Lument Finance Trust(LFT) - 2022 Q1 - Quarterly Report

PART I - Financial Information Financial Statements Total assets grew to $1.13 billion by Q1 2022, while net income attributable to common stockholders declined to $1.77 million due to increased expenses and preferred dividends Condensed Consolidated Balance Sheets Total assets increased to $1.13 billion by March 31, 2022, driven by commercial mortgage loans, while stockholders' equity rose significantly to $249.0 million from common stock issuance Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $45,847 | $14,749 | | Commercial mortgage loans held-for-investment | $1,077,516 | $1,001,825 | | Total Assets | $1,129,858 | $1,048,923 | | Liabilities | | | | Collateralized loan obligations, net | $827,406 | $826,783 | | Secured term loan, net | $46,783 | $46,846 | | Total Liabilities | $880,777 | $879,548 | | Total Stockholders' Equity | $248,981 | $169,276 | - The company's consolidated balance sheets include assets and liabilities of consolidated variable interest entities (VIEs), with assets totaling $1.003 billion and liabilities $828.1 million as of March 31, 2022[14] Condensed Consolidated Statements of Operations Net interest income increased to $5.09 million in Q1 2022, but higher expenses and preferred stock dividends led to a decrease in net income attributable to common stockholders to $1.77 million Condensed Consolidated Statement of Operations (in thousands) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Net Interest Income | $5,087 | $4,517 | | Total Other Income (Loss) | $215 | $104 | | Total Expenses | $2,295 | $1,798 | | Net Income | $2,955 | $2,809 | | Dividends Accrued to Preferred Stockholders | ($1,185) | ($4) | | Net Income Attributable to Common Stockholders | $1,770 | $2,805 | | Basic and Diluted EPS | $0.05 | $0.11 | Condensed Consolidated Statement of Changes in Equity Total equity significantly increased to $249.1 million by March 31, 2022, primarily driven by $83.5 million from common stock issuance, partially offset by $4.3 million in dividends - In Q1 2022, the company issued 27,277,269 shares of common stock, raising $83.5 million in capital before issuance costs[19] - Total dividends declared and paid during the quarter amounted to $3.13 million for common stock and $1.18 million for preferred stock[19] Condensed Consolidated Statements of Cash Flows Net cash from operating activities was $4.6 million in Q1 2022, while financing activities provided $77.6 million, leading to a $28.9 million net increase in cash Cash Flow Summary (in thousands) | Activity | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $4,556 | $3,172 | | Net Cash from Investing Activities | ($53,236) | $28,641 | | Net Cash from Financing Activities | $77,590 | ($57,317) | | Net Increase in Cash | $28,910 | ($25,503) | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail accounting policies and financial instruments, highlighting the $1.08 billion commercial mortgage loan portfolio, $827.4 million in CLOs, and $83.5 million raised from a common stock rights offering - The commercial mortgage loan portfolio grew to a carrying value of $1.078 billion as of March 31, 2022, up from $1.002 billion at year-end 2021, consisting of 71 senior secured loans[64][65] - The company consolidates one CRE CLO with third-party liabilities of $827.4 million as of March 31, 2022, which are non-recourse to the company[70][74] - A transferable common stock rights offering closed on February 22, 2022, issuing 27,277,269 shares at $3.06 per share for gross proceeds of approximately $83.5 million[121] - As of March 31, 2022, unfunded commitments totaled $81.8 million for CLO loans and $9.1 million for Lument Commercial Mortgage Trust (LCMT) loans[117] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's focus on transitional floating-rate CRE mortgage loans, with Q1 2022 GAAP EPS and Distributable Earnings at $0.05 per share, and a $1.08 billion performing loan portfolio - The company's primary investment strategy focuses on transitional floating-rate CRE mortgage loans, emphasizing middle-market multifamily assets[141] - An affiliate of ORIX Corporation USA increased its beneficial ownership to approximately 27.4% in February 2022 after participating in the rights offering[139] - As of March 31, 2022, 93.9% of the commercial mortgage loan portfolio was indexed to one-month U.S. LIBOR, with active management for SOFR transition on new originations[151] Key Financial Measure and Indicators Q1 2022 GAAP net income and Distributable Earnings were $0.05 per share, while book value per common share decreased to $3.62 due to the rights offering price Key Metrics Per Share | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Income per Share (basic and diluted) | $0.05 | $0.11 | | Dividends Declared per Share | $0.06 | $0.09 | | Distributable Earnings per Share | $0.05 | $0.11 | Book Value Per Share Calculation (in dollars) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Stockholders' Equity | $248,981,343 | $169,276,000 | | Less: Preferred Stock | ($60,000,000) | ($60,000,000) | | Total Common Stockholders' Equity | $188,981,343 | $109,276,000 | | Shares of Common Stock Outstanding | 52,225,152 | 24,947,883 | | Book Value per Share | $3.62 | $4.38 | Investment Portfolio The commercial mortgage loan portfolio grew to $1.08 billion by March 31, 2022, comprising 71 performing senior secured loans with an improved weighted average risk rating of 2.1 Loan Portfolio Statistics (in dollars, count, and percentages) | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Carrying Value | $1,077,516,319 | $1,001,825,294 | | Loan Count | 71 | 66 | | Weighted Average Coupon | 3.8% | 3.9% | | Weighted Average Risk Rating | 2.1 | 2.3 | - During Q1 2022, the company acquired 14 new loans with a total unpaid principal balance of $185.0 million[151][182] - The loan portfolio remains 100% performing with no impairments, monetary defaults, or non-accrual loans as of March 31, 2022[179] Results of Operations Net income attributable to common stockholders decreased to $1.77 million in Q1 2022, primarily due to increased preferred stock dividends and higher total expenses, despite a rise in net interest income - Net interest income increased by $0.57 million year-over-year, driven by a $469.8 million increase in the weighted-average principal of the loan portfolio[197][200] - Total expenses increased by approximately $0.5 million year-over-year, mainly due to higher management fees, professional fees, and expense reimbursements[198][203][204] - No impairments were recognized on the loan portfolio for the three months ended March 31, 2022 or 2021[205] Liquidity and Capital Resources Liquidity strengthened significantly, with unrestricted cash rising to $45.8 million due to $81.1 million from the rights offering, while the total debt-to-equity ratio stood at 3.5:1 - Unrestricted cash and cash equivalents stood at $45.8 million as of March 31, 2022[209] - The company's financing structure includes $827.4 million in non-recourse CLO liabilities and a $47.8 million secured term loan[207][210][211] - Management believes current liquidity is sufficient for short-term requirements, with long-term needs to be met through additional debt or equity capital raises[216][217] Quantitative and Qualitative Disclosures about Market Risks This item is not applicable for the current reporting period - Not applicable[223] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2022, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[225] - No changes occurred during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[226] PART II - Other Information Legal Proceedings The company is not currently involved in any material legal proceedings - As of the filing date, the company is not subject to any legal proceedings considered material[227] Risk Factors No material changes have occurred to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the Risk Factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021 have occurred[229] Exhibits This section provides an index of exhibits filed with the report, including CEO/CFO certifications and XBRL data files - The report includes various exhibits, such as the Fourth Amendment to the Credit and Guaranty Agreement, CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL interactive data files[236]