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Lument Finance Trust(LFT) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q1 2022, the company reported net income to common stockholders of approximately $1.8 million or $0.05 per share, and distributable earnings of approximately $1.7 million or $0.05 per share, representing a decline from Q4 2021's distributable EPS of $2.6 million or $0.11 per share [15][16] - The total equity increased by approximately $80 million quarter-over-quarter, from approximately $169 million at year-end to $249 million as of March 31 [16] - The weighted average share count during Q1 was 36.4 million shares, contributing to a decline in EPS by $0.02 per share [16] Business Line Data and Key Metrics Changes - The investment portfolio increased by approximately $76 million or 7.5% during the quarter, with 14 multifamily assets acquired [10][21] - The loan portfolio's outstanding principal balance was $1.08 billion, representing a 7.5% increase quarter-over-quarter and over a 100% increase compared to the first quarter of the previous year [21] - The portfolio consisted of 71 loans with an average loan size of $15 million, with 94% of the portfolio in multifamily assets [22] Market Data and Key Metrics Changes - The company experienced a widening of new issue AAA spreads by 40 to 50 basis points since the beginning of the year, indicating increased market volatility [11][30] - The weighted average spread of the portfolio was 336 basis points, with a weighted average index floor of 27 basis points [24] Company Strategy and Development Direction - The company maintains a strategy focused on deploying capital into commercial real estate debt investments, particularly in multifamily assets, to provide stable earnings [14][23] - The management expressed confidence in the multifamily asset class, citing strong demand dynamics and rent growth trends as supportive of investment opportunities [23] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of market volatility, inflation, and geopolitical issues on operations but remains optimistic about the business plan and future growth [11][27] - The company expects to benefit from rising short-term interest rates, which could increase distributable earnings by approximately $0.08 per share on a full-year basis [25] Other Important Information - The company declared a quarterly dividend of $0.06 per share for Q1 2022, reflecting a reset due to the recent capital raise and increased share count [12] - The loan portfolio was 100% performing with no impairments or monetary loan defaults as of March 31 [13] Q&A Session Summary Question: Comments on CRE CLO and market conditions - Management confirmed the widening of spreads and expressed confidence in completing a CRE CLO in the coming months despite market volatility [30][31] Question: Earnings power and dividend sustainability - Management indicated cautious optimism regarding earnings power and the potential for dividends to align with market returns as capital is deployed [32][33] Question: Loan maturity and credit quality - Management reassured that the loans maturing soon are performing well and have a high likelihood of payoff [40][41] Question: Exit fees and normalization expectations - Management expects exit fees to normalize around 30% to 40% annually, with the first quarter being somewhat seasonal [46] Question: Future capital raises and management fee waivers - Management indicated that any future capital raises would be considered in the best interest of shareholders, with no current discussions on management fee waivers [64][65] Question: CLO size and return expectations - Management anticipates a CLO size in the range of $500 to $600 million, aiming for low teens returns on equity [69][70]