Lument Finance Trust, Inc.

Good morning and thank you for joining the Lumen Finance Trust third quarter 2024 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 Sang at Lumen Investment Management. Please go ahead.

Good morning, everyone. Thank you for joining our call to discuss Lumen Finance Trust third quarter 2024 financial results. With me on the call today are Jim Flynn, our CEO, Jim Briggs, our CFO, Jim Henson, our president, and Zach Halpern, our managing director of portfolio management. On Tuesday, November 12th, we filed our 10Q with the SEC and issued a press release to provide details on our third 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 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 to various risks and uncertainties that could cause actual results to differ materially from those contained in forward-looking statements. These risks and uncertainties are discussed in the company's reported file, reports filed with the SEC, in particular, the risk factors section of our Form 10-K. It is not possible to predict or identify all such risks, and listeners are cautioned not to place undue reliance on those forward-looking statements. The company undertakes no obligation to update any of the 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 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 third quarter of 2024, we reported GAAP net income of 10 cents and distributable earnings of 10 cents per share of common stock, respectively. In September, we also declared a dividend of 8 cents per common share with respect to the third quarter, in line with the prior. I will now turn the call over to Jim Flynn. Please go ahead.

Thank you, Andrew. Good morning, everyone. Welcome to the Lumen Finance Trust earnings call for the third quarter of 2024. We appreciate all of you joining us today. We'll start. On the U.S. economic outlook, we remain cautiously optimistic. Notwithstanding the new administration and uncertainties that come with that, recent cuts The short-term rate, continued signs of cooling inflation, relatively low unemployment figures, all point toward a likelihood of a soft landing. The long-term multifamily market fundamentals remain strong, and we were starting to see stability in asset cap rates, which translated into modest increase in property acquisition activity as investors came off the sidelines. As we transitioned to the new government We will continue to monitor each of these metrics, but continue to have confidence in the future of the multifamily market. We expect to continue to deliver a stable, sustainable dividend to our investors by continuing to focus on multifamily credit. We continue to see a steady ramp-up of the managers' origination pipeline and a trend that we expect to continue into the coming year. The ability of our manager and its affiliates to actively pursue and close unattractive lending opportunities, whether or not LFT currently has investment capacity, is a significant competitive advantage for the company. During the quarter, LFT experienced only $51 million of payoffs, and we were able to quickly and effectively redeploy this capital into two multifamily loan assets acquired from an affiliate of the manager. We rely on the deep experience and expertise of our manager's dedicated asset management team to continue to achieve positive outcomes for the company and to maximize shareholder value. During Q3, our portfolio continued to perform well on a relative basis. The weighted average risk rating of our book held steady versus prior quarter at 3.6. We had no new loans added to the five risk rating category during the period. We also determined no additions needed to our specific loss reserves were appropriate as of quarter end. We were also pleased to share that late last week, we achieved a positive resolution on one of our four five-rated assets that existed as of the end of the quarter on 9-30. We received full payment of all outstanding loan principal plus accrued interest from the borrower. As mentioned on our last call, we are actively evaluating alternatives to recap our 2021 CLL securitization transaction, which had a reinvestment period that ended in December 2023. As of quarter end, the CLO had a weighted average cost of funds of SOFR plus 164 with an effective advance rate of approximately 79%. We have observed relatively favorable new pricing on new theory CLO insurances over the last couple of months, which is an encouraging sign that investor demand may be returning to more normal levels. Securitization via CLO remains one of the potential paths in financing the portfolio. but we will carefully consider the alternatives to ensure our ultimate choice best aligns with our overall financing strategy and creates long-term value for our shareholders.

With that, I'd like to turn the call over to Jim Briggs, who will provide us details on our financial results.

Briggs?

Thanks, Jim. Good morning, everyone. Yesterday evening, we filed a quarterly report on Forum 10Q and provided a supplemental investor presentation on our website, which we'll be referencing during our remarks. Supplemental invested presentation has been uploaded to the webcast as well for your reference. On pages 4 through 7 of the presentation, you will find key updates and earnings summary for the quarter. The third quarter of 2024, we reported net income to common stockholders of approximately $5.1 million, or $0.10 per share. We also reported distributable earnings of approximately $5.5 million, or $0.10 per share. A few items I'd like to highlight regarding the activity during the period. For Q3, net interest income was $9.5 million, largely flat due Q2 of 2024. While net interest income was generally in line with the prior quarter, the weighted average coupon and declining outstanding portfolio UPB drove slightly lower interest income recognition versus the prior quarter, which was substantially offset by approximately $500,000 of additional accelerated purchase discounts in connection with loan payoffs. Total operating expenses were $2.9 million in Q3 versus $3.5 million in Q2. The majority of the decrease in expenses was driven primarily by a lower sequential accrual of incentive fees through 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 aligned quarter over quarter. The approximately $350,000 difference between reported net income and distributable earnings to common was attributable primarily to an increase in our allowance for credit losses. As of September 30th, we had four loans risk-graded a five. One was a $17 million loan collateralized by a multifamily property in Brooklyn, New York, risk-graded a five due to maturity default and a non-accrual status with income recognized on a cash basis. During the period, the company recognized approximately $400,000 of interest on this loan. Another was a $20 million loan collateralized by two multifamily properties near Augusta, Georgia, risk-rated five due to monetary default and a non-accrual status with income recognized on a cash basis. During the period, the company recognized approximately $700,000 of interest on this loan. As Jim mentioned, We had a positive resolution to this loan subsequent to quarter end, which Jim Henson will touch on in his remarks. Third was a $15 million loan collateralized by two multifamily properties in Philadelphia, Pennsylvania. Risk rate at five due to monetary default and a non-accrual status with cash received from the borrower recognized on a cost recovery basis. During the period, the company recognized approximately $300,000 of cash received from the borrower as a reduction in our carrying basis of this loan. The fourth five-risk graded asset was a $32 million loan collateralized by a multifamily property in Dallas, Texas that was and is in technical default. We evaluated these four or five graded loans individually to determine whether asset-specific reserves for credit losses were necessary. And after analysis of the underlying collateral, we maintained that it did not add to the approximately $900,000 in specific reserve which we recorded during the second quarter of this year. The general CECL reserve increased by approximately $300,000 during the period, driven primarily by changes in the macroeconomic forecast. The company's total equity at the end of the quarter was approximately $243 million. The total book value of common stock was approximately $183 million, or $3.50 per share, increasing slightly from $3.48 per share as of June 30th. We ended the third quarter with an unrestricted cash balance of $46 million, and our investment capacity through two secured financings was fully deployed. We'll now turn the call over to Jim Henson to provide details on the company's investment activity and portfolio performance during the quarter.

Thank you, Jim. During the third quarter, LFT experienced $51 million in loan payoffs. and we acquired two new loans with an initial principal balance of $45 million and a weighted average coupon of SOFR plus 323 basis points. As of September 30th, our portfolio consisted of 75 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 was collateralized by multifamily properties. At the end of the third quarter, our portfolio had a weighted floating note rate of SOFR plus 353 basis points and an unamortized aggregate purchase discount of $4.3 million. While we endeavor to actively manage the maturity risk in our portfolio, it is worth noting that we had the foresight at the time of loan origination to include appropriate extension features in our transaction. As a result, the weighted average remaining term of our book continues to be approximately 28 months if all available extensions are exercised by our loan borrowers. As mentioned earlier, our secured financing remains attractive. At the end of the third quarter, the FL1 CRE-CLO transaction, completed in 2021, provided effective leverage of 79% at a weighted average cost of funds of SOFOR plus 164 basis points. The LMF financing, completed in 2023, provided the portfolio with effective leverage of 82% at a weighted average cost of funds of SOFR plus 314 basis points. On a combined basis of quarter end, the two securitizations provided our portfolio with effective leverage of 80% and a weighted average cost of funds of SOFR plus 214 basis points. As of September 30th, approximately 60% of our loans in the portfolio were risk-rated a three or better compared to 63% at the end of the prior quarter. Our weighted average risk rating was unchanged sequentially at 3.6. As of the end of September, we had four loans risk rated five with an aggregate loan exposure at the end of the quarter of approximately $84 million, or approximately 7% of the carrying value of our total portfolio. As alluded to previously, Subsequent to year end, we had a positive resolution of the $20.3 million five-rated loan collateralized by two multifamily properties near Augusta, Georgia. Last Friday, the loan, which had been in monetary default, was paid off. In connection with repayment, the company recorded interest income of approximately half a million dollars in the quarter ending, I'm sorry, will record interest income of approximately half a million dollars in the quarter ending December 31, 2024. representing interest and other fees collected from the borrower at payoff. Since this loan was held by the company on an unlevered basis outside of our financing structures, this repayment will increase cash and cash equivalents by approximately $20.8 million. Our manager's investment team continues its proactive management of the company's investment portfolio, working closely with borrowers to manage all of our positions and monitor financial performance of our collateral assets and our borrowers' progress in executing their business plans.

With that, I will pass it back to Jim Flynn for closing remarks and questions. Thank you, Jim.

Appreciate everyone's interest and would like to open the call up to any questions you might have.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by number two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, to ask a question, please press star followed by number one on your touchtone phone. To withdraw your question, please press star followed by number two. One moment please for your first question. Your first question comes from the line of Jason Weaver from Jones Trading. Your line is now open. Please ask your question.

First of all, I wondered if you could comment on your visibility into the pipeline after quarter end today. And as a follow-up, we just noticed some whispers among possible prospective borrowers hearing some comments that sponsors might be possibly thinking about delaying projects. And this is only in the last week alone, so it may be too soon to tell.

Yeah, I'll give a general, my thoughts there and maybe Zach can give some specifics, but, um, certainly the election has, has, has provided some, um, you know, uncertainty, right? The market is, has reacted and, um, you know, some conflicting patterns, right, in terms of where the overall stock market's gone, where the tenure has gone. We saw the rate cut, which was expected. But I think expectations have moderated in some ways until, from my perspective, until we see what does the new administration look like, who are the key players in the key seats. Also, similarly, how the you know, the final balance in the House, the committee chairs, et cetera. And all of those things, I think, have led to this, you know, hey, what's going to happen with this new government? Are we going to spend more? Are we going to, is there going to be an expectation that we're going to have a more inflationary market than we thought, right? I think that's what's happening in the market. But I also think it's probably, again, I think it's a little overstated until we see what's happening. We've heard a lot of talk going the other way, that expectations are that people are starting, or government officials are starting to recognize the debt problem and that perhaps there'll be some moderation as we move forward. We saw the announcement, whether it's bells and whistles on the new Department of Efficiency, which Admittedly, it's a bit of an ironic creation of a department in government that's entirely dedicated to evaluating efficiency of other departments. The short answer, I think, as you said in the past week or two, certainly owners and borrowers have said, look, I want to see what happens here. I'm not going to transact into this volatile market that's going on over the couple weeks after the election. But I also have seen and heard that these sponsors may be waiting out some of the uncertainty. There's still expectations that there's business that they need to get done over the next year, whether that's refinancing, whether that's exiting an asset. Both of those on the exit particularly look for potential investment opportunities. So I don't see the slowdown looking like it did in the early part of 2023, where you have this major slowdown and concern around the market. I have seen and heard anecdotally, as you said, that guys are taking a pause to consider, hey, do I need to transact in December or can I wait until you know, the first quarter. That's real. Now, in this market, there is still an expectation that the short-term rate is going to continue to come down, perhaps maybe not as low as, you know, some people had hoped for, but there's still expectations for it to come down, and that does help the bridge market. But certainly, the long-term rates are driving that. I can't tell you exactly. Maybe you can just give a A quick note, I mean, from a broader standpoint, on our pipeline broadly as a manager, and this is true of our fixed-rate products that we provide that on and bridge, that our pipelines haven't looked like this, at least in most of the products. I won't say every single one, since 2021. And so, you know, are we in a transition period? Yes. Is it dire? I don't think so, because I do think the economic outlook broadly for the country is still pretty good. And so that will translate into higher rents. Higher rents mean that you can cover some of the higher costs. And so as we move forward, again, I think we're in a little period of let's see where we shake out. What's a stable interest rate environment look like? and then people can move forward. No one likes to transact into uncertainty. But, Zach, on the pipeline, if you want to give a couple.

No, that's definitely helpful. I would echo everything that Jim said. I think that really what we need to delineate is pre-rate cuts versus post-to-first rate cuts in August. And activities picked up tremendously. We've got a couple hundred million expected to close in December and additional activity along those same lines into Q1.

So positive on that front.

All right. Thank you for that color.

And then one sort of clarification. During your prepared remarks, I get the blended sort of CLO financing cost of funds is S plus 214, but I heard another comment regarding the current market plus 174. Was that just more characterizing what you see as sort of where a similarly rated transaction might clear today?

Yeah, I'm looking at the –

So the comment I made in the first part was today the CLO1, the cost of funds of that CLO, the existing CLO, is so far plus 164 at a 79% advance rate. That's the CLO that is deleveraging, that has no more reinvestment, right? So relative to the market, I think that cost is – Yeah, it's still attractive, but obviously it's not permanent. As we delever, that will continue to go up. But we do think that there's opportunity in the market to probably get a slightly higher leverage, but the cost of funds would be above that at this point.

Got it. That's fair. Thank you.

Your next question comes from the line of Stephen Loss of Raymond James. Your line is now open. Please ask your question.

Hi, good morning. Congrats on the five-rated resolution in November. I know that was good to see. I wanted to follow up on the CLO question. How do you think about, regarding FL1, how do you think about the slightly higher cost of funds versus, you know, it seems like advanced rates are in the mid-80s and looking at two, even three-year replenishment periods in some of the deals that have been done recently. So how do you think about that as far as timing of collapsing that deal and looking at putting a new one in place? Is that a first half, 25 of them? And I guess it may come down to a simpler question, what are your repayment expectations as you look out the next one or two quarters?

Sure. So

The second one, look, it's been choppy, right? We've had up and down months. We didn't have a lot in the quarter this year. We're kind of looking back to historical norms of around 30%. But to be honest, some of that is It's always guesswork a little bit, as we say, but because of that choppiness, it could be slightly higher, it could be slightly lower. I don't expect that in 2025 we're going to have this, you know, run to the exit for many of these deals. And that's true whether things improve dramatically from a rate and value standpoint or go the other way. I think in both cases you still are going to have owners that are going to hold on to assets a bit longer. On the CLO front, so look, we are, as you said, we are actively in discussions with capital markets partners for public transactions, but also looking at other ways to recap that part of our portfolio. Considerations that we're looking at, one is the weighted average life for the portfolio, how that impacts pricing on a new deal, whether we contribute more assets into a bigger deal and take some out of that transaction. So those are the things that we're evaluating with various partners to just see what we think the overall impact is. I can tell you that I think there is appetite for a transaction to come to market. And I think in general, in our history, going back to 2016, all of our deals have been well received. I would expect this to be no different. But we are focused on what is the most efficient transaction. We don't want to come to market with a deal that is going to be penalized because of certain factors or characteristics, whether that's the life of the assets or otherwise. And so we're working with departments to say, hey, does this make sense? Is it a first half event? It definitely could be. Is that guaranteed? No. But we're certainly currently actively evaluating it.

Appreciate the color there. And then I wanted to touch on the four-rated loans. It's about a third of the portfolio loans. You know, and, you know, so 2025 loans, I'm guessing. But can you maybe talk a little bit about, you know, what part of that bucket are likely to pay off as a four-rated loan or kind of end their life there versus, you know, which loans kind of are going to go one way or the other, and there's some event or catalyst that pushes them back to a three or to a five, if that makes sense. I'm kind of curious to get a little color on that. how you think about the four-rated loans and what the risk is of how many could potentially become fives.

Sure.

Well, and Jim, Greg, or Zach, you can talk a little bit about the process. But as we go through our risk rating every quarter, we model every loan out. And we have tried over the years to be very consistent with that model, meaning We're only adjusting it to the extent that we're seeing really egregious errors that were unforeseen or things that we just think are off. But we've tried to maintain very consistent modeling so that as we're reporting, we have very consistent reporting going back years. And so we take those outputs and then we evaluate each loan individually. And we have a discussion about whether there should be some adjustment made by the management to the modeled outcomes. And today, you know, we have a specific reserve on one asset where we've set, it's small, Jim, I don't know if you have that offhand, but we go through and look at the value, the recovery expectation that we see based on the value of the asset. And And that's how we determine if we believe there should be a specific reserve. So the four rated risk assets are mostly assets that have been certainly impacted by the increase of rates, decline in value, and slow business plans. And so the risk is elevated from where it was at origination. But based on our view of the current market, the current value of the asset and it's in its market, that we expect a full recovery. The fact that it's rated a four means that there's more risk to that than when it was originated at a two or whatever it was at origination. But based on what we've seen and based on the resolutions we've been able to achieve for the rest of the portfolio, we still remain confident and cautiously optimistic on our ability to get repaid on all of those assets. But we stand behind the risk rating of saying, hey, it would be improper and inaccurate to say that they have less risk today than they did at origination. Jim, I don't know if you want to add anything to the process on the risk rating side.

No, I think you covered it from a process perspective and certainly what we're doing on the fives from the specific reserve. perspective. To your question, Stephen, can some of those turn into fives in the future? There's the potential. The fives that we have today were fours and threes at some point. But Yeah, but we feel good about the process that we bring, you know, that we bring each quarter, including the comments that Jim made around, you know, being money good or expecting full repayment on whatever are for us today.

Great. Appreciate the comments this morning. Thank you.

Thank you. Your next question comes from the line of Steve Delaney from Citizens JMPO Capitals. Your line is now open. Please ask your question.

Thank you, operator. Good morning, Jim. Jim, I hope I addressed this first one to you. I'm just curious. I'd like you to talk a little bit. We understand the runoff in 2021. You can reinvest in 2023. You made a comment in your entry remarks about Oryx being active in the bridge market. Based on what Oryx is doing, how would you compare the opportunity set just in terms of risk return and multifamily bridge lending that Oryx is seeing today versus what we saw in 2021, 2022? Maybe just start with sort of market out there for multifamily bridge loans. And then I want to talk a little bit about how that can impact LFT as we move forward. Thank you.

Sure. Well, look, I think clearly the risk return, well, the risk side, I mean, the deals today, in my opinion, as a whole are better, right? You've got... tightening lending standard that has existed in the overall market. You have more muted kind of growth assumptions. You're not in the midst of this extraordinary growth in rents and obviously super low cap rate environment. And then you also have which are very attractive from my perspective. We've talked about and everyone has seen this typically written as a concern about the deliveries in largely the markets that have performed and grown the most over the past five years, the Sunbelt markets for the most part, a couple of the mountain cities. Those deliveries are of new assets are looking in many cases for lease up bridge loans at relatively low LTVs, taking out construction financing, just giving them more time to lease up. Our view of the overall market over the next two to five year period is that all of those markets are going to perform well, so taking risk on a brand new asset in a great long term market at a relatively low leverage point is an attractive asset. Both traditional bridge on the value add and the lease up, both have, in my opinion, a better overall credit metric, in large part based on the leverage, in smaller part based on the growth. Now, the return profile, you know, spreads have, you know, they've kind of, I think, kind of bottomed out here. But, you know, we're in the twos and threes and maybe in the fours for some assets for the most part, 200, 300, 400s. So that's probably in line, maybe a touch lower than it was at that period. But again, the risk is better. One of the drivers for this market, which we've seen improvement in and hopefully continue to see improvement, has been on the financing side. So the spread coming in on the financing side is a real driver of the overall market, right? It provides for a more attractive return to investors for vehicles like LFT, but just across the markets. I'm using that financing. So, um, that has improved, but it's, it's not better than it was then. Right. Um, it's better than it's been, but it's not, um, it's not back to the levels we'd like to see, but it's, it's, it's getting there. Um, so I think that's the one thing that's going to drive, um, could drive the return side of things, but opportunities on the loan side, I think, are attractive. And because of that credit, I think that's part of the reason you've seen some of the financing costs come in, because those providing that, whether it's warehouse or those buying bonds, also see the same thing we're seeing, which is a low risk profile of the pool of new assets.

That's really great, Collar, leading up to my follow-up. For Lumen, Puppet Limited, $1.2 billion portfolio. It seems that that is, obviously, it's not going to move higher and probably could contract a bit until the point that you decide to pull the trigger on an early 2025 CLO and can kind of re-lever a bit. As you guys kind of look at your balance sheet and you look forward to a possible, maybe not possible, likely financing over the next six months. Where should we think with your capital base today and a new financing, where could your portfolio go from that $1.2 billion figure? Is there upside for the portfolio with your existing capital base just based on your improved financing?

I mean, the short answer is yes. I think that where current financing in the market is available we could we could probably achieve some some slightly higher leverage than we have today at that fixed cost turned out you know characteristic that that we've we've always um harped on in our calls so uh we certainly have assets that the manager and sponsors that can be acquired to um to add to the portfolio um the only caveat there is the timing so The sooner that we make that or decide to perhaps enter a refinancing transaction, the closer we are to this period of disruption we've been going through over the last 18 to 24 months. And so we've kept pretty, relative to our size, we've kept pretty significant cash available. So we'll have to just balance the leverage with making sure we maintain liquidity. But I do expect the portfolio to trend back toward, you know, 1.5 billion as opposed to going the other way. I'm not sure we get all the way there in one transaction, but I do expect there to be potential to add to the portfolio. That's great, Collin.

Very helpful. And thank you all for your time this morning. Thank you.

Thank you. Your next question comes from the line of Christian Love from Piper Sandhul. Your line is now open. Please ask your question.

Hi, good morning. This is Brad Capuzian for Crispin. Just wanted to ask on, you know, just from a broader perspective, can you just discuss your credit outlook and do you believe we've reached peak stress in the multifamily credit in this cycle and what's your intermediate term outlook here given the current environment?

Have we reached peak stress?

If you tell me where the tenure is going to be in the next six months, I could probably offer a more accurate description. But I think the short answer is that we think that we have. And there may be some blips here and there over the coming months, et cetera. Overall, the stress that exists in the market, I think, for multifamily is already outstanding, meaning we know that loans originated toward the end of this past cycle are where we've seen the greatest level of stress. We've seen some unique disruption in the fixed rate market with CMBS and agency debt and some of those same vintages of assets. So things that have been financed over the last, say, 12 months, maybe even a little bit longer, are not experiencing as a whole the stress that is from the prior portfolio. And most of those assets were short-term finesse assets. And so I think from a standpoint of what are the issues outstanding, lenders know what they are, including us, right? We have our risk ratings. We believe we're going to be able to work them out, as you've seen. based on our discussions around reserves. But I do think that we still have, you know, probably a 24-month period to kind of clear through all of those assets as an industry, as a market, and how the economy performs will directly impact that. So even with rates staying high, if we have a very strong economy, strong stock market, strong job market, with moderate inflation like where we are now um well that's going to trend toward you know continued uh supply demand pressure increasing in rent and despite higher rates probably increasing noi at most assets or many options so um i think the answer is we think we've probably hit the peak but there's some time to work through those known problems in the in the industry Thank you. I appreciate it. It still looks fairly bullish outlook on the overall next three to five for multifamily. We feel very good about the overall market fundamentals.

Thanks. I appreciate that commentary. And then just the last question for me. During the quarter, you added new investments. after not adding the past two quarters, but still appears at the lower end of what we've seen in past years, what's kind of keeping you from being more active or adding more investments? Is it a concerted effort as you focus on asset management on the loans or a lack of opportunities out there? And would you expect more opportunities in the coming months? Thank you.

Sure. So look, our reinvestment activity is entirely correlated to payoffs. You know, we're fully deployed, and the declining portfolio balance is a result of the CLO-1 being through its reinvestment period, and so that's deleveraging. So the lack of reinvestment in the current quarter is related solely to the fewer payoffs or in the CLO with reinvestment or securitization. And if there are payoffs in CLO 1, that just goes to deleverage. So there's no additional capital to actually invest. And going back several quarters, we've discussed keeping relatively high liquidity outstanding. We've used that liquidity to buy a challenge asset like Augusta out of the CLO and then have that pay off. So now we're going to have that cash. So I think as Steve was just asking, as we look to potentially refinance our existing financings and securitizations, we could do so in a way that provides some more capacity than we've had, and then we would be able to fill that with existing loans that we currently hold on the manager's balance sheet. The reinvestment will be directly driven by What is the capacity within the vehicle?

The opportunities are there. Thank you. I appreciate that.

Thank you. Once again, for the attendees who want to ask a question, please press star 1 on your touchtone phone. You'll hear a prompt that your hand has been raised.

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We do not have further questions at this time. Presenters, please continue.

Okay. Well, look, we appreciate everyone's interest here and look forward to speaking during the quarter and on our next call. And we'll see you then. Thank you for joining.

This concludes today's conference call. Thank you for your participation. You may now disconnect.