RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2023

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

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 was 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) Stockholders' Equity as of the end of such fiscal quarter, and (ii) 8% per annum. The initial term of our management agreement expired on January 3, 2023, with automatic, one-year renewals thereafter.

For the year ended December 31, 2023, the Company incurred management fees of $4,335,904 (2022: $4,197,819), recorded as "Management and incentive fees" in the consolidated statement of operations, of which $1,080,000 (2022: $1,089,000) was accrued but had not been paid, included in "Fees and expenses payable to Manager" in the consolidated balance sheets.

For the years ended December 31, 2023 and December 31, 2022, the Company did not incur any incentive fees.

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.

For the year ended December 31, 2023, the Company incurred reimbursable expenses of $1,897,699 (2022: $2,116,636) recorded as "operating expenses reimbursable to Manager" in the consolidated statement of operations, of which $507,875 (2022: $517,333) was accrued but had not yet been paid, included in "fees and expenses payable to Manager" in the 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, capped at a waived exit fee of 1%. For the year ended December 31, 2023, the Company waived $959,930 in gross exit fees, reducing reimbursed expenses due to the Manager by $479,965 and for the year ended December 31, 2022, the Company waived $1,241,657 in gross exit fees, reducing reimbursed expenses due to the Manager by $620,829.

Manager Equity Plan

The Company had in place a Manager Equity Plan, which expired December 18, 2022, under which the Company had the ability to provide equity compensation to the Manager and the Company's independent directors, consultants, or officers. The Manager, in its sole discretion, could allocate any awards

it received under the Manager Equity Plan to its directors, officer employees or consultants. The Company was 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.

The following table summarizes the activity related to restricted common stock for the years ended December 31, 2023 and 2022:

	Year Ended December 31,
	2023			2022
	Shares	Weighted Average Grant Date Fair Market Value		Shares	Weighted Average Grant Date Fair Market Value
Outstanding Unvested Shares at Beginning of Period	6,000	$	2.27	4,500	$	4.18
Granted	—	—		6,000	2.27
Vested	(6,000)	2.27		(4,500)	4.18
Outstanding Unvested Shares at End of Period	—	$	—	6,000	$	2.27

For the year ended December 31, 2023, the Company recognized compensation expense related to restricted common stock of $6,194 (2022: $15,980). The Company has no unrecognized compensation expense as of December 31, 2023 (2022: $6,194) for unvested shares of restricted common stock.

Lument Structured Finance

During the year ended December 31, 2023, we (a) purchased eight loans with an aggregate unpaid principal balance of $121.5 million at par from Lument Structured Finance ("LSF"), an affiliate of our Manager; (b) purchased thirty-one loans with an aggregate unpaid principal balance of $459.2 million at a discount of $7.9 million from LSF; (c) purchased three funded advances with an aggregate unpaid principal balance of $5.7 million at par from LSF and (d) purchased eighteen funded advances with an aggregate unpaid principal balance of $26.0 million at a discount of $0.3 million from LSF.

During the year ended December 31, 2022, we purchased twenty-three loans with an aggregate unpaid principal balance of $269.5 million at par from LSF.

Lument Real Estate Capital, LLC

Lument Real Estate Capital, LLC ("LREC"), an affiliate of our Manager, was appointed the servicer and special servicer with respect to mortgage assets for the 2021-FL1 CLO in June 2021 and LMF 2023-1 Financing in July 2023 and continues to serve in this role.

Lument IM

Lument IM was appointed as the collateral manager with respect to the 2021-FL1 CLO in June 2021 and LMF 2023-1 Financing in July 2023, 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.

In connection with the LMF 2023-1 Financing, Lument IM absorbed approximately $1.1 million in debt issuance costs for which it did not seek reimbursement from the Company.

Lument Investment Holdings

On February 22, 2022, Lument 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.