Lument Finance Trust, Inc. (LFT)·Q3 2025 Earnings Summary

Executive Summary

• Q3 2025 results were subdued: GAAP net income was $0.7 million ($0.01 EPS), and distributable earnings were $1.0 million ($0.02 per share), with net interest income down sequentially as portfolio UPB declined and non‑accrual reversals weighed on interest revenue .
• The quarter’s miss versus Street was material: consensus EPS $0.075 vs. actual $0.02; consensus revenue ~$8.32 million vs. actual ~$5.13 million. Coverage was thin (two estimates), but the gap reflects lower net interest income and non‑accrual dynamics. Values retrieved from S&P Global [GetEstimates].
• Strategic financing pivot: LFT entered a new uncommitted $450 million master repurchase facility with JPMorgan (SOFR+ asset‑level spread, initial maturity Nov 2028, two 1‑year extensions), enabling intent to redeem the 2021 CRE CLO and reposition the portfolio for future securitizations at higher leverage (market “high‑80s”) .
• Credit and asset management remained the focus: 7 loans risk‑rated “5” (~$86.4 million or ~10% UPB); REO portfolio at four multifamily properties (73.5% occupancy). Book value per common share declined modestly to $3.25; common dividend was lowered to $0.04 for Q3 .
• Potential stock reaction catalysts: execution of CLO redemption and redeployment under the JPM facility, progress on REO dispositions, and stabilization of net interest income as term SOFR drifts lower and borrower cash flows improve .

What Went Well and What Went Wrong

What Went Well

• New warehouse capacity secured: LFT closed a $450 million uncommitted master repurchase agreement with JPMorgan, enhancing liquidity and portfolio flexibility; management intends to redeem the 2021 CRE CLO to unlock equity and reposition for securitization at higher leverage .
• Portfolio payoffs reduced liabilities: $49 million of loan payoffs were applied primarily to reduce secured financings, supporting conservative liquidity posture ($56 million cash) and a slight leverage ratio decline to 3.2x .
• Multifamily concentration and financing match: ~89.6% of the $822 million loan portfolio is multifamily, financed largely via non‑mark‑to‑market CLO structures, mitigating margin call risk and aligning with constructive sector fundamentals per management .

Quote: “Closing the J.P. Morgan facility was a critical step in repositioning our existing portfolio and subject to market conditions, enabling us to take advantage of new financing opportunities.” — CEO Jim Flynn .

What Went Wrong

• Earnings undershot expectations: Net interest income fell to $5.1 million (from $7.0 million in Q2) and distributable EPS declined to $0.02; consensus EPS $0.075 and revenue ~$8.32 million were not met as average UPB declined and ~$0.8 million of accrued interest reversal/non‑accrual impacted NII [GetEstimates].
• Credit headwinds persisted: Seven loans were rated “5” (~$86.4 million UPB), with monetary/maturity defaults noted across several markets; REO occupancy at 73.5% indicates operational work still ahead to maximize recoveries .
• Dividend cut signals earnings pressure: Common dividend reduced to $0.04 (from $0.06-$0.08 in prior quarters), consistent with lower distributable earnings and portfolio deleveraging effects on net interest income .

Financial Results

Notes: Net income margin calculated from cited NII and GAAP net income sources.

Q3 vs Estimates (S&P Global):

• Revenue (Net Interest Income proxy): Actual ~$5.13 million vs. consensus ~$8.32 million — bold miss. Values retrieved from S&P Global [GetEstimates].
• EPS: Actual $0.02 vs. consensus $0.075 — bold miss. Values retrieved from S&P Global [GetEstimates].

Values retrieved from S&P Global.

Segment/Portfolio Mix (as of 9/30/25):

Balance Sheet and Capital:

Dividend:

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our near-term focus is clear: driving value through active asset management, resolving legacy positions efficiently, and executing our financing strategy.” — CEO Jim Flynn .
• “Our Q3 net interest income was $5.1 million, a decline from $7 million recorded in Q2… the reversal of certain accrued interest and the non-recording of interest on non‑accrual loans contributed approximately $800,000 to the decrease.” — CFO Jim Briggs .
• “As of September 30, our REO comprised of four multifamily properties… weighted average occupancy ~73.5%. Achieving positive asset management outcomes and maximizing our recovery values remains our priority.” — President Greg Calvert .
• “With this warehouse capacity now in place… holders of securities issued by our 2021 CRE CLO were notified that the company intends to redeem… later this month.” — CEO Jim Flynn .

Q&A Highlights

• Portfolio risk identification: Management believes known issues are identified and risk ratings appropriately reflect conditions; future downgrades not expected absent market changes .
• Growth vs. asset management: New financing provides flexibility to add assets in coming quarters, but asset management/liquidity preservation remains priority .
• REO financing/timing: REO currently held unlevered; may add low‑leverage financing; dispositions are asset‑specific with 3–6 month operational upgrades typical before sale .
• Strategic financing choices: Redeeming the larger 2021 CLO (SOFR+179, ~72% leverage) unlocks $170 million equity vs. LMF’s <$70 million, positioning for re‑entry into securitization market (target leverage “high‑80s”) .

Estimates Context

• Q3 2025 results vs. Street: Primary EPS consensus $0.075 vs. actual $0.02 — significant miss; Revenue consensus ~$8.32 million vs. actual ~$5.13 million — significant miss. Coverage: two estimates. Values retrieved from S&P Global [GetEstimates].
• Implications: Expect downward revisions to near‑term EPS and revenue run‑rates given NII pressure from paydowns and non‑accruals; any stabilization via lower SOFR and portfolio refinancing could temper negative estimate momentum .

Key Takeaways for Investors

• Strategic inflection on financing: The $450 million JPM facility enhances optionality and is a precursor to redeeming 2021 CRE CLO and re‑entering securitizations at higher leverage, potentially improving NII once redeployed .
• Earnings pressure likely transient if execution follows: NII decline was driven by portfolio deleveraging, lower UPB, and ~$0.8 million non‑accrual effects; stabilizing rates and refinancing could aid future earnings recovery .
• Credit focus remains paramount: With ~10% UPB rated “5” and REO occupancy at ~73.5%, asset management outcomes (modifications, extensions, REO operations) will drive recoveries and capital preservation .
• Dividend aligned with distributable earnings: The reset to $0.04 per common share tracks lower DE ($0.02 per share); dividend trajectory should follow distributable earnings and portfolio leverage improvements .
• Book value resilient: Book value per common share drifted modestly (to $3.25); financing and resolution pace of “5” rated loans/REOs will be key to BV stability .
• Near‑term catalysts: Execution of 2021 CLO redemption, redeployment under JPM repo, and REO sales could improve liquidity/NII and sentiment; monitoring term loan strategy into 2026 is prudent .
• Medium‑term thesis: Multifamily focus, non‑mark‑to‑market secured financing, and manager’s origination platform position LFT to benefit from sector normalization and securitization market strength, contingent on credit resolutions .