Lument Finance Trust(LFT) - 2025 Q2 - Quarterly Results

Company Overview Lument Finance Trust (LFT) is an externally-managed REIT specializing in CRE debt, leveraging its affiliation with Lument and ORIX Corporation USA for extensive origination and experienced management - The Company is an externally-managed real estate investment trust focused on investing in and managing a portfolio of commercial real estate debt investments[7] - LFT is managed by Lument Investment Management, LLC, an affiliate of ORIX Corporation USA, providing access to an extensive loan origination platform[6][7] - The management team has an average of over 20 years of industry experience[6] Q2 2025 Financial & Operational Highlights LFT reported Q2 2025 GAAP net income and Distributable Earnings of $0.05 per share, declared a $0.06 dividend, and managed a $924 million portfolio with significant payoffs Q2 2025 Key Financial Metrics | Metric | Value | | :--- | :--- | | GAAP Net Income per Share | $0.05 | | Distributable Earnings® per Share | $0.05 | | Dividend per Common Share | $0.06 | | Book Value per Common Share | $3.27 | - The investment portfolio totaled $924 million as of June 30, 2025, with 90.6% of loans collateralized by multifamily assets[8] - During the quarter, the company experienced $63.4 million in loan payoffs and $3.6 million in loan fundings[8] - The ratio of total liabilities to total equity improved, decreasing from 3.6x to 3.3x during the quarter[8] Financial Performance The company's financial statements for Q2 2025 reflect a stable but evolving position, with total assets near $1 billion, $2.5 million net income for common stockholders, and recent declines in distributable earnings and dividends per share Balance Sheet Summary As of June 30, 2025, LFT's total assets were approximately $998.4 million, with $231.5 million in equity and a 3.3x total liabilities to total equity ratio Balance Sheet Summary (as of June 30, 2025) | Account | Amount (in thousands) | | :--- | :--- | | Total Assets | $998,387 | | Commercial mortgage loans held-for-investment (net) | $905,420 | | Cash and cash equivalents | $59,404 | | Total Liabilities | $766,931 | | Total Equity | $231,456 | - The ratio of total liabilities to total equity was 3.3x[9] - Book Value Per Share of Common Stock was $3.27[9] Income Statement Summary For the three months ended June 30, 2025, LFT generated net interest income of approximately $7.0 million, leading to $2.5 million net income for common stockholders, or $0.05 per share Income Statement Highlights (Q2 2025) | Account | Amount (in thousands) | | :--- | :--- | | Net Interest Income | $6,961 | | Operating Expenses | ($3,156) | | Net Income Attributable to Common Stockholders | $2,506 | - Net income per common share was $0.05 for the quarter[11] - Distributable Earnings per common share were also $0.05 for the quarter, with a declared dividend of $0.06 per share[11] Earnings and Book Value Per Share Q2 2025 Distributable Earnings and declared dividends per share decreased to $0.05 and $0.06 respectively, with book value also showing a slight decline Quarterly Earnings and Dividends per Share | Quarter | Distributable Earnings | Dividends | | :--- | :--- | :--- | | Q3 2024 | $0.10 | $0.08 | | Q4 2024 | $0.10 | $0.08 | | Q1 2025 | $0.08 | $0.08 | | Q2 2025 | $0.05 | $0.06 | Investment Portfolio Analysis The $905.4 million CRE loan portfolio is multifamily-focused, experienced substantial payoffs, and showed some credit quality deterioration with increased risk ratings Portfolio Composition The $905.4 million CRE loan portfolio is 90.6% multifamily, with significant exposure to Florida, New Jersey, and Texas, while avoiding hospitality, retail, and office assets - The portfolio consists of floating-rate CRE loans with a carrying value of $905.4 million[17] Portfolio Composition by Property Type | Type | Percentage | Value (in millions) | | :--- | :--- | :--- | | Multifamily | 90.6% | ~$820.3 | | Seniors Housing & Healthcare | 8.8% | $79.5 | Top 5 Geographic Concentrations (by carrying value) | State | Percentage | Value (in millions) | | :--- | :--- | :--- | | Florida | 21.7% | $196.5 | | New Jersey | 12.6% | $114.2 | | Texas | 9.9% | ~$90.0 | | Georgia | 6.4% | $57.5 | | Pennsylvania | 5.4% | $48.6 | Loan Activity Q2 2025 saw $63.4 million in loan payoffs and sales significantly exceeding $3.6 million in new fundings, alongside $23.8 million transferred to REO, reducing the portfolio - The company experienced $63.4 million in loan payoffs and $3.6 million in new loan fundings during Q2 2025[18] Portfolio Activity (Q2 2025, in millions) | Item | Amount | | :--- | :--- | | Q1 2025 Portfolio | $988.8 | | Loan Fundings | $3.6 | | Payoffs / Sales | ($63.4) | | Loans Transferred to REO | ($23.8) | | Q2 2025 Portfolio | $905.4 | Portfolio Credit Quality Portfolio credit quality declined in Q2 2025, with performing loans decreasing to 86.6% and eight loans totaling $124.1 million downgraded to a "5" risk rating - As of June 30, 2025, 86.6% of the Company's portfolio was performing, with a weighted average risk rating of 3.5[23] - During the quarter, management assigned a "5" risk-rating to eight loans with an aggregate unpaid principal balance of $124.1 million[23] Performing Loan Trend | Date | % Performing | | :--- | :--- | | 12/31/2024 | 90.8% | | 3/31/2025 | 89.3% | | 6/30/2025 | 86.6% | Capital Structure and Risk Management LFT's capital structure relies on non-recourse secured financings, avoiding margin call risks, and its floating-rate portfolio provides a natural hedge against interest rate fluctuations Capital Structure LFT's $990.8 million capitalization is primarily secured financings (71.8%) and common equity (17.3%), utilizing non-recourse CLO structures to eliminate margin call risk - The Company does not currently utilize repurchase or warehouse facility financing and is not subject to margin calls on any of its loan assets[26] Capital Structure Composition | Source | Percentage of Total Capitalization | | :--- | :--- | | Secured Financing | 71.8% | | Common Equity | 17.3% | | Preferred Equity | 6.1% | | Term Loan | 4.8% | - Primary financing sources are two secured financings (2021-FLI CLO and LMF 2023-1), preferred stock, and a corporate term loan[26] Interest Rate Sensitivity With a $213 million net floating-rate asset exposure, LFT's net interest income shows minimal sensitivity to SOFR changes, indicating a well-hedged position - 100% of the loan portfolio is floating-rate and indexed to 30-day term SOFR[29] Floating-Rate Exposure (in millions) | Item | Amount | | :--- | :--- | | Floating Rate Assets | $924 | | Floating Rate Liabilities | ($712) | | Net Exposure | $213 | - A +/- 25 basis point change in SOFR is projected to have a less than $0.01 per share impact on net interest income[28] Appendix The appendix provides supplementary details including the CRE loan portfolio breakdown, full financial statements, non-GAAP reconciliations, and definitions of key financial terms CRE Loan Portfolio Details This section details the 56 loans in the CRE portfolio as of June 30, 2025, including property type, location, unpaid principal balance, and weighted average note spread CRE Loan Portfolio Summary | Metric | Value | | :--- | :--- | | Total Unpaid Principal Balance | $924,227,644 | | Weighted Average Note Spread | 3.56% | Consolidated Financial Statements This section presents the unaudited consolidated balance sheets and income statement for Q2 2025, providing detailed GAAP figures for assets, liabilities, equity, revenues, and expenses - The consolidated balance sheet shows total assets of $998.4 million and total liabilities of $766.9 million as of June 30, 2025[34] - The consolidated statement of income for Q2 2025 reports total interest income of $20.6 million and total interest expense of $13.6 million, resulting in net interest income of approximately $7.0 million[36] Reconciliation of Non-GAAP Measures This section reconciles non-GAAP metrics like Distributable Earnings to GAAP net income, details the allowance for loan losses, and calculates Book Value Per Share of Common Stock - The allowance for credit losses decreased from $17.1 million at the beginning of the period to $14.3 million at the end of Q2 2025, after accounting for a $0.1 million provision and $2.9 million in charge-offs[39] - Total stockholders' equity of $231.5 million is adjusted for preferred equity ($60 million) to arrive at common equity of $171.4 million, resulting in a Book Value Per Share of $3.27[45] - Total GAAP liabilities and equity of $998.3 million are adjusted for non-capital items like payables to arrive at a total LFT Capitalization of $990.8 million[42] Key Definitions This section defines "Distributable Earnings" as a non-GAAP measure for dividend capacity and "Book Value Per Share of Common Stock" based on common equity - "Distributable Earnings" is a non-GAAP measure that excludes various non-cash items from GAAP net income and is used as a performance metric for declaring dividends and calculating management incentive fees[48][49] - "Book Value Per Share of Common Stock" is calculated by subtracting the liquidation preference of preferred stock ($25.00 per share) from total stockholders' equity and dividing by the number of common shares[47]