RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2019

Management Fee

The Company is externally managed and advised by the Manager. Pursuant to the terms of the prior management agreement in effect through January 18, 2018, the Company paid the prior manager a management fee equal to 1.5% per annum, calculated and payable monthly in arrears. For purposes of calculating the management fee, the Company’s stockholders’ equity included the sum of the net proceeds from all issuances of the Company’s equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus the Company’s retained earnings at the end of the most recently completed calendar quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less any amount that the Company paid for repurchases of the Company’s common stock since inception, and excluding any unrealized gains, losses or other items that did not affect realized net income (regardless of whether such items were included in other comprehensive income or loss, or in net income). This amount was adjusted to exclude one-time events pursuant to changes in GAAP and certain non-cash items after discussions between the manager and the Company’s independent directors and approval by a majority of the Company’s independent directors. To the extent asset impairment reduced the Company’s retained earnings at the end of any completed calendar quarter, it would reduce the management fee for such quarter. The Company’s stockholders’ equity for the purposes of calculating the management fee could be greater than the amount of stockholders’ equity shown on the financial statements. On January 18, 2018, the management agreement in effect for the year ended December 31, 2017 was terminated, and a new management agreement with the Manager became effective. Pursuant to the terms of the new management contract, the Company is required to pay the Manager an annual base management fee of 1.50% of Stockholders' Equity (as defined in the management agreement), payable quarterly (0.375% per quarter) in arrears. The definition of stockholders' equity in the new management agreement is materially unchanged from the definition in the prior management agreement. Additionally, starting in the first full calendar quarter following January 18, 2019, the Company is also required to pay the Manager a quarterly incentive fee equal to 20% of the excess of Core Earnings (as defined in the management agreement) over the product of (i) the Stockholders' Equity as of the end of such fiscal quarter, and (ii) 8% per annum.

On June 7, 2017, the prior manager agreed to waive a portion equal to 0.75% of its 1.50% management fee on the net proceeds of the June 16, 2017 common stock offering, for the next twelve monthly payments, beginning with the payment due for the month of June 2017. Due to the termination of the previous management agreement with Oak Circle, the fee waiver terminated on January 18, 2018. The net amount of management fee waived from January 1, 2018 to January 18, 2018 was $6,959.

For the three months ended September 30, 2019, the Company incurred management fees of $557,833 (September 30, 2018: $586,926), recorded as "Management Fee" in the condensed consolidated statement of operations, of which $561,000 (September 30, 2018: $592,500) was accrued but had not been paid, included in "fees and expenses payable to Manager" in the condensed consolidated balance sheets.

For the nine months ended September 30, 2019, the Company incurred management fees of $1,677,456 (September 30, 2018: $1,767,252, net of $6,959 in management fees waived), recorded as "Management Fee" in the condensed consolidated statement of operations, of which $561,000 (September 30, 2018: $592,500) was accrued but had not been paid, included in "fees and expenses payable to Manager" in the condensed consolidated balance sheets.

Expense Reimbursement

Pursuant to the management agreement, the Company is required to reimburse the Manager for operating expenses related to the Company incurred by the Manager, including accounting, auditing and tax services, technology and office facilities, operations, compliance, legal and filing fees, and miscellaneous general and administrative costs, including the cost of non-investment management personnel of the Manager who spend all or a portion of their time managing the Company’s affairs. The Manager has agreed to certain limitations on manager expense reimbursement from the Company.

On March 18, 2019, the Company entered into a support agreement with the Manager, pursuant to which, the Manager agreed to reduce the reimbursement cap by 25% per annum (subject to such reduction not exceeding $568,000 per annum) until such time as the aggregate support provided thereunder equaled approximately $1.96 million. As of September 30, 2019, $89,379 in expense reimbursement has exceeded the reimbursement cap.

For the three months ended September 30, 2019, the Company incurred reimbursable expenses of $175,174 (September 30, 2018: $548,132), recorded as "operating expenses reimbursable to Manager" in the condensed consolidated statement of operations, of which $174,561 (September 30, 2018: $592,500) was accrued but had not yet been paid, included in "fees and expenses payable to Manager" in the condensed consolidated balance sheets. Per the management agreement, any exit fees waived by the Company as a result of permanent financing by the Manager or any of its affiliates, shall be reduced by an amount equal to 50% of the amount of any such waived exit fee. For the three months ended September 30, 2019, the Company waived $345,988 of reimbursable expenses.

For the nine months ended September 30, 2019, the Company incurred reimbursable expenses of $1,232,211 (September 30, 2018: $1,865,057), recorded as "operating expenses reimbursable to Manager" in the condensed consolidated statement of operations, of which $174,561 (September 30, 2018: $592,500) was accrued but had not yet been paid, included in "fees and expenses payable to Manager" in the condensed consolidated balance sheets. Per the management agreement, any exit fees waived by the Company as a result of permanent financing by the Manager or any of its affiliates, shall be reduced by an amount equal to 50% of the amount of any such waived exit fee. For the nine months ended September 30, 2019, the Company waived $345,988 of reimbursable expenses.

Manager Equity Plan

The Company has in place a Manager Equity Plan under which the Company may compensate the Manager and the Company’s independent directors or consultants, or officers whom it may employ in the future. In turn, the Manager, in its sole discretion, grants such awards to its directors, officers, employees or consultants. The Company is able to issue under the Manager Equity Plan up to 3.0% of the total number of issued and outstanding shares of common stock (on a fully diluted basis) at the time of each award. Stock based compensation arrangements may include incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock awards and other awards based on the Company’s common stock.

The following table summarizes the activity related to restricted common stock for the nine months ended September 30, 2019 and September 30, 2018:


	Nine Months Ended September 30,
	2019				2018
	Shares	Weighted Average Grant Date Fair Market Value		Shares	Weighted Average Grant Date Fair Market Value
Outstanding Unvested Shares at Beginning of Period	4,500	$	3.40	4,500	$	4.33
Granted	—	—		4,500	3.40
Vested	(4,500)	3.40		—	—
Outstanding Unvested Shares at End of Period	—	$	—	9,000	$	3.87

For the nine months ended September 30, 2019, the Company recognized compensation expense related to restricted common stock of $7,922 (2018: $18,095). The Company did not have unrecognized compensation expense as of September 30, 2019 (2018: $12,740) for unvested shares of restricted common stock.

MAXEX LLC

The Company’s lead independent director is also an independent director of an entity, MAXEX LLC (“MAXEX”), with which the Company had a commercial business relationship. The objective of MAXEX, together with its subsidiaries, is to create a whole loan mortgage trading platform which encompasses a centralized counterparty with a standardized purchase and sale contract and an independent dispute resolution process. As of September 30, 2018, the Company received $148,221 in fees, net of $34,573 in marketing fees paid to MAXEX, relating to its provision to MAXEX of seller eligibility review and backstop services. The Company did not receive any fees from MAXEX for the nine months ended September 30, 2019. Pursuant to an Assumption Agreement dated December 31, 2018, among MAXEX Clearing LLC and FOAC, MAXEX Clearing LLC assumed all of FOAC's obligations under its backstop guarantees and agreed to indemnify and hold FOAC harmless against any losses, liabilities, costs, expenses and obligations under the backstop guarantee. FOAC paid MAXEX Clearing LLC, as the replacement backstop provider, a fee of $426,770. See Note 14 for additional disclosure relating to the backstop services.

Hunt Finance Company, LLC

During the first quarter of 2019, Hunt CRE 2017-FL1, Ltd. purchased three loans with an aggregate unpaid principal balance of $40,820,000 at par and Hunt CRE 2018-FL2 purchased one loan with an unpaid principal balance of $18,000,000 at par and funded nine loan advances with an unpaid principal balance of $3,975,905 from Hunt Finance Company ("HFC"), LLC, an affiliate of our Manager.

During the second quarter of 2019, Hunt CRE 2017-FL1, Ltd. purchased seven loans with an aggregate principal balance of $41,318,000 at par and Hunt CRE 2018-FL2 funded five loan advances with an unpaid principal balance of $3,276,635 from HFC.

During the third quarter of 2019, Hunt CRE 2017-FL1, Ltd. purchased five loans with an aggregate principal balance of $47,667,352 at par and Hunt CRE 2018-FL2, Ltd. purchased one loan with an unpaid principal balance of $9,135,000 at par from HFC. Additionally, Hunt CRE 2017-FL1, Seller sold six loan advances with an unpaid principal balance of $6,816,250 at par to HFC.

Hunt Servicing Company, LLC

Hunt Servicing Company, LLC, an affiliate of the Manager, was appointed as the sub-servicer to the servicer with respect to mortgage assets for Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. by KeyBank in its capacity as servicer of both CLOs. Additionally, Hunt Servicing Company, LLC was appointed by KeyBank as servicer to act as special servicer of any serviced mortgage loan that becomes a specially serviced mortgage loan.