Lument Finance Trust, Inc. (NYSE:LFT) Q4 2023 Earnings Call Transcript

Lument Finance Trust, Inc. (NYSE:LFT) Q4 2023 Earnings Call Transcript March 18, 2024

Lument Finance Trust, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and thank you for joining the Lument Finance Trust Fourth Quarter 2023 Earnings Call. Today’s call is being recorded and will be made available via webcast on the company’s website. And I would like to turn the call over to Andrew Tsang with Investor Relations at Lument Investment Management. Please go ahead, sir.

Andrew Tsang: Thank you, and good morning, everyone. Thank you for joining our call to discuss Lument Finance Trust’s Fourth Quarter 2023 Financial Results. With me on the call today are Jim Flynn, our CEO; Jim Briggs, our CFO; Jim Henson, our President; and Zachary Halpern, our Managing Director of Portfolio Management. On Friday, March 15th, we filed our 10-K with the SEC and issued a press release to provide details on our fourth quarter results. We also provided a supplemental earnings presentation, which can be found on our website. Before handing the call over to Jim Flynn, I’d like to remind everyone that certain statements made during the course of this call are not based on historical information and may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

When used in this conference call, words like outlook, evaluate, indicate, believes, will, anticipates, expects, intends, and other similar expressions are intended to identify forward-looking statements. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. These risks and uncertainties are discussed in the company’s reports filed with the SEC, including its reports on Forms 8-K, 10-Q and 10-K, and in particular, the Risk Factors section of our Form 10-K. It is not possible to predict or identify all such risks. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

The company undertakes no obligation to update any of these forward-looking statements. Furthermore, certain non-GAAP financial measures will be discussed on this conference call. A presentation of this information is not intended to be considered in isolation nor as a substitute to the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures is the most comparable measures prepared in accordance with GAAP. These can be accessed through our filings with the SEC at www.sec.gov. For the fourth quarter and fiscal year 2023, we reported GAAP net income of $0.07 per share and $0.29 per share of common stock, respectively. For the fourth quarter and fiscal year 2023, we reported distributable earnings of $0.10 and $0.26 per share of common stock, respectively.

This past December, we also declared a dividend of $0.07 per share with respect to the fourth quarter, bringing our cumulative declared dividends for the year to $0.26 per share. I will now turn the call over to Jim Flynn. Please go ahead.

James P. Flynn: Thank you, Andrew. Good morning, everyone. Welcome to the Lument Finance Trust earnings call for the fourth quarter of 2023. We appreciate everyone joining us this morning. I’ll start with the macro perspective. We’re viewing 2024 with cautious optimism. Consensus expectation is that further hikes are now behind us and most economists believe the soft landing is more probable in 2024 than just six months ago. U.S. economy has remained resilient, unemployment rates remaining below 4%, inflation albeit a bit moving up and down, is moving closer to Fed at the rate of 2% with all the most recently seen available data. That being said, the risk of recession remains elevated as geopolitical uncertainty persists and as seen how the Fed’s current policy which operates on a lag, fully plays out across the economic landscape.

Multifamily has its own set of opportunities and challenges. In the short term, the property sales market continues to be primarily driven by for sellers [ph], significantly limiting acquisition financing opportunities. In addition, the multifamily market is expected to experience slowed NOI growth resulting from short — softening of short-term supply in some markets — sorry, supply-demand dynamics, I should say, in some markets and higher property operating costs including labor, insurance, and maintenance in addition to the impact of the higher rates we’ve had across the industry. Despite the challenges, multifamily remains a favored asset class among investors given its strong historical performance and constructive long-term fundamentals.

The lower short-term rate environment in the latter half of 2024, did contribute to improved asset performance in our portfolio and perhaps the narrowing of the current average spread between property buyers and sellers, positively impact the valuation and in turn, debt proceeds. Further, we expect to see significant refinance opportunity on the horizon as the NDA [ph] and others in the industry are projecting well over $300 billion of multifamily loans expected to reach initial maturity by the end of 2025 and over $650 billion of multifamily loans are expected to mature within the next three years. As previously discussed on last quarter’s call, the company had a busy and successful year, closing at $386 million secured financing in July and increased our levered investment capacity to approximately $1.4 billion.

During the fourth quarter, we experienced $43 million of loan payoffs and acquired or funded an additional $77 million of loan assets. As of year-end, our capital was effectively fully deployed with approximately 94% of our loan portfolio collateralized by multifamily assets and more than 75% of the portfolio risk rated three, which is moderate risk or better. We had only two assets identified as risk rated 5 and recorded no asset-specific reserves during that period, 5 being the highest risk. The company continued to maintain an attractive long-dated liabilities relying primarily on two secured financing structures to leverage investment portfolio. The reinvestment period of 2021 CRE CLO transaction ended this past December, with an 83% effective advance rate and a weighted average cost of SOFR plus 155 basis points.

Even as the transaction begins to delever, we expect the structure to continue to provide an attractive cost of capital relative to current securitization of warehousing alternatives in the market. We do, however, expect to explore and carefully consider refinance opportunities for that CLO over the coming quarters. With deep experience and expertise in multifamily lending, LFT remains committed to its existing investment strategy. We believe the company provides its shareholders with a unique value proposition among comparable mortgage REITs, given our deliberate focus on middle market multifamily credit, success in active asset management, and strong partnership from the broader ORIX platform. The company has been able to maintain a stable dividend, better-than-average credit performance within its investment portfolio, and this is a superior dividend yield relative to many of its peers.

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

James Briggs: Good morning, everyone. Last Friday evening, we filed our Annual Report on Form 10-K and provided a supplemental investor presentation on our website, which we will be referencing during our remarks. Supplemental investor presentation has been uploaded to the webcast as well for your reference. On Pages 4 through 7 of the presentation, you will find key updates and our earnings summary for the quarter. For the fourth quarter of 2023, we reported net income to common stockholders of approximately $3.8 million or $0.07 per share. We also reported distributable earnings of approximately $5.2 million or $0.10 per share. There are a few items I’d like to highlight with regard to the Q4 P&L. Our Q4 net interest income was $9.1 million compared to $9.5 million in Q3.

While Q4 net interest income benefited from a full quarter’s worth of levered earnings from the LMF 2023-1 financing transaction that closed in July, a sequential net decline was primarily driven by fewer payoffs during the period, which resulted in lower exit fees. Payoffs and paydowns during Q4 totaled $43 million, as compared to $111 million in the prior quarter. Associated Q4 exit fees of $210,000 were down approximately 57% from the prior quarter. Reduced Q4 payoffs also impacted our total operating expenses as well. As a reminder, when one of our loans are paid off in agency refinancing, provided by an affiliate of our manager, the borrower exit fee is way pursuant to the terms of our management agreement. In that instance, we do, however, receive a credit to expenses reimbursable to our manager of 50% of the waived exit fee.

Total operating expenses were $2.7 million in Q4 versus $2.4 million in Q3. The majority of that expense increase is driven by lower waived exit fees and lower associated credit to expenses driven by overall lower payoffs relative to Q3. Outside of that, operating expenses were largely flat quarter-on-quarter. Primary difference between reported net income and distributable earnings was the approximate $1.4 million net increase in our allowance for credit losses, all with respect to our general reserves. The primary driver of that general reserve increase was a modest uptick in average risk rating from 3.4 to 3.5, changes in the macroeconomic forecast, and relative cautiousness in our estimate modeling as it relates to CRE pricing during this period, where there has been very little transaction activity.

We evaluate our 5-rated loans individually to determine whether asset-specific reserves for credit losses are necessary and determined that none where necessary as of December 31, 2023. In that context, I’d like to note some subsequent events related to the two 5-rated loans we had at year-end. With respect to the 5-rated loan on a multifamily property in Columbus, Ohio, that has been nonaccrual with collections accounted for on a cost recovery basis. We received proceeds related to the loan in both Q4 and Q1. Our carrying value in the loan was reduced to $8.9 million as of year-end from $12.8 million at the end of Q3 and with the $13.5 million in proceeds received in Q1, our carrying value in the asset will be reduced to zero. After taking into consideration certain legal and other costs being recoverable, we expect the net of the Q1 proceeds received to result in a gain of approximately $1.9 million in Q1.

With respect to the $36.8 million, 5-rated loan on a multifamily property in Virginia Beach, Virginia, that was on nonaccrual as of December 31 due to monetary default, we entered into a loan modification with the borrower that among other things resulted in a $3.6 million principal pay down and all past dues being brought current, which will result in interest of approximately $500,000 that was unpaid as of year-end being recognized in Q1. Jim will touch a bit more on this modification in his remarks. As of year-end, the company’s total equity was approximately $241 million. Total common book value was approximately $181 million or $3.46 per share, flat versus prior quarter. We ended the fourth quarter with an unrestricted cash balance of $51 million, and our investment capacity through our two secured financings were effectively — was effectively fully utilized.

I will now turn the call over to Jim Henson to provide details on the company’s investment activity during the quarter and portfolio performance. Jim?

James J. Henson: Thank you, Jim Briggs. I will now provide a brief summary of recent activity within our investment portfolio. During the fourth quarter, we experienced a $34 million net increase in our loan portfolio after accounting for $43 million of loan payoffs and pay downs for the period. For the full year, we experienced a $388 million net increase in our loan portfolio after accounting for $271 million of loan payoffs for the period. The growth of the portfolio was driven primarily by our success in executing the LMF transaction in July as well as our managers’ diligent efforts to redeploy capital through reinvestment features in our secured financing vehicles. Of the $77 million of loan investments acquired or funded during Q4, approximately 70% were collateralized by multifamily properties.

Of these $660 million of loan investments acquired or funded during the full year, approximately 95% were collateralized by multifamily properties. As of year-end, our portfolio consisted of 88 floating rate loans with an aggregate unpaid principal balance of approximately $1.4 billion with 94% of the portfolio collateralized by multifamily properties. 100% of our floating rate portfolio is indexed to one-month SOFR. Our investment portfolio continued to perform well during the fourth quarter as we ended the period with a little more than 75% of our portfolio risk rated A3 or better and experienced only a modest quarter-over-quarter increase in the weighted average risk rating going from 3.4 to 3.5, primarily driven by a migration of some of our risk-weighted two assets to a risk rating of 3.

On a positive note, our 5-rated aggregate loan exposure decreased from three to two loan assets during the quarter. As previously stated — as previously — as we previously rated 5 loans with an unpaid principal balance of $19.6 million was brought current with respect to interest payments and restored to accrual status during the fourth quarter. Jim touched on the two 5-rated loans that remained at December 31, 2023 and were evaluated for specific reserves. As noted, based on proceeds received on the Columbus, Ohio loan, we have no remaining asset on the books coming out of Q1. With respect to the modification on the $36.8 million 5-rated loan collateralized by a multifamily property in Virginia Beach, Virginia, the modification of the loan increased the note rate to SOFR plus 400 basis points from SOFR plus 327 basis points in addition to a principal pay down and are bringing current of all past due interest escrows and reserves.

The stated maturity of that loan has been amended to April 5, 2024, with the ability for the borrower to extend under certain conditions to May 3, 2024. Very positive developments and indicative of success in active asset management that Jim Flynn mentioned in his opening remarks. Despite the potential for further issues with specific loans, we remain confident in our ability to proactively manage repayments and achieve positive asset management outcomes within our portfolio, particularly in light of successful results in recent months. With that, I will pass it back to Jim Flynn for some closing remarks.

James P. Flynn: Thank you, Jim and thanks again to all of our guests on the call. We appreciate your time and your interest. I’d like to open the call up to questions.

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Q&A Session

Operator: Thank you, sir. [Operator Instructions]. And your first question will be from Crispin Love at Piper Sandler. Please go ahead.

Crispin Love: Thanks, good morning. Appreciate you taking my questions. So just first on the two 5-rated loans, I just want to make sure I got it right. Do you expect the gain in the Columbus loan based on kind of where you’re holding it right now in the first quarter, first, kind of is that accurate? And then can you just go over the first quarter impact you expect on the Virginia Beach loan?

James Briggs: Sure. So this is Jim Briggs here. Thanks, Crispin. Yes, so on the Columbus loan, we have been accounting for that on a cost recovery basis. So we got — as we receive proceeds, we’ve just been bringing the asset balance down. As I mentioned in my remarks, we did some of that in Q4 with some proceeds that we received and then we brought that asset value down to zero. It will be brought down to zero in Q1, and we’re expecting based on those proceeds received of $13.5 million to book a gain — book income in Q1 P&L of $1.9 million. For the…

James P. Flynn: I’m not — Jim, just to clarify for — just to clarify, I mean, the gain as a result of recovering all of the deferred — or yes, deferred interest since it went on nonaccrual.

James Briggs: Yes. That’s effectively what that $1.9 million is, as Jim mentioned. So that $1.9 million will be booked in Q1 very likely for the reason just described in the interest income line. And for the Virginia Beach loan, that had been on nonaccrual. The $500,000 debt we mentioned is the — what was accrued — what not accrued, what was due and unpaid and not accrued as of 12/31 of $500,000. That has been brought current and sort of the out-of-period impact. Q4 interest coming into Q1 will be about $500,000.

Crispin Love: Okay, thanks. That’s helpful. And then just on multifamily bridge more generally, we’ve seen stress across the industry and some of your competitors’ portfolios on balance sheet as well as pre-CLOs. But can you just discuss how kind of your performance is trending kind of more broadly kind of across the whole portfolio and what characteristics, if any, in your portfolio make Lument kind of different from some of the multifamily bridge peers that are experiencing more stress?

James P. Flynn: Sure. I mean, look, I think that, obviously, we’re virtually entirely multifamily. So that helps. There are others that are there that are close. So that’s certainly been a positive. And while we have a meaningful component of our portfolio, it was originated in the — towards the end of the peak of the cycle. We’ve still got a number of assets that are longer dated that have been around for a longer period of time and perhaps not valuations and business plans were set prior to the peak. Those two things are helping. But I think probably one of the more critical aspects here or what’s helped us and it doesn’t necessarily relative to peers or not. But we’ve got a very experienced asset management team that has worked out assets and taking ownership of assets, managed assets.

That has helped both in partnering with our sponsors and coming up with solutions, but it’s also helped us to act quickly when we find ourselves in a position of not being able to find a solution with the sponsor. I think that, that reputation has helped our sponsors to proactively work with us. We’ve had few instances even in — across the broader platform of the sponsor of Bloom as a sponsor of sponsors who are trying to negotiate by maybe not doing things the way that you would want them to do to say the least, and we’ve been able to kind of wash those pretty quickly. And what it’s resulted in us being reasonable with sponsors coming in, putting forward new consideration and legitimate plans to make an exit in exchange for more time or some relief, whatever it is that they’re seeking.

And usually, we’ve been able to find an answer. I think we have high-quality sponsors. Some sponsors get into trouble in terms of liquidity and there’s not much that they can do about it at the time. It’s too late, so to speak. But, with the exception of that as long as we got good sponsors will capitalize good managers with the plant, we’ve got folks that can help work with them to come up with a good plan. And we’ve had great success rate for LFT. Similarly, in our parent company, our sponsor’s balance sheet as well. So we’ll just continue to focus on asset management. We’re regularly speaking to and visiting assets, making sure we don’t get too far behind when we see an asset physically struggling. We’re proactively out there and either thinking about ways that we could step in or working with the sponsor on how we can resolve that issue immediately before things deteriorate.

So active asset management is the number one reason why any portfolio can perform in a stressful environment.

Crispin Love: Perfect, that’s helpful. And then just one last quick one from me, so you had $20 million of self-storage payoffs in the quarter. Anything to call out there because perhaps pretty sizable in that portfolio. Was that just a loan maturity or anything else at play there?

James P. Flynn: Yes, they were longer — those were some older assets. So it’s not surprising and eventually we were able to see permanent — not resolution, but permanent financing and have those assets move on the portfolio. I don’t think there’s anything particularly noteworthy. Those in fact, I don’t know if someone on the call could correct me, but I mean those are probably maybe three years old or close to three years old if I am not mistaken. So they’ve been around a while.

Zachary Halpern: I can jump in on that one. This one is Zach. Yes, that asset sold well above our loan basis. A quick resolution there.

Crispin Love: Okay, great, thank you. Appreciate you taking my questions.

Operator: Thank you. Next question will be from Steve Delaney at Citizens JMP. Please go ahead.

Steven Delaney: Thanks, hey good morning everyone. And well congratulations on a really solid quarter and a challenging environment that we have. So look, I know this is early, you hiked the dividend back in the third quarter, but very solid coverage here, and we’re hearing of some nice recoveries here in the first quarter. Jim Flynn, what do you think would be in your mind, and I guess, more importantly, the Board, what do you want to see to have the confidence to make any further increase in the dividend during 2024? Thank you.

James P. Flynn: Thanks, Steve. Good to hear from you. So there’s a number of things here. Obviously, we’re talking to the Board. We feel good about our liquidity position relative to our size, including those recoveries, as you noted. We feel confident in the earnings. So there’s a lot of positives there. I would say, in discussions with the Board we’re looking at the broader market and what we’d like to see is see how the next quarter or two goes in terms of what’s the macroeconomic environment looks like, are we going to continue to see improvement or more importantly, stability. That’s really what I would say the focus is, do we have stability. The capital markets have been a bit spotty. We’d like to see some more transactions than we are working to that end and looking at our own refinance activity and what we could do at the corporate level and what we might be.

So all of those things, as we expect them to play out or hope our view our base view would be that things do continue on the trajectory. And as we get clarity on those issues, I think that will help guide the dividend discussion with the Board. But I would say from a corporate standpoint, taking a look at the market as a whole, having some concern about some of the maturity issues, maybe less so on the multi side, certainly, there’s a lot coming up. I think a lot of loans will extend. Just what kind of stress the market sees, what kind of stress we see from some of our peers perhaps in some of the other asset classes and making sure that we’re in a position to manage any of those issues or kind of macroeconomic stress that comes up. And if things continue on the base path that we are projecting then we’re going to be looking at maybe using some of that incremental cash to make new investments.

There are ample opportunities to diversify a little bit from bridge loans in the multifamily space, whether that’s some of the [indiscernible] capital available out there, whether that’s looking at participating in some construction activity in the areas that are seeing for which will be almost everywhere, no deliveries over the next after 2025. So there’s some opportunity there, we could make some new investments as well. But right now, we think that it’s prudent to maintain our liquidity position and ensure that the market is — continues to move in the right direction. If it does, I think we’ll be continuing to discuss with the Board.

Steven Delaney: That’s a very helpful overview, Jim. And it looks like you guys do have a lot of optionality moving forward, especially if we do, in fact, see lower rates sometime here in the next couple of quarters. Thank you all for the comments. Nice job.

James P. Flynn: Thanks, Steve.

Operator: Thank you. Next question will be from Matthew Erdner at JonesTrading. Please go ahead.

Matthew Erdner: Hey, good morning guys. Thanks for taking the question. Do you know what percentage of the loan portfolio extends or is fully extended through 2024 because the average weighted term is 13 months, so just what’s your expectation for payoffs this year?

James P. Flynn: So there’s very few, and Zach, you can pull that one. Very few are at the extended maturity in 2024, fully extended, I mean. We’re still anticipating about 30% payoffs, which is, frankly, a bit high, I think, relative to where the market is, but that is a function of the portfolio being more seasoned than it’s been over the past several years as we’ve seen fewer payoffs. So we’ve seen loans move further down further along their path on their business plan. And I think that the — you’ve seen a lot more activity of kind of the neutral or modest cash in refinancing or per financing in the market overall. And so we’ve — we think we’re going to be at that number, 30% was kind of a normal number from 2016, 2017 through 2020 plus some years even higher.

So we do think we’re going to end up in around that percentage. But again, I think the reason is less about in the past, it was kind of assets basically being flipped into a new sale or a new owner because values were going so much higher so quickly. I would say here we’re in an environment where a lot of owners are either looking to sell and recover some equity or to a cash in refi because their relative optimism on significant rate drops has become muted. And so there’s a little bit more of a settling into the current environment. Zach Halpern, I don’t know if you have… [Multiple Speakers]

Zachary Halpern: Yes. I can jump in with a little context there. We do have one asset that is near its final maturity. This is an asset that we previously addressed on the call. I assume that you guys have asked us to CRE CLO data and such. And as you review those, you would see that that asset has received a substantial pay down. And so we do expect that asset to refinance near term. Aside from that, we don’t have any assets in — that had their final maturity in 2024. Keep in mind that is past initial maturities or upcoming maturities. There are also extension fees if the borrowers choose to extend, which Lument Finance Trust will benefit from that as well.

Matthew Erdner: Awesome, thank you guys.

Operator: Thank you. Next question will be from Stephen Laws at Raymond James. Please go ahead.

Unidentified Analyst: Hi, thanks for taking my questions. This is Clare Halotel [ph] on for Stephen Laws. First, could you please talk about your new investment pipeline and the overall competitive landscape and what were credit spreads on the new investments this quarter and how do you see credit spreads on new investments trending over the course of this year? Thanks.

James P. Flynn: Yes, I’ll let Zach give some color on the specifics of that. Look, we’ve certainly seen an uptick in the recent months of assets under review. Credit spreads is — they’ve been pretty wide, but they’ve stayed I would say roughly in the 300s, depending on the location, maybe you get something closer to 400. I don’t expect significant movement there. I think that’s probably about where we end up. You’ve seen some lower spreads for low levered, high quality sponsors, but that’s kind of where it’s been. So I do see — I think there’s pickup for a couple of reasons. One, we have seen some sellers needing to get out of their assets and so it’s created some transaction momentum. We’re still significantly below any normal environment, forget about just 2021.

We’ve also seen these recap financing options where bridge loans whether ours or more cases from other lenders or other places where either a new borrower or current borrower is coming in with capital to complete a business plan at what are now the current levels or new levels. So we have seen anecdotally some new opportunities. We’re not near the point where I would say it’s robust like it was a few years ago but encouraging. Zach, do you want to add a little to that?

Zachary Halpern: Sure. I mean, if I understood, speaking generalizations and multifamily spreads, I would say, in 2023 perhaps the wide to multifamily bridge was somewhere around 425 over SOFR. I think, as Jim Flynn alluded to, spreads have trended tighter. I think that baseline is somewhere between 350, 375 over SOFR right now. I think we’ve all seen the graphs of multifamily acquisition activity on the property side, and we know that, that remains substantially muted, which has caused now a lot of supply, and still enough lenders to keep the demand for loans escalated. I think that we settle into this sort of spread range here. Keep in mind that things like warehouse line, CREs CLOs spreads have also tightened in sympathy. And so economics are still in line despite tighter spreads.

Unidentified Analyst: Great, thank you. And then my last question is just given the positive resolutions of the two 5-rated loans since year-end, how do you think about your CECL reserve, do you think there’ll be a reserve release in Q1? Thanks.

James P. Flynn: Yes. I mean, yes, I mean you’re going to have a couple of things there. Jim talked about what is the macroeconomic environment that we’re going to see, right. So we have a one-year forecast period there. And the reserve is going to be driven by what we see there. I think from the positive resolutions our feeling is there’ll be some stability in our risk ratings. So that shouldn’t be a driver. I think it’s going to be driven more by the macroeconomic environment and what your views are of that and what reality ends up being.

Operator: Did you have any further questions?

Unidentified Analyst: No, that’s it. Thank you.

Operator: Thank you. [Operator Instructions]. And your next question will be from Chris Nolan at Ladenburg Thalmann. Please go ahead.

Christopher Nolan: Hi, given your comments in terms of landlords having a narrower operating margins, can you give any color in terms of where the interest coverage is for your portfolio in the fourth quarter, where it is compared to where it might have been in previous quarters?

Zachary Halpern: Let me try to step into that one. Keep in mind that all of our loans — well, the vast majority of our loans do have interest rate caps, meaning that the borrowers have bought options, if so, for rises in the majority of those capturing money. Fourth quarter versus third quarter, interest coverage really hasn’t changed all that much. SOFR has been pretty consistent. If I look at debt yield, which is an easier sort of metric to speak to, the yield has been fairly consistent. These loans are generally transitional bridge loans and so — yes, margins are — all else equal tighter. However, these loans are getting towards the point of their business plans where rents are picking up and perhaps occupancies may be increasing as these units are leasing up post renovation. And so I wouldn’t say that we’re seeing systematic stress quarter-over-quarter although just like any portfolio, there are heterogeneous things that pop up here and there.

James Briggs: This is Jim Briggs, I’ll just add on to that. Zach mentioned interest rate caps. We disclosed in our MD&A at 12/31, 97.7% of performing loans had interest rate caps and the weighted average strike was 2.5%.

Christopher Nolan: Okay. And then…

James P. Flynn: Yes, go ahead.

Christopher Nolan: No, no, please go ahead, I was going to go to another question, but go ahead.

James P. Flynn: No, no, I’m just going to say, I think Zach makes a good point that many of these assets have obviously gone through the stressful period that we’ve seen with rates increasing, that was preceded with every other cost increasing. But many of them were in the middle or early parts of their business plans. So even those that are — it really is an asset-by-asset look, meaning some assets are truly still turning units and putting new tenants in. And so much of the portfolio is still positively progressing in terms of debt yield, in terms of coverage, but most are not progressing at the original rate of their business plan. It doesn’t mean that they’re not having success in many cases, but it does mean that the success is the increase in NOI is less than anticipated, but from a business standpoint, it still makes sense.

The dollars being expended to increase NOI are still accretive to us as lender and to the sponsor. So it is a difficult question to answer as the whole portfolio because you really have to individually look at each asset and determine is this asset just deteriorating in performance, which in most cases, the answer is no. But are they — how are they executing on their business plan.

Christopher Nolan: Right. Okay. Turning to capital management. Your stock is trading roughly 63% of your book value in considerations in terms of buybacks and if not, at what point would you consider buybacks?

James P. Flynn: The buybacks are something we do discuss with the Board. And there’s no kind of — if we’re at this level, we would do it. We do think that our stock trades at a discount to fair value, particularly relative to the peers and to the expected full recovery of our portfolio. The challenge that we’ve always had with discussion around buybacks has been, one is we’re already undersized and under scale and reducing our growth even further. What impact would that have on long term on the stock price. And also how does that impact our desire, which is to actually find ways to expand the common equity base. So that — those are always the push and pull. There isn’t a specific answer that says if we’re at 50% of book, we’re going to do a buyback. But in terms of where our stock trades and relative to management’s view and the Board’s view of value, it’s a topic of discussion broadly every quarter.

Christopher Nolan: Well, on the point, your stock has really taken a nose dive ever since you did the rights offering a couple of years ago. And I’m just trying to think in terms of under scale, I totally get that. But at some point, it makes more sense just to buy back your stock as opposed to investing in and do multifamily loans?

James P. Flynn: I think that certainly, the Board and we have to respect those alternatives and options, and will continue to do so.

Christopher Nolan: Okay, that’s it from me. Thank you.

Operator: Thank you. And at this time, Mr. Flynn, we have no other questions registered. Please proceed.

James P. Flynn: Okay. I want to thank you all for your time today and interest and look forward to speaking again next quarter. Thank you, all.

Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.