RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2022

Management and Incentive Fee

The Company is externally managed and advised by the Manager. Pursuant to the terms of the management agreement, the Company pays the manager a management fee equal to 1.5% of Stockholders' Equity per annum, calculated and payable quarterly (0.375% per quarter) in arrears. For purposes of calculating the management fee, the Company’s stockholders’ equity includes 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 will be 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 reduces the Company’s retained earnings at the end of any completed calendar quarter, it will 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 consolidated financial statements. Additionally, starting in the first full calendar quarter following January 3, 2020, 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. The initial term of our management agreement with our Manager extends until January 3, 2023, with automatic one-year renewals thereafter.

For the three months ended March 31, 2022, the Company incurred management fees of $924,617 (March 31, 2021: $588,767), recorded as "Management and incentive fees" in the condensed consolidated statement of operations, of which $929,000 (March 31, 2021: $588,000) was accrued but had not been paid, included in "Fees and expenses payable to Manager" in the condensed consolidated balance sheets.

For the three months ended March 31, 2022, the Company did not incur incentive fees (March 31, 2021: $132,232), recorded as "Management and incentive fees" in the condensed consolidated statement of operations, of which $0 (March 31, 2021: $132,232) 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 prior manager, pursuant to which, the prior 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 March 31, 2022, $1.86 million in aggregate support has been provided to the Company under the agreement.

For the three months ended March 31, 2022, the Company incurred reimbursable expenses of $390,710 (March 31, 2021: $312,454), recorded as "operating expenses reimbursable to Manager" in the condensed consolidated statement of operations, of which $395,000 (March 31, 2021: $311,879) 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 result in a reduction to reimbursed expenses by an amount equal to 50% of the amount of any such waived exit fee. For the three months ended March 31, 2022, the Company waived $603,317 in gross exit fees, reducing reimbursed expenses due to the Manager by $301,659 and for the three months ended March 31, 2021, the Company waived $258,240 in gross exit fees, reducing reimbursed expenses due to the Manager by $129,120.

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 three months ended March 31, 2022 and March 31, 2021:


	Three Months Ended March 31,
	2022			2021
	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	$	4.18	4,500	$	2.60
Granted	—	—		—	—
Vested	—	—		—	$	—
Outstanding Unvested Shares at End of Period	4,500	$	4.18	4,500	$	2.60

For the period ended March 31, 2022, the Company recognized compensation expense related to restricted common stock of $4,638 (2021: $2,885). The Company has unrecognized compensation expense of $3,917 as of March 31, 2022 (2021: $2,468) for unvested shares of restricted common stock. As of March 31, 2022, the weighted average period for which the unrecognized compensation expense will be recognized is 2.5 months.

OREC Structured Finance, LLC

During the first quarter of 2022, (a) LFT CRE 2021-FL1, Ltd. purchased eight loans with an aggregate unpaid principal balance of $108.9 million at par from OREC Structured Finance, LLC d/b/a Lument Structured Finance ("LSF"), an affiliate of our Manager and (b) Lument Commercial Mortgage Trust ("LCMT") purchased six loans with an aggregate unpaid principal balance of $76.0 million at par from LSF.

During the first quarter of 2021, Hunt CRE 2018-FL2, Ltd. purchased three loans with an aggregate unpaid principal balance of $34.9 million at par from LSF.

ORIX Real Estate Capital

ORIX Real Estate Capital, LLC d/b/a Lument Capital ("OREC"), an affiliate of the Manager, was appointed as the servicer and special servicer with respect to mortgage assets for LFT CRE 2021-FL1, Ltd in June 2021 and continues to serve in this role.

Lument IM

Lument IM was appointed as the collateral manager with respect to LFT CRE 2021-FL1, Ltd. in June 2021, and continues to serve in this role. Lument IM has agreed to waive all its entitlements to collateral management fees for so long as Lument IM or an affiliate is the collateral manager and also the manager of Lument Finance Trust, Inc..

OREC Investment Holdings

On February 22, 2022, OREC Investment Holdings purchased 13,071,895 shares of common stock from the transferable common stock rights offering at a price of $3.06 per share.

Hunt Companies, Inc.

One of the Company's directors is also Chief Executive Officer and President of Hunt Companies, Inc. ("Hunt") and is a member of the Hunt Board of Directors, with which affiliates of the Manager have a commercial business relationship. The Manager's affiliates may from time to time sell commercial mortgage loans to Hunt or various of its subsidiaries and affiliates.

On February 22, 2022, an affiliate of Hunt Companies, Inc., purchased 3,524,851 shares of common stock from the transferable common stock rights offering at a price of $3.06 per share.