Release Date: November 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lument Finance Trust Inc (LFT, Financial) experienced $51 million in loan payoffs and acquired two new loans with an initial principal balance of $45 million during the third quarter.
- The company's portfolio consists of 75 floating rate loans with an aggregate unpaid principal balance of approximately $1.2 billion, with 93% collateralized by multifamily properties.
- LFT's secured financing remains attractive, providing effective leverage of 80% at a weighted average cost of funds of SOFR plus 214 basis points.
- The company successfully resolved a $20.3 million loan that was in monetary default, increasing cash and cash equivalents by approximately $20.8 million.
- LFT's total equity at the end of the quarter was approximately $243 million, with a slight increase in the book value of common stock to $3.50 per share from $3.48 per share.
Negative Points
- A $32 million loan collateralized by a multifamily property in Dallas, Texas, remains in technical default.
- The general Cecil reserve increased by approximately $300,000 due to changes in the macroeconomic forecast.
- Approximately 7% of the portfolio's carrying value is comprised of loans rated as risk grade five, indicating higher risk.
- The company's weighted average risk rating remained unchanged at 3.6, with a slight decrease in loans rated three or better from 63% to 60%.
- Market uncertainty, particularly following the election, has led to some prospective borrowers delaying projects, impacting the pipeline visibility.
Q & A Highlights
Q: Can you comment on your visibility into the pipeline after the quarter end and any potential delays in projects by sponsors?
A: James Flynn, Chairman and CEO, noted that the recent election has introduced some uncertainty, affecting market reactions and expectations. While some sponsors may delay projects due to this uncertainty, there is still business that needs to be done, such as refinancing and asset exits. Flynn believes the slowdown is not as severe as early 2023 and expects activity to pick up as the market stabilizes.
Q: Could you clarify the blended CLO financing cost of funds and current market conditions?
A: Flynn explained that the existing CLO has a cost of funds at SOFR plus 164 basis points with a 79% advance rate. While this is still attractive, the cost of funds in the current market would be higher. The company is exploring opportunities for slightly higher leverage in the market.
Q: How do you view the timing and strategy for collapsing the current CLO and issuing a new one?
A: Flynn stated that they are actively discussing with capital markets partners about public transactions and other ways to recapitalize the portfolio. The timing could be in the first half of 2025, but it depends on market conditions and ensuring the transaction is efficient and not penalized by market factors.
Q: What is your outlook on the multifamily credit market, and have we reached peak stress in this cycle?
A: Flynn believes that peak stress may have been reached, with known issues being worked through over the next 24 months. The overall market fundamentals for multifamily remain strong, and despite high rates, a strong economy could lead to continued rent increases and asset value stability.
Q: Why was there limited reinvestment activity in the quarter, and do you expect more opportunities soon?
A: Flynn explained that reinvestment activity is tied to payoffs, and the current portfolio balance reflects the CLO's deleveraging. The company maintains high liquidity and is prepared to reinvest as capacity becomes available, with opportunities existing in the market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
