LFT

Good afternoon, and thank you for joining the Lument Finance Trust first quarter 2026 earnings call. Today's call is being recorded and will be made available via webcast on the company's website. I would now like to turn the call over to Andrew Tsang with Investor Relations at Lument Investment Management. Please go ahead.

Good afternoon, everyone. Thank you for joining our call to discuss Lument Finance Trust first quarter 2026 financial results. With me on the call today are James Flynn, our CEO, James Briggs, our CFO, Greg Calvert, our President, and Zachary Halpern, our Portfolio Manager. This morning, we issued a press release to provide details on our recent financial results. We also provided a supplemental earnings presentation which can be found on our website. We intend to file our 10-Q with the SEC this afternoon after market close. Before handing the call over to James Flynn, I'd 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.

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 statement. These risks and uncertainties are discussed in the company's reports filed with the SEC, in particular, the Risk Factors sections of our Form 10-K and Form 10-Qs. It is not possible to predict or identify all such risks, and listeners are cautioned not to place undue reliance on these forward-looking statements. The company also undertakes no obligation to update any of these forward-looking statements. Further, 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 or as a substitute for 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. For the first quarter of 2026, we reported a GAAP net loss of $0.02 and shareholder earnings of $0.02 per share of common stock. In March, we declared quarterly dividend of $0.04 per common share with respect to the first quarter, in line with the prior quarterly dividend. I will now turn the call over to Jim Flynn. Please go ahead.

Thank you, Andrew. Good afternoon, everyone. Welcome to the Lument Finance Trust earnings call for the first quarter of 2026. We appreciate everyone joining us today. Looking at the market, economic conditions in the U.S. continuing to remain fundamentally stable, although uncertainty continues to outweigh momentum. While the Fed Reserve has shifted toward a more accommodative stance, the pace and extent of any future rate cuts remain data dependent, including inflation, labor, market conditions, and broader financial stability. Geopolitical uncertainty continues to weigh on investment environment, reinforcing a cautious approach to capital allocation. Within multifamily, operating fundamentals are gradually stabilizing as the sectors move through the later stages of an elevated supply cycle. Construction starts have declined sharply, setting the stage for a meaningful reduction in new supply through 2026 and 2027. Rent growth remains modest at the national level, but improving performance in supply-constrained markets.

There is some continued pressure in high delivery regions to continue to work through. Long-term demand drivers for rental housing remain intact. Affordability constraints, limited for sale inventory, and elevated single-family mortgage rates continue to support renter demand. Longer-term interest rates remain a central constraint. Although short-term rates have declined from peak levels, elevated long-term rates continue to anchor cap rates, pressure asset values, and limit access to attractively priced permanent financing. Financing conditions have become more functional but still remain selective. Liquidity across securitization markets, warehouse facilities, and select balance sheet lenders has improved, supporting refinancing activity for well-capitalized assets with strong sponsors. The CRE CLO market remains a critical source of liquidity, with issuance continuing into 2026 amid strong investor demand for floating rate exposure. The asset management side. Portfolio management continues to be a central focus of our strategy.

We remain closely engaged with borrowers across the portfolio and are actively managing our REO portfolio to protect shareholders' capital and long-term values. During the quarter, overall portfolio credit performance remained relatively stable. We continue to take a disciplined approach to reserve management, increasing reserves on certain legacy positions to reflect revised expectations and prevailing market conditions. In terms of activity and liquidity, we continue to execute on our intended financing strategy. As discussed on the prior quarter's call, this past February, we redeemed the remaining debt outstanding under LMF 2023-1 and refinanced the collateral through our warehouse facilities as well as amended our secured corporate loan, extending the maturity to 2030 and upsizing to $50 million. We have been carefully managing liquidity and are selectively redeploying investable capital within FL3.

During Q1, we generated $47 million of aggregate payoffs and used reinvestment principal proceeds to acquire two new multifamily loan assets for $47 million and a $1 million minority participation related to an existing loan asset. We ended the quarter with unrestricted cash of approximately $21 million, combined with our available warehouse capacity and ability to reinvest FL3's capital over the course of its 30-month reinvestment period. We believe our liquidity position remains appropriate to support portfolio management, asset resolution, and select capital deployment. Our priorities remain making progress on resolving legacy assets and thoughtfully redeploying investable capital into attractive new loan asset opportunities. While credit markets have become more constructive, the recovery across commercial real estate remains uneven. Performance differentiation by asset quality, location, sponsorship, and capital structure continues to widen, underscoring the importance of selectivity.

In this environment, we remain cautious and deliberate in deploying capital, emphasizing strong underwriting, protective structures, compelling risk-adjusted returns, and strong sponsors. I'd like to turn the call over to Jim Briggs, who will provide details on our financial results.

Thanks, Jim. Good afternoon, everyone. This morning, we provided a supplemental investor presentation on our website, which we'll be referring to during our remarks. The supplemental investor presentation has been uploaded to the webcast as well for your reference. On pages four through seven of the presentation, you will find key updates and your earnings summary for the quarter. Today, after market closes, we intend to file our quarterly report with the SEC on Form 10-Q. For the first quarter of 2026, we reported net loss to common stockholders of $1 million or $0.02 per share. We reported distributable earnings of $1.1 million or $0.02 per share. There are a few Q1 P&L items I'd like to highlight. Our Q1 net interest income was $5.7 million, a sequential improvement from $5.4 million recorded in Q4.

This was largely driven by improved leverage and cost of funds through the FL3 CRE CLO, redemption mid-quarter of our LMF financing, which had a weighted average cost of funds at year-end of SOFR plus 331, and utilization of our other facilities. On the other hand, weighted average coupon of our loan portfolio declined to 709 basis points compared to 717 basis points in the prior quarter due to payoffs of higher spread loans relative to newly acquired assets, as well as a decline in the SOFR benchmark rate during the period. Given the active management of reinvestment capacity within FL 3, the ending outstanding UPB of the total portfolio remained materially flat quarter-over-quarter at $1.1 billion.

Total operating expenses, including fees to our manager, were slightly lower quarter-on-quarter at $3.7 million versus $3.8 million in Q4. Within these expenses, other operating expenses were lower sequentially, primarily due to discontinued deal costs we recorded in Q4. This was partially offset by reimbursable expenses being slightly higher this past quarter due to fewer waived exit fees on loan payoffs. As a reminder, when one of our loan asset pays off via an agency refinancing provided by an affiliate of our manager, the borrower's exit fee is waived pursuant to the terms of our management agreement, and the company receives a credit against expenses reimbursable to our manager equal to 50% of the waived exit fee.

The difference between reported GAAP net loss and distributable earnings during the quarter was primarily attributable to $1.3 million unrealized impairment expense on REO assets held for sale, a $1.2 million loss on extinguishment of debt relating to the remaining unamortized deferred financing costs associated with the LMF financing structure that was redeemed in February, and a $732,000 net release of provision for credit losses, as well as $305,000 of depreciation on REO. As of March 31st, we had seven loans risk rated a five. All of these loans are collateralized by multifamily assets. Greg will provide a bit more detail in his remarks. With respect to our allowance for credit losses, we evaluated these seven risk-rated five loans individually to determine whether asset-specific reserves were necessary.

After an analysis of the underlying collateral, we recorded a provision for specific reserves of approximately $550,000. This increase in specific reserves was offset by a $1.3 million decrease in our general allowance, primarily driven by changes to the macroeconomic forecast. After factoring in a $2.4 million charge-off to our specific allowance for an asset that transferred to REO, our specific reserves at 3/31 amounted to $15.8 million, or approximately 15% of the associated loan UPB of specifically evaluated assets. During the period, we also remeasured the fair value of the San Antonio and Houston REO properties classified as held for sale and recorded a $1.4 million unrealized impairment expense on those two properties.

We'll be noting in our subsequent events in the 10-Q that we completed a sale of the San Antonio property at the beginning of May for net proceeds of $12.4 million. There will be no Q2 P&L related to that REO sale. At quarter end, we were substantially fully invested in our FL3 CLO at an approximate 88% advance rate and a cost of funds of SOFR plus 191. Period-end financing of performing and non-performing and REO assets on the repurchase facility was at a weighted average advance rate of 69%. A weighted average cost of SOFR plus 200. Period end financing of non-performing in REO on our bank facility was at a weighted average advance rate of approximately 53% and a cost of SOFR plus 350.

We ended Q1 with an unrestricted cash balance of $21 million, and LMNT 2025-FL3 was substantially fully deployed. The end of the quarter was approximately $216 million. Total book value of common stock was approximately $156 million or $2.97 per share, decreasing sequentially from $3.03 at December 31st. We'll now turn the call over to Greg Calvert to provide details on the company's investment activity and portfolio performance during the quarter. Greg.

Thank you, Jim. During the first quarter, LFT acquired or funded $48 million of loan assets, effectively redeploying approximately the same amount of aggregate principal loan retainage received during the period. As of March 31st, our total loan portfolio consisted of 57 floating rate loans with an aggregate unpaid principal balance of approximately $1.1 billion, a weighted average floated rate of 331 basis points over SOFR, and an unamortized aggregate purchase discount of $1.3 million. The weighted average remaining term of our book as of quarter-end was approximately 19 months, assuming all available extensions are exercised by our borrowers. 100% of the portfolio was indexed to one-month SOFR, and 93% of the portfolio is collateralized by multifamily properties.

As of March 31st, approximately 77% of the loans in our portfolio were risk rated at three or better, compared to 83% as of December 31st. Our weighted average risk rating quarter-over-quarter improved to 3.1 from 3.2, primarily driven by one risk-rated five loan asset, as we'll discuss in a moment. This loan was being transferred to REO during the period. As of March 31st, we had seven risk-rated five loans with an aggregate principal amount of approximately $108 million, or approximately 10% of the unpaid principal balance of our quarter-end investment portfolio. These loans were also risk rated five as of the prior quarter.

They included three loans in maturity default with an aggregate UPB of $51 million collateralized by multifamily properties in Philadelphia, Pennsylvania, Arlington, Texas, Cedar Park, Texas, and also four loans in monetary default with an aggregate UPB of $57 million collateralized by multifamily properties in Tampa, Florida, Des Moines, Iowa, Tallahassee, Florida, and Ypsilanti, Michigan. During Q1, the company foreclosed on one loan asset collateralized by a multifamily property located in Colorado Springs. This asset had an aggregate net carry value of $8.2 million, net of specific reserves of $4.2 million. As of quarter end, the REO portfolio in total consisted of four multifamily properties with an aggregate carry value of $57 million and a weighted average occupancy rate of 72%. As Jim noted previously, we completed the sale of a San Antonio REO property at the beginning of May.

Additionally, we note in our filing that subsequent to quarter end, an Arlington, Texas defaulted loan asset was foreclosed on. That asset had a net carry value of $18.2 million, net of specific reserves of $3.6 million. Achieving positive asset resolution and maximizing recovery values remains our priority. With that, I will pass it back to James Flynn for closing remarks and questions.

Thank you. Thank you, Greg. Appreciate everyone joining us today and the continued support and partnership. Appreciate all of you attending today and would now like to open the call to questions.

Your first question comes from Jason Weaver with Jones Trading. Your line is now open.

Hey, good afternoon. This is Val Albar here filling in for Jason Weaver. Thanks for taking my question here. How are you guys thinking about dividend sustainability? What kind of combination of redeployment, SOFR environment or credit normalization would be needed to recover the current dividend on a run rate basis? Thank you.

The answer to the first question is, you know, our expectations are to ensure that our, you know, annual earnings are covering our annual dividend. We do look at the transition and have been as we moved from under deployed for much of 2025 and even going back a little bit further to deleveraging in our two CLOs and managing liquidity for some of the troubled assets, which as you heard today, we're working through those, you know, in a pretty good fashion, maintaining value but certainly taking a little bit more time in order to do so. That transition, we're hopeful to see the ability to execute a new securitization transaction.

At some point in the relative near future. It is dependent on some of the resolutions that we have planned, occurring at the asset level. The biggest driver of returning to a fully covered and higher dividend that we've seen in the past is to be able to deploy our capital in an efficient way. That requires us to be able to use the capital markets to be able to use the capital that's not currently invested in the securitization to put that into a securitization. That is the biggest trigger for coverage, in my opinion, and how we're anticipating doing that in the coming quarters. In terms of SOFR, you know, obviously that has an impact on earnings.

Again, the bigger impact is the leverage you can get in the securitization, finding appropriate deals with good spreads or decent spreads, and having a capital markets environment that is healthy on the liability side, which it continues to be as of today, and we expect it to in the future. We certainly are talking to the board and looking at our projections and looking at our, you know, midterm view over the next several quarters and long-term view over the next several years and ensuring that our expectations in the projections are to be able to cover, fully cover, a dividend and obviously, hopefully, as we continue to resolve the portfolio and reinvest it, to be able to eventually grow the dividend.

Great. Thank you. Appreciate it.

Ladies and gentlemen, as a reminder, should you have a question, please press star one. There are no further questions at this time. I will now turn the call over to James for closing remarks. I'm sorry. There's a question from Lee Zoltz with Ober/Cap. Your line is now open.

Good. Thank you very much for taking my call, my question.

Sure.

Very positive news on the San Antonio property. Can you provide a little color on the other REO properties? What characteristics did San Antonio have that it sold these other ones? Just how did that work out and how are the ones going forward, how do you see them being sold in the future?

Sure. Let me answer that from a little bit more of a macro level, and then, you know, Greg and Zach can give you maybe a little more color on those. From a macro level, you know, the path of action is, it's somewhat simple. The first is we have a, you know, with the support of the sponsor for LP, a much larger organization. We have, you know, a very sophisticated group of asset managers, of REO experts and people who can run and manage property within the manager. When we're looking at an asset, you know, the first question is, are we able to improve this asset in any meaningful way over a, call it, six months or less period, without too much capital?

If the answer is yes, then we're going to hold the asset for, you know, those couple quarters, maybe two or three quarters, improve on the low-hanging fruit that's been typically neglected by the existing sponsor, and then market the asset for sale at the appropriate kind of market timing. That's another piece of it. You know, typically we're not gonna The winter is like the worst time to trying to be renting and things like that, so we have to take that into account.

The second, longer term view is if we invest capital, can we have a return on an appropriate return on capital for the investors, that incremental capital, and return a greater value to the current shareholders, because our team is has a view in that market and that asset that it is far undervalued and has been poorly managed, and with some limited reinvestment, we can really improve the bottom line for the shareholders. In that case, we might hold it longer, so a year plus. And then for those assets where we feel that they're really struggling, it's a difficult market, and the best course of action is to resolve it and get out of it as quickly as possible. So it's really asset and market-specific, which would frankly answer the question at hand here.

Maybe Greg and Zach, you can add a little more color on those couple of deals.

I think you did a good job, Jim, of the macro approach. The only thing I will add is Jim was alluding to this, that our business on the REO and the disposition and asset management side is a micro business. It's driven by the specific assets at the specific location and the market fundamentals that we're up against at the time. You know, the spring is a good time to dispose of assets, right? It's the leasing season. Many of them we're looking at now, we've kind of plotted out when our best exit would be. Back to the market specifics, we have a pretty broad broker network and investor network in these markets.

Rise in interest rates puts downward pressure on our exit abilities, but we've overall seen a general interest in our multifamily assets that we're bringing to market. I'll stop there for now.

Okay. Thank you.

Ladies and gentlemen, as a reminder, should you have a question, please press star one. There are no further questions at this time. I will now turn the call over to James for closing remarks.

Thank you, operator, and thank you all for joining and expressing interest in the platform. We appreciate your investment. Look forward to speaking to you in the coming quarters.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Good morning, and thank you for joining the Lument Finance Trust Fourth Quarter 2025 Earnings Call. Today's call is being recorded and will be made available via webcast on the company's website. I would now like to turn the call over to Andrew Tsang, with Investor Relations at Lument Investment Management. Please go ahead.

Good morning, everyone, and thank you for joining our call to discuss Lument Finance Trust's Fourth Quarter and Full Year 2025 Financial Results. With me on the call today are Jim Flynn, our CEO; Jim Briggs, our CFO; Greg Calvert, our President; and Zach Halpern, our Portfolio Manager. Last evening, we filed our 10-K with the SEC and issued a press release to provide details on our recent financial results. We also provided a supplemental earnings presentation, which can be found on our website. Before handing the call over to Jim Flynn, I'd 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. 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, in particular, the Risk Factors section of our Form 10-K and Form 10-Qs. It is not possible to predict or identify all such risks and listeners are cautioned not to place undue reliance on our forward-looking statements. The company undertakes no obligation to update any of these forward-looking statements. Further, certain non-GAAP financial measures will be discussed on the conference call. Presentation of this information is not intended to be considered in isolation nor as a substitute for financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the more comparable measures prepared in accordance with GAAP can be accessed through our filings with the SEC. For the fourth quarter and financial -- fiscal year of 2025, we reported GAAP net loss of $0.17 and $0.14 per share of common stock, respectively. For the fourth quarter of fiscal year 2025, we reported distributable earnings of approximately $0 and $0.14 per share of common stock, respectively. In December, we declared a quarterly dividend of $0.04 per common share with respect to the fourth quarter, bringing our cumulative declared dividends for 2025 to $0.22 per common share. And then last Thursday, we declared a quarterly dividend of $0.04 per common share with respect to the first quarter of 2026, unchanged from Q4's quarterly dividend. I will now turn the call over to Jim Flynn. Please go ahead.

Thank you, Andrew. Good morning, everyone. Welcome to the Lument Finance Trust earnings call for the fourth quarter of 2025. We appreciate everyone joining us today. Taking a quick look at the market, the U.S. economy continues to remain resilient, although growth is moderating and uncertainty has increased modestly due to evolving monetary policy, fiscal dynamics and geopolitical risks and considerations. While the Federal Reserve began easing in 2025, the forward path of rates is expected to remain gradual and data dependent with inflation and labor market trends continuing to influence policy. Within commercial real estate, capital market conditions have improved with increased liquidity across both securitized and warehouse financing channels. However, transaction activity remains below historical averages as buyers and sellers continue to navigate pricing discovery and an elevated cost of capital environment. In multifamily, fundamentals are stabilizing following the peak of the recent supply cycle. New deliveries remain elevated in certain Sunbelt markets but are now expected to decline meaningfully into late '26 and '27, due to the sharply reduced starts over the past 18 months. As a result, rent growth remains modest, but is showing early signs of reacceleration in supply-constrained markets, while occupancy has remained relatively stable overall, albeit with some continued pressure in a few high delivery regions. Importantly, structural demand drivers for rental housing remain intact. Affordability constraints in the single-family housing market, coupled with the limited for-sale inventory and still elevated mortgage rates continue to support rental demand and long-term multifamily fundamentals. From a financing perspective, lower short-term interest rates relative to peak levels, combined with the still positive forward curve are constructive development for our borrowers. While debt service coverage remains under pressure for certain transitional assets, the modest easing in index rates and improved operating trends are helping to stabilize credit performance across the sector. The CRE CLO market remains an important source of liquidity with issuance volumes in 2025 exceeding $30 billion and a solid pace of activity continuing into 2026. Investor demand for floating rate exposure remains healthy, particularly for well-structured transactions backed by institutional quality collateral. Spreads have tightened modestly, reflecting improved sentiment, though they remain wide relative to long-term averages. Asset management -- active asset management remains our top priority. We continue to work closely with borrowers to drive outcomes that preserve capital and enhance long-term value, including modifications, extensions and asset level strategies where appropriate. Given the still uneven operating and financing environment, particularly for assets impacted by the recent supplier capital structure challenges, we remain proactive and disciplined in managing each position. During the quarter, portfolio credit metrics improved sequentially, primarily driven by the acquisition of additional performing assets associated with our recent CLO execution. At the same time, we increased reserves on select challenged legacy positions to reflect updated expectations and current market conditions. We have remained active in executing our financing strategy, taking advantage of improved but still selective capital market conditions while maintaining a disciplined approach to leverage and cost of capital. As referenced on last quarter's earnings call, in November of 2025, we entered into an uncommitted master repurchase agreement with JPMorgan Chase, which provides the company with up to $450 million borrowing capacity to finance first mortgage loans, controlling loan participations and other commercial mortgage loan debt instruments secured by commercial real estate. Further, in early December, we entered into a new loan agreement with Northeast Bank that provides the company with up to $50 million in advances to finance portions of our investment portfolio. This match term financing facility provides us with additional flexibility to resolve our REO holdings and achieve positive asset management outcomes. On the same day, the Northeast Bank facility closed, we executed the LMNT 2025-FL3 CLO transaction, a $664 million transaction with an effective advance rate of 88% and a weighted average cost of funds of approximately 191 basis points over SOFR, excluding fees and transaction costs. The initial collateral pool consisted of 32 first lien floating rate mortgage loans with participation secured by 49 multifamily and commercial real estate properties located across the United States. A portion of the collateral was owned by LFT prior to the closing and the remaining collateral was acquired by the company at fair market value plus accrued interest from an affiliate of Lument Investment Management LLC, the company's external manager. The weighted average collateral spread of the entire pool was approximately 321 basis points over 1-month SOFR. The FL3 CLO includes a 30-month reinvestment period, which allows us to redeploy loan principal repayments into new loan investments until June of 2028. In February, we redeemed the remaining outstanding loans and notes of LMF 2023-1 financing transaction and refinanced the underlying pool with our existing warehouse facilities. Given the relatively high weighted average cost of capital and the low current leverage of LMF, the redemption provided the company the ability to redeploy a portion of its investable capital into levered loan assets at more attractive financing terms over time. Finally, subsequent to quarter end, we also amended the terms of our existing secured corporate term loan, extending the maturity date to 2030 and providing us with an incremental $2.3 million of liquidity before fees and deal expenses. The term loan going forward bears an interest rate of 9.75%. During Q4, we generated approximately $104 million of payoffs with proceeds primarily used to reduce securitization liabilities. We also deployed approximately $400 million into loan assets, largely in connection with the FL3 transaction. We ended the year with approximately $23 million of unrestricted cash, combined with our available warehouse capacity, we believe our liquidity position remains appropriate to support portfolio management, asset resolution and selective capital deployment. Our near-term focus remains on active asset management, efficient resolution of legacy positions, and disciplined balance sheet management. While we are encouraged by improving conditions across commercial real estate credit markets, the recovery remains uneven and will likely take time to fully normalize. We continue to expect a market characterized by selectivity with outcomes increasingly differentiated by asset quality, sponsorship and capital structure. Against this backdrop, we remain cautious and highly selective in deploying capital with a focus on strong credit fundamentals, structural protections and risk-adjusted returns. We believe this approach positions us well to navigate the current environment while preserving flexibility to capitalize on opportunities as market conditions continue to evolve. With that, I'd like to turn the call over to Jim Briggs, who will provide us details on our financial results.

Thanks, Jim. Good morning. Last night, we filed our annual report on Form 10-K and provided a supplemental investor presentation on our website, which we'll be referring to during our remarks. Supplemental investor presentation has been uploaded to the webcast as well for your reference. On Pages 4 through 7 of the presentation, you'll find key updates and an earnings summary for the quarter. For the fourth quarter of '25, we reported net loss to common stockholders of $8.9 million or $0.17 per share. We also reported distributable earnings of approximately $0. There are a few items I'd like to highlight with regards to the Q4 P&L. Our Q4 net interest income was $5.3 million, a slight improvement from $5.1 million recorded in Q3. The weighted average coupon of our loan portfolio declined sequentially to 717 basis points compared to 777 basis points in the prior quarter due to lower spreads on newly acquired loans and a decline in the SOFR benchmark rate. The ending outstanding UPB of the portfolio increased due to the execution of the previously discussed FL3 CLO transaction in December, which we acquired approximately $383 million in assets from an affiliate of our manager. Total operating expenses, including fees to our manager, were elevated quarter-on-quarter at $3.8 million versus $3.1 million in the prior quarter, primarily attributable to onetime legal expenses related to REO assets, the previously mentioned FL1 redemption in November, as well as the financing initiative we elected not to proceed with after securing more attractive terms with the previously mentioned facilities. Primary difference between reported net income and distributable earnings for the fourth quarter was primarily attributable to $8.6 million of unrealized provision for credit losses, $200,000 realized loss on the sale of REO and approximately $296,000 of depreciation on REO. As of December 31, we had 8 loans risk rated 5. All of these are collateralized by multifamily assets. Greg will provide a bit more detail in his remarks. With respect to the allowance for credit losses, we evaluated these 8 risk-rated 5 loans individually to determine whether asset-specific reserves were necessary. After an analysis of the underlying collateral, we recorded a provision for credit losses in the quarter of approximately $8.6 million. Our specific allowance for credit losses has increased as a result to $17.6 million compared to $8.3 million as of September 30. And our general allowance for credit losses decreased $5 million -- decreased to $5 million from $5.7 million in the prior quarter, primarily driven by certain transfers to specific evaluation, payoffs during the quarter and changes to the macroeconomic forecast. We ended 2025 with unrestricted cash balance of $23 million and FL3 -- the CLO we closed in December was fully deployed. As Jim referenced earlier, FL3 provided effective leverage of 88% at a weighted average cost of funds of SOFR plus 191 basis points. The company's total book equity at the end of the quarter was approximately $219 million. Total book value of common stock was approximately $159 million or $3.03 per share, decreasing sequentially from $3.25 per share as of September 30. I'll now turn the call over to Greg Calvert to provide details on the company's investment activity and portfolio performance during the quarter. Greg?

Thank you, Jim. During the fourth quarter, LFT acquired or funded $400 million of loan assets, the majority of which were obtained as initial collateral for the FL3 transaction. During the period, the company experienced $104 million of loan payoffs. As of December 31, our total loan portfolio consisted of 61 floating rate loans with an aggregate unpaid principal balance of approximately $1.1 billion, a weighted average floating rate of 333 basis points over SOFR and an unamortized aggregate purchase discount of $1.7 million. The weighted average remaining term of our book as of quarter end was approximately 21 months, assuming all available extensions are exercised by our borrowers. 100% of the portfolio was indexed to 1-month SOFR and 93% of the portfolio was collateralized by multifamily properties. As of December 31, approximately 83% of the loans in our portfolio were risk rated at 3 or better compared to 46% as of September 30. Our weighted average risk rating quarter-over-quarter improved to 3.2 from 3.6. This is primarily driven by the acquisition of additional loans for the period from an affiliate of the manager in connection with the FL3 transaction. During the period, we transitioned 1 loan with a UPB of $9.8 million from a 5 risk rating as of September 30 to a 4 or better rating as of December 30 due to an execution of a loan modification, which included a partial paydown of the loan by the borrower in exchange for an extension until Q4 2026. As of December 31, 2025, we had 8 risk-rated 5 loans with an aggregate principal amount of approximately $117 million or approximately 10% of the unpaid principal balance of the quarter end investment portfolio. These included one loan in maturity default that was downgraded to a risk rating of 5 during the quarter with a balance of $22 million collateralized by a multifamily property in Arlington, Texas; 1 loan in monetary default that was downgraded to a risk rating of 5 during the quarter with a balance of $18 million collateralized by a multifamily property in Tampa, Florida; 3 loans in maturity default that continue to be risk rated 5 with an aggregate principal balance of $40 million collateralized by multifamily properties in Philadelphia, Colorado Springs and Cedar Park, Texas; and 3 loans in monetary default that continue to be risk rated 5 with an aggregate principal balance of $38 million collateralized by multifamily properties in Des Moines, Iowa, Tallahassee, Florida and Ypsilanti, Michigan. During 2025, the company foreclosed on 4 REO assets. In late December, we sold one of the properties located in San Antonio, Texas to a third party for $8.2 million and recognized a $500,000 loss in the fourth quarter on the sale. As of December 31, our REO was comprised of 3 multifamily properties. Two of these remaining properties are located in San Antonio and the other is in Houston, Texas. As of quarter end, the properties had a weighted average occupancy rate of 69%. Achieving positive asset management resolutions and maximizing recovery values remains our priority. With that, I will pass it back to Jim Flynn for closing remarks and any questions.

Thank you, Greg. Thank you all for joining, and we appreciate your continued partnership and support. And with that, I'd like to ask the operator to turn the call over to questions.

[Operator Instructions] Your first question comes from Jason Weaver with JonesTrading.

I was wondering, can you give some context on how you view the risk reward and opportunity today for new capital deployment against the last few weeks' backdrop of elevated rate volatility?

Sure. I mean, obviously, the very current market environment has created some incremental challenges when reviewing the assets. But the starting point is still what is focused on the sponsor in the market, what the expectations are for growth in that market and what the supply dynamics are along with the demand. So that is certainly an evaluation or part of the evaluation kind of the geopolitical volatility here. But we do still firmly feel resolved in the strength of the multifamily market and have to take a bit of a longer view. Our deals are typically structured with interest rate caps. So on the short-term basis, we're protecting ourselves during the initial term of the loan. But we do stress those scenarios, but I think the most important aspects of evaluating the risk around sponsor and market still carry the day even in the most volatile of times. And then structurally, you do your best to protect yourselves both from a leverage standpoint and an interest rate volatility standpoint with structure and caps. But again, sponsor market are going to be critical to that. Certainly, the hope is that over the 2- to 3-year period of a bridge loan that you have some stability return to the market, hopefully sooner than later, but it's obviously a consideration as we deploy capital. And again, I think it makes those first components even more important.

Got it. And to that point, with the new CLO closed, is there an updated comfort zone for leverage over the near term?

On a loan level basis? Is that what you mean or...

Yes. Well, just overall, really.

I mean on the loan level basis, I would say, on average, over the last couple of years since, call it, '23, really '24, average leverage at the asset level has declined relative to historical bridge lending activity. So you're seeing particularly on the lease-up side, construction deals coming on construction, but you're seeing regularly seeing assets in the 60s and low 70s, pretty much across the board. And you're seeing very few in the -- up in the -- into the 80% or higher range. So you've come down pretty meaningfully from what we were seeing in the late teens and early 2020s on a loan level basis. And overall, I mean, corporately, we've been around the same leverage. The leverage available in CLOs is slightly higher than historic norms that obviously we would want to take advantage of. But aside from that, we're not anticipating any material changes to the fully deployed leverage of the LC vehicle.

The next question comes from Chris Muller with Citizens Capital Markets.

So it looks like nonaccruals as a percent of the portfolio improved in the quarter, which I assume is mostly due to the $400 million of new loans. What was the balance of nonaccruals at year-end? And do you guys have how much of a drag on earnings those assets are?

Chris, the nonaccruals, which we touched on in the footnotes individually is -- let me just quickly add this up. I don't have -- sorry -- the drag is about $0.02 and the UPB is $102 million.

Got it. And then I guess on a similar note, how are you guys thinking about the path to dividend coverage this year? And I guess how it's related is, can you guys get there by cleaning up the existing portfolio in REO? Or do we need to see some portfolio growth to get back to that $0.04 level?

So that is the primary topic that we've been focused on and focused on with our Board. The short answer is it's probably a little bit of both. I think on a fully deployed level, we feel that the dividend would be more than covered. What we've looked at is the timing for -- the anticipated timing that we see on the horizon for some of these assets, including those, but also some other payoffs that are anticipated, and then redeploying that capital into newer performing assets, along with the potential for a future financing -- of a future portfolio level financing, whether that be a new CLO, which certainly we'd like to be able to do. But if not a CLO, some broader performing loan portfolio financing to basically have 2 large vehicles similar to the current CLO that we have outstanding. So when we put together kind of the schedule of the timing for resolution and payoffs in the portfolio, the redeployment into performing loans and the potential for more attractive financing in the future, we weigh those things together and feel that it's appropriate to keep the dividend where it is and move through this year and move back toward full coverage of that dividend.

The next question comes from Lee Zulch with Overcap.

Could you give some color on Q1 2026?

I mean I can't give you too much, obviously, as that's forward-looking. But our -- most critically, I suppose I would say is our asset management and where we see resolutions and asset performance, and it's in line with our expectations on a timing standpoint, as we kind of evaluated the plan for the dividend and earnings release, et cetera. So that's kind of, I guess, what I would say, where we've had the ability to redeploy capital with payoffs, we've been able to do so successfully with new performing loans. And obviously, the flurry of new financing activity between the CLO, the 2 warehouses, the refinancing of the term loan have all stabilized the credit side of our balance sheet. And now we're really fully focused on resolving some of these legacy assets that have been on the books for a while, and they're moving forward. We'd like to see everything move a little bit more quickly, but they are moving according to plan and relatively on schedule. I would just mention as well as Jim Briggs mentioned in the earnings call, we did call that 2023 financing transaction with that at a higher cost of funds.

Thank you. As there are no more questions, I will pass back to James Flynn for any closing remarks. Please go ahead.

Thank you. Again, thank you for your participation and continued interest in the platform, and we look forward to speaking to you again next quarter.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.