Good morning and thank you for joining the Lument Finance Trust Second Quarter 2021 Earnings Call. Today's call is being recorded and will be made available via webcast on the company's website. I would like to turn the call over to Charles Duddy with Investor Relations at Lument Investment Management. Please go ahead sir.

Thank you, and good morning everyone. Thank you for joining our call to discuss Lument Finance Trust second quarter 2021 financial results. With me on the call today are James Flynn, CEO; Michael Larsen, President; James Briggs, CFO; and Precilla Torres, Head of Real Estate Investment Strategies. On Monday, we filed our 10-Q with the SEC and issued a press release, which provided details on our second quarter results. We also provided a supplemental earnings presentation, which can be found on our website. Before handing the call over to Jim, I would like to remind everyone that certain statements made during the course of this call are not based on historical information and may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this conference words such as outlook, evaluate, indicate, believes, will, anticipates, expects, intends, and other similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, including its reports on Form 8-K, 10-Q and 10-K and in particular the Risk Factors section of our Form 10-K. Additionally, many of these risks and uncertainties are currently amplified by and will continue to be amplified by the COVID-19 pandemic. It is not possible to predict or identify all such risks. Listeners are cautioned not to believe undue reliance on these forward-looking statements, which speak only to the date hereof. The company undertakes no obligation to update any of these forward-looking statements. Furthermore, certain non-GAAP financial measures will be discussed on this conference call. A presentation of this information is not intended to be considered in isolation, nor as a substitute to the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through our filings with the SEC at sec.gov. I will now turn the call over to James Flynn. Please go ahead.

Thank you Charlie. Good morning everyone. Welcome to the Lument Finance Trust earnings call for the second quarter of 2021, and thank you all for joining. This quarter was a busy, important and successful quarter for Lument Finance Trust's growth strategy. During the quarter, we executed several significant capital transactions that allowed us to grow our capital and institutional investor base. At the same time, we made significant incremental investments, observed continued strong performance in our portfolio and maintained distributable earnings consistent with our prior quarters. This all accomplished in an environment marked with uncertain economic data, interest rates, unemployment, asset values, as well as health data with respect to COVID-19 and the variants, specifically the Delta variant now appearing throughout the country and world. The first of our major transactions was the issuance of the perpetual preferred equity that we discussed during our prior call raising $58 million in net proceeds. Secondly, and as previously announced on June 14, we successfully closed a $1 billion CRE CLO. In conjunction with this transaction, we redeemed our two prior CLOs. This new CLO provides us with an attractive leverage and pricing on a non-recourse, non-mark-to-market and match-term basis. Our utilization of the CLO market grew valuable during last year's disruption and we continue to see this as an attractive way to finance our investment portfolio. In closing of this, our largest CRE CLO represents another significant positive milestone in the progression of our growth plans. Importantly, this transaction allowed us to quickly deploy a portion of the proceeds from our preferred equity offering, while still providing favorable economic and structural features to allow for continued growth. The CLO allowed us to increase LFT's total assets on balance sheet by 85% from $567 million as of 3/31 to $1.04 billion as of…

Thank you, Jim, and good morning everyone. On Monday evening 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 5, 6 and 7 of the presentation, you will find key updates and an earnings summary for the quarter. For the second quarter of 2021, we reported net income to common stockholders of approximately $955,000, or $0.04 per share, which represents a decline relative to Q1 2021, net income to common stockholders of $2.8 million or $0.11 per share. However, the current quarter was meaningfully impacted by certain non-distributable earnings adjustments. After adjusting for these non-distributable items, LFT's distributable earnings per share of common stock was $0.11 per share, which, as Jim mentioned, is in line with the prior quarter. The first of these adjustments was $1.7 million or $0.07 per common share loss on extinguishment of debt. This loss on extinguishment of debt was caused by the unwind of Hunt CRE 2018-FL2, which was refinanced during the quarter. The $1.7 million loss represents an acceleration of deferred financing costs, incurred at the closing of Hunt CRE 2018-FL2, which were not yet amortized to interest expense at the time of the refinance. As of June 30 and as of today, the company does not expect any additional losses or expenses associated with either of LFTs to previous CRE CLOs. There were two other non-distributable items experienced during Q2. The first of these was $220,000 unrealized loss on mortgage servicing rights, which was driven by higher realized prepayments fees in our legacy, residential, MSR portfolio. I'd like to note that as of June 30, the carrying value of our…

Thank you, Jim, and good morning, everyone. As Jim mentioned, the last several months have been very active from an investment standpoint. During Q2, we acquired 41 investments from an affiliate of our manager, with a total UPB of $303 million. These acquisitions consisted of 23 loans with an aggregate UPB of $289 million, and 18 participations related to loans already owned by LFT, with a total combined UPB of $14.5 million. 82% of these acquisitions during the quarter were secured by multifamily assets, 17% were secured by self-storage assets, and 1% were secured by office. The Q2 acquisitions had a weighted average spread to LIBOR of 379 basis points, a weighted average LIBOR floor of 113 basis points, and weighted average LTV at origination of 67.2%. We experienced $175.8 million of loan payoffs during the quarter. And at quarter end, our total loan portfolio had outstanding principal allowance of $611.5 million. The portfolio consists of 44 loans with an average loan size of $14 million, which provides for significant asset diversity. Our portfolio has weighted average spread to LIBOR of 366 basis points, 98% of the loans in our portfolio have a LIBOR floor above the current spot LIBOR rate with weighted average floor of 132 basis points. Our overall loan portfolio at quarter end was 85% multifamily, down slightly from prior quarters, due primarily to our investment this quarter in self storage. Self-storage represents 9% of our portfolio at quarter end compared to 1% in Q1. Meanwhile, our retail exposure decreased from 7% to 4% of the portfolio. We believe that generally self-storage and industrial property types provide the least volatility and performance outside of multifamily. Typically, our self-storage debt investments are related to top national operators are in markets with per capita existing supply below the historical…

Thank you, Mike. As I mentioned earlier, we feel we're making great progress in our business plan and our growth and are excited about the future of LFT. We look forward to updating you all on our progress and appreciate your time and interest today. With that I'll ask the operator to open the call for questions.

Thank you. We will now begin the question-and-answer session [Operator Instructions] And the first question will come from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Hi. Thanks for taking my call. Jim Briggs, the comments that you had on the decline in near-term earnings, given the rollout of assets in the third quarter to date, what would be the catalyst for that decline?

The decline in the second quarter earnings. I'm sorry, Chris just to be clear on that.

Yes. No I thought he was commenting that in near-term coming quarters we could see a decline in earnings what he talked about.

Yes. So I was on mute Jim. Yes in my comments I just mentioned that there is still capital to be deployed. And as a result of that we could see a drag.

Okay. And then I guess two follow-up questions. One is on the addition of self-storage. Do you guys anticipate this becoming a significant part of your strategy above what we're currently at or just sort of a stake levels?

No. So I wouldn't describe it as a significant component. What I would say is our floating rate bridge program since this management team has been executing that platform, which predates are taking over the management of LFT. We've always had a multifamily housing focus. So 80%, 90%, maybe a touch under 80% in certain periods. And that's generally been the way that we viewed the business going forward to LFT. And so self-storage is not something that – it's something we've continued to put on our own balance sheet as – just for yields and attract the product that we feel like we know well. The size of LFT over the past – or just in general but certainly since we've taken over management has limited our ability to generally diversify. But I think, as we stated, multifamily and housing in general is our bread and butter and I would expect it to continue to be maintained at or about the current levels or more. This uptick is largely related to doing the equity offering having a large portfolio of assets that we were able to immediately deploy capital that was raised by moving assets from the manager's balance sheet into the REIT at one time. So I think it's – I think it perhaps looks a bit overstated because of that. But in general, I would expect to stay at or below the levels meaning the self-storage and non-multi asset classes to stay at that somewhere south of 20%, 30% for – at the most in the…

Okay. Final question. Leverage ratio...

And I'll just...

Please go ahead.

So I was just going to add to that. Just – I mentioned that we did – subsequent to quarter end acquired $250 million of additional multifamily assets in July. And just to add to what Jim said, if you include those acquisitions as of the end of July, the portion of our portfolio investment in self-storage is now at 7% – or was at the end of July 7% and multifamily at 89%. So that was consistent with what Jim said. We'll supplement multifamily investments but don't expect it to be significantly more than what you see.

Great. And final question leverage ratio. What's the target leverage ratio going forward? And does that include the preferred stock in the equity part?

Yes. So, the -- I mean depending on what you want to look at for total leverage but we would look at both total equity and common. We continue to believe that we're -- for our size, our leverage is, we feel appropriate, because of the type of leverage that we utilize, the non-recourse turndown, financing of the CLOs, the favorable and standard term loan and even our preferred equity being perpetual with no put rates. In general, we think we're -- overall, our leverage ratios are on the high side of market as we grow and continue -- and we do expect to grow and continue to look and seek to raise new capital. The general expectation would be to raise capital that would help reduce that leverage ratio to more in line in the middle of the market.

Great. That’s it for me. Thank you.

The next question will come from Chris Muller with JMP Securities. Please go ahead.

Hi. Thanks for taking the question, and congrats on the two transactions this quarter. So, I guess following up on that a little bit. Can you guys talk about maybe what kind of loan capacity size you have following those two transactions, or said a different way, what is the fully deployed portfolio size?

Well, the fully deployed portfolio size of loans would be $1 billion just north. Yes. So from the standpoint of -- the only thing -- not the only thing but one of the benefits of the larger transaction allows us to execute larger deals. And that's largely due to just general diversification number of loans, size, geographic concentration, et cetera. So we can deploy the capital in a wider range of assets. But it's roughly $1 billion.

And then, with repayments they looked a little high this quarter. Was there anything behind that? And then, do you have any thoughts of what repayments will look like for the rest of the year? Thank you.

And Precilla can offer a few. I don't think there was any magic to what happened, other than you had notwithstanding the Delta variant and some of the concerns around COVID that are elevated again. I think you probably had some bit of managers holding off a bit because of uncertainty and not wanting to go into a permanent financing until they had more clarity on asset performance and overall economic health that might have facilitated some guys perhaps waiting a bit longer. But in general, I don't think -- Precilla, you can offer your thoughts on this. But I don't think there was any particular catalyst to say, hey, we need to prepay and get this refinanced. People are concerned about rates but we could probably go back and listen to these calls, for the last couple of years and have generally said, people are concerned about rising rates many of those quarters. So, I'm not sure that's a real true narrative. But maybe Precilla, if you have other thoughts there.

Sure. I would say the prepayment rates, to Jim's point is fairly consistent. I will note that perhaps one factor to consider if there was a bit of a -- obviously last year with COVID, there wasn't much activity on either the acquisition or financing side. And so there might have been a little bit of a delay if you will, prepayment level -- from the perspective of -- there were prepayments that probably should have happened last year, but were pushed off a little bit. So there was a bit of that, but I would not say in a material amount.

Great. Thanks for taking the questions.

Thank you.

[Operator Instructions] This will conclude our question-and-answer session. I would like to turn the conference back over to James Flynn for any closing remarks. Please go ahead, sir.

Thank you. I just want to thank everyone for your continued interest in LFT. I look forward to speaking again next quarter. And please reach out if you have any other questions and we'll talk to you soon. Thanks all.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.