NEW YORK, Aug. 9, 2018 /PRNewswire/ — Lument Finance Trust (NYSE: LFT) (“we”, “LFT” or “the Company”) today announced its financial results for the second quarter ended June 30, 2018. For the second quarter, the Company reported GAAP net loss attributable to common shareholders of $22.4 million, or $0.94 per share, a comprehensive gain of $1.1 million, or $0.05 per share, and core earnings ⁽¹⁾ of $2.0 million, or $0.09 per share. The Company also reported a net book value of $4.77 per share at June 30, 2018.

“The second quarter of 2018 was an important one for the Company in a number of key respects. We substantially completed the sale of our legacy MBS portfolio, repaid all our Agency repo and closed out all interest rate hedges. In line with the strategy articulated back in January when Hunt took over management of the Company, we reallocated capital into floating-rate transitional commercial mortgage loans, which benefit from match term CLO financing,” noted CEO James Flynn.  Mr. Flynn continued, “We achieved this wholesale portfolio transition while maintaining book value essentially flat, and delivering a positive economic return to shareholders after accounting for dividends paid.”  Mr. Flynn went on to state that “in May, we rebranded the REIT as Lument Finance Trust to better reflect the new strategic direction and management by Hunt Investment Management. And just as recently announced, our most recent CLO offering priced on August 3rd, 2018 which once closed will substantially complete the transition to our long-term strategy to focus on floating rate commercial mortgage loans.”  The transaction is expected to settle later in August.

Second Quarter Summary and Subsequent Events

• On April 30, 2018, the Company announced that it had acquired 100% of the equity interests of Hunt CMT Equity, LLC from Hunt Mortgage Group, LLC, an affiliate of Hunt Investment Management, LLC (“our Manager”), for an aggregate purchase price of approximately $68.05 million. Assets of Hunt CMT Equity, LLC include a loan portfolio of performing transitional floating rate commercial mortgage loans financed by a commercial real estate collateralized loan obligation, a licensed commercial lender and eight (8) loan participations.
• In continuation of our new strategic direction, we sold all remaining Agency RMBS, reducing our exposure from $1,095.2 million as of March 31, 2018 to $0.0 million as of June 30, 2018 and closed out all corresponding interest rate hedges. We realized losses of $29.8 million on the Agency RMBS sales and reversed out $23.5 million in unrealized losses previously captured in other comprehensive income for a net loss on sales of Agency RMBS of $6.3 million. This loss was offset by the closeout of our interest rate hedges resulting in realized gains of $23.2 million and a change in unrealized loss of $18.1 million for a net gain on interest rate hedges of $5.1 million. The capital released from this reduction has in part been redeployed into commercial mortgage loan assets, and is expected to be further deployed into new investment opportunities in the commercial real estate space.
• During the quarter, we continued the reduction of our credit risk MBS exposure. We reduced our Multi-Family MBS exposure from $20.3 million at March 31, 2018 to $4.4 million as of June 30, 2018 (on a non-GAAP combined basis). Additionally, we sold our remaining Non-Agency RMBS reducing our exposure from $4.2 million at March 31, 2018 to $0.0 million as of June 30, 2018 (on a non-GAAP combined basis). As a result of the sales of our Multi-Family MBS and Non-Agency RMBS, we realized a gain of $6.1 million on the Multi-Family MBS and realized a loss of $6.9 million on the Non-Agency RMBS and a change in unrealized loss on multi-family loans held in securitization trusts of $4.1 million and a change in unrealized gain on residential mortgage loans held in securitization trusts of $6.9 million resulting in a net gain of $2.0 million on Multi-Family MBS and a net gain of $44,959 on Non-Agency RMBS.
• On August 3, 2018, we announced the pricing of Hunt CRE 2018-FL2, Ltd., a $285 million commercial real estate collateralized loan obligation which will be comprised of 20 first lien floating-rate commercial real estate mortgage assets which, simultaneous with the closing of Hunt CRE 2018-FL2, Ltd., will be acquired from an affiliate of our Manager. The closing is expected to occur on or about August 20, 2018, subject to customary closing conditions.

⁽¹⁾ Core Earnings is a non-GAAP measure that we define as GAAP net income, excluding impairment losses, realized and unrealized gains or losses on the aggregate portfolio and certain non-recurring upfront costs related to securitization transactions or other one-time charges. As defined, Core Earnings includes interest income or expense and premium income or loss on derivative instruments.

New Strategic Direction

As a first and significant step in our strategic transition, we announced on April 30, 2018 that we had acquired 100% of the equity interests of Hunt CMT Equity, LLC from Hunt Mortgage Group, LLC for an aggregate purchase price of approximately $68.05 million. Assets of Hunt CMT Equity, LLC include a loan portfolio of performing transitional floating rate commercial mortgage loans financed by a commercial real estate collateralized loan obligation, a licensed commercial mortgage lender and eight loan participations. The assets of the CLO consist of performing transitional floating rate commercial mortgage loans with a portfolio balance of $320.9 million as of June 30, 2018, collateralized by a diverse mix of property types, including multifamily, retail, office, mixed use, industrial and student housing. The securitization pool is financed by $290.7 million of investment grade notes that bear a weighted average cost of 138 basis points over one month LIBOR, excluding fees and transaction costs. The CLO has a replenishment period that allows principal proceeds from repayments of the portfolio assets to be reinvested in qualifying replacement assets, subject to certain conditions.

As a continuation of our new strategic direction, we completed the transition out of our legacy Agency RMBS portfolio and substantially completed the transition out of our legacy credit risk MBS exposure, as outlined above, in order to release capital for further deployment into commercial real estate assets.  On August 3, 2018, we announced the pricing of Hunt CRE 2018-FL2, Ltd. a $285 million commercial real estate collateralized loan obligation.

Investment Portfolio and Capital Allocation

The following table summarizes certain characteristics of our investment portfolio and the related allocation of our equity capital on a non-GAAP combined basis as of June 30, 2018:

Operating Performance

The following table summarizes the Company’s GAAP and non-GAAP earnings measurements for the quarters ended June 30, 2018 and March 31, 2018:

Stockholders’ Equity and Book Value Per Share

As of June 30, 2018, our stockholders’ equity was $150.0 million and our book value per share of common stock was $4.77.

Dividends

The Company previously announced on March 16, 2018, that with effect from the third quarter of 2018, it would switch from paying dividends on its common stock on a monthly basis to a quarterly basis.  Accordingly, the Company intends to announce on or about September 14, 2018, its third quarter common stock dividend, payable on October 15, 2018 to stockholders of record on September 28, 2018.

In accordance with the terms of the 8.75% Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”) of the Company, the board of directors has also declared monthly cash dividend rates for the third quarter of 2018 of $0.1823 per share of Series A Preferred Stock:

Third Quarter 2018 Series A Preferred Stock Dividends

Non-GAAP Financial Measures

For financial statement reporting purposes, GAAP requires us to consolidate the assets and liabilities of the FREMF 2012-KF01 Trust.  However, our maximum exposure to loss from consolidation of the trusts is limited to the fair value of our net investment therein. We therefore have also presented certain information as of June 30, 2018, and March 31, 2018, that includes our net investments in the consolidated trusts. This information as well as core earnings, economic return and comparative expenses constitute non-GAAP financial measures within the meaning of Item 10(e) of Regulation S-K, as promulgated by the SEC. While we believe the non-GAAP information included in this press release provides supplemental information to assist investors in analyzing that portion of our portfolio composed of Non-Agency RMBS and Multi-Family MBS, and to assist investors in comparing our results with other peer issuers, these measures are not in accordance with GAAP, and they should not be considered a substitute for, or superior to, our financial information calculated in accordance with GAAP. Our GAAP financial results and the reconciliations from these results should be carefully evaluated.

Reconciliation of GAAP to Core Earnings

Additional Information

As of June 30, 2018, we have determined that we were the primary beneficiary of one Multi-Family MBS securitization trust, FREMF 2012-KF01 Trust. As a result, we are required to consolidate the trusts’ underlying multi-family loans together with their liabilities, income and expenses in our consolidated financial statements. We have elected the fair value option on the assets and liabilities held within the trust, which requires that changes in valuation in the assets and liabilities of this trust be reflected in our consolidated statements of operations.

A reconciliation of our net capital investment in multi-family investments to our financial statements as of June 30, 2018, is set forth below:

Lument Finance Trust

Lument Finance Trust is a real estate investment trust (“REIT”) focused with its subsidiaries on investing in, financing and managing transitional multi-family and commercial real estate loans, securities backed by multi-family mortgage loans or multi-family mortgage-backed securities (“Multi-Family MBS”), and other mortgage related investment including mortgage servicing rights. The Company’s objective remains to deliver attractive cash flow returns over time to its investors.

Lument Finance Trust is externally managed and advised by Hunt Investment Management, LLC.

Additional Information and Where to Find It

Investors, security holders and other interested persons may find additional information regarding the Company at the SEC’s Internet site at http://www.sec.gov/ or the Company website www.huntcompaniesfinancetrust.com or by directing requests to: Lument Finance Trust, 230 Park Avenue, 19th Floor, New York, NY 10169, Attention: Investor Relations.

Forward-Looking Statements

Certain statements included in this press release and any related webcast / conference call, may constitute forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. Forward-looking statements are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. You can identify forward-looking statements by use of words such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may,” “will,” “seek,” “would,” “could,” or similar expressions or other comparable terms, or by discussions of strategy, plans or intentions. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. Forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us on the date of this press release. Actual results may differ from expectations, estimates and projections. Readers are cautioned not to place undue reliance on forward-looking statements in this press release and/or any related webcast / conference call and should consider carefully the factors described in Part I, Item IA “Risk Factors” in our annual report on Form10-K for the year ended December 31, 2017, and the risk factor described in Part II, Item 1A “Risk Factors” in our quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2018, as such factors may be updated from time to time in our periodic filings with the Securities and Exchange Commission (“SEC”), when evaluating these forward-looking statements. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. Additional information concerning these and other risk factors are contained in our 2017 10-K which is available on the Securities and Exchange Commission’s website at www.sec.gov. Except as required by applicable law, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.