Lument Finance Trust, Inc.

Good afternoon and thank you for joining the Lumen Finance Trust second quarter 2024 earnings call. Today 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 Chang at Lumen Investment Management. Please go ahead.

Good afternoon, everyone. Thank you for joining our call to discuss Lumen Finance Trust second quarter 2024 financial results. With me on the call today are Jim Flynn, our CEO, Jim Briggs, our CFO, Jim Henson, our President, and Zachary Halpern, our Managing Director of Portfolio Management. On Monday, August the 12th, we filed our 10-Q with the SEC and issued a press release to provide 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 Flynn, I'd like to remind everyone that certain statements made during the course of this call are not based on historical information. They constitute forward-looking statements in 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 the forward-looking statements. These risks and uncertainties are discussed in the company's reports filed with the SEC, in particular, the risk factor section of Reform 10-K. 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 undertakes no obligation to update any of these forward-looking statements. Further, certain non-GAAP financial measures that we discussed on this conference call. A presentation of this information is not intended to be considered in isolation nor 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 second quarter of 2024, we reported GAAP net income of $0.07 and distributable earnings of 9 cents per share of common stock, respectively. In June, we also declared a dividend of 8 cents per share with respect to the second quarter, which represented a 14% increase over the first quarter dividend of 7 cents per share of common stock.

I will now turn the call over to Jim Flint. Please go ahead. Thank you, Andrew. And good day, everyone.

Welcome to the Lumen Finance Trust earnings call. for the second quarter of 2024. We appreciate everyone joining today. In the first half of 2024, the US economy largely outperformed consensus expectations. However, the CPI measured in June showed a declining rate of growth in the consumer price index, and August jobs reports were weaker than expected. As a result, the market seems to have renewed confidence that the Fed will start its easing cycle in September. as reflected in the 10-year Treasury remaining below 400 basis points since the beginning of August. While such easing will likely be beneficial to a number of sectors, including commercial real estate, we expect to proceed cautiously as the economy remains at elevated risk of recession. While the economic data has generally outperformed commercial real estate and suffered through the high rate and inflationary environment, Improvements in the rate environment and the bottoming of property values should translate into a thawing of capital markets and an uneven recovery of transaction flow in the commercial real estate sector. Despite the modest softening of multifamily fundamentals impacted by a large supply of newly constructed units coming online over the last six months, we believe that multifamily, and particularly middle market multifamily, will continue to remain a strong performing asset class in the long term. We firmly believe the LFP has differentiated itself from its peer group through its deliberate focus on middle market multifamily credit, which has enabled the company to deliver a sustainable, stable dividend to our shareholders and preserve shareholder capital during this challenging part of the cycle. Our expertise in the origination, underwriting, and active asset management of multifamily mortgage investments has been, and we expect will remain central to the company's identity for the foreseeable future. Coupled with the strong sponsorship from the broader Lumen and Oryx platforms, we believe LFT represents a truly unique value proposition in the public markets today. In an environment where others have found it challenging to sustain stable dividend levels, we are proud to have been able to benefit our shareholders and raise the common dividend in June by a penny, which represents a 14% sequential increase over Q1. Approximately a year ago, we closed the LMF secured financing transaction, which provided the company with additional investment capacity and extended our runway for future reinvestment. By the end of 2020, 2023, we were successful in fully deploying our capital into strong, predominantly multifamily credits. Since that time, we've been focused on actively managing our loan investment portfolio. Although we experienced a slight decline in our weighted average risk rating to 3.6 as compared to 3.5 as of March 31st, we believe our investments have continued to perform well on a relative basis thanks to our heavy focus on multifamily, which has generally outperformed other CRE asset classes, our prudent upfront underwriting, and our active approach to asset management. We continue to maintain a strong liquidity position, ending the quarter with approximately 65 million of unrestricted cash on our balance sheet. The persistence of elevated short-term rates has allowed us to generate attractive returns on our cash balances while we continue to intentionally take a defensive cash position to provide us with flexibility in managing the more challenging credits in our portfolio. As discussed on prior earnings calls, Our loan portfolio is financed with long-dated secured financings that are not subject to mark-to-market or margin costs. The LMF financing transaction has a reinvestment period that continues into July 2025, and we intend to reinvest capital into new loan investments as liquidity becomes available through repayments of existing collateral. On the other hand, the reinvestment period of our 2021 CLO ended in December of 2023. and we are actively exploring alternatives to recapitalize this structure. As of quarter end, the cost of funds for FL1 was swaps plus 161, and the effective advance rate was approximately 80%, which we believe will represent attractive terms relative to other secure financing options currently available in the market. We have observed that the issuance of new CRE CLO transactions remain muted, with just one managed vehicle pricing in the market last quarter and just three since the start of the year. With that, I'd like to turn the call over to Jim Briggs, who will provide us details on our financial results. Jim?

Thanks, Jim. Good afternoon, everyone. Yesterday, we filed our quarterly report on Form 10-Q and provided a supplemental investor presentation on our website. which we'll be referencing during our remarks. Supplemental investment 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 earnings summary for the quarter. The second quarter of 2024 reported net income to common stockholders of approximately 3.4 million or seven cents per share. They also reported distributable earnings of approximately 4.8 million or $0.09 per share. There are a few items I'd like to highlight regarding the activity during the period. Our Q2 net interest income was $9.5 million compared to $13 million in Q1 of 24. The sequential decrease was primarily attributable to the company recognizing in the prior quarter approximately $3 million of one-time pass-through income related to the resolution of two defaulted loans one collateralized by an office property located in Columbus, Ohio, in which we reduced our carrying value to zero, and another collateralized by a multifamily property located at Virginia Beach, Virginia, which was modified and brought current through Q1 and which remains performing and risk-rated of four. One component of the sequential variance in net interest income was also a result of average outstanding loan portfolio size decreasing versus the prior quarter as we received approximately 98 million of principal payoffs within the FL1 securitization, which is no longer within its reinvestment period. Aggregate payoffs and paydowns during Q2 totaled 98 million as mentioned as compared to 97 million in the prior quarter with exit and other fees similarly comparable quarter on quarter. Total operating expenses were 3.5 million in Q2 versus 4.3 million in Q1. The majority of the decrease in expenses was driven primarily by a lower sequential accrual of incentive fees due to our manager, which are payable on a quarterly basis equal to 20% of the excess of core earnings as defined in the management agreement over an 8% per annum return threshold. Other general operating expenses were largely in line quarter over quarter. The approximately $1.4 million difference between reported net income and distributable earnings to common was attributable to an increase in our allowance for credit losses. As of June 30th, we had four loans risk-rated a five. One was a $17 million loan collateralized by multifamily property in Brooklyn, New York and was risk-rated a five due to maturity default. Another was a $20 million loan collateralized by two multifamily properties near Augusta, Georgia that was risk-rated five due to monetary default. Third was a $15 million loan collateralized by two multifamily properties in Philadelphia, Pennsylvania that was risk-rated five due to monetary default. All three of these loans have been placed on non-accrual status with cash received on the Philadelphia property to be recognized on a cost recovery basis. Five risk-rated asset was a $32 million loan collateralized by a multifamily property in Dallas, Texas that was in technical default. We evaluated these four five risk-rated loans individually to determine whether asset-specific reserves for credit losses were necessary. And after an analysis of the underlying collateral, we recorded a specific allowance in Q2 of approximately $900,000. The general CECL reserve increased by approximately $500,000 during the period driven primarily by changes in the macroeconomic forecast, as well as Monarch's risk rating migration in the portfolio. The company's total equity at the end of the quarter was approximately $242 million. The total book value of common stock was approximately $182 million, worth $3.48 per share, largely flat from $3.50 per share as of March 31st. We ended the second quarter with an unrestricted cash balance of $65 million, and our investment capacity through our two secured financing was effectively fully deployed. I'm going to now turn the call over to Jim Henson to provide details on the company's investment activity and portfolio performance during the quarter. Jim?

Thank you, Jim. Good afternoon, everyone. I will now share a brief summary of the recent activity in our investment portfolio. During the second quarter, LFT experienced $98 million of loan payoffs. A portion of these payoffs related to the defaulted loans discussed by Jim just a few moments ago. We did not acquire or fund any new loan assets during the period. As of June 30, our portfolio consisted of 78 floating rate loans with an aggregate unpaid principal balance of approximately $1.2 billion. 100% of the portfolio was indexed to one month SOFR. and 93% of the portfolio is collateralized by multifamily properties. While we endeavor to actively manage the maturity risk within our portfolios, it is worth noting that we had the foresight at the time of loan origination to include extension features within our loan investment documents. As a result, the weighted average remaining term of our book is approximately 30 months if all available extensions were to be exercised by our loan borrowers. As of the end of the second quarter, our portfolio had a weighted average floating note rate of SOFR plus 359 basis points and an unamortized aggregate purchase discount of $5.6 million. As mentioned earlier, our secured financing remained attractive. The quarter ended with FL1, our CRE-CLO transaction, providing effective leverage of 79.5%. at a weighted average cost of funds of SOFR plus 161. The LMF financing provided the portfolio with effective leverage of 82.2% at a weighted average cost of SOFR plus 314 basis points. On a combined basis at the end of the quarter, our two securitizations provided our portfolio with effective leverage of 80.4% and a weighted average cost of funds of SOFR plus 212 basis points. As of June 30, approximately 63% of the loans in our portfolio were risk-rated three or better, down from 77% in the prior quarter. Our weighted average risk rating was 3.6, a slight deterioration from 3.5 sequentially. While both loan assets that had been risk-rated five as of March 31 were fully resolved during the second quarter, our aggregate loan exposure on the four newly risk-rated five loans was approximately $84 million at the end of the second quarter, up from an aggregate $38 million at the end of the first quarter. As Jim Briggs outlined earlier, we evaluated the four five-rated loans individually to determine whether asset-specific reserves for credit losses were necessary. And after an analysis of the underlying collateral, we recorded the specific allowance of approximately $900,000 in the second quarter. We expect to continue to rely on the expertise of our talented asset management team to actively resolve these five-rated loan assets, protecting our investors' capital and maximizing value for our shareholders. I will now pass it back to Jim Flynn for closing remarks and questions.

Thank you, Jim and Jim. And appreciate everyone joining, but we'll open the call to questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star button followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star button followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from the line of Kristen Love of Piper Sandler. Please go ahead.

Thanks, and good afternoon, everyone. Just first off on credit quality, you have had pretty stable credit for several quarters now, but did see some degradation here in the second quarter related to some non-performers migration, RAID 5 loans, and then the allowance bill that you discussed. Can you just discuss the credit outlook as we stand today? Do you believe that we've reached a peak stress and multifamily credit during this cycle and just your intermediate term outlook, just given the environment and how you look at the portfolio.

Yeah, I think, I mean, it's, it's hard to, we've all kind of been a little bit off here for the last six quarters on predicting the market, but there does seem to be, you know, a, a, some expectation that we're kind of at or near that peak stress period. We do see rate reductions on the horizon, both obviously long-term, we've seen their tenure come down, and expectations around SOFR cuts, or Fed cuts, which will directly impact these floating rate borrowers. So those things are obviously... beneficial to the credit quality of the portfolio, certainly in a vacuum. They come on the heels of other economic data and news, which generally isn't positive. But I think if you take a look at multifamily and how it's performed throughout cycles, near-term and long-term, it's done pretty well. And the supply-demand dynamic in the country isn't changing, in fact, probably getting worse. And so there's some stability, even in times of economic stress. Now, that being said, with respect to our portfolio, and Zach and others can provide some more detail, I'm sure we'll have some other questions, we've seen more stress over the last couple of quarters as we continue to go through this cycle. And we've continued to to actively manage those and feel, you know, pretty good about our ability to do so. You know, but we have to work through issues. We've had, you know, elevated risk assets in the past that we've been able to resolve. You know, from a value standpoint, we still feel pretty good. You know, we did take a reserve on one asset as was noted in the K. you know, that is consistent with how we look at value throughout our history managing this entity. We do and will continue to work toward, you know, resolution of that without a loss or minimizing a loss, but from a, you know, gap and consistent standpoint, we felt it was appropriate to take a reserve on that asset. And with respect to the other assets, you know, there's we have a great team here that is, you know, daily managing those and speaking to the sponsors on those assets and helping to participate in creating plans to improve the assets performance. And as we've discussed in the past, you know, we do have the ability to really add operational expertise where needed with our sponsors or without. So yes, we're in a period of elevated stress. We still continue to feel pretty confident in the quality of our portfolio, but do need to continue to work through some of these more challenging assets.

Great. Thank you, Jim. I appreciate the comments there. And then just on deployment, for the second quarter, didn't add any new investments, but I think you had nearly $100 million of payoff. So, what's keeping you from being more active here? Is it a concerted effort as you focus on asset management on the current portfolio? Or are there also a lack of opportunities out there? And how would you expect kind of the opportunity landscape to change as rates do come down in the coming months?

Sure. So first on the capacity standpoint, so As I mentioned at the end of my remarks, the larger CLO, the 2001 CLO, is through its reinvestment period. And so that securitization is de-levering. It's still an attractive financing, SOFR plus 161 and 80% leverage, even with those payoffs. So we do intend to continue to evaluate options there as we move forward. through the next few quarters. But that's part of the reason, right? That capacity is just really deleveraging. On the LMF transaction, we've generally remained fully deployed, you know, some timing as an asset pays off. And we've kept, you know, for the size of our entity, a relatively high cash position, in large part just to ensure that when needed, we can offensively manage the portfolio with our sponsors. In terms of the market, we are seeing more opportunities today than what we've seen over the last handful of quarters of high-quality deals. It's competitive. It's not the volume that you would like to see, but it's starting to There's anecdotal evidence out there and on some of the calls from the peer group, you've heard of the competitive environment for acquisitions. The thing that's really slowed this market down has been the lack of asset changing hands. There's very active buyer community out there and there does seem to be some loosening on the seller side. for folks to exchange assets and that will help find good deals for the bridge market. The other tailwind on the transaction side is these deliveries, particularly in the Sunbelt, of all those construction assets coming online or at least coming through their construction period and maybe need a lease period and that provides some opportunity in the bridge space. So I do think that, you know, we're going to continue to see transaction opportunities increase over the coming quarters. It may be a little slower than we'd like to see, but it will at least be going forward, which is a welcome change to where it's been.

Great. Thank you so much. That's all I have for questions. Appreciate it.

Your next question comes from the line of Matthew Erner of Jones Trading. Please go ahead.

Hey, good afternoon, guys. Thanks for taking the question. Could you talk about the timing of the payoffs this quarter and kind of what led to the sequential decline in commercial loan income?

Sure. Jim and Zach, I guess, if you guys want to. Zach, you want to touch just timing?

I mean, I think it was just sort of normal.

Yeah. Yeah. Well, were the payoffs kind of towards the beginning of the quarter rather than the end, which led to it kind of being $5 million less than the prior quarter?

Yeah. I mean, you know, when I look at sort of loan balance, the REIT by month, really somewhere around 1.3 at March 31, 1.3 April 30th, and then a drop-off to 1.25 May 31st and 1.2 June 30th. So I don't know. I think it sequentially moved down pretty steadily throughout.

Okay, gotcha.

And then, you know, as a follow-up, you know, what are you guys seeing within your portfolio in the secondary and tertiary markets, given the two Augusta multifamilies, the default and then the kind of move to non-accrual there? And then also, you know, following up on that, you know, how are you guys working through these loans once they defaulted? You know, are you looking to get more equity in the deal? Are you guys making the borrowers kind of you know, what's the mark or what's the property on the market, you know, just how are you guys working through the process and going after these loans?

So as it pertains to secondary tertiary, I wouldn't say that we have specific issues that I'd point to there. I'd say that, um, all of the issues that we have have been idiosyncratic, uh, you know, things like, uh, upcoming maturities and, uh, needs for interest rate caps, which have brought borrowers back to the table in terms of negotiation. As it pertains to working through these assets, if and when they default, our asset management team is taking a very active, proactive approach with our sponsors and all of the above in terms of bring them back to the table, whether that be cash contributions or negotiating top line recourse, reviewing business plans, aiming for lower interest rate caps such that they prepaid debt service, or pushing them along towards refinancing somewhere else. I'll be above our options. Initiating foreclosure is an option as well as need be. We hope not to generally get there, but we continue to be active and proactive as it pertains to dealing with defaults.

Got it. Thank you, guys.

Your next question comes from the line of Steve Delaney of Citizens JMP. Please go ahead.

Good afternoon, everyone. Thank you for taking the question. We noticed that you don't, at this point, have any REO real estate owned on your balance sheet. There is an investment-related receivable for about $33 million. Could you tell us what that asset represents?

Sure, I can take that, Steve. It's Jim Briggs here. When we've gotten borrower proceeds, but it's past the remittance date from servicing, so it's cash sitting with them that we haven't received from servicing yet, we'll put it as an investment-related receivable. So there's not risk to the borrower there. We just haven't received the cash from our servicer yet. From the servicer.

Okay, so it could be a mixture of principal interest, all of that.

That's going to be, that's going to be, we'll still have the interest accrual on the books, but we'll record that as a pay down from the borrower. So you won't see it in the loan balance. You'll see it as the investment related receivable until we actually receive the cash. So, you know, think of that as money good. We just haven't gotten it in. Just timing. Yeah, correct.

Pending liquidity. Just inter-quarter timing. Like, yeah.

Yep, and that is related, you know, just to go back to Kristen's question before, that $33 million is related to an FL1 asset, so that will be used to pay down bonds once the cash is received. Okay, great.

And it sounds like, you know, you're having some maturity defaults, some business plans not working out, but, you know, as evidence, and by the way, that disclosure in the queue on the four new five rated loans. That was, that was exceptional. We're not accustomed to receiving that kind of detail and really understanding the story. So thank you for that. But the, you know, those sound like there is a workout or resolution. But are you guys, do you envision that as we are, as Jim Flynn said, you know, in a challenging market, it's probably going to get, could get a little worse before it gets better. But do you envision that either any of those four loans or that you may end up having to take a property back in the next year? I know that's sort of a what-if question, but just curious how much y'all think about that and whether you see that as a likelihood that you will have some REO on your books at some point.

Thank you, Steve. The way I would answer that is obviously our strong desire is to not have any REO. And in most cases, and as you know, you know, Lumint and its broader sponsorship and, you know, we have a $51 billion servicing book, you know, we're seeing a lot of activity and assets across the country outside of just what we have here at LFT. You know, when we've had good borrowers who have done the right thing and worked with us and are still capable of managing their assets and improving operations, we've been able to work with them to find resolution to what we hope are short-term issues, whether it's valuation, cash flow, or both. Where we've discussed REO broadly or its foreclosure broadly as a platform, not just as LT, is where we don't have cooperative borrowers. And in the overwhelming majority of those cases, it's not something that ends up having to come to fruition. And so I would like to think that that will be the case here. But we do have a very seasoned, capable, um and and you know sizable group that manages our special servicing and in particular reo for lft uh and for lumen as a whole and you know what we've shown is that you know we're more than capable operators but more importantly with our sponsors say hey we're here to help and work with you but you know we're not going to um go down the path of using default as kind of a negotiating technique. I remember several quarters ago, I think Ivan Kaufman at Arbor mentioned that in a call that you saw borrowers kind of strategically defaulting or trying to use that as a negotiation tactic. It may have been four or five quarters ago. Yes. And I think that largely went away. But I will say that I think with This most recent decline in the 10 year and the rate cuts on the horizon in the very near term and probably, you know, fairly expensive over the next 18 months. I feel like I've seen a little bit of that from some borrowers trying to maybe see if they can take advantage of that. You know, we feel very confident in our ability to manage the borrowers and manage the assets. So our goal is to not have, any REO, but if we were to have REO, it would mean that we've done the math on what's the highest value to our shareholders and concluded that that's the action we can take and we're capable of doing so, but obviously the goal is to not have that happen.

Appreciate, Jim. That's helpful.

Your next question comes from the line of Stephen Laws of Raymond Jones. Please go ahead.

Hi, good afternoon. Just one quick one on the three new non-accruals and covered a good bit, but can you let us know when those went on non-accrual or ask another way, how much interest income did they contribute to the second quarter?

Yeah, I mean, actually, even two of those were fours last quarter, or five last quarter, so only Only two new ones. The two new fives are the Philadelphia loan that I talked about that's going to be on a cost recovery basis and the Dallas loan that's in technical default. We actually came out of last quarter with the other two. We are receiving payments on a cash basis. for a couple of those, and I believe it was about 200 grand was the impact for non-accrual in the current quarter, right? It's tough to predict those that are non-accrual, whether we're gonna continue to get cash payments or not, but in the current quarter, we're looking at about a couple of hundred thousand shortfall net for non-accrual.

Great. Switching over to the financing side, Another competitor got a CLO done, I think, last week or this week with some legacy stuff. But, you know, that market's there. Can you talk about, you know, what you would like to see to grow? You know, do you have a financing facility with the parent you could use to ramp, you know, to pool assets ahead of a deal? You know, would you look to get one possibly at the mortgage rate level, a bank line to allow you to use, you know, to pool some loans, some new investments, or, you know, You know, how do you think the market, you know, how do you look at potentially doing another deal to grow? Even, you know, I realize the CL01 is still attractive, but it is going to continue to de-lever. So I'm just curious to get your thoughts on, you know, how you may manage the balance sheet in order to price a new deal sometime over the next, say, six or 12 months.

Okay.

Let me just say one thing. Just on the ramp and then Zach can give you some more detail. Since we took over management of this vehicle when Hunt took it over and then since Oryx acquired Hunt and we became Lumen, we've always continued to originate bridge assets on our corporate balance sheet outside of LFT and we'll continue to do so. LFT is a vehicle that has the first look and where we are always looking to place assets, but obviously it has full capacity. We continue to originate. And for all of our securitizations, these two plus the others we've done historically, at least some, if not the majority of the assets included in those securitizations were assets that were pooled on the corporate balance sheet, and when the REIT LLC had capacity, would be transferred as part of that securitization to the REIT. So from that standpoint, we'll continue to operate that way. We operate that way today, and nothing about that will change.

I'll let Zach handle the capital markets aspect there.

Yeah, from a capital market standpoint, we're continuing to explore, really starting to explore options as FL1 dips below 80% advance rate. Options include an entirely new securitization or a combination of warehouse financing with a smaller securitization or warehouse financing.

um remains to be decided based on uh prevailing market conditions but these are active conversations uh at least internally and uh yeah things were explored okay and then i guess to follow up with that i mean around timing sounds like it depends a lot on on repayments so can you give us an outlook over the back half of the year of what your repayment expectations are been running about 90 million a quarter is that

level likely to continue or do you expect more or less than that over the back half of the year i think that's a good estimation at the moment um you know just over the near term in the next month or two it looks like another 70 to 80 so it's right in that range uh great it's possible that it accelerates yeah it's possible it accelerates as maturity uh are coming, but tough to say.

Yep. Great. Well, appreciate the comments this afternoon. Thank you.

Your next question comes from the line of Christopher Nolan of Leidenberg-Fallman. Please go ahead.

Hi. Thanks for the question. The loan-to-value ratios on your 10-Q, are those at the time of origination of the loan?

Yes.

Okay. And then if I'm looking at the table correctly, it looks like a lot of the loans were originated in 2021 and then to 2022. So it looks like a fair number of your loans sort of predate the Fed tightening cycle. Is that a correct view of that? Yes. And so on that basis, is it fair to say that the loan to value ratio is now significantly higher than what's shown in the queue?

It depends. Keep in mind, these are all transitional properties with business plans. And so when you do a bridge loan, you have a as-is valuation and you also receive a stabilized valuation from the appraiser assuming that the business plan has been executed. And so as an example, if it has a valuation of 75 and the stabilized valuation was 65, You would assume that if the borrower executed their business plan and market conditions did not change, the asset would then be 65 LTV. To your point, overlaying market movements on there, the LTV could be higher. So it's a kind of convoluted way of saying it depends on how well the borrower executed their business plan. market movements and sub-market movements.

Okay. I guess just a logical follow-up to that is, and just sort of dovetails into your earlier comments, that it sounds like a lot of these borrowers are upside down on their loans, potentially.

I would say it's more the case that their equity has been impacted by So yes, maybe their expected LTVs when they enter the deals are higher than what they thought they would be. But their equity, I don't know if I'd say upside down, but their equity has been impacted. There's no question about that. And that's probably true on most assets. But that doesn't necessarily translate to the loan being upside down. I think it is fair to say that, you know, perhaps the value today, the loans of value today is higher than where it was projected to be. It may not be that much higher depending on which loan and the performance than, you know, where it was entering. The reality is those owners, you know, invested capital into the deals and haven't gotten the full recognition of value that they anticipated, at least not yet, which is frankly why I think we've seen so many multifamily deals being held because of the expectation that if you're able to hold on to assets, you will realize that value over the next couple of years, just not necessarily the full value today. I don't think that trend is going to dramatically change, but I do think there is with this reduction in rates and, you know, you may see more transactions, more people putting current financing on things like that.

But that's where we are.

Okay. And Jim Briggs, were there any non-recurring items in earnings? Yes.

Um, not for, not for this quarter. Um, there was a big impact from the non-recurring from, from last quarter. So if you were looking sequentially, um, as I spoke to, um, interest income or net interest income has come down pretty significantly from last quarter. Um, but we had a, you know, we had a bunch of one-timers last quarter for catch up on a couple of resolutions that we spoke about last quarter. So outside of that, um, No, I do speak to the operating expenses came down. If you recall, the incentive fee that we accrued last quarter was about $1.3 million. It was around $700,000 for this quarter. So that came down. I'd expect that $700,000 as it's a trailing 12-month calc. That takes into account payments over those 12 months. But that'll come down, so you can maybe look at that as a bit of a one-timer on the expense side. That will come down for the next quarter or two before it normalizes. Great.

This is for me. Thank you.

Once again, ladies and gentlemen, should you have a question, please press the star button followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. There are no further questions at this time. I'd now like to turn the call back over to our speakers for final closing remarks. Please go ahead.

I just want to thank everyone for joining today. We'll look forward to speaking again next quarter. Thanks all.

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