as far as the term loan goes, we have not -- we are talking to our term loan provider, and we're still discussing the potential to either pay that off, partially pay that off or refinance that term loan. So we haven't -- that decision has not been made yet.

As there are no more questions, I will pass back to James Flynn for any closing remarks.

Okay. Thanks. I want to thank everyone for joining us. We are certainly excited about the progress we've made here, look forward to the upcoming quarter and speaking to you again soon. Thanks all for joining.

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