Results
Lument Finance Trust Inc.
11/13/2026 | Press release | Distributed by Public on 11/13/2026 06:32
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this Quarterly Report on Form 10-Q, or this "report," we refer to Lument Finance Trust as "we," "us," or "our," unless we specifically state otherwise or the context indicates otherwise. We refer to our external manager, Lument Investment Management, as our "Manager" or "Lument IM".
The following discussion should be read in conjunction with our consolidated financial statements and the accompanying notes to our financial statements which are included in Item 1 of this report, as well as information contained in our Annual Report on Form 10-K for the year ended December 31, 2025, or our 2025 10-K, filed with the Securities and Exchange Commission, or SEC, on March 23, 2026.
All share and per-share amounts presented in the following discussion have been retrospectively adjusted for all periods presented to reflect the 1-for-10 reverse stock split that became effective on September 9, 2026.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended. Forward-looking statements are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. In addition, our management may from time to time make oral forward-looking statements. You can identify forward-looking statements by use of words such as "believe," "expect," "anticipate," "estimate," "project," "plan," "continue," "intend," "should," "may," "will," "seek," "would," "could" or the negative of these words and phrases or similar words and phrases, or by discussions of strategy, plans or intentions. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; and risks associated with investing in real estate assets, including changes in business conditions, changes in interest rates or inflation and any resulting effect on our borrowers or liquidity, and the general economy. Forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us on the date of this quarterly report. Actual results may differ from expectations, estimates and projections. Readers are cautioned not to place undue reliance on forward-looking statements in this quarterly report and should consider carefully the risk factors described in Part I, Item IA "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2025 in evaluating these forward-looking statements. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. It is not possible to predict or identify all such risks. Additional information concerning these and other risk factors are contained in our 2025 10-K and our quarterly report on Form 10-Q for the period ended June 30, 2026, which is available on the Securities and Exchange Commission's website at www.sec.gov.
Overview
We are a Maryland corporation that is focused on investing in, originating, financing and managing a portfolio of CRE debt investments. We are externally managed by Lument Investment Management (the "Manager" or "Lument IM").
Lument IM is an affiliate of Lument, a nationally recognized leader in multifamily and seniors housing and health care finance. The Company leverages Lument's broad platform and significant expertise when originating and underwriting investments.
We invest primarily in transitional floating rate CRE mortgage loans with an emphasis on middle market multifamily assets. We may also invest in other CRE-related investments including mezzanine loans, preferred equity, commercial mortgage-backed securities, fixed rate loans, construction loans and other CRE debt instruments. We finance our current investments in transitional multifamily and other CRE loans through CRE CLOs and other forms of secured financing agreements. Our primary sources of income are net interest from our investment portfolio and non-interest income from our mortgage loan-related activities. Net interest income represents the interest income we earn on investments less the expense of funding these investments.
Our investments typically have the following characteristics:
•Sponsors with experience in particular real estate sectors and geographic markets;
•Located in U.S. markets with multiple demand drivers, such as growth in employment and household formation;
•Fully funded principal balance greater than $5 million and generally less than $75 million;
•Loan to Value ratio up to 85% of as-is value and up to 75% of as stabilized value;
•Floating rate loans tied to one-month term SOFR, and/or an applicable replacement index in the future; and
•Three-year term with two one-year extension options.
We believe that our current investment strategy provides significant opportunities to achieve attractive risk-adjusted returns for our stockholders over time. However, to capitalize on the investment opportunities at different points in the economic and real estate investment cycle, we may modify or expand our investment strategy. We believe that the flexibility of our strategy, which is supported by significant CRE experience of Lument's investment team, and the extensive resources of ORIX USA, will allow us to take advantage of changing market conditions to maximize risk-adjusted returns to our stockholders.
We have elected to be taxed as a REIT and comply with the provisions of the Internal Revenue Code with respect thereto. Accordingly, we are generally not subject to federal income tax on our REIT taxable income that we currently distribute to our stockholders so long as we maintain our qualification as a REIT. Our continued qualification as a REIT depends on our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code relating to, among other things, the source of our gross income, the composition and values of our assets, our distribution levels and the concentration of ownership of our capital stock. Even if we maintain our qualification as a REIT, we may become subject to some federal, state and local taxes on our income generated in our wholly owned TRS, Five Oaks Acquisition Corp. ("FOAC").
Recent Developments
2025 was marked by significant volatility in global markets, driven by international trade policy and tariff-related developments, geopolitical uncertainty, political and regulatory developments, elevated interest rates and persistent inflationary pressures. Collectively, these factors contributed to challenging conditions across commercial real estate markets, including lower transaction activity, constrained capital availability and pressure on property values in certain sectors. Despite these challenges, capital markets generally adapted to a higher-for-longer interest rate environment, and improvements in financing market conditions supported greater availability of debt capital for commercial real estate investments.
During 2026, global financial markets have continued to experience periods of uncertainty and volatility related to international trade policy, geopolitical developments, inflation and the future path of monetary policy. Longer-term interest rates and borrowing costs remain elevated and have experienced continued volatility. Commercial real estate market conditions have shown signs of stabilization in certain property sectors, although performance continues to vary by property type and geographic market. Financing markets have generally remained active, although the cost and availability of capital continue to be influenced by interest rates, lender risk appetite, property-level fundamentals and broader economic conditions. Market participants continue to evaluate these factors and their potential effects on property values, transaction activity and borrower refinancing. We continue to closely monitor these conditions, as they may affect borrower performance and refinancing activity, loan acquisition and origination activity, liquidity, financing and our capital allocation decisions.
On September 9, 2026, the Company effected a 1-for-10 reverse stock split of its outstanding shares of common stock. As a result of the reverse stock split, every 10 shares of the Company's issued and outstanding common stock were automatically combined into one share of common stock. No fractional shares were issued in connection with the reverse stock split, and stockholders otherwise entitled to receive fractional shares received cash in lieu thereof. All share and per-share amounts presented in the accompanying Management's Discussion and Analysis of Financial Condition and Results of Operations thereto have been retrospectively adjusted to reflect the reverse stock split for all periods presented.
Third Quarter 2026 Summary
Operating Results
•Net loss attributable to common stockholders of $13.5 million, or $2.57 per share of common stock
•Distributable Loss of $0.7 million, or $0.13 per share of common stock
•On September 18, 2026, the Company announced a suspension of its quarterly common dividend
•On September 18, 2026, the Company announced its third quarter preferred dividend of $0.49219 per share of Series A Preferred Stock
•Book value of common stock as of September 30, 2026 was $131.3 million, or $24.97 per share of common stock
Investment Activity
•We acquired or originated, as applicable, four loans with an initial unpaid principal balance of $67.2 million and a weighted average interest rate of 30-day term SOFR plus 3.0%
•Experienced $79.3 million in loan payoffs
•$955.2 million senior loan portfolio is 100% floating rate with an average spread to 30-day term Secured Overnight Financing Rate ("SOFR") of 3.26%, excluding unamortized purchase discounts of $0.4 million and deferred loan fees of $0.9 million as of September 30, 2026
•Multifamily assets represent 93.3% of loan portfolio
•Classified three REO properties located in Colorado Springs, CO, Arlington, TX and Dallas, TX with an aggregate carrying valued of $41.6 million as held for sale as of September 30, 2026, reflecting continued progress toward their disposition.
Portfolio Financing
•Non-mark-to-market financing is $0.6 billion with an average spread to 30-day term SOFR of 1.90% as of September 30, 2026, representing 72% of our secured financings
Factors Impacting Our Operating Results
Market conditions. Our results of operations are affected by a number of factors, including the level of our net interest income, the credit performance and value of our assets, and the supply of and demand for our target investments. Our net interest income is affected primarily by changes in market interest rates and prepayment activity, as well as the ability of the borrowers underlying our commercial mortgage loans to make payments in accordance with their contractual terms. During the nine months ended September 30, 2026, we foreclosed on three multifamily properties as a result of borrower defaults, which reduced interest income on the related loans.
Our operating results are also affected by conditions in the U.S. commercial real estate and broader economic and capital markets. Commercial real estate markets continue to be influenced by elevated interest rates and financing costs, uncertainty regarding the future path of monetary policy, property-specific and sector-specific operating fundamentals, availability and cost of credit, and geopolitical, trade and regulatory developments. These conditions may affect property values, borrowers' ability to refinance or repay their obligations and the availability and pricing of new investment opportunities.
Changes in market interest rates. Generally, our business model has historically resulted in rising interest rates increasing our net interest income and declining interest rates decreasing our net interest income, although the actual impact depends on a number of factors, including the interest rate floors and contractual spreads on our assets and the terms of our financing arrangements. Substantially all of our commercial mortgage loans and related financing arrangements bear interest at floating rates. Accordingly, changes in short-term interest rates generally affect both the interest income earned on our investments and the interest expense incurred on our borrowings.
As of September 30, 2026, 99.9% of our investments by total investment exposure earned a floating rate of interest, of which 100.0% were indexed to 30-day term SOFR. Additionally, 100.0% of our collateralized loan obligations and secured financings were indexed to 30-day term SOFR. As of September 30, 2026, 100.0% of the loans in our commercial mortgage loan portfolio had SOFR floors, with a weighted-average SOFR floor of 2.67%, and 10.8% had interest rate floors greater than the then-current 30-day term SOFR rate. The weighted-average spread on our commercial mortgage loan portfolio was 3.26% as of September 30, 2026. There can be no assurance that comparable floors or spreads will be available on future loan originations or acquisitions.
Following reductions in the federal funds rate during 2024 and 2025, the Federal Reserve maintained its target range during the first part of 2026. On September 16, 2026, the Federal Reserve increased the target range for the federal funds rate by 25 basis points to 3.75% to 4.00% and maintained that target range at its October 28, 2026 meeting. Inflation remains above the Federal Reserve's long-term target, and the timing, direction and magnitude of future changes in monetary policy remain uncertain.
In addition to the effect of interest rate changes on our net interest income, higher interest rates may adversely affect the performance of our floating-rate assets. Elevated debt service requirements may strain the operating cash flows of the properties securing our loans and may adversely affect borrowers' ability to refinance their obligations, potentially increasing the risk of default. We seek to mitigate this risk through our underwriting and asset management processes
and through structural protections that may include borrower-purchased interest rate caps, interest reserves and other credit support. As of September 30, 2026, 64.9% of our performing loans had interest rate caps with a weighted-average strike price of 4.05%.
Credit risk. Our commercial mortgage loans and other investments are subject to credit risk. The performance and value of these investments depend in significant part on the ability of borrowers and sponsors to operate the properties securing our loans and generate sufficient cash flows to service their obligations. Our Manager's asset management team monitors our portfolio through regular reviews and communications with borrowers, co-lenders and local market experts, with a focus on identifying borrower-, property- and market-specific developments and, where appropriate, enforcing our rights as lender.
The value and performance of commercial real estate collateral may be adversely affected by, among other factors, national, regional and local economic conditions; elevated financing costs; changes in capitalization rates and property values; availability of refinancing; property-specific operating performance; changes in supply and demand; and other market conditions. Declines in collateral values or property cash flows may reduce borrowers' ability to repay or refinance their loans and may result in realized or expected credit losses.
As of September 30, 2026, 91.8% of the commercial mortgage loans in our portfolio were current as to principal and interest. We evaluate loans exhibiting heightened credit risk for potential credit losses. For collateral-dependent loans for which repayment is expected substantially through operation or sale of the underlying collateral, expected credit losses are measured based on the fair value of the collateral, adjusted as applicable for estimated costs to sell. There can be no assurance that our borrowers will remain current as to principal and interest or that we will not enter into forbearance agreements, loan modifications or other workout arrangements to protect the value of our commercial mortgage loan assets. Such events could have a material adverse effect on our results of operations.
Liquidity and financing markets. Our liquidity requirements include funding investment commitments, servicing and repaying borrowings, paying operating expenses and dividends and satisfying other general business needs. Our sources of liquidity include cash generated from operations and loan repayments, proceeds from equity or debt issuances, secured financing arrangements and other sources of funding.
We finance our commercial mortgage loans primarily through collateralized loan obligations and other secured financing arrangements. Certain of these arrangements are structured as non-recourse financings with maturities generally aligned with the underlying assets and are not subject to mark-to-market margin requirements. We also utilize other financing arrangements that may provide for margin calls or additional collateral requirements following specified credit events.
Our ability to originate or acquire additional commercial mortgage loans depends in part on the availability and cost of financing. Continued volatility in interest rates and capital markets, elevated financing costs, and economic and geopolitical uncertainty could reduce the availability or increase the cost of financing and may limit our ability to deploy capital or grow our investment portfolio. We may also use liquidity to acquire or repurchase commercial mortgage loans from our CRE CLOs or other financing arrangements, which could reduce the capital available for new investments.
Our CRE CLOs and certain other secured financing arrangements include interest coverage, overcollateralization or other performance tests. Failure to satisfy these tests may alter the priority of distributions and reduce or eliminate cash distributions to subordinate debt or equity interests retained by us until the applicable tests are satisfied or specified senior securities are repaid. In addition, certain financing arrangements provide for margin calls or other collateral requirements following specified credit events. A failure to satisfy such requirements or comply with applicable covenants could result in a default and permit the applicable lender to accelerate the amounts outstanding, terminate commitments, require additional collateral or exercise remedies against the underlying collateral.
Prepayment speeds. Prepayment risk is the risk that principal on our investments is repaid at a different rate from our expectations. Prepayments may affect the timing of the recognition of purchase premiums or discounts and may require us to reinvest proceeds at yields or spreads that differ from those on the prepaid assets.
As of September 30, 2026, we had acquired twenty-nine loans and twenty funded loan advances with an initial aggregate unpaid principal balance of $475.2 million and an aggregate purchase discount of $8.3 million. Our aggregate unaccreted purchase discount was $0.4 million as of September 30, 2026, and accordingly, we do not believe the effect of purchase discount accretion represents a material risk to our interest income.
We are also subject to prepayment and reinvestment risk in connection with our secured financings. The reinvestment period for LMF 2023-1 Financing expired in July 2025, while the reinvestment period for LMNT 2025-FL3 extends through May 2028. During an applicable reinvestment period, principal repayments and prepayments may generally be reinvested in eligible replacement assets. Because the financing spreads on our secured borrowings generally remain fixed until repayment while spreads on newly originated loans vary with market conditions, reinvestment into lower-spread assets could reduce our future net interest income.
To the extent any loans are permanently financed by the Manager or any of its affiliates, applicable prepayment penalties may be waived, resulting in a reduction of reimbursed expenses by an amount equal to 50% of the waived fee, subject to a maximum waived fee of 1%.
Changes in market value of our assets. We account for our commercial mortgage loans at amortized cost. Accordingly, changes in the market value of these loans generally do not directly affect our earnings. However, deterioration in the credit quality of a loan may result in an increase in our allowance for credit losses and a corresponding provision for credit losses. For collateral-dependent loans for which repayment is expected substantially through the operation or sale of the underlying collateral, expected credit losses are generally measured based on the fair value of the collateral, adjusted as applicable for estimated costs to sell. Changes in our provision for credit losses directly affect our results of operations.
Governmental actions. Changes in U.S. economic, fiscal, monetary, trade and regulatory policies may affect the commercial real estate and financing markets in which we operate. Such changes may affect interest rates, credit availability, financing costs, property values and economic activity and, consequently, could affect the performance of our borrowers and our investment portfolio. The timing and ultimate effect of any such changes are uncertain.
Key Financial Measures and Indicators
As a real estate investment trust, we believe the key financial measures and indicators for our business are earnings per share, dividends declared, Distributable Earnings or Loss, and book value per share of common stock. For the three months ended September 30, 2026, we recorded a loss per share of $2.57, suspended the quarterly common dividend, and reported $0.13 per share of Distributable Loss. In addition, our book value per share was $24.97.
As further described below, Distributable Earnings or Loss is a measure that is not prepared in accordance with GAAP, which helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations. In addition, Distributable Earnings or Loss is a performance metric we consider when declaring our dividends.
Earnings Per Share and Dividends Declared
The following table sets forth the calculation of basic and diluted net (loss) income per share and dividends declared per share:
| Three Months Ended | ||||||||||||||
| September 30, 2026 | December 31, 2025 | |||||||||||||
| Net (loss) income | $ | (13,508,118) | $ | (8,942,111) | ||||||||||
| Weighted-average shares outstanding, basic and diluted | 5,252,331 | 5,238,172 | ||||||||||||
| Net (loss) income per share, basic and diluted | $ | (2.57) | $ | (1.71) | ||||||||||
| Dividends declared per share | $ | - | $ | 0.40 | ||||||||||
Distributable Earnings or Loss
Distributable Earnings or Loss is a non-GAAP financial measure, which we define as GAAP net income (loss) attributable to holders of common stock, or, without duplication, owners of our subsidiaries, computed in accordance with GAAP, including realized losses not otherwise included in GAAP net income (loss) and excluding (i) non-cash equity compensation, (ii) depreciation and amortization, (iii) any unrealized gains or losses or other similar non-cash items that are included in net income (loss) for that applicable reporting period, regardless of whether such items are included in other comprehensive income (loss) or net income (loss), and (iv) one-time events pursuant to changes in GAAP and certain material non-cash income or expense items after discussions with the Board and approved by a majority of the Company's independent directors.
While Distributable Earnings or Loss excludes the impact of any unrealized provisions for credit losses, any credit losses are charged off and realized through Distributable Earnings or Loss when deemed non-recoverable. Non-recoverability is determined (i) upon the resolution of a loan (i.e. when the loan is repaid, fully or partially, or in the case of foreclosures, when the underlying asset is sold), or (ii) with respect to any amount due under any loan, when such amount is determined to be non-collectible.
We believe that Distributable Earnings or Loss provides meaningful information to consider in addition to our net income (loss) and cash flows from operating activities determined in accordance with GAAP. We believe Distributable Earnings or Loss is a useful financial metric for existing and potential future holders of our common stock as historically, over time, Distributable Earnings or Loss has been a strong indicator of our dividends per share. Dividends are one of the principal reasons investors invest in REIT's. As a REIT, we generally must distribute annually at least 90% of our taxable income, subject to certain adjustments. Refer to Note 15 to our consolidated financial statements for further discussion of our distribution requirements as a REIT. Furthermore, Distributable Earnings or Loss helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations. We also consider Distributable Earnings or Loss as a performance metric when considering and declaring our dividends on our common stock.
Distributable Earnings or Loss does not represent net income (loss) or cash generated from operating activities and should not be considered as an alternative to GAAP net income (loss), or an indication of GAAP cash flows from operations, a measure of our liquidity, or an indication of funds available for our cash needs. In addition, our methodology for calculating Distributable Earnings or Loss may differ from the methodologies employed by other companies to calculate the same or similar performance measures, and accordingly, our reported Distributable Earnings or Loss may not be comparable to the Distributable Earnings or Loss reported by other companies.
The following table provides a reconciliation of Distributable Earnings or Loss to GAAP net income (loss):
| Three Months Ended | ||||||||||||||
| September 30, 2026 | June 30, 2026 | |||||||||||||
| Net (loss) income attributable to common stockholders | $ | (13,508,118) | $ | (9,197,948) | ||||||||||
| Realized loss on mortgage loans | - | (1,841,615) | ||||||||||||
| Realized loss on sale of real estate owned | - | (3,267,833) | ||||||||||||
| Unrealized loss on mortgage servicing rights | 3,436 | 17,268 | ||||||||||||
| Provision for (release of) credit losses | 8,599,694 | 8,625,695 | ||||||||||||
| Depreciation of real estate owned | 318,237 | 390,272 | ||||||||||||
| Real estate owned impairment expense | 3,892,329 | - | ||||||||||||
| Provision for (benefit from) income taxes | 9,231 | (10,745) | ||||||||||||
| Distributable (Loss) Earnings | $ | (685,191) | $ | (5,284,906) | ||||||||||
| Weighted-average shares outstanding, basic and diluted | 5,252,331 | 5,245,998 | ||||||||||||
| Distributable (Loss) Earnings per share, basic and diluted | $ | (0.13) | $ | (1.01) | ||||||||||
Book Value Per Share
The following table calculates our book value per share:
| September 30, 2026 | December 31, 2025 | |||||||||||||
| Total stockholders' equity | $ | 191,262,957 | $ | 218,987,218 | ||||||||||
| Less preferred stock (liquidation preference of $25.00 per share) | (60,000,000) | (60,000,000) | ||||||||||||
| Total common stockholders' equity | 131,262,957 | 158,987,218 | ||||||||||||
| Shares of common stock issued and outstanding at period end | 5,256,364 | 5,239,926 | ||||||||||||
|
Book value per share of common stock(1)
|
$ | 24.97 | $ | 30.34 | ||||||||||
(1) Book value as of September 30, 2026 and December 31, 2025 includes the impact of an estimated CECL allowance of $27,124,534 or $5.16 per common share and $22,658,121 or $4.32 per common share, respectively.
Investment Portfolio
Commercial Mortgage Loans
As of September 30, 2026, we have determined that we are the primary beneficiary of the LMNT 2025-FL3 CLO based on our obligation to absorb losses derived from ownership of our residual interests. Accordingly, the Company consolidated the assets, liabilities, income and expenses of the underlying issuing entities, collateralized loan obligations and secured financings.
The following table details our loan activity by unpaid principal balance:
| Commercial Mortgage Loans Held-for-Investment | ||||||||
| Balance at December 31, 2025 | $ | 1,114,047,992 | ||||||
| Purchases and advances | 206,121,463 | |||||||
| Proceeds from principal repayments | (310,131,872) | |||||||
| Transfer to real estate owned | (54,567,140) | |||||||
| Charge-offs | 12,026,603 | |||||||
| Purchase discount | (129,552) | |||||||
| Origination and other fees | (2,027,897) | |||||||
| Accretion of purchase discount | 1,346,642 | |||||||
| Accretion of deferred loan fees | 1,933,648 | |||||||
| Provision for allowance for credit losses | (16,493,016) | |||||||
|
Balance at September 30, 2026
|
$ | 952,126,871 | ||||||
The following table details overall statistics for our loan portfolio as of September 30, 2026 and December 31, 2025:
| Weighted Average | ||||||||||||||||||||||||||||||||||||||||||||
| Loan Type | Unpaid Principal Balance |
Carrying Value(1)
|
Loan Count | Floating Rate Loan % |
Coupon(2)
|
Term
(Years)(3)
|
LTV(4)
|
|||||||||||||||||||||||||||||||||||||
| September 30, 2026 | ||||||||||||||||||||||||||||||||||||||||||||
| Loans held-for-investment | ||||||||||||||||||||||||||||||||||||||||||||
|
Senior secured loans(5)
|
$ | 980,607,492 | $ | 979,251,405 | 51 | 100.0 | % | 7.1 | % | 1.5 | 69.3 | % | ||||||||||||||||||||||||||||||||
| Allowance for credit losses | N/A | $ | (27,124,534) | |||||||||||||||||||||||||||||||||||||||||
| $ | 980,607,492 | $ | 952,126,871 | 51 | 100.0 | % | 7.1 | % | 1.5 | 69.3 | % | |||||||||||||||||||||||||||||||||
| Weighted Average | ||||||||||||||||||||||||||||||||||||||||||||
| Loan Type | Unpaid Principal Balance |
Carrying Value(1)
|
Loan Count | Floating Rate Loan % |
Coupon(2)
|
Term
(Years)(3)
|
LTV(4)
|
|||||||||||||||||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| Loans held-for-investment | ||||||||||||||||||||||||||||||||||||||||||||
|
Senior secured loans(5)
|
$ | 1,140,268,217 | $ | 1,136,706,113 | 61 | 100.0 | % | 7.2 | % | 1.7 | 68.9 | % | ||||||||||||||||||||||||||||||||
| Allowance for credit losses | N/A | $ | (22,658,121) | |||||||||||||||||||||||||||||||||||||||||
| $ | 1,140,268,217 | $ | 1,114,047,992 | 61 | 100.0 | % | 7.2 | % | 1.7 | 68.9 | % | |||||||||||||||||||||||||||||||||
(1) Carrying Value includes $440,495 and $1,657,584 in unamortized purchase discounts as of September 30, 2026 and December 31, 2025, respectively.
(2) Weighted average coupon assumes applicable 30-day term SOFR of 3.76% and 3.85% as of September 30, 2026 and December 31, 2025, respectively, inclusive of weighted average interest rate floors of 2.67% and 2.18%, respectively. As of September 30, 2026 and December 31, 2025, 100.0% of the investments by total investment exposure earned a floating rate indexed to 30-day term SOFR.
(3) Weighted average remaining term assumes all extension options are exercised by the borrower, provided, however, that our loans may be repaid prior to such date.
(4) LTV is as of the date the loan was originated and is calculated after giving effect to capex and earnout reserves, if applicable. LTV has not been updated for any subsequent draws or loan modifications and is not reflective of any changes in value which may have occurred subsequent to the origination date.
(5) As of September 30, 2026, $624,305,808 of the outstanding senior secured loans were held in VIEs and $327,821,063 of the outstanding senior loans were held outside of VIEs. As of December 31, 2025, $856,064,488 of the outstanding senior secured loans were held in VIEs and $257,983,504 of the outstanding senior secured loans were held outside VIEs.
Portfolio Surveillance and Credit Quality
We did not have any impaired loans, non-accrual loans, or loans in maturity default other than the loans discussed below as of September 30, 2026 or December 31, 2025.
During the three months ended September 30, 2026, the Company recorded a provision for credit losses of $8.6 million and $2.7 million of charge-offs, resulting in a $5.9 million net increase in the allowance for credit losses to $27.1 million as of September 30, 2026. For the three months ended September 30, 2026, the Company's estimate of expected credit losses increased primarily due to specific reserves associated with one loan that moved to a risk rating of "5" during the quarter, additional specific reserves on existing risk rated "5" loans, and an increase in the outstanding principal balance of risk rated "4" loans. The increase also reflected changes in macroeconomic assumptions employed in determining the Company's model-based general reserve and was partially offset by the charge-off of a credit loss related to the foreclosure of one risk rated "5" loan.
As of September 30, 2026, we had an aggregate specific allowance for credit losses of $20.5 million due to management's: (1) continued identification of one loan collateralized by one multifamily property in Cedar Park, TX (no specific allowance; non-accrual cash basis) with an aggregate unpaid balance of $13.7 million as risk rated "5" due to maturity default; (2) continued identification of four loans collateralized by four multifamily properties in Tampa, FL ($4.4 million specific allowance; non-accrual cash basis), Tallahassee, FL ($8.4 million specific allowance; non-accrual cash basis), Ypsilanti, MI ($5.7 million specific allowance; non-accrual cash basis) and Houston, TX ($2.0 million specific allowance; non-accrual cash basis) with an aggregate principal balance of $62.5 million as risk rated "5" due to monetary default and (3) identified one loan collateralized by one multifamily property in Houston, TX (no specific allowance) with an unpaid principal balance of $17.9 million as risk rated "5" due to monetary default.
We recorded $0.3 million in cash basis income received on non-accrual loans during the three months ended September 30, 2026.
As of December 31, 2025, we had an aggregate specific allowance of credit losses of $17.6 million due to management's: (1) continued identification of one loan collateralized by two multifamily properties in Philadelphia, PA ($1.3 million specific allowance) with an aggregate unpaid balance of $15.5 million as risk rated "5" due to maturity default; (2) continued identification of one loan collateralized by a multifamily property in Colorado Springs, CO ($2.4 million specific allowance; non-accrual cash basis) with an aggregate unpaid balance of $10.5 million as risk rated "5" due to monetary default; (3) identification of two loans collateralized by two multifamily properties in Arlington, TX ($3.6 million specific allowance; non-accrual cash basis) and Cedar Park, TX (no specific allowance; non-accrual cash basis) with an aggregate unpaid balance of $35.5 million as risk rated "5" due to maturity default and (4) identification of four loans collateralized by four multifamily properties in Des Moines, IA ($0.5 million specific allowance; non-accrual cash basis), Tampa, FL ($0.9 million specific allowance; non-accrual cash basis), Tallahassee, FL ($3.0 million specific allowance; non-accrual cash basis) and Ypsilanti, MI ($5.9 million specific allowance; non-accrual cash basis) with an aggregate principal balance of $55.8 million as risk rated "5" due to monetary default.
We recorded $0.8 million in cash basis income received on non-accrual loans during the year ended December 31, 2025, subsequent to their determination to be risk rated "5" loans and we received $0.3 million of cash proceeds from such loans that were applied as a reduction to the amortized cost basis of the respective loan.
In the first quarter of 2026, the $10.5 million Colorado Springs, CO ($2.4 million specific allowance) loan was foreclosed on, with ownership and deed to the property being taken by a newly formed subsidiary of the Company. The reversal of the $2.4 million specific allowance is reflected as a charge-off to the "Allowance for credit losses" in the consolidated balance sheets.
In the second quarter of 2026, the $22.1 million Arlington, TX ($5.1 million specific allowance, inclusive of $1.5 million taken in the quarter ended June 30, 2026) loan was foreclosed on, with ownership and deed to the property being taken by a newly formed subsidiary of the Company. The reversal of the $5.1 million specific allowance is reflected as a charge-off to the "Allowance for credit losses" in the consolidated balance sheets.
In the second quarter of 2026, the $15.5 million Philadelphia, PA ($1.3 million specific allowance) and the $8.6 million Des Moines, IA ($0.5 million specific allowance) loans were repaid at their respective carrying values. Upon the discounted payoffs, a $1.8 million charge-off was reflected as a charge-off to the "Allowance for credit losses" in the consolidated balance sheets.
In the third quarter of 2026, the $21.9 million Dallas, TX ($2.8 million specific allowance) loan was foreclosed on, with ownership and deed to the property being taken by a newly formed subsidiary of the Company. The reversal of the $2.8 million specific allowance is reflected as a charge-off to the "Allowance for credit losses" in the consolidated balance sheets.
Our Manager's asset management team proactively manages the Company's investment portfolio. The asset management team, together with our Manager's underwriting and servicing teams, monitors the credit performance of the investment portfolio, working closely with borrowers to manage all of our positions and monitor financial performance of our collateral assets, including execution of business plans and daily activities within our investment portfolio.
Loan modifications and amendments are commonplace in the transitional lending business. We may amend or modify a loan depending on the loan's specific facts and circumstances. These loan modifications typically include additional time for a borrower to refinance or sell their property, adjustment or waiver of performance tests that are prerequisite to the extension of a loan maturity, modification of terms of interest rate cap agreements, and/or deferral of scheduled principal payments. In exchange for a modification, we often receive a partial repayment of principal, a cash infusion to replenish interest or capital improvement reserves, termination of all or a portion of the remaining unfunded loan commitment, additional call protection and/or an increase in the loan coupon or additional fees. We continue to work with our borrowers to address issues as they arise while seeking to preserve the credit attributes of our loan. However, we cannot assure you that these efforts will be successful, and we may experience payment delinquencies, defaults, foreclosures or losses.
As discussed in Note 2 to our consolidated financial statements, our Manager performs a quarterly review of our loan portfolio, assesses the performance of each loan, and assigns a risk rating between "1" and "5," from less risk to greater risk. The average risk rating of the portfolio remained consistent during the nine months ended September 30, 2026. The change in underlying risk rating consisted of loans that paid off with a risk rating of "2" of $33.9 million, a risk rating of "3" of $253.2 million and a risk rating of "5" of $24.1 million during the nine months ended September 30, 2026, partially offset by funding of loans with a risk rating of "2" of $32.2 million, a risk rating of "3" of $172.5 million and a risk rating of "5" of $1.1 million. Additionally, $17.0 million of loans with a risk rating of "2" transitioned to a risk rating of "3," $50.5 million of loans with a risk rating of "3" transitioned to a risk rating of "2," $182.4 million of loans with a risk rating of "3" transitioned to a risk rating of "4", $41.4 million of loans with a risk rating of "4" transitioned to a risk rating of "3" and $32.1 million of loans with a risk rating of "4" transitioned to a risk rating of "5". Further, $54.3 million of loans with a risk rating of "5" were foreclosed and moved to REO.
| September 30, 2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortized Cost by Year of Origination | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Risk Rating | Number of Loans | Outstanding Principal | 2026 | 2025 | 2024 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||
| 1 | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||||||||||||||||||||
| 2 | 12 | 192,867,433 | 31,843,537 | 43,974,193 | 31,339,738 | - | 61,723,000 | 23,241,363 | ||||||||||||||||||||||||||||||||||||||||||
| 3 | 24 | 475,513,477 | 84,693,347 | 162,225,111 | 121,896,880 | - | 75,507,533 | 29,228,277 | ||||||||||||||||||||||||||||||||||||||||||
| 4 | 9 | 218,122,891 | - | - | - | - | 38,803,073 | 174,165,067 | ||||||||||||||||||||||||||||||||||||||||||
| 5 | 6 | 94,103,691 | - | - | - | - | 59,819,031 | 13,666,721 | ||||||||||||||||||||||||||||||||||||||||||
| 51 | $ | 980,607,492 | $ | 116,536,884 | $ | 206,199,304 | $ | 153,236,618 | $ | - | $ | 235,852,637 | $ | 240,301,428 | ||||||||||||||||||||||||||||||||||||
Real Estate Owned
During the nine months ended September 30, 2026, Lument Real Estate Capital, LLC ("LREC"), as servicer for LCMT Warehouse, LLC, LCMT NPL Warehouse, LLC and LMNT 2025-FL3, indirect wholly owned subsidiaries of the Company, foreclosed on three multifamily bridge loans located in Colorado Springs, CO, Arlington, TX, and Dallas, TX with an aggregate net carrying value of $44.2 million, net of specific reserves of $10.3 million, with ownership and deeds to the properties being taken by newly formed subsidiaries of the Company.
During the three months ended September 30, 2026, the Company determined that four of its REO properties met the criteria for classification as held for sale. One of the properties located in Dallas, TX with a carrying value of $17.5 million was designated as held for sale upon foreclosure in the quarter and two of the properties located in Colorado Springs, CO and Arlington, TX with aggregate net carrying value of $24.1 million were reclassified from real estate held for investment to real estate held for sale in the quarter. As of September 30, 2026, offering memorandums had been prepared for each property and the properties were being actively marketed for sale. The Company expects to complete the sales within one year of their classification as held for sale.
During the year ended December 31, 2025, LREC, as special servicer for 2021-FL1 CLO, foreclosed on two multifamily bridge loans located in San Antonio, TX with an aggregate net carrying value of $39.5 million, net of specific CECL reserves of $2.4 million, with ownership and deeds to the properties being taken by newly formed subsidiaries of the Company. Additionally, LREC, as special servicer for LMF 2023-1 Financing, foreclosed on two multifamily bridge loans located in Houston, TX and San Antonio, TX with an aggregate net carrying value of $19.9 million, net of specific CECL reserves of $0.7 million, with ownership and deeds to the properties being taken by newly formed subsidiaries of the Company.
The fair value of the REO at the time of foreclosure was determined using the income approach, market approach, or a combination thereof. The significant unobservable input for the income capitalization approach is the overall capitalization rate assumption, used in the direct capitalization method, which was 4.98% - 7.40%. The significant unobservable input used for the market approach is the price per unit from an appraisal or broker opinion of value.
On May 4, 2026, the Company sold one of the properties located in San Antonio, TX held by a subsidiary of the Company to a third party for $12.2 million and recognized a $0.1 million gain on the sale of the property. The recognized gain on the sale of the property was included within realized "Gain on sale of real estate owned" in the Company's consolidated statements of operations.
On December 22, 2025, the Company sold one of the properties located in San Antonio, TX held by a subsidiary of the Company to a third party for $8.2 million and recognized a $0.5 million realized loss on the sale of the property. The realized loss on the sale of the property was included within realized loss on real estate owned in the Company's consolidated statements of operations on Form 10-K for the year ended December 31, 2025.
At September 30, 2026 and December 31, 2025, our REO assets were comprised of five and three multifamily properties, respectively, held within various subsidiaries of the Company. A summary of our REO assets is as follows:
| September 30, 2026 | December 31, 2025 | |||||||||||||
| Real estate owned, held-for-investment | ||||||||||||||
| Land | $ | 4,278,273 | $ | 4,278,272 | ||||||||||
| Building | 23,465,278 | 22,907,888 | ||||||||||||
| Less: Accumulated depreciation | (1,025,649) | (347,150) | ||||||||||||
| Total | $ | 26,717,902 | $ | 26,839,010 | ||||||||||
| Real estate owned, held-for-sale | ||||||||||||||
| Real estate owned, held-for-sale | $ | 49,839,418 | $ | 24,099,072 | ||||||||||
| Total | $ | 49,839,418 | $ | 24,099,072 | ||||||||||
At September 30, 2026 and December 31, 2025, our REO properties had a weighted average occupancy rate of approximately 66.8% and 69.1%, respectively.
We recorded depreciation and amortization expense related to the REO assets of $0.4 million and $1.1 million for the three and nine months ended September 30, 2026, respectively, recorded as "net income (expense) from real estate owned operations" in the consolidated statement of operations. Additionally, we recorded operating income of $2.5 million and $5.9 million and operating expense of $2.7 million and $5.6 million for the three months and nine months ended September 30, 2026, respectively, recorded as "Net income (expense) from real estate owned operations" in the consolidated statement of operations.
The table below sets forth additional information relating to the Company's portfolio as of September 30, 2026:
| Loan # | Form of Investment | Origination Date |
Total Loan Commitment(1)
|
Committed Principal Amount(2)
|
Current Principal Amount | Location | Property Type | Coupon | Max Remaining Term (Years) |
LTV(3)
|
Loan/Investment Per Unit(4)
|
Risk Rating | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Senior Secured Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1 | Senior secured | December 20, 2024 | $ | 60,000,000 | $ | 59,836,911 | $ | 59,836,911 | Olympia, WA | Multifamily | 1mS + 3.8 | 3.3 | 68.5% | $215,054/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2 | Senior secured | December 16, 2021 | $ | 52,725,000 | $ | 52,725,000 | $ | 51,375,000 | Multi, FL | Multifamily | 1mS + 3.2 | 0.3 | 71.7% | $75,429/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3 | Senior secured | December 23, 2024 | $ | 36,800,000 | $ | 36,800,000 | $ | 36,800,000 | Macon, GA | Multifamily | 1mS + 2.9 | 3.3 | 66.1% | $131,429/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4 | Senior secured | January 16, 2025 | $ | 36,000,000 | $ | 36,000,000 | $ | 36,000,000 | Noblesville, IN | Multifamily | 1mS + 3 | 1.4 | 67.6% | $162,162/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5 | Senior secured | January 29, 2025 | $ | 39,800,000 | $ | 36,455,912 | $ | 35,500,000 | Manchaca, TX | Multifamily | 1mS + 3 | 2.4 | 52.2% | $117,059/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6 | Senior secured | July 23, 2026 | $ | 45,450,000 | $ | 45,450,000 | $ | 35,000,000 | Huntsville, AL | Multifamily | 1mS + 2.8 | 4.9 | 75.8% | $132,507/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 7 | Senior secured | March 22, 2022 | $ | 32,203,323 | $ | 32,103,323 | $ | 31,627,625 | Seneca, SC | Multifamily | 1mS + 3.4 | 0.6 | 74.5% | $121,982/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8 | Senior secured | June 28, 2022 | $ | 29,940,124 | $ | 29,940,125 | $ | 29,623,930 | Dallas, TX | Multifamily | 1mS + 3.4 | 0.8 | 71.6% | $96,894/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 9 | Senior secured | April 3, 2025 | $ | 27,500,000 | $ | 27,500,000 | $ | 27,500,000 | Lockport, IL | Multifamily | 1mS + 2.8 | 1.6 | 64.5% | $245,536/unit | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10 | Senior secured | November 2, 2021 | $ | 26,049,291 | $ | 26,049,291 | $ | 26,049,291 | Melbourne, FL | Multifamily | 1mS + 3.2 | 0.2 | 72.1% | $113,752/unit | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 11 | Senior secured | October 27, 2025 | $ | 42,500,000 | $ | 42,500,000 | $ | 25,833,333 | Columbus, OH | Multifamily | 1mS + 2.4 | 2.2 | 75.0% | $199,624/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 12 | Senior secured | September 17, 2024 | $ | 25,500,000 | $ | 25,500,000 | $ | 25,500,000 | Marysville, OH | Multifamily | 1mS + 2.9 | 1.1 | 73.8% | $186,131/unit | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 13 | Senior secured | April 27, 2022 | $ | 49,050,000 | $ | 49,050,000 | $ | 24,525,000 | North Brunswick, NJ | Multifamily | 1mS + 3.4 | 0.3 | 79.9% | $193,874/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 14 | Senior secured | August 26, 2021 | $ | 25,163,008 | $ | 25,163,008 | $ | 24,468,033 | Clarkston, GA | Multifamily | 1mS + 3.6 | 1.9 | 79.0% | $88,602/unit | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 15 | Senior secured | October 18, 2021 | $ | 24,252,193 | $ | 24,252,193 | $ | 23,348,000 | Cherry Hill, NJ | Multifamily | 1mS + 3.1 | 0.2 | 72.4% | $137,797/unit | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 16 | Senior secured | June 30, 2026 | $ | 73,125,000 | $ | 73,125,000 | $ | 23,125,000 | Phoenix, AZ | Multifamily | 1mS + 2.5 | 4.8 | 65.0% | $218,937/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 17 | Senior secured | August 26, 2021 | $ | 23,065,021 | $ | 23,065,021 | $ | 22,872,354 | Union City, GA | Multifamily | 1mS + 3.5 | 0.5 | 70.4% | $78,452/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 18 | Senior secured | August 31, 2021 | $ | 21,750,000 | $ | 21,725,235 | $ | 21,644,684 | Houston, TX | Multifamily | 1mS + 3.4 | 0.0 | 74.2% | $83,654/unit | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 19 | Senior secured | November 29, 2022 | $ | 20,360,000 | $ | 20,360,000 | $ | 20,360,000 | Glendale, WI | Healthcare | 1mS + 4 | 0.3 | 45.0% | $242,381/unit | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 20 | Senior secured | November 5, 2021 | $ | 19,625,274 | $ | 19,625,274 | $ | 19,625,274 | Orlando, FL | Multifamily | 1mS + 3.1 | 0.8 | 78.1% | $129,969/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 21 | Senior secured | February 18, 2026 | $ | 19,500,000 | $ | 19,500,000 | $ | 19,500,000 | Holt, MI | Multifamily | 1mS + 3.1 | 3.5 | 76.3% | $182,243/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 22 | Senior secured | February 11, 2022 | $ | 19,445,670 | $ | 19,445,670 | $ | 19,445,670 | Tampa, FL | Multifamily | 1mS + 3.6 | 0.5 | 78.0% | $144,042/unit | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 23 | Senior secured | November 21, 2022 | $ | 18,920,000 | $ | 18,920,000 | $ | 18,920,000 | Houston, TX | Healthcare | 1mS + 4 | 0.3 | 67.0% | $236,500/unit | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 24 | Senior secured | February 2, 2022 | $ | 18,578,490 | $ | 18,578,490 | $ | 17,936,729 | Houston, TX | Multifamily | 1mS + 3.5 | 0.1 | 77.5% | $74,913/unit | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 25 | Senior secured | November 23, 2021 | $ | 17,781,968 | $ | 17,781,968 | $ | 17,781,968 | Orange, NJ | Multifamily | 1mS + 3.3 | 0.3 | 78.0% | $161,654/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 26 | Senior secured | March 26, 2025 | $ | 17,780,000 | $ | 17,780,000 | $ | 17,780,000 | Kannapolis, NC | Multifamily | 1mS + 2.9 | 1.6 | 60.4% | $179,596/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 27 | Senior secured | September 15, 2026 | $ | 17,700,000 | $ | 17,700,000 | $ | 17,700,000 | Waterbury, CT | Multifamily | 1mS + 3 | 1.6 | 46.7% | $66,541/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 28 | Senior secured | December 20, 2024 | $ | 17,010,000 | $ | 17,010,000 | $ | 17,010,000 | Lafayette, IN | Multifamily | 1mS + 3.2 | 1.3 | 68.0% | $118,125/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 29 | Senior secured | March 31, 2022 | $ | 18,140,000 | $ | 16,956,276 | $ | 16,956,276 | Tallahassee, FL | Multifamily | 1mS + 3 | 0.6 | 74.8% | $94,479/unit | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 30 | Senior secured | March 28, 2025 | $ | 16,500,000 | $ | 16,500,000 | $ | 16,500,000 | Lansing, MI | Multifamily | 1mS + 2.9 | 1.6 | 73.5% | $189,655/unit | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 31 | Senior secured | July 31, 2025 | $ | 48,553,000 | $ | 36,673,223 | $ | 16,237,935 | Oswego, IL | Multifamily | 1mS + 4.2 | 2.9 | 64.7% | $259,642/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 32 | Senior secured | November 21, 2022 | $ | 15,735,000 | $ | 15,735,000 | $ | 15,735,000 | Southlake, TX | Healthcare | 1mS + 4 | 0.3 | 48.0% | $172,912/unit | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 33 | Senior secured | April 27, 2022 | $ | 14,171,704 | $ | 14,171,704 | $ | 14,171,704 | Houston, TX | Multifamily | 1mS + 3.7 | 0.7 | 79.6% | $88,573/unit | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 34 | Senior secured | April 12, 2021 | $ | 15,666,721 | $ | 13,666,721 | $ | 13,666,721 | Cedar Park, TX | Multifamily | 1mS + 3.9 | 0.0 | 66.7% | $130,556/unit | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 35 | Senior secured | June 3, 2025 | $ | 13,510,000 | $ | 13,510,000 | $ | 13,510,000 | Bound Brook, NJ | Multifamily | 1mS + 4 | 1.8 | 67.6% | $177,763/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 36 | Senior secured | May 12, 2022 | $ | 11,926,591 | $ | 11,926,591 | $ | 11,926,591 | Ypsilanti, MI | Multifamily | 1mS + 3.5 | 0.8 | 68.4% | $70,992/unit | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 37 | Senior secured | January 25, 2022 | $ | 11,406,810 | $ | 11,406,810 | $ | 11,261,792 | Corpus Christi, TX | Multifamily | 1mS + 3.6 | 1.8 | 78.8% | $68,304/unit | 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 38 | Senior secured | October 28, 2021 | $ | 12,203,839 | $ | 12,203,839 | $ | 11,202,535 | Tampa, FL | Multifamily | 1mS + 3.1 | 0.2 | 75.7% | $179,468/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 39 | Senior secured | October 27, 2025 | $ | 10,600,000 | $ | 10,600,000 | $ | 10,600,000 | Columbus, OH | Multifamily | 1mS + 2.4 | 2.2 | 75.0% | $199,624/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 40 | Senior secured | July 26, 2022 | $ | 10,705,123 | $ | 10,705,122 | $ | 10,320,477 | Atlanta, GA | Multifamily | 1mS + 3.7 | 0.9 | 65.2% | $104,952/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 41 | Senior secured | September 30, 2021 | $ | 10,022,226 | $ | 10,022,225 | $ | 9,815,615 | Clearfield, UT | Multifamily | 1mS + 3.3 | 0.1 | 68.0% | $131,871/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 42 | Senior secured | February 19, 2026 | $ | 10,119,000 | $ | 10,119,000 | $ | 9,500,000 | Wadsworth, OH | Multifamily | 1mS + 3.2 | 4.5 | 66.4% | $177,526/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 43 | Senior secured | July 14, 2022 | $ | 9,843,891 | $ | 9,843,891 | $ | 9,429,206 | Bradenton, FL | Multifamily | 1mS + 3.9 | 0.9 | 74.4% | $117,189/unit | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 44 | Senior secured | April 15, 2024 | $ | 9,000,000 | $ | 9,000,000 | $ | 8,500,000 | Multi, ID | Healthcare | 1mS + 4.7 | 0.2 | 54.0% | $100,000/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 45 | Senior secured | December 19, 2025 | $ | 6,960,000 | $ | 6,960,000 | $ | 6,960,000 | San Antonio, TX | Multifamily | 1mS + 2.8 | 3.3 | 76.5% | $48,333/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 46 | Senior secured | May 28, 2026 | $ | 6,880,000 | $ | 6,880,000 | $ | 6,880,000 | Des Moines, IA | Multifamily | 1mS + 1.8 | 2.8 | 72.0% | $59,559/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 47 | Senior secured | October 7, 2022 | $ | 6,816,701 | $ | 6,816,701 | $ | 6,816,701 | Fairborn, OH | Multifamily | 1mS + 4.1 | 0.0 | 79.1% | $200,491/unit | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 48 | Senior secured | December 19, 2024 | $ | 5,987,732 | $ | 5,987,732 | $ | 5,987,732 | Bellflower, CA | Multifamily | 1mS + 3 | 1.3 | 30.4% | $33,265/unit | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 49 | Senior secured | September 3, 2026 | $ | 55,000,000 | $ | 55,000,000 | $ | 5,000,000 | Seattle, WA | Multifamily | 1mS + 2.4 | 5.0 | 68.5% | $275,000/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 50 | Senior secured | December 29, 2021 | $ | 1,720,405 | $ | 1,720,405 | $ | 1,720,405 | Multi, NC | Multifamily | 1mS + 4 | 0.3 | 59.9% | $2,591/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 51 | Senior secured | May 28, 2026 | $ | 1,220,000 | $ | 1,220,000 | $ | 1,220,000 | Des Moines, IA | Multifamily | 1mS + 1.8 | 2.8 | 72.0% | $59,559/unit | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total/Weighted Average | $ | 1,180,263,105 | $ | 1,161,567,661 | $ | 980,607,492 | 1mS + 3.3 | 1.5 | 69.3% | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Real Estate Owned(5)
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1 | Real Estate Owned | March 4, 2022 | N/A | $ | 11,246,437 | $ | 11,246,437 | Houston, TX | Multifamily | N/A | N/A | N/A | $76,923/unit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2 | Real Estate Owned | June 7, 2021 | N/A | $ | 27,007,982 | $ | 27,007,982 | San Antonio, TX | Multifamily | N/A | N/A | N/A | $66,297/unit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3 | Real Estate Owned | June 28, 2022 | N/A | $ | 8,150,000 | $ | 8,150,000 | Colorado Springs, CO | Multifamily | N/A | N/A | N/A | $88,587/unit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4 | Real Estate Owned | July 8, 2022 | N/A | $ | 17,029,050 | $ | 17,029,050 | Arlington, TX | Multifamily | N/A | N/A | N/A | $73,882/unit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5 | Real Estate Owned | November 16, 2021 | N/A | $ | 19,070,000 | $ | 19,070,000 | Dallas, TX | Multifamily | N/A | N/A | N/A | $88,287/unit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 82,503,469 | $ | 82,503,469 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1)Total Loan Commitment represents the total commitment of the entire whole loan originated. See Note 12 Commitments and Contingencies to our consolidated financial statements for further discussion of unfunded commitments.
(2)Committed Principal Amount includes funded participations by LFT-affiliated entities and third parties that are syndicated/sold.
(3)LTV is as of the date the loan was originated by an ORIX affiliate and is calculated after giving effect to capex and earn-out reserves, if applicable. LTV has not been updated for any subsequent draws or loan modifications and is not reflective of any changes in value, which may have occurred subsequent to the origination date.
(4)Loan Per Unit is based on the current principal amount divided by the property's current unit count.
(5)Committed Principal and Current Principal Amount for Real Estate Owned represent the balances at the time of foreclosure.
Total Financing
Our financing arrangements include our term loan facility, collateralized loan obligations, secured financings, term lending agreement and master repurchase agreement. All of our current financing arrangements are not subject to credit or capital markets mark-to-market provisions with the exception of our master repurchase agreement and secured lending agreement.
The following table summarizes our financing agreements:
| September 30, 2026 | December 31, 2025 | |||||||||||||||||||||||||||||||||||||
| Maximum | Collateral | Borrowings | Borrowings | |||||||||||||||||||||||||||||||||||
| Non-/Mark-to-Market |
Facility Size(1)
|
Assets(2)
|
Outstanding | Available | Outstanding | |||||||||||||||||||||||||||||||||
| Collateralized loan obligations | Non-Mark-to-Market | $ | 663,810,950 | $ | 626,576,815 | $ | 584,983,000 | $ | - | $ | 584,983,000 | |||||||||||||||||||||||||||
| Master repurchase agreement | Mark-to-Market | 450,000,000 | 336,608,665 | 232,992,965 | 217,007,035 | 177,193,781 | ||||||||||||||||||||||||||||||||
| Secured lending agreement | Mark-to-Market | 50,000,000 | 29,977,515 | 17,700,000 | 32,300,000 | 17,000,000 | ||||||||||||||||||||||||||||||||
| Secured financings | Non-Mark-to-Market | - | - | - | - | 169,655,462 | ||||||||||||||||||||||||||||||||
| Secured term loan | Non-Mark-to-Market | 50,000,000 | N/A | 50,000,000 | - | 47,750,000 | ||||||||||||||||||||||||||||||||
| $ | 1,213,810,950 | $ | 885,675,965 | $ | 249,307,035 | $ | 996,582,243 | |||||||||||||||||||||||||||||||
(1) Maximum facility size represents the largest amount of borrowings under a given facility once sufficient collateral assets have been approved by the lender and pledged by us.
(2) Represents the principal balance of the collateral assets
Collateralized Loan Obligations and Secured Financings
On June 14, 2021, the Company completed the 2021-FL1 CLO, issuing eight tranches of CLO notes totaling $903.8 million through two newly formed wholly-owned subsidiaries. Of the total CLO notes issued, $833.8 million were investment grade notes issued to third party investors and $70 million were below investment-grade notes retained by us. In addition, a $96.25 million equity interest in the portfolio was retained by us. The financing had an initial two-and-a-half year reinvestment period, which expired in December 2023, that allowed principal proceeds of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance was reduced as loans were repaid. Initially, the proceeds of the issuance of the securities also included $330.3 million for the purpose of acquiring additional loan obligations for a period up to 180 days from the 2021-FL1 CLO closing date, resulting in the issuer owning loan obligations with a face value of $1.0 billion, representing leverage of 83%. On November 18, 2025, the Company redeemed the 2021-FL1 CLO in full.
On July 12, 2023, the Company entered into and closed a matched-term, non-recourse collateralized commercial real estate financing (the "LMF 2023-1 Financing"), secured by $386.4 million of first lien floating-rate multifamily mortgage assets and was not subject to margin calls or additional collateralization requirements. In connection with the LMF 2023-1 Financing, approximately $270.4 million of an investment-grade rated senior secured floating rate loan was provided by a private lender and approximately $47.3 million of investment-grade rated notes (collectively, the "Senior Debt") were issued and sold to an affiliate of LFT's external manager, Lument IM. A consolidated subsidiary of LFT retained the subordinate interests in the issuing vehicle of approximately $68.6 million. The Senior Debt had an initial weighted average spread of approximately 314 basis points over 30-day term SOFR, excluding fees and transaction costs. The Senior Debt matures on the payment date in July 2032, unless it was repaid or redeemed sooner in accordance with its terms. The financing had an initial two-year reinvestment period that allowed principal proceeds of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance was reduced as loans were repaid. On February 20, 2026, the Company redeemed the LMF 2023-1 Financing in full and expensed the remaining $1.2 million of deferred financing costs as a loss on extinguishment of debt on the consolidated statements of operations.
On December 10, 2025, the Company completed the LMNT 2025-FL3 CLO, issuing eight tranches of CLO notes totaling $620.7 million through a newly formed wholly-owned subsidiary. Of the total CLO notes issued, $585.0 million were investment grade notes issued to third party investors and $35.7 million were below investment-grade and retained by us. In addition, a $43.1 million income note was retained by us. The financing has an initial two-and-a-half year reinvestment period that allows principal proceeds of the loan obligations to be reinvested in qualifying replacement loan obligations, subject to the satisfaction of certain conditions set forth in the indenture. Thereafter, the outstanding debt balance will be reduced as loans are repaid. Initially, the proceeds of the issuance of the securities included $5.8 million for the purpose of acquiring additional loan obligations for a period up to 180 days from the CLO closing date, resulting in the issuer owning collateral interests with a face value of $663.8 million, representing effective leverage of 88%. The investment grade notes have an initial weighted average spread of approximately 190.5 basis points over 30-day term SOFR, excluding fees and transaction costs. The investment grade notes will mature on the payment date in July 2043, unless sooner repaid or redeemed in accordance with their terms.
The following table presents certain loan and borrowing characteristics of LMNT 2025-FL3 CLO as of September 30, 2026:
|
As of September 30, 2026
|
||||||||||||||||||||||||||
| Collateralized Loan Obligations/Financings | Count | Principal Value |
Carrying Value(1)
|
Wtd. Avg. Coupon(2)
|
||||||||||||||||||||||
| Collateral (loan investments) | 31 | $ | 626,576,815 | $ | 624,305,808 | 7.01 | % | |||||||||||||||||||
| Financing provided | 1 | $ | 584,983,000 | $ | 581,074,424 | 5.80 | % | |||||||||||||||||||
(1) The carrying value of the collateral is net of allowance for credit loss of $2,271,006 as of September 30, 2026. The carrying value for LMNT 2025-FL3 CLO is net of debt issuance costs of $3,908,576 for September 30, 2026.
(2) Weighted average coupon for loan investments assumes applicable 30-day term SOFR of 3.76% as of September 30, 2026, inclusive of weighted average interest rate floors of 3.23% and spreads of 3.20%. Weighted average coupon for the financings assumes applicable 30-day term SOFR of 3.89% as of September 30, 2026 and spreads of 1.91% as of September 30, 2026.
Master Repurchase and Secured Lending Agreements
On November 3, 2025, LCMT Warehouse, LLC, an indirect wholly owned subsidiary of the Company, entered into an Uncommitted Master Repurchase Agreement ("Repurchase Agreement") with JPMorgan Chase Bank, N.A.. The Repurchase Agreement provides up to $450 million to finance first mortgage loans, controlling loan participations and other commercial mortgage loan debt instruments secured by commercial real estate, as described in more detail in the Repurchase Agreement. Advances under the Repurchase Agreement accrue interest at per annum rates equal to term SOFR plus a spread to be determined on a case-by-case basis. The initial maturity date of the Repurchase Agreement is November 3, 2028, with two (2) one-year extensions at the Company's option, which may be exercised upon the satisfaction of certain conditions as described in more detail in the Repurchase Agreement. Borrowings under the Repurchase Agreement are on a partial (25%) recourse basis. This Agreement contains defined mark-to-market provisions that permit the lender to issue margin calls based on credit marks. On May 14, 2026, the Company and JPMorgan Chase Bank, N.A. entered into an amendment to the Guarantee Agreement which waived the maximum total net leverage ratio covenant for the period ended March 31, 2026, and amended the maximum total net leverage ratio for the remainder of the 2026 fiscal year. On August 12, 2026, the Company and JPMorgan Chase Bank, N.A. entered into a second amendment to the Guarantee Agreement which amended the minimum interest coverage ratio for the periods ending June 30, 2026, September 30, 2026, December 31, 2026 and March 31, 2027. As of September 30, 2026 and December 31, 2025, we were in compliance with these covenants.
On December 10, 2025, LCMT NPL Warehouse, LLC, an indirect wholly owned subsidiary of the Company, entered into a loan agreement ("Loan Agreement") with Northeast Bank. The Loan Agreement provides for up to $50 million in maximum aggregate advances over a 36-month draw period to finance first mortgage loans and controlling first mortgage loan participations secured by commercial real estate. Each collateral loan financed under the Loan Agreement will be classified as a performing or non-performing loan, as described in more detail in the Loan Agreement. The Loan Agreement also provides
financing for commercial REO properties, with related REO entities joining as borrowers under the Loan Agreement from time to time, as described in more detail in the Loan Agreement.
The following table presents certain loan and borrowing characteristics of the Repurchase Agreement and Loan Agreement as of September 30, 2026:
| As of September 30, 2026 | ||||||||||||||||||||||||||
| Secured Financing Agreements | Count |
Principal Value(1)
|
Carrying Value(2)
|
Wtd. Avg Coupon(3)
|
||||||||||||||||||||||
| Collateral (loan investments) | 19 | 356,054,334 | 344,964,346 | 7.13 | % | |||||||||||||||||||||
| Collateral (cash) | 0 | - | - | N/A | ||||||||||||||||||||||
| Collateral (REO assets) | 3 | 59,658,370 | 50,852,321 | N/A | ||||||||||||||||||||||
|
Financing provided(4)
|
2 | 250,692,965 | 249,049,330 | 5.91 | % | |||||||||||||||||||||
(1) Principal value of the Repurchase Agreement was $232,992,965 and the principal value of the Loan Agreement was $17,700,000 as of September 30, 2026.
(2) Net of $1.6 million unamortized deferred financing costs as of September 30, 2026.
(3) Weighted average funding cost for the Repurchase Agreement assumes applicable 30-day term SOFR of 3.89% as of September 30, 2026 and a spread of 1.90%. Weighted average funding cost for the Loan Agreement assumes applicable 30-day term SOFR of 3.89% as of September 30, 2026 and a spread of 3.50%.
(4) Borrowings under the Repurchase Agreement are on a partial (25%) recourse basis. This Agreement contains defined mark-to-market provisions that permit the lender to issue margin calls based on credit marks.
Secured Term Loan
In January 2020, we entered into a $40.25 million secured term loan with an initial maturity of February 2025. In April 2021, we entered into an amendment, providing, among other things, an incremental secured term loan in the amount of $7.5 million and a one-year maturity extension to February 2026. In August 2021, the Company drew down the $7.5 million incremental secured term loan. In February 2026, the Company entered into certain additional amendments that extended the maturity to February 20, 2030. In addition, the February 2026 amendments provided the Company with an incremental secured term loan in the aggregate principal amount of $2.25 million, which the Company drew upon on February 23, 2026.
As most recently amended, borrowings under the Secured Term Loans bear interest at a fixed rate of 9.75% per annum, which is subject to step up by 0.50% per annum for the first three months after February 20, 2029, with further step ups of 0.50% per annum every three months thereafter until the maturity date.
The Credit Agreement contains affirmative and negative covenants binding the Company and its subsidiaries that are customary for credit facilities of this type, including, but not limited to: minimum asset coverage ratio; minimum unencumbered assets ratio; maximum total net leverage ratio; minimum tangible net worth; and an interest charge coverage ratio. On August 12, 2026, the minimum interest coverage ratio was amended for the periods ending June 30, 2026, September 30, 2026, December 31, 2026 and March 31, 2027. As of September 30, 2026 and December 31, 2025, we were in compliance with these covenants.
The Credit Agreement contains events of default that are customary for facilities of this type, including, but not limited to, nonpayment of principal, interest, fees and other amounts when due, violation of covenants, cross default with material indebtedness, and change of control.
The following table presents certain borrowing characteristics of the Secured Term Loan as of September 30, 2026:
| As of September 30, 2026 | ||||||||||||||||||||
| Outstanding Balance | Carrying Value | Coupon | ||||||||||||||||||
| Secured Term Loan | $ | 50,000,000 | $ | 49,571,179 | 9.75 | % | ||||||||||||||
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and use of assumptions as to future uncertainties. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to understanding our financial statements because they involve significant judgments and uncertainties that could affect our reported assets and liabilities, as well as our reported revenues and expenses. All of these estimates reflect our best judgments about current, and for some estimates, future economic and market conditions and their effects based on information available as of the date of the financial statements. If conditions change from those expected, it is possible that the judgments and estimates described below could change, which may result in a change in our interest income recognition, allowance for credit losses, future impairment of our investments, and valuation of our investment portfolio, among other effects. We believe that the following accounting policies are among the most important to the portrayal of our financial condition and results of operations and require the most difficult, subjective or complex judgments.
Commercial Mortgage Loans Held-for-Investment
The Company recognizes and measures the allowance for credit losses under the Current Expected Credit Loss ("CECL") model, which amended the previous credit loss model to reflect a reporting entity's current estimate of all expected credit losses, not only based on historical experience and current economic conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, and off-balance credit exposures such as unfunded loan commitments. The allowance for credit losses required under the FASB ASC Topic "Financial Instruments - Credit Losses," or ASC 326, is included in "Allowance for credit
losses" on our consolidated balance sheets. The allowance for credit losses attributed to unfunded loan commitments is included in "Other liabilities" on the consolidated balance sheets.
The Company estimates the allowance for credit losses for its portfolio on a collective basis, including unfunded loan commitments, for loans that share similar risk characteristics. The calculation is applied at the loan level. The allowance for credit losses estimation methodology used by LFT includes a probability of default and loss given default method utilizing a widely used third-party analytical model with historical loan losses for over 125,000 commercial real estate loans dating back to 1998. Within this data set, we focused our historical loss information on the most relevant subset of available CRE data, which we determined based on loan metrics that are most comparable to our loan portfolio including asset type, spread to interest rate, unpaid principal balance and origination loan-to-value, or LTV. The Company uses this proxy data set, or variants of it, unless the Company develops its own sufficient history of realized losses. The Company determined the key variables driving its allowance for credit losses estimate are debt service coverage ratio and LTV ratio. Other notable variables include property type, property location and loan vintage. The Company determines its allowance for credit loss estimate based on the weighting of multiple macroeconomic forecast scenarios driven by macroeconomic variables such as gross domestic product ("GDP"), unemployment rate, federal funds target rate and core personal consumption expenditure ("PCE") among others, during the reasonable and supportable forecast period. The reasonable and supportable forecast period is currently one year. For the period beyond which the Company is able to make reasonable and supportable forecasts, the Company reverts, on a straight-line basis over four quarters, to the historical loss information derived from CRE data set. The Company regularly evaluates the model's assumptions and outputs and may apply qualitative adjustments when historical information, model inputs or forecast assumptions do not fully reflect the risk characteristics of the current portfolio or current market conditions.
Any loans considered to be a Default Risk or otherwise deemed to be collateral dependent will be individually evaluated for a specific allowance for credit losses. A loan is considered collateral dependent when the Company determines that the facts and circumstances of the loan deem the debtor to be experiencing financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. If a loan is considered to be collateral dependent, a specific allowance for credit losses is recorded to reduce the carrying value of the loan through a charge to the provision for (reversal of) credit losses. The specific allowance for credit losses is measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the amortized cost of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, market rents, occupancy rates, and other factors deemed necessary by the Manager. Actual losses, if any, could ultimately differ from estimated losses.
Quarterly, the Company assesses the risk factors of each loan classified as held-for-investment and assigns a risk rating based on a variety of factors, including, without limitation, debt-service coverage ratio ("DSCR"), loan-to-value ratio ("LTV"), property type, geographic and local market dynamics, physical condition, leasing and tenant profile, adherence to business plan and exit plan, maturity default risk and project sponsorship. The Company's loans are rated on a 5-point scale, from least risk to greatest risk, respectively, which ratings are described as follows:
1.Very Low Risk: exceeds expectations and is outperforming underwriting or it is very likely that the underlying loan can be refinanced easily in the period's prevailing capital market conditions
2.Low Risk: meeting or exceeding underwritten expectations
3.Moderate Risk: consistent with underwritten expectations or the sponsor may be in the early stages of executing the business plan and the loan structure appropriately mitigates additional risks
4.High Risk: potential risk of default, a loss may occur in the event of default
5.Default Risk: imminent risk of default, a loss is likely in the event of default
Capital Allocation
The following tables set forth our allocated capital by investment type at September 30, 2026 and December 31, 2025:
| September 30, 2026 | ||||||||||||||||||||||||||||||||
| Commercial Mortgage Loans | Real Estate Owned | MSRs |
Unrestricted Cash(1)
|
Total(2)
|
||||||||||||||||||||||||||||
| Carrying Value | $ | 952,126,871 | $ | 76,557,320 | $ | 503,297 | $ | 26,913,031 | $ | 1,056,100,519 | ||||||||||||||||||||||
| Collateralized Loan Obligations | (581,074,424) | - | - | - | (581,074,424) | |||||||||||||||||||||||||||
| Secured Financings | - | - | - | - | - | |||||||||||||||||||||||||||
| Master Repurchase Agreement | (202,182,005) | (29,337,091) | - | - | (231,519,096) | |||||||||||||||||||||||||||
| Term Lending Agreement | (11,616,944) | (5,913,290) | - | - | (17,530,234) | |||||||||||||||||||||||||||
|
Other(3)
|
3,279,321 | - | - | (4,352,180) | (1,072,859) | |||||||||||||||||||||||||||
| Restricted Cash | 15,419,151 | 610,569 | - | - | 16,029,720 | |||||||||||||||||||||||||||
| Capital Allocated | $ | 175,951,970 | $ | 41,917,508 | $ | 503,297 | $ | 22,560,851 | $ | 240,933,626 | ||||||||||||||||||||||
| % Capital | 73.0 | % | 17.4 | % | 0.2 | % | 9.4 | % | 100.0 | % | ||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||||||||
| Commercial Mortgage Loans | Real Estate Owned | MSRs |
Unrestricted Cash(1)
|
Total(2)
|
||||||||||||||||||||||||||||
| Carrying Value | $ | 1,114,047,992 | $ | 50,938,082 | $ | 554,246 | $ | 23,112,995 | $ | 1,188,653,315 | ||||||||||||||||||||||
| Collateralized Loan Obligations | (580,070,117) | - | - | - | (580,070,117) | |||||||||||||||||||||||||||
| Secured Financings | (160,587,813) | (7,775,554) | - | - | (168,363,367) | |||||||||||||||||||||||||||
| Master Repurchase Agreement | (157,077,346) | (18,127,523) | - | - | (175,204,869) | |||||||||||||||||||||||||||
| Term Lending Agreement | (16,738,351) | - | - | - | (16,738,351) | |||||||||||||||||||||||||||
|
Other(3)
|
19,118,787 | - | - | (4,094,489) | 15,024,298 | |||||||||||||||||||||||||||
| Restricted Cash | 3,505,087 | - | - | - | 3,505,087 | |||||||||||||||||||||||||||
| Capital Allocated | $ | 222,198,239 | $ | 25,035,005 | $ | 554,246 | $ | 19,018,506 | $ | 266,805,996 | ||||||||||||||||||||||
| % Capital | 83.3 | % | 9.4 | % | 0.2 | % | 7.1 | % | 100.0 | % | ||||||||||||||||||||||
(1)Includes cash and cash equivalents.
(2)Includes the carrying value of our Secured Term Loan.
(3)Includes principal and interest receivable, prepaid and other assets, interest payable, dividends payable and accrued expenses and other liabilities.
This information represents non-GAAP financial measures within the meaning of Item 10(e) of Regulation S-K, as promulgated by the SEC. We believe that this non-GAAP information enhances the ability of investors to better understand the capital necessary to support each income-earning asset category, and thus our ability to generate operating earnings. While we believe that the non-GAAP information included in this report provides supplemental information to assist investors in analyzing our portfolio, these measures are not in accordance with GAAP, and they should not be considered a substitute for, or superior to, our financial information calculated in accordance with GAAP.
Results of Operations
The table below presents information from our Statement of Operations for the three months ended September 30, 2026 and June 30, 2026, respectively:
| Three Months Ended September 30, 2026 | Three Months Ended June 30, 2026 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||
| Revenues: | ||||||||||||||
| Interest income: | ||||||||||||||
| Commercial mortgage loans held-for-investment | $ | 18,400,076 | $ | 18,946,403 | ||||||||||
| Cash and cash equivalents | 184,198 | 102,828 | ||||||||||||
| Interest expense: | ||||||||||||||
| Securitized debt obligations | (8,738,103) | (8,582,040) | ||||||||||||
| Secured financing agreements | (3,997,629) | (4,700,649) | ||||||||||||
| Secured term loan | (1,285,083) | (1,263,812) | ||||||||||||
| Net interest income | 4,563,459 | 4,502,730 | ||||||||||||
| Expenses: | ||||||||||||||
| Management and incentive fees | 1,062,849 | 1,088,516 | ||||||||||||
| General and administrative expenses | 960,536 | 1,409,608 | ||||||||||||
| Operating expenses reimbursable to Manager | 350,543 | 623,404 | ||||||||||||
| Other operating expenses | 1,483,512 | 622,726 | ||||||||||||
| Compensation expense | 111,250 | 111,250 | ||||||||||||
| Total expenses | 3,968,690 | 3,855,504 | ||||||||||||
| Other income and expense: | ||||||||||||||
| (Provision for) release of credit losses, net | (8,599,694) | (8,625,695) | ||||||||||||
| Net income (expense) from real estate owned operations | (492,633) | (210,847) | ||||||||||||
| Change in unrealized (loss) gain on mortgage servicing rights | (3,436) | (17,268) | ||||||||||||
| Gain on sale of real estate owned | - | 145,435 | ||||||||||||
| Loss on extinguishment of debt | - | - | ||||||||||||
| Real estate owned impairment expense | (3,892,329) | - | ||||||||||||
| Servicing income, net | 79,477 | 37,499 | ||||||||||||
| Total other income and expense | (12,908,615) | (8,670,876) | ||||||||||||
| Net income (loss) before provision for income taxes | (12,313,846) | (8,023,650) | ||||||||||||
| Benefit from (provision for) income taxes | (9,231) | 10,745 | ||||||||||||
| Net income (loss) | (12,323,077) | (8,012,905) | ||||||||||||
| Dividends accrued to preferred stockholders | (1,185,041) | (1,185,043) | ||||||||||||
| Net income (loss) attributable to common stockholders | $ | (13,508,118) | $ | (9,197,948) | ||||||||||
| Earnings per share: | ||||||||||||||
| Net income (loss) attributable to common stockholders (basic and diluted) | $ | (13,508,118) | $ | (9,197,948) | ||||||||||
| Weighted average number of shares of common stock outstanding | 5,252,331 | 5,245,998 | ||||||||||||
| Basic and diluted income per share | $ | (2.57) | $ | (1.75) | ||||||||||
| Dividends declared per share of common stock | $ | - | $ | 0.40 | ||||||||||
Three Months Ended September 30, 2026 Compared to Three Months Ended June 30, 2026
Net Income (Loss) Summary
For the three months ended September 30, 2026, our net loss attributable to common stockholders was $13,508,118, or $2.57 basic and diluted net loss per average share, compared with net loss of $9,197,948, or $1.75 basic and diluted net loss per average share, for the three months ended June 30, 2026. The principal drivers of the increase in net loss were an increase in total other expense from $8,670,876 for the three months ended June 30, 2026 to $12,908,615 for the three months ended September 30, 2026, primarily due to real estate owned impairment expense of $3,892,329 and an increase in total expenses from $3,855,504 to $3,968,690, partially offset by an increase in net interest income from $4,502,730 to $4,563,459.
Net Interest Income
For the three months ended September 30, 2026 and the three months ended June 30, 2026, our net interest income was $4,563,459 and $4,502,730, respectively. The increase was primarily due to a smaller decrease in interest income compared to interest expense. Changes to interest income were primarily driven by: (i) a $61.5 million decrease in weighted-average principal balance of our loan portfolio resulting in a decrease to interest income of $1.0 million; (ii) a decrease in exit fees of $0.1 million; (iii) an increase in extension fees of $0.2 million and (iv) impact of non-performing loan interest reduction of $0.1 million. Changes to interest expense were primarily driven by a $47.7 million decrease in weighted-average principal balance of our secured borrowings resulting in a decrease in interest expense of $0.6 million.
As disclosed above, we experienced a decrease in exit fees in the three months ended September 30, 2026. For the three months ended September 30, 2026, we experienced loan payoffs on five loans with net principal balances of $61.1 million which generated exit fees of $0.6 million included in interest income and one loan with net unpaid principal balance of $18.6 million for which exit fees of $0.6 million were waived resulting in a reduction in expense reimbursement of $0.3 million included in operating expenses reimbursable to Manager. For the three months ended June 30, 2026, we experienced loan payoffs on four loans with net principal balances of $95.3 million which generated exit fees of $0.7 million included in interest income and one loan with net unpaid principal balance of $22.0 million for which exit fees of $0.2 million were waived resulting in a reduction in expense reimbursement of $0.1 million included in operating expenses reimbursable to Manager.
Expenses
For the three months ended September 30, 2026, we incurred management and incentive fees of $1,062,849 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $2,905,841, of which $350,543 was payable to our Manager and $2,555,298 was payable directly by us.
For the three months ended June 30, 2026, we incurred management and incentive fees of $1,088,516 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $2,766,988 of which $623,404 was payable to our Manager and $2,143,584 was payable directly by us.
The period-over-period increase in expenses primarily reflects an increase in accounting, administration, professional and surveillance fees and expense reimbursement which more than offset a decrease in title, servicing and audit fees.
Other (Loss)
For the three months ended September 30, 2026, we incurred other loss of $12,908,615. This loss was driven by provision for credit losses of $8,599,694 primarily due to additional specific reserves on existing risk rated "5" loans, an increase of outstanding principal balance of risk rated "4" loans, and changes in macroeconomic assumptions employed in determining the Company's model-based general reserve, real estate owned impairment expense of $3,892,329, net expense from real estate owned operations of $492,633 and the impact of unrealized losses on mortgage servicing rights of $3,436 as a result of a reduction in principal balances, which more than offset net servicing income of $79,477.
For the three months ended June 30, 2026, we incurred other loss of $8,670,876. This loss was primarily driven by provision for credit losses of $8,625,695 primarily due to specific reserves taken on two loans moving to a risk rating of "5" in the quarter, additional specific reserves taken on existing risk rated "5" loans and changes in macroeconomic assumptions employed in determining the Company's model-based general reserve, net expense from real estate owned operations of $210,847 and the impact of net unrealized losses on mortgage servicing rights of $17,268 as a result of a reduction of principal balances in the period which more than offset a realized gain on sale of real estate owned property of $145,435 and net servicing income of $37,499.
The period-over-period increase in other loss was primarily due to real estate owned impairment expense.
Income Tax Provision
For the three months ended September 30, 2026, the Company recognized a provision for income taxes of $9,231 and for the three months ended June 30, 2026, the Company recognized a benefit from income taxes in the amount of $10,745. The period-over-period change in income tax expense primarily reflects the change in gross deferred revenue at FOAC due to the change in unrealized loss on mortgage servicing rights.
Results of Operations
The table below presents information from our Statement of Operations for the nine months ended September 30, 2026 and September 30, 2025, respectively:
| Nine Months Ended September 30, 2026 | Nine Months Ended September 30, 2025 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||
| Revenues: | ||||||||||||||
| Interest income: | ||||||||||||||
| Commercial mortgage loans held-for-investment | $ | 58,248,021 | $ | 59,357,526 | ||||||||||
| Cash and cash equivalents | 452,873 | 1,820,049 | ||||||||||||
| Interest expense: | ||||||||||||||
| Securitized debt obligations | (27,695,908) | (38,496,809) | ||||||||||||
| Secured financing agreements | (12,553,383) | - | ||||||||||||
| Secured Term Loan | (3,688,736) | (2,933,991) | ||||||||||||
| Net interest income | 14,762,867 | 19,746,775 | ||||||||||||
| Expenses: | ||||||||||||||
| Management and incentive fees | 3,246,365 | 3,515,799 | ||||||||||||
| General and administrative expenses | 3,436,881 | 3,075,465 | ||||||||||||
| Operating expenses reimbursable to Manager | 1,440,378 | 1,351,199 | ||||||||||||
| Other operating expenses | 3,023,410 | 411,491 | ||||||||||||
| Compensation expense | 333,750 | 333,750 | ||||||||||||
| Total expenses | 11,480,784 | 8,687,704 | ||||||||||||
| Other income and expense: | ||||||||||||||
| Provision for credit losses, net | (16,493,016) | (5,762,769) | ||||||||||||
| Net income (expense) from real estate owned operations | (794,886) | (327,722) | ||||||||||||
| Gain on sale of real estate owned | 145,435 | - | ||||||||||||
| Real estate owned impairment expense | (5,242,764) | - | ||||||||||||
| Change in unrealized (loss) on mortgage servicing rights | (50,949) | (83,674) | ||||||||||||
| Loss on extinguishment of debt | (1,152,861) | - | ||||||||||||
| Servicing income, net | 171,397 | 128,502 | ||||||||||||
| Total other income and expense | (23,417,644) | (6,045,663) | ||||||||||||
| Net (loss) income before provision for income taxes | (20,135,561) | 5,013,408 | ||||||||||||
| (Provision for) benefit from income taxes | 6,162 | (1,564) | ||||||||||||
| Net (loss) income | (20,129,399) | 5,011,844 | ||||||||||||
| Dividends accrued to preferred stockholders | (3,555,042) | (3,555,042) | ||||||||||||
| Net (loss) income attributable to common stockholders | $ | (23,684,441) | $ | 1,456,802 | ||||||||||
| Earnings per share: | ||||||||||||||
| Net (loss) income attributable to common stockholders (basic and diluted) | $ | (23,684,441) | $ | 1,456,802 | ||||||||||
| Weighted average number of shares of common stock outstanding | 5,246,160 | 5,233,171 | ||||||||||||
| Basic and diluted income per share | $ | (4.51) | $ | 0.28 | ||||||||||
| Dividends declared per share of common stock | $ | 0.80 | $ | 1.80 | ||||||||||
Nine Months Ended September 30, 2026 Compared to Nine Months Ended September 30, 2025
Net (Loss) Income Summary
For the nine months ended September 30, 2026, our net loss attributable to common stockholders was $23,684,441, or $4.51 basic and diluted net loss per average share, compared with net income attributable to common stockholders of $1,456,802, or $0.28 basic and diluted net income per average share, for the nine months ended September 30, 2025. The principal drivers of this net income decrease were a decrease in net interest income from $19,746,775 for the nine months ended September 30, 2025 to $14,762,867 for the nine months ended September 30, 2026, an increase in total other expense from $6,045,663 to $23,417,644 primarily due to an increase to provision for credit losses, real estate owned impairment expense $5,242,764 and a loss on extinguishment of debt of $1,152,861, and an increase in total expenses from $8,687,704 to $11,480,784.
Net Interest Income
For the nine months ended September 30, 2026 and the nine months ended September 30, 2025, our net interest income was $14,762,867 and $19,746,775, respectively. Changes to interest income were primarily driven by: (i) a $145.8 million increase in weighted-average principal balance of our loan portfolio, 57 bps decrease in weighted-average 30-day term SOFR and 24 bps decrease in weighted-average spread resulting in a decrease to interest income of $0.4 million; (ii) an increase in exit fees of $1.1 million; (iii) a $1.4 million decrease in interest earned on cash accounts and (iv) impact of non-performing loan interest reduction of $2.9 million. Changes to interest expense were primarily driven by (i) a $160.1 million increase in weighted-average principal balance of our secured borrowings, 65 bps decrease in weighted-average 30-day term SOFR and 25bps decrease in weighted-average spread resulting in an increase in interest expense of $0.6 million; (ii) a $1.2 million increase in deferred financing costs and (iii) a $1.8 million increase in weighted-average principal balance of our secured term loan and 192 bps increase in weighted-average coupon resulting in an increase in interest expense of $0.8 million.
As disclosed above, we experienced an increase in exit fees in the nine months ended September 30, 2026. For the nine months ended September 30, 2026, we experienced loan payoffs on 16 loans with net principal balances of $197.2 million which generated exit fees of $2.2 million included in interest income and three loans with net unpaid principal balance of $46.6 million which waived exit fees of $0.9 million resulting in a reduction in expense reimbursement of $0.4 million included in operating expenses reimbursable to Manager. For the nine months ended September 30, 2025, we experienced loan payoffs on 24 loans with net principal balances of $121.9 million which generated exit fees of $1.2 million included in interest income and three loans with net unpaid principal balance of $44.9 million which waived exit fees of $0.4 million resulting in a reduction in expense reimbursement of $0.2 million included in operating expenses reimbursable to Manager.
Expenses
For the nine months ended September 30, 2026, we incurred management and incentive fees of $3,246,365 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $8,234,419, of which $1,440,378 was payable to our Manager and $6,794,041 was payable directly by us.
For the nine months ended September 30, 2025, we incurred management and incentive fees of $3,515,799 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $5,171,905 of which $1,351,199 was payable to our Manager and $3,820,706 was payable directly by us.
The period-over-period increase in expenses primarily reflects an increase in accounting, audit, servicing, legal and advances on non-performing loans and expense reimbursement.
Other (Loss)
For the nine months ended September 30, 2026, we incurred other loss of $23,417,644. This loss was driven by a provision for credit losses of $16,493,016 primarily due to specific reserves on loans moving to a risk rating of "5", additional specific reserves on existing risk rated "5" loans, an increase of outstanding principal balance of risk rated "4" loans, loss on extinguishment of debt of $1,152,861 resulting from the redemption of LMF 2023-1 Financing, real estate owned impairment expense of $5,242,764, net expense from real estate owned operations of $794,886 and the impact of unrealized losses on mortgage servicing rights of $50,949 as a result in reduction in principal balances, which more than offset net servicing income of $171,397.
For the nine months ended September 30, 2025, our other loss was $6,045,663. This loss was driven by provision for credit losses of $5,762,769 due to specific reserves taken on risk-rated "5" multifamily loans, changes in macroeconomic assumptions employed in determining the company's model-based general reserve, net expense from real estate owned operations of $327,722, and net unrealized loss on mortgage servicing rights of $83,674 as a result of a reduction in principal balances, which more than offset net servicing income of $128,502.
The period-over-period increase in other loss was primarily due to the change in the provision for credit losses and real estate owned impairment expense.
Income Tax Provision
For the nine months ended September 30, 2026, the Company recognized a benefit from income taxes of $6,162 and for the nine months ended September 30, 2025, the Company recognized a provision for income taxes in the amount of $1,564. The period-over-period decrease in tax provision primarily reflects the change in gross deferred revenue at FOAC due to the change in unrealized loss on mortgage servicing rights.
Liquidity and Capital Resources
Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments, comply with margin requirements, if any, and repay borrowings and other general business needs. Our primary sources of liquidity include cash on hand, cash flows from operations, principal repayments and other proceeds from our investments, borrowings under our financing arrangements and, when available and appropriate, capital markets transactions. As of September 30, 2026, we had $26.9 million of unrestricted cash and cash equivalents.
We finance our commercial mortgage loans primarily through non-recourse, term-matched collateralized loan obligations and other secured financing agreements, including repurchase and loan facilities. Our term-matched financing is not subject to margin calls or additional collateralization requirements based on changes in the market value of the underlying collateral. Certain of our other secured financing arrangements, however, may be subject to margin requirements based on specific credit events or credit marks.
On December 10, 2025, we closed the LMNT 2025-FL3 CLO issuing eight tranches of CLO notes totaling $620.7 million, consisting of $585.0 million investment grade notes issued to third-party investors and $35.7 million of below investment-grade notes retained by us. We also retained a $43.1 million income note. As of September 30, 2026, our balance sheet included $50.0 million of a secured term loan and $0.6 billion in collateralized loan financing, gross of discounts and debt issuance costs. Our secured term loan matures in February 2030, our collateralized loan financing is term-matched and matures in 2043 or later.
On November 3, 2025, we entered into an Uncommitted Master Repurchase Agreement providing financing capacity of up to $450 million to finance first mortgage loans, controlling loan participations and other commercial mortgage loan debt instruments secured by commercial real estate. On December 10,
2025, we entered into a loan agreement providing financing capacity of up to $50 million to finance first mortgage loans and controlling first mortgage loan participations secured by commercial real estate. These facilities provide additional liquidity and financing flexibility to support the acquisition and financing of eligible commercial mortgage loans. To the extent that we maintain available borrowing capacity under these facilities and have sufficient capital available for deployment, we expect to utilize these financing arrangements to fund new commercial mortgage loan investments and support future portfolio growth. The pace at which we deploy capital into new investments will depend on the availability of attractive investment opportunities, our liquidity position and available borrowing capacity under these facilities. Effective November 2, 2026, the Company provided notice to JPMorgan Chase Bank, N.A. to reduce the maximum facility amount under the Uncommitted Master Repurchase Agreement from $450 million to $300 million.
Elevated interest rates and continued volatility in commercial real estate markets have contributed to weaker operating performance for certain borrowers and underlying properties, resulting in increased delinquencies, nonaccrual loans, foreclosures and REO within our portfolio. If these conditions persist, higher financing costs and weaker property-level operating performance may reduce expected proceeds or extend the timing of loan and REO resolutions, while delinquencies and nonaccrual status may reduce recurring cash receipts. Although provisions for credit losses and REO impairment charges do not themselves represent cash outflows, collateral shortfalls, funding commitments and costs associated with managing and resolving challenged loans and REO properties may adversely affect our liquidity and require additional capital.
In September 2026, our Board of Directors elected to suspend the quarterly common stock dividend effective immediately. This decision was made to preserve capital and maintain financial flexibility to support the resolution default risk and REO assets.
To the extent that available borrowing capacity under our financing arrangements and our available capital resources are insufficient to support our investment activity or other liquidity requirements, we may be dependent on our ability to issue additional collateralized loan obligations, secure alternative financing facilities or raise additional common or preferred equity. Our ability to obtain additional financing will depend on, among other factors, market conditions, the performance of our investment portfolio, lender and investor appetite and our compliance with the terms of our existing financing arrangements. A lack of liquidity for a prolonged period could limit our ability to originate new investments and manage and resolve existing investments.
Our primary driver of cash flows from operating activities is from interest received from the junior retained notes and income notes of our CRE CLO and the senior loans financed by our secured funding agreements. The CRE CLOs and other secured financings we have entered into, and may in the future enter into, include certain interest coverage tests, overcollateralization coverage tests, financial or other tests that, if not met, may result in a change in the priority of distributions, which may result in the reduction or elimination of distributions to the subordinate debt and equity tranches retained by us until the tests have been met or certain senior classes of securities have been paid in full. Accordingly, if such tests are not satisfied, we, as holders of the subordinate debt and equity interests in the applicable CRE CLO or secured financing, may experience a significant reduction in our cash flow from those interests, which would negatively impact our liquidity. In addition, our secured financing agreements contain margin call provisions following the occurrence of certain mortgage loan credit events. If we are unable to make the required payment or if we fail to meet or satisfy any of the covenants in our financing agreements, we will be in default under these agreements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral, including cash to satisfy margin calls, and enforce their interests against existing collateral.
If we were required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we previously recorded our assets, particularly in a financial market that has been significantly disrupted and less liquid as a result of the current inflationary environment. Assets that are illiquid are more difficult to finance, and to the extent that we use leverage to finance assets that become illiquid, we may lose that leverage or have it reduced if such leverage is, at least in part, dependent on the market value of our assets. Assets tend to become less liquid during times of financial stress, which is often the time that liquidity is most needed. As a result, our ability to sell assets or vary our portfolio in response to changes in economic and other conditions may be limited by liquidity constraints, which could adversely affect our results of operations and financial condition. We seek to limit our exposure to illiquidity risk to the extent possible, by ensuring that the secured borrowings that we use to finance our commercial mortgage loans are not subject to margin calls or other limitations that are dependent on the market value of the related loan collateral.
We intend to continue to maintain a level of liquidity in relation to our assets that enables us to meet reasonably anticipated investment requirements, margin requirements and unforeseen business needs but that also allows us to be substantially invested in our target assets. We may misjudge the appropriate amount of our liquidity by maintaining excessive liquidity, which would lower our investment returns, or by maintaining insufficient liquidity, which would force us to liquidate assets into unfavorable market conditions and harm our operating results. As of September 30, 2026, we had unrestricted cash and cash equivalents of $26.9 million, compared to $23.1 million as of December 31, 2025.
As of September 30, 2026, we had $50 million in outstanding principal under our Senior Secured Term Loan, with a borrowing rate of 9.75%. As of September 30, 2026, the ratio of our recourse debt to equity was 0.6:1.
As of September 30, 2026, we consolidated the assets and liabilities of the LMNT 2025-FL3 CLO. The assets of the LMNT 2025-FL3 CLO are restricted and can only be used to fulfill their respective obligations, and accordingly the obligations of the trust, which we classify as collateralized loan obligations, do not have any recourse to us as the consolidator of the trust. Our non-recourse liabilities also include 75% of the borrowings under our master repurchase agreement, as such agreement provides for 25% recourse to the Company, and borrowings outstanding under our secured lending agreement. As of September 30, 2026, the aggregate carrying value of these non-recourse liabilities amounted to $772.2 million. As of September 30, 2026, our total debt to equity ratio was 4.5:1 on a GAAP basis.
Cash Flows
The following table sets forth changes in cash, cash equivalents and restricted cash for the nine months ended September 30, 2026 and 2025:
| Nine Months Ended September 30, | ||||||||||||||
| 2026 | 2025 | |||||||||||||
| Cash Flows From Operating Activities | $ | 5,285,826 | $ | 8,848,450 | ||||||||||
| Cash Flows From Investing Activities | 132,649,710 | 155,578,794 | ||||||||||||
| Cash Flows (Used in) Financing Activities | (121,610,867) | (179,145,346) | ||||||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash | $ | 16,324,669 | $ | (14,718,102) | ||||||||||
During the nine months ended September 30, 2026, cash, cash equivalents and restricted cash increased by $16.3 million and for the nine months ended September 30, 2025, cash, cash equivalents and restricted cash decreased by $14.7 million.
Operating Activities
For the nine months ended September 30, 2026 and 2025, net cash provided by operating activities totaled $5.3 million and $8.8 million, respectively. For the nine months ended September 30, 2026, our cash flows from operating activities were primarily driven by interest received from the junior retained notes from the LMF 2023-1 Financing and LMNT 2025-FL3 CLO of $9.2 million, interest received from our senior secured loans held outside the VIEs we consolidate of $4.5 million, exit fees received of $2.2 million and interest received on cash accounts of $0.5 million exceeding cash interest expense paid on our Secured Term Loan of $3.6 million, management fees of $2.2 million, expense reimbursements of $1.1 million and other operating expenditures of $6.3 million. For the nine months ended September 30, 2025, our cash flows from operating activities were primarily driven by interest received from the junior retained notes and preferred shares of the 2021-FL1 CLO and LMF 2023-1 Financing of $18.0 million, interest received on cash accounts of $1.8 million exceeding cash interest expense paid on our Secured Term Loan of $2.7 million, management and incentive fees of $3.5 million, expense reimbursements of $1.5 million and other operating expenditures of $3.5 million.
Investing Activities
For the nine months ended September 30, 2026, net cash provided by investing activities totaled $132.6 million. This was the result of greater principal repayment of commercial mortgage loans held for investment than reinvestment of commercial mortgage loans held for investment during the period. For the nine months ended September 30, 2025, net cash provided by investing activities totaled $155.6 million. This was the result of greater principal repayment of commercial mortgage loans held for investment than reinvestment of commercial mortgage loans held for investment during the period.
Financing Activities
For the nine months ended September 30, 2026, net cash used in financing activities totaled $121.6 million and was primarily related to repayment of the outstanding debt related to the LMF 2023-1 Financing of $169.7 million, repayment of secured financing agreements of $163.1 million, payments of common stock dividends of $6.3 million and payments of preferred stock dividends of $3.6 million which more than offset proceeds from secured financing agreements of $219.6 million. For the nine months ended September 30, 2025, net cash used in financing activities totaled $179.1 million and was primarily related to repayment of the outstanding debt related to the 2021-FL1 CLO and LMF 2023-1 Financing of $159.4 million, payments of common stock dividends of $16.2 million and payment of preferred stock dividends of $3.6 million.
Contractual Obligations and Commitments
Our contractual obligations as of September 30, 2026 are described in the following table:
| Total | Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | ||||||||||||||||||||||||||||
| JPMorgan Facility | $ | 232,992,965 | $ | - | $ | 232,992,965 | $ | - | $ | - | ||||||||||||||||||||||
| Northeast Bank Facility | 17,700,000 | - | 17,700,000 | - | - | |||||||||||||||||||||||||||
| Secured Term Loan | 50,000,000 | - | - | 50,000,000 | - | |||||||||||||||||||||||||||
| Total | $ | 300,692,965 | $ | - | $ | 250,692,965 | $ | 50,000,000 | $ | - | ||||||||||||||||||||||
Forward-Looking Statements Regarding Liquidity
Based upon our current portfolio, leverage rate and available borrowing arrangements, we believe that cash flow from operations and available borrowing capacity will be sufficient to enable us to meet anticipated short-term (one year or less) liquidity requirements to fund our investment activities, pay fees under our management agreement, fund our distributions to stockholders and for other financing or general corporate expenses.
Our ability to meet our long-term (greater than one year) liquidity and capital resource requirements will be subject to, amongst other things, obtaining additional debt financing and equity capital. We may increase our capital resources by obtaining long-term credit facilities, additional collateralized loan obligations or making additional public or private offerings of equity or debt securities, possibly including classes of preferred stock, common stock and senior or subordinated notes.
To maintain our qualification as a REIT, we generally must distribute annually at least 90% of our "REIT taxable income" (determined without regard to the deduction for dividends paid and excluding net capital gain). These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations.
Off-Balance Sheet Arrangements
As of September 30, 2026, we did not maintain any relationships with unconsolidated financial partnerships, or special purpose or variable interest entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, as of September 30, 2026, we had not guaranteed any obligations of unconsolidated entities or entered into any commitment or intent to provide funding to any such entities.
Distributions
Historically, we have made regular quarterly distributions to holders of our common stock; however, on September 18, 2026, our Board suspended such quarterly distribution commencing with the third quarter of 2026. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its "REIT taxable income" (determined without regard to the deduction for dividends paid and excluding net capital gain) and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its "REIT taxable income." Although FOAC no longer aggregates and securitizes residential mortgages, it continues to generate taxable income from MSRs and other mortgage-related activities. This taxable income will be subject to regular corporate income taxes. We generally anticipate the retention of profits generated and taxed at FOAC. Before we make any distribution on our common stock, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and any debt service obligations on debt payable. If cash available for distribution to our stockholders is less than our taxable income, we could be required to sell assets or borrow funds to make cash distributions, or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.
If substantially all of our taxable income has not been paid by the close of any calendar year, we may declare a special dividend prior to the end of such calendar year, to achieve this result. On September 18, 2026, we announced that our Board had suspended the regular quarterly dividend on our common stock commencing with the third quarter of 2026 and declared a cash dividend rate for the third quarter of 2026 of $0.49219 per share of Series A Preferred Stock, which was paid on October 15, 2026.
Lument Finance Trust Inc. published this content on November 13, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 13, 2026 at 12:33 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]