Lument Finance Trust, Inc. (LFT) Earnings

Management highlights

- Market and Macroeconomic Context * U.S. economic conditions remain fundamentally stable, but uncertainty still outweighs growth momentum. The Federal Reserve has shifted to a more accommodative stance, but future rate cut pace and size remain data-dependent on inflation, labor market conditions, and broader financial stability. * Geopolitical uncertainty continues to weigh on investment markets, reinforcing a cautious approach to capital allocation. * Multifamily operating fundamentals are gradually stabilizing through the later stage of an elevated supply cycle: construction starts have fallen sharply, setting up for reduced new supply through 2026 and 2027. Rent growth is modest nationally but stronger in supply-constrained markets, with continued pressure in high-delivery regions. Long-term rental housing demand drivers remain intact, supported by limited for-sale inventory and elevated single-family mortgage rates. * Elevated long-term interest rates remain a core constraint, anchoring cap rates, pressuring asset values, and limiting access to attractively priced permanent financing. Financing conditions are more functional but still selective, with improved liquidity across securitization and warehouse lending markets for well-capitalized assets with strong sponsors. - Portfolio and Credit Management * Portfolio management and resolution of legacy assets remain the central focus of the firm's strategy. Management remains closely engaged with all borrowers and actively manages the REO portfolio to protect shareholder capital. * Overall portfolio credit performance was relatively stable in the quarter. Management took a disciplined approach to reserve management, increasing reserves on certain legacy positions to reflect updated market expectations. As of March 31, there were 7 risk-rated 5 loans (all multifamily-collateralized) with an aggregate UPB of $108 million (10% of total portfolio UPB), consisting of 3 maturity default loans ($51 million UPB) and 4 monetary default loans ($57 million UPB). * The weighted average portfolio risk rating improved sequentially to 3.1 from 3.2 in the prior quarter, driven by the transfer of one risk-rated 5 loan to REO. - Financing and Liquidity Activity * In February 2026, the firm redeemed all remaining outstanding debt under LMF 2023-1, refinanced the associated collateral via warehouse facilities, and amended its secured corporate loan to extend maturity to 2030 and upsize the facility to $50 million. * The firm generated $47 million in aggregate loan payoffs in Q1, and redeployed all reinvestment principal proceeds to acquire two new multifamily loan assets ($47 million) and a $1 million minority participation in an existing loan. * The firm ended the quarter with $21 million in unrestricted cash. Combined with available warehouse capacity and the 30-month remaining reinvestment period for FL3, management considers liquidity appropriate to support portfolio management, asset resolution, and select capital deployment. - Strategic Priorities * Core priorities continue to be progress on resolving legacy assets and selective, thoughtful redeployment of capital into attractive new loan opportunities. CRE recovery remains uneven, with performance differentiation widening by asset quality, location, sponsorship, and capital structure, so management emphasizes deliberate, cautious capital deployment focused on strong underwriting, protective structural terms, compelling risk-adjusted returns, and strong sponsors.

Guidance

Management did not issue formal numerical guidance for full-year 2026 in this call. Key forward-looking outlooks include: * Management expects to potentially execute a new securitization transaction in the relatively near future, contingent on completion of planned legacy asset resolutions. * Management projects that efficient capital deployment via new securitization is the key trigger to fully cover the current 4 cent per share quarterly dividend on an annual run-rate basis, with potential for long-term dividend growth as legacy asset resolution and reinvestment progress. * Management expects the CRE CLO market will remain a healthy source of liquidity going forward, supported by ongoing investor demand for floating rate exposure. * REO disposition timelines are planned to align with favorable seasonal and market conditions, with most assets positioned for exit over the near to medium term.

Segment performance

Lumen Finance Trust operates a single-segment portfolio of commercial real estate (CRE) floating rate loans, primarily collateralized by multifamily properties. As of March 31, 2026, the total portfolio held 57 floating rate loans with an aggregate unpaid principal balance (UPB) of $1.1 billion, which remained materially flat quarter-over-quarter. 93% of the portfolio is collateralized by multifamily properties, contributing 93% of total portfolio UPB, while the remaining 7% consists of other CRE assets. Key financial performance metrics for Q1 2026: net interest income of $5.7 million (a sequential increase from $5.4 million in Q4 2025), total operating expenses of $3.7 million (a sequential decrease from $3.8 million in Q4 2025), GAAP net loss to common stockholders of $1 million ($0.02 per share), and distributable earnings of $1.1 million ($0.02 per share). The REO portfolio held 4 multifamily properties as of quarter-end with an aggregate carry value of $57 million and a weighted average occupancy rate of 72%.

Risks & headwinds

- Persistent elevated long-term interest rates continue to anchor cap rates, pressure CRE asset values, and limit access to attractively priced permanent financing, which can hinder refinancing and asset sale activity. * Geopolitical uncertainty and uneven CRE market recovery create broad market risk, with performance varying sharply by asset quality, location, and sponsorship. * Credit risk remains concentrated in 7 legacy defaulted loans (10% of total portfolio UPB) that require active reserve management and resolution work. * Rising interest rates put downward pressure on REO exit pricing and can extend time to sale for foreclosed properties. * All forward-looking statements are inherently subject to unknown risks and uncertainties that could cause actual results to differ materially from projections, as detailed in the company's SEC filings.

Analyst Q&A

• Q: A reporter filling in for Jason Weaver asked about dividend sustainability, and what combination of capital redeployment, SOFR levels, or credit normalization is needed to support the current 4 cent per share quarterly dividend on a run-rate basis. /

  A: Management's core goal is to ensure annual earnings cover annual dividend payments. The firm is still transitioning from a period of under-deployment, deleveraging in its CLOs, and working through troubled legacy assets, a process that is progressing well but taking additional time. Management noted that the biggest driver of returning to full dividend coverage and eventually growing the dividend is efficient capital deployment via a new securitization transaction, which depends on completing planned legacy asset resolutions in the near term. While SOFR levels impact earnings, access to leverage via securitization and ability to source attractively-spread deals in a healthy capital markets environment (which currently exists) are far more impactful for dividend coverage.

• Q: Lee Zolch with Overcap asked for additional details on the remaining REO properties, why the San Antonio property sold when it did, and what the outlook is for selling the remaining assets. /

  A: Management explained that REO disposition strategy is highly asset and market-specific. The firm has in-house REO asset management expertise to improve under-managed properties: for assets that can be meaningfully upgraded with limited capital in 6 months or less, the firm will hold the asset for 2-3 quarters to implement improvements before selling at a higher value, with timing aligned to favorable seasonal market conditions like spring leasing season. For assets where larger capital improvements can deliver higher risk-adjusted returns for shareholders, the firm may hold the asset for a year or longer before exiting. For assets in difficult markets, the firm prioritizes fast resolution to free up capital. Management noted broad broker and investor interest in the remaining multifamily REO assets, despite some downward pressure on exit pricing from elevated interest rates.