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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.

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 James Peter Flynn, our CEO, James Anthony Briggs, our CFO, Greg D. Calvert, our President, and

Thank you, Andrew. Good morning, everyone. Welcome to the Lument Finance Trust earnings call for 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 into political and 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 foregone conclusion leaving lingering uncertainty in the near term punctuated by the ongoing geopolitical volatility and the fast-moving trade and tariff policy shifts in the US. 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 review 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, modifications, extensions, and REO strategies where appropriate. On a weighted average basis, the portfolio credit ratings were 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. From a liquidity and financing standpoint, we continue to maintain 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, of securities issued, by our 2021 CRE CLO 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. Our near-term focus is clear. Driving value through active asset management, resolving legacy positions efficiently, and executing our financing strategy. Looking ahead, we intend to redeploy capital into a 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 manager's 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 James Anthony Briggs, who will provide details on our financial results.

Thanks, Jim. 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. The supplemental investor presentation has been uploaded to the webcast as well for your reference. On pages four through seven of the presentation, you'll find key updates and an earnings summary for the quarter. For 2025, 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. The 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 non-recording 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 fewer fees paid to our managers sequentially. The primary difference between reported net income and distributable earnings is primarily attributable to $345,000 of depreciation on real estate owned. As of September 30, we had seven loans risk-rated five. 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 seven risk-rated five 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 LMS 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. The total book value of common stock was approximately $670 million or $3.25 per share, decreasing sequentially from $3.27 a share as of June 30. We'll now turn the call over to Greg D. 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, the total loan portfolio consists 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 months, assuming all available extensions are exercised by our borrowers. 100% of the portfolio was indexed to one-month SOFR, and 90% of the portfolio was collateralized by multifamily properties. As of September 30, approximately 40% of the loans in our portfolio were risk-rated at a three 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 five rating as of June 30 to a four or better rating as of September 30. As of September 30, we had seven loan assets risk-rated five 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, four were risk-rated five in the prior quarter and these included an $11.9 million loan collateralized by a multifamily property in Kelonte, Michigan, a $10.3 million loan collateralized by a multifamily property in Colorado Springs, a $13.7 million loan collateralized by a multifamily property in Cedar Park, Texas, and an $8.2 million loan collateralized by a property in Des Moines, Iowa. All of these loans risk-rated five were in monetary default as of quarter-end. The other three loan assets that were risk-rated five 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, and a $17 million loan collateralized by two multifamily properties in Tallahassee, Florida. Of these three five risk-rated 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 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%. Our priority is achieving positive asset management outcomes and maximizing our recovery values. With that, I will pass it back to James Peter 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. I look forward to hearing from you.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any key. One moment, please, for your first question. Your question comes from Chris Muller with Citizens Capital Market. Please go ahead.

Hey, guys. Thanks for taking the questions. So I guess on the risk ratings, do you guys feel that you've addressed the bulk of the issues in the portfolio at this point? Or are you 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. We know what 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 continue in 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?

Yeah. Look. I think the new financing certainly gives us more flexibility to add assets, having a little 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 positioned ourselves for, frankly, where we feel we are today. So, yeah, 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. And I'm going to 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 could—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 through debt providers and facilities, both that we entered into with JP, and or potential other providers. So to the extent we are planning to hold an asset, and in most cases, our REO sales are 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 three to six-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 LP shareholders and perhaps then some to create more value. So the timing for the REOs is very asset-specific. We may dispose of some quickly in that kind of three to six-month period as we just kind of clean up the asset, make sure it's as occupied as it can be, 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 and 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.

Got it. That's all very, very helpful. I appreciate you guys taking the questions.

As a reminder, if you wish to ask a question, please press 1. Your next question comes from Greg Bennett, an investor. Please go ahead, Greg.

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-backed lending. But could you describe if there's any conflict?

Yeah. 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 LFT in any material way with 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 owned 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?

Yeah. 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 foreclose and we own it, any increase in value would go to the shareholders of LFT. So the 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 that's SOFR plus $1.75. Am I correct?

The 2021? Correct. It's been delevering. So it changes kind of every time a loan pays off, the cost changes because it goes to pay down the debt.

Yeah. As Jim mentioned during the remarks, it's at SOFR plus $1.79. And the important thing to note there, it's at a leverage of 72% as well.

Yeah. I guess, why would you pay that off versus the 2023 unless, I guess, it's still in the investment period?

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

And you're in the seventies. Is that correct?

That's correct.

So is the cost of funds from a new agreement with JPMorgan? It's SOFR plus we don't know what. Is that—

It's dependent on the asset. So that's why it's a—there's not a set spread. It's an asset-by-asset look. But it's in the broadly speaking, the high one hundreds to the low two hundreds over depending on the asset.

Okay. So can you use—you have a term loan, I think, coming due in '26. A 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 it provides—the JPMorgan line provides us with leverage and liquidity that is fungible. Meaning we can pay off 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. 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 that decision has not been made yet.

Okay. Thank you very much. Appreciate it.

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

Okay. 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.