Lument Finance Trust (NYSE:LFT) reported a second-quarter 2026 GAAP net loss of $9.2 million, or $0.18 per common share, and a distributable loss of $5.3 million, or $0.10 per share, as the company continued to build liquidity and work through challenged legacy multifamily assets.
The company declared a quarterly dividend of $0.04 per share in June, unchanged from the prior quarter. Chief Executive Officer Jim Flynn said management remains focused on resolving non-performing loans and real estate owned, or REO, assets, protecting book value and redeploying capital into higher-quality multifamily investments.
Portfolio runoff weighed on net interest income
The total portfolio’s ending unpaid principal balance was about $1 billion at June 30, down from $1.13 billion at March 31. The weighted average loan coupon declined to 704 basis points from 709 basis points in the preceding quarter, driven by payoffs of higher-spread loans, newly acquired assets and a modest decline in average SOFR during the period.
Lument funded or acquired four loans totaling $91 million during the quarter, while loan payoffs totaled $184 million. The portfolio consisted of 51 floating-rate loans as of June 30, with a weighted average spread of 330 basis points over SOFR. About 91.7% of the portfolio was collateralized by multifamily properties, and all loans were indexed to one-month SOFR.
Operating expenses, including management fees, rose to $3.9 million from $3.7 million in the prior quarter, primarily due to higher reimbursable expenses associated with resource allocation, Briggs said.
Credit provisions and resolutions shaped quarterly results
The difference between the reported GAAP net loss and distributable loss primarily reflected an $8.6 million net provision for credit losses, $5.1 million of realized losses on mortgage loans and REO assets, and $390,000 of REO depreciation, according to Briggs.
The credit-loss provision was driven largely by reserves on loans assigned the company’s highest-risk rating of five. Lument had six risk-rated-five multifamily loans at June 30, representing $98 million, or approximately 10%, of the portfolio’s unpaid principal balance. Four of those loans, with a combined balance of $62 million, carried the rating in the prior quarter, while two loans totaling $36 million were downgraded during the second quarter because of monetary defaults.
Specific reserves totaled $7.4 million at quarter-end, equal to about 18% of the unpaid principal balance of assets individually evaluated for reserves. Briggs said the company recorded provisions on two newly downgraded loans and three assets already rated five, including a property foreclosed on and transferred to REO during the quarter.
The company resolved three assets during the quarter. These included discounted payoffs on two previously risk-rated-five loans in Philadelphia and Des Moines, with proceeds generally in line with their March 31 carrying values. Lument also sold an REO property in San Antonio for $12.1 million and recorded a small GAAP gain on the transaction.
President Greg Calvert said the REO portfolio consisted of four multifamily properties with an aggregate carrying value of approximately $61.6 million and weighted average occupancy of about 67% at quarter-end. In addition to the San Antonio sale, the company foreclosed on a multifamily property in Arlington, Texas, during the quarter. Subsequent to quarter-end, it foreclosed on a Dallas multifamily property associated with a $21.9 million risk-rated-five mortgage loan.
Management sees improving resolution activity
Flynn said multifamily fundamentals are improving as the sector moves beyond peak supply levels, although rent growth remains modest. He cited housing affordability as a long-term demand driver, while noting that elevated long-term interest rates continue to pressure transaction activity and real estate valuations.
Management said it is seeing greater resolution activity for legacy assets, including negotiated sales and other efforts to monetize or stabilize challenged positions. Flynn said the company expects several additional resolutions over the next quarter or two, though he cautioned that market conditions remain difficult in certain submarkets.
During the question-and-answer session, Flynn said many troubled loans originated in 2021, 2022 and early 2023, a period when assets were acquired at lower interest rates, lower expense levels and lower capitalization rates. He said some sponsors have run out of capital to maintain properties or support their investments as values declined and costs increased.
Management intends to fully deploy capital in 2027, Flynn said. He estimated that Lument has roughly $1 billion of outstanding assets but should be closer to $1.4 billion, with non-performing loans, REO and inefficiently financed assets acting as a significant drag on earnings.
Book value declined; reverse split planned
Total book equity was approximately $205 million at June 30. Common stock book value was approximately $145 million, or $2.76 per share, down from $2.97 per share at March 31.
The company ended the quarter with $29 million of unrestricted cash. Its CLO capital was substantially fully deployed, with an 88% advance rate and funding cost of SOFR plus 191 basis points. Warehouse-financed loans and REO assets had an effective advance rate of 68% and weighted average funding cost of SOFR plus 209 basis points.
Lument’s board approved a 10-for-1 reverse stock split, expected to become effective after the market closes Sept. 9. Shares are expected to begin trading on a split-adjusted basis on Sept. 10 under the existing LFT ticker. Flynn said the move is intended to provide flexibility for compliance with New York Stock Exchange listing requirements and support a more orderly market for the shares.
Responding to shareholder questions, Flynn said the company continues to evaluate potential mergers, strategic alternatives and stock repurchases with its board and advisers. Briggs confirmed that the company’s $10 million stock repurchase program remains open. Flynn said any repurchases would need to be considered alongside the company’s liquidity needs as it resolves underperforming assets.
About Lument Finance Trust (NYSE:LFT)
Lument Finance Trust is a real estate investment trust that focuses on originating and acquiring senior secured loans backed by commercial real estate properties. Listed on the New York Stock Exchange under the ticker LFT, the company seeks to generate attractive risk‐adjusted returns by targeting floating‐rate, first‐mortgage loans across a broad range of property types, including multifamily, office, retail, industrial and hospitality.
The firm’s core business activity centers on deploying capital into short‐ and medium‐term financing solutions for institutional real estate owners and developers.
