Lument Finance Trust(LFT) - 2024 Q1 - Quarterly Report

PART I - Financial Information Item 1. Financial Statements Presents unaudited consolidated financial statements for Q1 2024, including balance sheets, operations, equity, cash flows, and detailed notes Consolidated Balance Sheets Consolidated Balance Sheet Highlights (March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------------------- | :------------- | :-------------- | | Assets | | | | Cash and cash equivalents | $64,573,372 | $51,247,063 | | Commercial mortgage loans held-for-investment, net | $1,285,478,916 | $1,383,881,197 | | Total assets | $1,378,191,925 | $1,446,932,447 | | Liabilities | | | | Collateralized loan obligations and secured financings, net | $1,075,890,203 | $1,146,210,752 | | Total liabilities | $1,135,256,623 | $1,206,140,067 | | Equity | | | | Total equity | $242,935,302 | $240,792,380 | - Total assets decreased by approximately $68.7 million from December 31, 2023, to March 31, 2024, primarily due to a reduction in commercial mortgage loans held-for-investment, net[12] - Total liabilities decreased by approximately $70.9 million, mainly due to a reduction in collateralized loan obligations and secured financings[12] Consolidated Statements of Operations Consolidated Statements of Operations Highlights (Three Months Ended March 31, 2024 vs. 2023) | Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :------------------------------------------ | :---------------------------- | :---------------------------- | | Interest income: Commercial mortgage loans | $34,790,118 | $21,944,661 | | Net interest income | $12,992,557 | $8,246,368 | | Total expenses | $4,267,740 | $2,672,006 | | (Provision for) reversal of credit losses, net | $(1,776,873) | $179,684 | | Net income | $6,980,182 | $5,766,691 | | Net income attributable to common stockholders | $5,795,183 | $4,581,733 | | Basic and diluted income per share | $0.11 | $0.09 | | Dividends declared per share of common stock | $0.07 | $0.06 | - Net interest income increased by 57.5% year-over-year, from $8.2 million in Q1 2023 to $13.0 million in Q1 2024[17] - The company recorded a provision for credit losses of $1.8 million in Q1 2024, a significant change from a reversal of credit losses of $0.2 million in Q1 2023[17] Consolidated Statements of Changes in Equity Consolidated Statements of Changes in Equity Highlights (Three Months Ended March 31, 2024) | Metric | Balance at Dec 31, 2023 | Issuance of Common Stock | Cost of Issuing Common Stock | Net Income | Common Stock Dividends | Preferred Stock Dividends | Balance at Mar 31, 2024 | | :----------------------- | :---------------------- | :----------------------- | :--------------------------- | :--------- | :--------------------- | :------------------------ | :---------------------- | | Total Stockholders' Equity | $240,692,880 | $19,947 | $(14,196) | $6,980,182 | $(3,658,012) | $(1,184,999) | $242,835,802 | | Total Equity | $240,792,380 | $19,947 | $(14,196) | $6,980,182 | $(3,658,012) | $(1,184,999) | $242,935,302 | - Total equity increased by approximately $2.1 million during the three months ended March 31, 2024, driven by net income and common stock issuance, partially offset by dividend payments[19] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, 2024 vs. 2023) | Cash Flow Activity | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :---------------------------------------- | :---------------------------- | :---------------------------- | | Net cash provided by operating activities | $9,057,892 | $5,841,943 | | Net cash provided by investing activities | $80,093,383 | $51,625,741 | | Net cash used in financing activities | $(76,022,913) | $(4,315,119) | | Net increase in cash, cash equivalents and restricted cash | $13,128,362 | $53,152,565 | | Cash, cash equivalents and restricted cash, end of period | $64,645,554 | $100,518,930 | - Net cash provided by operating activities increased by 55.0% year-over-year, from $5.8 million in Q1 2023 to $9.1 million in Q1 2024[23] - Net cash used in financing activities significantly increased from $4.3 million in Q1 2023 to $76.0 million in Q1 2024, primarily due to repayment of collateralized loan obligations[23] Notes to Unaudited Consolidated Financial Statements NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS Details Lument Finance Trust's (LFT) focus on commercial real estate debt investments and its REIT election - Lument Finance Trust, Inc (LFT) is a Maryland corporation focused on investing in, originating, financing, and managing a portfolio of commercial real estate (CRE) debt investments[25] - LFT is externally managed by Lument Investment Management, LLC and has elected to be taxed as a real estate investment trust (REIT)[25][26] NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Outlines GAAP-compliant interim financial reporting, consolidation of VIEs, and adoption of the CECL model - The financial statements are prepared in accordance with GAAP for interim financial reporting, with certain information condensed or omitted[27] - The Company consolidates Variable Interest Entities (VIEs) where it is the primary beneficiary, such as LFT CRE 2021-FL1 CLO and LMF 2023-1 Financing[28][30][31] - On January 1, 2023, the Company adopted ASU 2016-13 (CECL model), replacing the incurred loss methodology with an expected loss model for credit losses, resulting in a $3.6 million decrease to accumulated earnings[43] - The Company uses a 5-point risk rating scale for commercial mortgage loans, from 'Very Low Risk' to 'Default Risk', assessing factors like DSCR, LTV, property type, and market dynamics[48][54] NOTE 3 COMMERCIAL MORTGAGE LOANS HELD-FOR-INVESTMENT Details commercial mortgage loan portfolio, including principal balance, carrying value, and credit loss allowance Commercial Mortgage Loans Held-for-Investment (March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :-------------- | | Unpaid Principal Balance | $1,299,971,777 | $1,397,385,160 | | Carrying Value | $1,293,295,378 | $1,389,940,203 | | Loan Count | 81 | 88 | | Floating Rate Loan % | 100.0% | 100.0% | | Weighted Average Coupon | 8.9% | 8.9% | | Weighted Average Term (Years) | 2 | 2 | | Allowance for credit losses | $(7,816,462) | $(6,059,006) | - The loan portfolio decreased by approximately $97.4 million in principal payments during Q1 2024[69] - The average risk rating of 3.5 (Moderate Risk) of the commercial mortgage loan portfolio remained consistent at March 31, 2024, with 76.9% rated 3 or better[70][72] - The allowance for credit losses increased by $1.8 million to $7.8 million as of March 31, 2024, primarily due to softening CRE prices reflected in macroeconomic assumptions[75] - Two loans totaling $37.6 million were on non-accrual status as of March 31, 2024, due to expected imminent maturity default and monetary default, respectively[77][78] NOTE 4 - USE OF SPECIAL PURPOSE ENTITIES AND VARIABLE INTEREST ENTITIES Explains the Company's consolidation of CLO transactions and secured financings as primary beneficiary - The Company consolidates CLO transactions and secured financings as financing facilities, specifically the 2021-FL1 CLO and LMF 2023-1 Financing, as it is deemed the primary beneficiary[83] - As of March 31, 2024, all collateralization and coverage tests for both the 2021-FL1 CLO and LMF 2023-1 Financing were met[86] VIE Assets and Liabilities (March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------------ | :------------- | :-------------- | | Total Assets of consolidated VIEs | $1,311,421,901 | $1,384,136,334 | | Total Liabilities of consolidated VIEs | $1,079,644,656 | $1,150,207,290 | | Net income from VIEs (3 months ended March 31) | $7,864,978 (2024) | $7,636,230 (2023) | NOTE 5 - RESTRICTED CASH Describes restricted cash held within CLO and secured financing facilities for reinvestment in qualifying loan obligations - Restricted cash is held within the 2021-FL1 CLO and LMF 2023-1 Financing, intended for reinvestment in qualifying loan obligations during their respective reinvestment periods[91] - The reinvestment period for the 2021-FL1 CLO expired in December 2023, while for LMF 2023-1 Financing, it expires in July 2025[91] NOTE 6 - SECURED TERM LOAN Details the Company's $47.75 million Secured Term Loan, its maturity, interest rate, and compliance with covenants - The Company has a $47.75 million Secured Term Loan, maturing in February 2026, bearing a fixed interest rate of 7.25%[92][94][96] - The Secured Term Loan is secured by substantially all assets of the Credit Parties and is subject to customary affirmative and negative covenants, with which the Company was in compliance as of March 31, 2024[93][98] NOTE 7 - MORTGAGE SERVICING RIGHTS Summarizes activity and valuation of Mortgage Servicing Rights (MSRs) held at fair value within the TRS Mortgage Servicing Rights (MSR) Activity (Three Months Ended March 31, 2024 vs. 2023) | Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :------------------------------------------ | :---------------------------- | :---------------------------- | | Balance at beginning of period | $691,973 | $795,656 | | Changes in valuation inputs or assumptions | $(10,036) | $(20,916) | | Other changes to fair value | $14,663 | $(28,212) | | Balance at end of period | $696,600 | $746,528 | | Loans associated with MSRs | $66,370,595 | $72,193,412 | | MSR values as percent of loans | 1.05% | 1.03% | | Servicing income, net | $38,503 | $51,528 | - MSRs are held at fair value within the Company's taxable REIT subsidiary (TRS) and are associated with residential mortgage loans previously securitized or sold[49][100] NOTE 8 - FAIR VALUE Discusses fair value measurements, particularly for Level 3 assets like Mortgage Servicing Rights and key unobservable inputs - The Company's Level 3 assets, primarily Mortgage Servicing Rights (MSRs), totaled $696,600 as of March 31, 2024[104] Fair Value Measurement of Financial Instruments (March 31, 2024) | Instrument | Fair Value Hierarchy Level | Carrying Value | Fair Value | | :------------------------------------------ | :------------------------- | :------------- | :----------- | | Cash and cash equivalents | Level 1 | $64,573,372 | $64,573,372 | | Restricted cash | Level 1 | $72,182 | $72,182 | | Commercial mortgage loans held-for-investment, net | Level 3 | $1,285,478,916 | $1,293,893,150 | | Collateralized loan obligations and secured financings | Level 2 | $1,075,890,203 | $1,069,201,351 | | Secured Term Loan | Level 3 | $47,282,352 | $46,368,979 | - Key unobservable inputs for MSR valuation include a constant prepayment rate (8.0-9.1%) and a discount rate (12.0%)[105] NOTE 9 - RELATED PARTY TRANSACTIONS Reports management and incentive fees paid to the Manager and reimbursable expenses for the period Management and Incentive Fees (Three Months Ended March 31, 2024 vs. 2023) | Fee Type | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :----------------------- | :---------------------------- | :---------------------------- | | Management fees | $1,088,207 | $1,087,262 | | Incentive fees | $1,480,000 | $0 | | Total Management and Incentive Fees | $2,568,207 | $1,087,262 | - The Company incurred $2.6 million in management and incentive fees in Q1 2024, a significant change from $1.1 million in Q1 2023, primarily due to $1.48 million in accrued incentive fees[109][110] - Reimbursable expenses to the Manager decreased from $509,986 in Q1 2023 to $470,167 in Q1 2024, partly due to a $87,500 reduction from waived exit fees[112] NOTE 10 - GUARANTEES Outlines loan repurchase obligations for residential mortgage loans and MAXEX Clearing LLC's assumption of backstop guarantees - The Company, through FOAC, has loan repurchase obligations for residential mortgage loans sold into securitizations, though no repurchases have been required to date[119] - MAXEX Clearing LLC assumed all of FOAC's backstop guarantee obligations as of December 31, 2018, indemnifying FOAC against related losses[121] - The maximum potential future payment under outstanding backstop guarantees was estimated at $101 million as of March 31, 2024, but the Company believes this is not indicative of actual potential losses[122] NOTE 11 - COMMITMENTS AND CONTINGENCIES States no material legal proceedings and details unfunded commitments for various financing entities - As of March 31, 2024, the Company was not involved in any material legal proceedings[125] Unfunded Commitments (March 31, 2024 vs. December 31, 2023) | Entity | March 31, 2024 | December 31, 2023 | | :---------------- | :------------- | :-------------- | | LCMT (2021-FL1 CLO) | $6.7 million | $6.7 million | | LSF (2021-FL1 CLO) | $39.2 million | $54.3 million | | LSF (LMF 2023-1 Financing) | $21.6 million | $22.9 million | | Total Unfunded Commitments | $67.5 million | $83.9 million | NOTE 12 - EQUITY Presents common and preferred stock outstanding, declared dividends, and the Independent Directors Stock-for-Fees Program Common and Preferred Stock Outstanding (March 31, 2024 vs. December 31, 2023) | Stock Type | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :-------------- | | Common Stock (shares outstanding) | 52,257,315 | 52,248,631 | | Preferred Stock (shares outstanding) | 2,400,000 | 2,400,000 | - The Company declared common stock dividends of $0.07 per share and Series A Preferred Stock dividends of $0.49219 per share for Q1 2024[133] - The Independent Directors Stock-for-Fees Program allows directors to receive fees in common stock, with 26,163 shares issued as of March 31, 2024[135][138] NOTE 13 - EARNINGS PER SHARE Details net income attributable to common stockholders and basic and diluted earnings per share Earnings Per Share (Three Months Ended March 31, 2024 vs. 2023) | Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :------------------------------------------ | :---------------------------- | :---------------------------- | | Net income attributable to common stockholders | $5,795,183 | $4,581,733 | | Basic weighted average shares of common stock | 52,249,299 | 52,225,152 | | Diluted weighted average shares of common stock outstanding | 52,249,299 | 52,231,152 | | Basic and diluted income per share | $0.11 | $0.09 | - Basic and diluted EPS increased from $0.09 in Q1 2023 to $0.11 in Q1 2024[141] NOTE 14 - SEGMENT REPORTING Confirms the Company operates as a single reporting segment focused on commercial mortgage loans and related investments - The Company operates as a single reporting segment, investing in a portfolio of commercial mortgage loans and other mortgage-related investments[142] NOTE 15 - INCOME TAXES Explains the Company's REIT election, distribution requirements, and activities conducted through a Taxable REIT Subsidiary - The Company maintains its REIT election, requiring annual distribution of at least 90% of its taxable income to avoid federal income tax on distributed earnings[143] - Certain activities are conducted through a Taxable REIT Subsidiary (TRS), FOAC, which is subject to U.S. C-Corporation tax[145] - As of March 31, 2024, the Company was in compliance with all REIT requirements[145] NOTE 16 - SUBSEQUENT EVENTS Reports a loan repayment in full on May 3, 2024, following a modification - On May 3, 2024, a loan collateralized by a multifamily property in Virginia Beach, VA, repaid in full following a loan modification[147] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of Q1 2024 financial condition and operations, including business, market, portfolio, and financing Overview Lument Finance Trust (LFT) invests in transitional floating rate commercial real estate (CRE) mortgage loans, primarily multifamily assets - Lument Finance Trust (LFT) invests primarily in transitional floating rate commercial real estate (CRE) mortgage loans, with a focus on middle market multifamily assets[155] - The Company finances investments through matched-term non-recourse secured borrowings, including collateralized loan obligations (CLOs), which are not subject to margin calls[155] - LFT leverages Lument's platform and ORIX USA's resources for originations, asset management, and servicing, aiming for attractive risk-adjusted returns[154][156] Recent Developments Global markets experienced volatility in 2023 and Q1 2024 due to inflation, higher interest rates, and geopolitical uncertainty - Global markets experienced significant volatility in 2023 and Q1 2024 due to heightened inflation, higher interest rates, slowing economic growth, and geopolitical uncertainty[158] - Central banks' monetary tightening actions have led to moderate inflation but may keep interest rates higher for longer, potentially affecting borrowers and increasing borrowing costs[159] First Quarter 2024 Summary Highlights key operating results for Q1 2024, including net income, EPS, distributable earnings, and loan portfolio characteristics First Quarter 2024 Operating Highlights | Metric | Q1 2024 | | :------------------------------------------ | :---------- | | Net income attributable to common stockholders | $5.8 million | | Basic and diluted income per share | $0.11 | | Distributable Earnings | $7.6 million | | Distributable Earnings per share | $0.15 | | Common dividend declared per share | $0.07 | | Book value per share of common stock | $3.50 | | Loan payoffs | $97.4 million | | Senior loan portfolio (100% floating rate) | $1.3 billion | | Multifamily assets as % of loan portfolio | 93.6% | | Non-mark-to-market financing | $1.1 billion | Factors Impacting Our Operating Results Discusses influences on operating results, including net interest income, asset market values, and credit risk management - Operating results are influenced by net interest income, asset market values, and supply/demand for target assets, with net interest income varying with market interest rates and prepayment speeds[160] - Rising interest rates generally increase net interest income, but sustained high rates may strain borrower cash flows and refinancing ability, mitigated by interest rate caps on 94.7% of performing loans (weighted-average strike price of 2.6%)[161][163] - Credit risk is monitored through asset management, with 100% of commercial mortgage loans current on principal and interest as of March 31, 2024[164] Key Financial Measure and Indicators Presents key financial metrics like net income, dividends, distributable earnings, and book value per share Key Financial Measures (March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------------ | :------------- | :-------------- | | Net income per share, basic and diluted | $0.11 | $0.07 | | Dividends declared per share | $0.07 | $0.07 | | Distributable Earnings | $7,578,321 | $5,238,424 | | Distributable Earnings per share | $0.15 | $0.10 | | Book value per share of common stock | $3.50 | $3.46 | - Distributable Earnings, a non-GAAP measure, increased to $7.6 million ($0.15 per share) in Q1 2024 from $5.2 million ($0.10 per share) in Q4 2023, serving as a strong indicator for dividends[173][175] Investment Portfolio Details the commercial mortgage loan portfolio activity, risk ratings, and non-accrual loans for Q1 2024 Loan Portfolio Activity (Three Months Ended March 31, 2024) | Activity | Amount | | :------------------------------------------ | :------------- | | Balance at December 31, 2023 | $1,383,881,197 | | Proceeds from principal repayments | $(97,413,384) | | Accretion of purchase discount | $711,236 | | Accretion of deferred loan fees | $57,323 | | Release of credit losses, net | $(1,757,456) | | Balance at March 31, 2024 | $1,285,478,916 | - The loan portfolio experienced $97.4 million in principal repayments during Q1 2024, reducing to a carrying value of $1.285 billion[179] - The weighted average risk rating of 3.5 (Moderate Risk) of the loan portfolio remained at March 31, 2024, with 76.9% of the net carrying value rated 3 or better[195] - Two loans totaling $37.6 million were on non-accrual status due to expected imminent maturity default and monetary default, respectively, as of March 31, 2024[188][189] Total Financing Summarizes the Company's non-mark-to-market financing arrangements, including CLOs, secured financings, and a secured term loan Financing Agreements Summary (March 31, 2024 vs. December 31, 2023) | Financing Type | Mark-to-Market Status | Facility Size (Mar 31, 2024) | Borrowings Outstanding (Mar 31, 2024) | Borrowings Outstanding (Dec 31, 2023) | | :-------------------------------- | :-------------------- | :--------------------------- | :------------------------------------ | :------------------------------------ | | Collateralized loan obligations | Non-Mark-to-Market | $928,795,794 | $928,795,794 | $1,000,000,000 | | Secured Financings | Non-Mark-to-Market | $386,300,000 | $386,300,000 | $386,300,000 | | Secured term loan | Non-Mark-to-Market | $47,750,000 | $47,750,000 | $47,750,000 | | Total | | $1,362,845,794 | $1,362,845,794 | $1,434,050,000 | - All current financing arrangements are non-mark-to-market, providing stability against market fluctuations[197] - The 2021-FL1 CLO's maximum facility size decreased due to a $71.2 million repayment of Class A Notes[198] FOAC and Our Residential Mortgage Loan Business Explains FOAC's past residential mortgage loan activities and the assumption of its backstop guarantee obligations - FOAC, a Taxable REIT Subsidiary, previously aggregated mortgage loans for securitization but ceased this activity for prime jumbo loans[209][210] - FOAC's backstop guarantee obligations for loans sold via MAXEX Clearing LLC were assumed by MAXEX Clearing LLC as of December 31, 2018[211] Critical Accounting Policies and Estimates Highlights significant estimates for commercial mortgage loans, CECL model adoption, and individual credit loss evaluations - The Company's financial statements rely on significant estimates and assumptions, particularly for commercial mortgage loans held-for-investment[212][213] - The adoption of the CECL model on January 1, 2023, requires estimating all expected credit losses based on historical data, current conditions, and forward-looking macroeconomic forecasts[214][216] - Loans deemed 'Default Risk' or collateral dependent are individually evaluated for specific credit loss allowances, measured by comparing collateral fair value to the loan's amortized cost[217] Capital Allocation Details the allocation of capital across investment types, including commercial mortgage loans, MSRs, and unrestricted cash Capital Allocated by Investment Type (March 31, 2024 vs. December 31, 2023) | Investment Type | March 31, 2024 | % Capital (Mar 31, 2024) | December 31, 2023 | % Capital (Dec 31, 2023) | | :------------------------ | :------------- | :----------------------- | :---------------- | :----------------------- | | Commercial Mortgage Loans | $231,689,720 | 79.8% | $242,532,841 | 84.2% | | MSRs | $696,600 | 0.2% | $691,973 | 0.2% | | Unrestricted Cash | $57,831,334 | 20.0% | $44,787,792 | 15.6% | | Total Capital Allocated | $290,217,654 | 100.0% | $288,012,606 | 100.0% | - Capital allocated to commercial mortgage loans decreased from 84.2% to 79.8% of total capital, while unrestricted cash allocation increased from 15.6% to 20.0% from Q4 2023 to Q1 2024[222] Results of Operations Analyzes the increase in net income attributable to common stockholders, driven by net interest income and changes in expenses Net Income Attributable to Common Stockholders (Three Months Ended March 31, 2024 vs. 2023) | Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :------------------------------------------ | :---------------------------- | :---------------------------- | | Net income attributable to common stockholders | $5,795,183 | $4,581,733 | | Basic and diluted net income per average share | $0.11 | $0.09 | - Net income attributable to common stockholders increased by 26.5% year-over-year, driven by a significant increase in net interest income[226] - Net interest income increased by $4.7 million, primarily due to a $350.4 million increase in the weighted-average principal balance of the loan portfolio and a 81bps increase in the weighted-average floating rate[227] - Total expenses increased from $2.7 million in Q1 2023 to $4.3 million in Q1 2024, mainly due to higher management and incentive fees and increased operating expenses[226][229][230][231] - Other income shifted to a loss of $1.7 million in Q1 2024, primarily due to a $1.8 million provision for credit losses, compared to a gain of $0.2 million in Q1 2023[232][233] Liquidity and Capital Resources Discusses primary liquidity sources, cash position, debt-to-equity ratios, and cash flow activities for the period - Primary liquidity sources include equity issuances, debt obligations, and operating cash flows, with current financing arrangements being non-recourse and matched-term[236] - Unrestricted cash and cash equivalents increased to $64.6 million as of March 31, 2024, from $51.2 million at December 31, 2023[238] - The Company's recourse debt to equity ratio was 0.2:1, and total debt to equity ratio (GAAP basis) was 4.6:1 as of March 31, 2024[239][240] Cash Flow Summary (Three Months Ended March 31, 2024 vs. 2023) | Cash Flow Activity | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :------------------------------------------ | :---------------------------- | :---------------------------- | | Net cash provided by operating activities | $9,057,892 | $5,841,943 | | Net cash provided by investing activities | $80,093,383 | $51,625,741 | | Net cash used in financing activities | $(76,022,913) | $(4,315,119) | | Net increase in cash, cash equivalents and restricted cash | $13,128,362 | $53,152,565 | Off-Balance Sheet Arrangements Confirms no unconsolidated off-balance sheet arrangements and the assumption of FOAC's backstop guarantee obligations - As of March 31, 2024, the Company did not maintain relationships with unconsolidated financial partnerships or special purpose entities for off-balance sheet arrangements[250] - MAXEX Clearing LLC assumed all of FOAC's backstop guarantee obligations, eliminating the related non-contingent liability from the Company's balance sheet[251] Distributions Outlines the Company's REIT distribution requirements and declared dividends for common and preferred stock in Q1 2024 - As a REIT, the Company must distribute at least 90% of its taxable income annually to stockholders[252] - The Board declared a cash dividend of $0.07 per common share and $0.49219 per Series A Preferred Stock share for Q1 2024, paid on April 15, 2024[254] Item 3. Quantitative and Qualitative Disclosures about Market Risks States no applicable quantitative and qualitative disclosures about market risks for this quarterly report - The Company has no applicable quantitative and qualitative disclosures about market risks for the reported period[256] Item 4. Controls and Procedures Management evaluated and deemed effective the Company's disclosure controls and procedures as of March 31, 2024 - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024[258] - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[259] PART II - Other Information Item 1. Legal Proceedings Confirms neither the Company nor its Manager is subject to any material legal proceedings - Neither the Company nor its Manager is subject to any material legal proceedings as of the report date[260] Item 1A. Risk Factors States no material changes to the risk factors previously disclosed in the 2023 Annual Report on Form 10-K - No material changes to the Risk Factors were identified since the Annual Report on Form 10-K for 2023[261] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities or use of proceeds for the period - No unregistered sales of equity securities or use of proceeds to report[262] Item 3. Defaults Upon Senior Securities Confirms no defaults upon senior securities to report for the period - No defaults upon senior securities to report[263] Item 4. Mine Safety Disclosures States mine safety disclosures are not applicable to the Company's operations - Mine Safety Disclosures are not applicable[264] Item 5. Other Information Confirms no other information to report for the period - No other information to report[265] Item 6. Exhibits Lists exhibits filed, including CEO/CFO certifications and XBRL taxonomy documents - Exhibits include certifications from the CEO and CFO (pursuant to Sarbanes-Oxley Act Sections 302 and 906) and XBRL taxonomy documents[269] Signatures The report is signed by the Chief Executive Officer and Chief Financial Officer of Lument Finance Trust, Inc - The report is signed by James P. Flynn, Chief Executive Officer, President and Chairman of the Board, and James A. Briggs, Chief Financial Officer, on May 9, 2024[274]