LUMENT FINANCE TRUST, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

0
The following discussion should be read in conjunction with our consolidated
financial statements and the accompanying notes included in this Annual Report
on Form 10-K. The following discussion contains forward-looking statements that
reflect our current expectations, estimates, forecasts and projections.

Overview

We are a Maryland company that focuses on investing, financing and managing a portfolio of commercial real estate (“CRE”) investments.

In January 2020, we entered into a series of transactions with subsidiaries of
ORIX Corporation USA ("ORIX USA"), a diversified financial company with the
ability to provide investment capital and asset management services to clients
in the corporate, real estate and municipal finance sectors. We entered into a
new management agreement with OREC Investment Management, LLC doing business as
Lument Investment Management (the "Manager" or "Lument IM"), while another
affiliate of ORIX USA purchased an ownership stake of approximately 5.0% through
a privately-placed stock issuance. The transactions are expected to enhance the
scale of LFT and generate shareholder value through leveraging ORIX USA's
expansive originations, asset management and servicing platform.

Lument IM is a subsidiary of Lument, a nationally recognized leader in financing multifamily and senior housing. The firm relies on Lument’s extensive platform and considerable 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 primarily through match term non-recourse CRE collateralized
loan obligations ("CLOs"). We may utilize warehouse repurchase agreements or
other forms of financing in the future. 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 generally 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 historically tied to one-month U.S. denominated LIBOR, more
recently to one-month term SOFR, and/or in the future potentially other index
replacement;
•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 taxable REIT subsidiary ("TRS"), Five Oaks
Acquisition Corp. ("FOAC").

RECENT DEVELOPMENTS

As the COVID-19 pandemic has evolved from its emergence in early 2020, so has
its global impact. Many countries have re-instituted, or strongly encouraged,
varying levels of quarantines and restrictions on travel and in some cases have
at times limited operations of certain businesses and taken other restrictive
measures designed to help slow the spread of COVID-19 and its variants.
Governments and businesses have also instituted vaccine mandates and testing
requirements for employees. While vaccine availability and uptake has increased,
the longer-term macro-economic effects on global supply chains, inflation, labor
shortages and wage increases continue to impact many industries. Moreover, with
the potential for new strains of COVID-19 to emerge, governments and businesses
may re-impose aggressive measures to help slow its spread in the future. For
this reason, among others, as the COVID-19 pandemic continues, the potential
global impacts are uncertain and difficult to assess.

The effects of the COVID-19 pandemic did not significantly impact our operating
results for the year ended December 31, 2021. However, the prolonged duration
and impact of the COVID-19 pandemic could materially disrupt our business
operations and negatively impact our business, financial performance and
operating results for the year ending December 31, 2022 and potentially longer.

At February 22, 2022, the Company has completed an offering of transferable common stock rights. The Company issued and sold 27,277,269 common shares for gross proceeds of approximately $83.5 million.

On February 22, 2022, the Company, together with its Credit Parties, entered
into an amendment (the "Fourth Amendment") to the Credit and Guaranty Agreement.
This amendment amends the maximum total net leverage financial covenant.

2021 Highlights

•Net income attributable to common stockholders of $7.4 million, or $0.30 per
share of common stock, and Distributable Earnings of $9.7 million, or $0.39 per
share of common stock, with common dividends declared of $9.0 million, or $0.36
per share of common stock. Distributable Earnings is a non-GAAP

                                       32
--------------------------------------------------------------------------------

financial measure. For a definition of distributable income and a reconciliation of our distributable income to our net income attributable to common shareholders, see “Key Financial Measures and Indicators”.

• Book value per common share was $109.3 millionWhere $4.38 per ordinary share.

•Acquired sixty-four loans and acquired eighteen loan advances with an initial
unpaid principal balance of $983.3 million with a weighted average interest rate
of one month U.S. LIBOR plus 3.46% and a weighted average LIBOR floor of 0.46%.

•On April 21, 2021, the Company, together with its FOAC and Lument CMT Equity
subsidiaries (together with the Company, the "Credit Parties"), entered into an
amendment (the "Third Amendment") to the Credit and Guaranty Agreement dated
January 15, 2019, as amended on February 13, 2019 and July 9, 2020 with Cortland
Capital Market Services, LLC as the administrative agent and collateral agent
(the "Administrative Agent") and the lenders party thereto. The Third Amendment
amended the Credit and Guaranty Agreement to, among other things (i) provide the
Company with an incremental secured term loan in the aggregate principal amount
of $7.5 million ("Incremental Secured Term Loan"); (ii) extend the maturity of
the Secured Term Loan from February 14, 2025 to February 14, 2026; (iii) amend
certain asset concentration limits and (iv) amend certain financial covenants.
Pursuant to the terms of the Amended Credit and Guaranty Agreement, borrowings
under the Secured Term Loan bear interest at a fixed rate of 7.25% per annum,
which is subject to step up by 0.25% per annum for the first four months after
February 14, 2025, then by 0.375% per annum for the following four months and
then by 0.50% for the last four months until maturity date. On May 5, 2021 the
Third Amendment became effective. On August 23, 2021, we drew $7.5 million in
incremental secured term loans as provided by the Third Amendment.

•On May 5, 2021, LFT issued 2,400,000 shared of 7.875% Series A Cumulative
Redeemable Preferred Stock (the "Series A Preferred Stock") and received net
proceeds, after underwriting discounts and commissions but before offering
expenses payable by the Company, of $58.1 million. The Series A Preferred Stock
is redeemable, at LFT's option, at a liquidation preference price of $25.00 per
share plus accrued dividends commencing in May 2026. Dividends on the Series A
Preferred Stock are payable quarterly in arrears.

•On June 14, 2021, the Company closed LFT CRE 2021-FL1, a collateralized loan
obligation, totaling $1.0 billion of real estate related assets and cash, of
which $833.75 million of investment-grade notes were issued to third party
investors and $70 million of below investment-grade notes and $96.25 million
equity interest in the portfolio were retained by us.

•In relation to the closing of LFT CRE 2021-FL1, on June 14, 2021, the Company
unwound Hunt CRE 2017-FL1 and Hunt CRE 2018-FL2, redeeming $388.2 million of
outstanding notes which were repaid primarily from refinancing the assets within
Hunt CRE 2017-FL1 and Hunt CRE 2018-FL2.

The ORIX transaction

On January 6, 2020, we announced the entry into a new external management
agreement with Lument IM and the concurrent mutual termination of our management
agreement with HIM. Lument IM is part of Lument, a nationally recognized leader
in multifamily and seniors housing and healthcare finance. The terms of the new
management agreement align with the terms of our prior management agreement with
HIM in all material respects, including a cap on reimbursable expenses. Pursuant
to the terms of the termination agreement between the Company and HIM, the
termination of the management agreement did not trigger, and HIM was not paid, a
termination fee by the Company.


Factors Affecting Our Results of Operations

Market conditions. The results of our operations are and will continue to be
affected by a number of factors and primarily depend on, among other things, the
level of our net interest income, the market value of our assets and the supply
of, and demand for, our target assets in the marketplace. Our net interest
income, will vary primarily as a result of changes in market interest rates and
prepayment speeds, and by the ability of the borrowers underlying our commercial
mortgage loans to continue making payments in accordance with the contractual
terms of their loans, which may be impacted by unanticipated credit events
experienced by such borrowers, such as the ongoing COVID-19 pandemic. Interest
rates vary according to the type of investment, conditions in the financial
markets, competition and other factors, none of which can be predicted with any
certainty, and have most recently been impacted by the ongoing COVID-19
pandemic. Our operating results will also be affected by general U.S. real
estate fundamentals and the overall U.S. economic environment, including the
pace and degree of recovery from the ongoing COVID-19 pandemic. In particular,
our strategy is influenced by the specific characteristics of the underlying
real estate markets, including prepayment rates, credit market conditions and
interest rate levels.

Changes in market interest rates. Generally, our business model is such that
rising interest rates will generally increase our net interest income, while
declining interest rates will decrease our net interest income. Substantially
all of our investments and all of our collateralized loan obligations are
indexed to 30-day LIBOR, and as a result we are less sensitive to variability in
our net interest income resulting from interest rate changes. Our net interest
income currently benefits from in-the-money LIBOR floors in our commercial loan
portfolio, with a weighted average LIBOR floor of 0.49% as of December 31, 2021.
As of December 31, 2021, 99.0% of the loans in our commercial loan portfolio
benefitted from LIBOR floors, 66.2% of which had a LIBOR floor greater than the
current spot LIBOR rate. When interest rates are below our average LIBOR floor,
an increase in interest rates will decrease our net interest until such time as
interest rates rise above our average LIBOR floor. While we expect low LIBOR
rates to persist as the economy continues to recover from the current COVID-19
pandemic, no assurance can be made that our current portfolio profile will be
maintained. Additionally, there can be no assurance that will continue to obtain
LIBOR floors as current market conditions reflect transactions with lower or no
floors. Similarly, net interest income is also impacted by the spread in our
commercial loan portfolio. As of December 31, 2021, the weighted average spread
of our commercial loan portfolio was 3.41%, but there is no assurance that these
spreads will be maintained as market environments fluctuate. Current market
conditions have reflected a tightening trend in commercial mortgage loan credit
spreads. A decrease to the weighted average LIBOR floor and/or spread would
result in a decrease to net interest income. Additionally, a simultaneous
decrease in both weighted average LIBOR floor and portfolio spread would
exacerbate the impact to net interest income.

In addition to the risk related to fluctuations in cash flows associated with
movement in interest rates, there is also the risk of non-performance on
floating rate assets. In the case of significant increase in interest rates, the
additional debt service payments due from our borrowers may strain the operating
cash flows of the real estate assets underlying our mortgages and/or impact
their ability to be refinanced at such higher interest rates, potentially,
contribute to non-performance or, in severe cases, default.

On November 30, 2020, the ICE Benchmark Administration ("IBA"), with the support
of the United States Federal Reserve and United Kingdom's Financial Conduct
Authority ("FCA"), announced plans to consult on ceasing publication of LIBOR on
December 31, 2021 for only one week and two month LIBOR tenors, and on June 30,
2023 for all other LIBOR tenors. While this announcement extends the transition
period to June 2023, the United States
                                       33
--------------------------------------------------------------------------------

Federal Reserve concurrently issued a statements advising banks to stop new
LIBOR issuance by the end of 2021. On March 5, 2021, the FCA confirmed that all
LIBOR settings will either cease to be provided by any administrator or no
longer be representative" (a) immediately after December 31, 2021, in the case
of the one week and two month U.S, dollar settings; and (b) immediately after
June 30, 2023, in the case of the remaining U.S. dollar settings. The ARRC, a
committee convened by the Federal Reserve that includes major market
participants, has proposed an alternative rate to replace U.S. Dollar LIBOR: the
Secured Overnight Financing Rate ("SOFR"). On July 29, 2021 the RRC ratified
term rates for the one-, three- and six-month tenors based on SOFR futures
traded. This announcement is expected to expedite the transition from LIBOR to
SOFR. The outcome of these reforms is uncertain and any changes on the methods
by which LIBOR is determined or regulatory activity related to LIBOR's phase-out
could cause LIBOR to preform differently than in the past.

As of December 31, 2021, 100% of our commercial loans by principal balance and
100% of our collateralized loan obligations bear interest related to one-month
U.S. LIBOR. All of these arrangements provide procedures for determining an
alternative base rate in the event that LIBOR is discontinued. Regardless, there
can be no assurances as to what alternative base rates may be and whether such
base rate will be more or less favorable than LIBOR and any other unforeseen
impacts of the discontinuation of LIBOR. We are monitoring the developments with
respect to the phasing out of LIBOR and are working with our lenders and
borrowers to minimize the impact of any LIBOR transitions on our financial
condition and results of operations, but can provide no assurances regarding the
impact of the discontinuation of LIBOR.

Credit risk. Our commercial mortgage loans and other investments are also
subject to credit risk. The performance and value of our loans and other
investments depend upon the sponsor's ability to operate properties that serve
as our collateral so that they produce cash flows adequate to pay interest and
principal due to us. To monitor this risk, the Manager's asset management team
reviews our portfolio and maintains regular contact with borrowers, co-lenders
and local market experts to monitor the performance of the underlying
collateral, anticipate borrower, property and market issues and, to the extent
necessary or appropriate, enforce our rights as lender. The market values of
commercial mortgage assets are subject to volatility and may be adversely
affected by a number of factors, including, but not limited to, national,
regional and local economic conditions (which may be adversely affected by
industry slowdowns and other factors); local real estate conditions; changes or
continued weakness in specific industry segments; construction quality, age and
design; demographic factors; and retroactive changes to building or similar
codes. In addition, decreases in property values reduce the value of the
collateral and potential proceeds available to a borrower to repay the
underlying loans, which could also cause us to suffer losses. As of December 31,
2021, 100% of the commercial mortgage loans in our portfolio were current as to
principal and interest. Additionally, we have reviewed the loans designated as
High Risk for impairment. Impairment of these loans, which are collateral
dependent, is measured by comparing the estimated fair value of the underlying
collateral, less costs to sell, to the book value of the respective loan. As of
December 31, 2021, the Company has not recognized any impairments on its loan
portfolio. However, due to the continued widespread impact of the COVID-19
pandemic we consider there to be heightened credit risk associated with our
commercial mortgage loan portfolio. Uncertainty about the severity and duration
of the economic impact of the COVID-19 pandemic, as exacerbated by events
related to virus strains, persist and potential exists for the credit risk of
our portfolio to heighten further. We can provide no assurances that our
borrowers will remain current as to principal and interest, or that we will not
enter into forbearance agreements or loan modifications in order to protect the
value of our commercial mortgage loan assets. Should that occur, it could have a
material negative impact on our results of operations.

Liquidity and financing markets. Liquidity is a measurement of our ability to
meet potential cash requirements, including ongoing commitments to pay
dividends, fund investments and repay borrowings and other general business
needs. Our primary sources of liquidity have been proceeds of common or
preferred stock issuance, net proceeds from corporate debt obligations, net cash
provided by operating activities and other financing arrangements. We finance
our commercial mortgage loans primarily with collateralized loan obligations,
the maturities of which are matched to the maturities of the loans, and which
are not subject to margin calls or additional collateralization requirements.
However, to the extent that we seek to invest in additional commercial mortgage
loans, outside of our CLO, we will in part be dependent on our ability to issue
additional collateralized loan obligations, to secure alternative financing
facilities or to raise additional common or preferred equity.

Prepayment speeds. Prepayment risk is the risk that principal will be repaid at
a different rate than anticipated, causing the return on certain investments to
be less than expected. As we receive prepayments of principal on our assets, any
premiums paid on such assets are amortized against interest income. In general,
an increase in prepayment rates accelerates the amortization of purchase
premiums, thereby reducing the interest income earned on the assets. Conversely,
discounts on such assets are accreted into interest income. In general, an
increase in prepayment rates accelerates the accretion of purchase discounts,
thereby increasing the interest earned on the assets. With the exception of nine
loans acquired with an initial aggregate unpaid principal balance of $117.0
million with an aggregate purchase premium of $538,146 and aggregate purchase
discount of $171,186, all of our commercial mortgage loans were acquired at par.
As of December 31, 2021, our aggregate unamortized purchase premium was $80,397
and our aggregate unamortized purchase discount was $125,098, and accordingly we
do not believe this to be a material risk for us at present. Additionally, we
are subject to prepayment risk associated with the terms of our collateralized
loan obligations. Due to the generally short-term nature of transitional
floating-rate commercial mortgage loans, our CLOs include a reinvestment period
during which principal repayments and prepayments on our commercial mortgage
loans may be reinvested in similar assets, subject to meeting certain
eligibility criteria. The reinvestment period for LFT 2021-FL1 remains in place
through December 2023. While the interest rate spreads of our collateralized
loan obligations are fixed until they are repaid, the terms, including spreads,
of newly originated loans are subject to uncertainty based on a variety of
factors, including market and competitive conditions, which remain uncertain and
volatile in light of the COVID-19 pandemic. To the extent that such conditions
result in lower spreads on the assets in which we reinvest, we may be subject to
a reduction in interest income in the future. However, our loan agreements
provide for prepayment penalties which are intended to offset any potential
reduction in future interest income.

Changes in market value of our assets. We account for our commercial mortgage
loans at amortized cost. As such, our earnings will generally not be directly
impacted by changes in the market values of these loans. However, if a loan is
considered to be impaired as the result of adverse credit performance, an
allowance is recorded to reduce the carrying value through a charge to the
provision for loan losses. Impairment is measured by comparing the estimated
fair value of the underlying collateral, less costs to sell, to the book value
of the respective loan. Provisions for loan losses will directly impact our
earnings. Given the widespread impact of COVID-19 pandemic, we consider there to
be a heightened credit risk associated with our commercial mortgage loan
portfolio.

Governmental actions. Since 2008, when both Fannie Mae and Freddie Mac were
placed under the conservatorship of the U.S. government, there have been a
number of proposals to reform the U.S. housing finance system in general, and
Fannie Mae and Freddie Mac in particular. We anticipate debate on residential
housing and mortgage reform to continue through 2022 and beyond, but a deep
divide persists between factions in Congress and as such it remains unclear what
shape any reform would take and what impact, if any, reform would have on
mortgage REITs.

Managing our business during COVID-19

As of March 13, 2020, our Manager and its affiliates, implemented a work from
home, or WFH, policy for employees in all locations. As of October 1, 2021, our
Manager has begun reopening offices on a limited basis with certain staff
returning to the office on a staggered partial schedule. Our Manager's highly
experienced senior team and dedicated employees are fully operational during
this ongoing disruption and are continuing to execute on all investment
                                       34
--------------------------------------------------------------------------------

management, asset management, servicing, portfolio monitoring, financial
reporting and related control activities. Our Manager's and affiliates employees
are in constant communication to ensure timely coordination and early
identification of issues. We continue to engage in ongoing active dialogue with
the borrowers in our commercial mortgage loan portfolio to understand what is
taking place at the properties collateralizing our investments.

Considering the current economic environment caused by COVID-19 we are mindful
of constraints on landlord enforcement rights and continue to monitor the impact
of fiscal stimulus on our loan portfolio. From September 4, 2020 through August
26, 2021, when the Centers for Disease Control ("CDC") Agency Order was
overturned by the U.S. Supreme Court, residential landlords and those with
similar eviction rights could not evict "covered persons" for nonpayment of rent
in any U.S. state or territory. Covered persons (a) use best efforts to obtain
government assistance; (b) make less than $99,000 or $198,000 jointly; (c) have
suffered loss of income or extraordinary medical expenses; (d) use the best
efforts to make partial payments; and (e) have no other housing options. In the
last month before the Supreme Court lifted the order, the moratorium added to
the definition of "covered persons" to include (f) the individual resides in a
U.S. county experiencing substantial or high rates of community transmission
levels of SARS-COV-2 as defined by the CDC. As a result of the national
restriction, multifamily apartment borrowers had less ability to address
nonpayment of tenants, which in turn may have negatively impacted a property's
cash flow coverage of the debt service of their loans. Additionally, due to
COVID-19, there have been potential challenges facing third-party providers,
such as appraisers, environmental and engineering consultants we rely on to make
new investments which may make it more difficult to make these investments.
Currently, despite the Supreme Court having lifted the CDC order, individual
states and localities continue to maintain limited evictions restrictions. New
York, Washington D.C., Massachusetts, Minnesota, Oregon and Nevada all have some
form of limited or prohibited residential evictions while the tenant applies for
rental assistance. California has local eviction moratoriums that may extend
beyond that in difference municipalities, but not statewide.

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, and book value per share of common stock. For the three
months ended December 31, 2021, we recorded earnings per share of $0.09,
declared a quarterly common dividend of $0.09 per share, and reported $0.11 per
share of Distributable Earnings. In addition, our book value per share was $4.38
per share. For the year ended December 31, 2021, we recorded earnings per share
of $0.30, declared aggregate common dividends of $0.36 per share, and reported
$0.39 per share of Distributable Earnings.

As described in more detail below, distributable income is a measure that is not prepared in accordance with generally accepted accounting principles in The United States of America, or GAAP, which helps us assess our performance by excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily representative of our current loan portfolio and operations. In addition, distributable earnings are a performance measure that we take into account when declaring our dividends.

Earnings per share and dividends declared

The following table shows the calculation of basic and diluted net earnings per share and declared dividends per share:

                                                        Three Months
                                                            Ended                        Year Ended
                                                        December 31,                    December 31,
                                                            2021                  2021                 2020
Net income(1)                                          $  2,478,911          $ 7,414,722          $ 8,434,770
Weighted-average shares outstanding, basic and
diluted                                                  24,947,883           24,945,824           24,934,505
Net income per share, basic and diluted                $       0.10          $      0.30          $      0.34
Dividends declared per share                           $       0.09          $      0.36          $      0.37


(1)  Represents net income attributable to Lument Finance Trust, Inc.

distributable profit

Distributable Earnings 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 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 Company's
board of directors and approved by a majority of the Company's independent
directors.

While Distributable Earnings excludes the impact of any unrealized provisions
for credit losses, any loan losses are charged off and realized through
Distributable Earnings 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 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
is a useful financial metric for existing and potential future holders of our
common stock as historically, over time, Distributable Earnings has been a
strong indicator of our dividends per share. As a REIT, we generally must
distribute annually at least 90% of our taxable income, subject to certain
adjustments, and therefore we believe our dividends are one of the principal
reasons stockholders may invest in our common stock. Refer to Note 16 to our
consolidated financial statements for further discussion of our distribution
requirements as a REIT. Furthermore, Distributable Earnings help 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, and is a performance metric we consider when declaring
our dividends.

Distributable Earnings 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 may
differ from the methodologies employed by other companies to calculate the
                                       35
--------------------------------------------------------------------------------

same or similar measures of performance and therefore our reported Distributable Income may not be comparable to Distributable Income reported by other companies.

The following table provides a reconciliation of Distributable Earnings to GAAP
net income:

                                                       Three Months
                                                           Ended                        Year Ended
                                                       December 31,                    December 31,
                                                           2021                  2021                 2020
Net income(1)                                         $  2,478,911          $ 7,414,722          $ 8,434,770
Unrealized gain (loss) on mortgage servicing
rights                                                      56,106              356,772            1,780,528
Purchase premium payoffs                                         -              150,990                    -
Loss on extinguishment of debt                                   -            1,663,926                    -
Recognized compensation expense related to
restricted common stock                                      4,741               15,608               20,292
Adjustment for (provision for) income taxes                109,336               77,894             (476,248)
Distributable Earnings                                $  2,649,094          $ 9,679,912          $ 9,759,342
Weighted-average shares outstanding, basic and
diluted                                                 24,947,883           24,945,824           24,934,505
Distributable Earnings per share, basic and
diluted                                               $       0.11          

$0.39 $0.39

(1) Represents the net profit attributable to ordinary shareholders of Lument Finance Trust, Inc.

Book Value Per Share

The following table calculates our book value per share:

                                                                 December 31, 2021           December 31, 2020
Total stockholders' equity                                   $      

169,276,000 $113,703,152
Fewer preferred shares (preferred liquidation of $25.00
per share)

                                                          (60,000,000)                          -
Total common stockholders' equity                                   109,276,000                 113,703,152
Common stock outstanding                                             24,947,883                  24,943,383
Book value per share                                         $             4.38          $             4.56



As of December 31, 2021, our common stockholders' equity was $109.3 million, and
our book value per common share was $4.38 on a basic and fully diluted basis.
Our equity decreased by $4.4 million compared to our stockholders' equity as of
December 31, 2020 primarily as a result of the $1.7 million loss on
extinguishment of debt and $2.7 million of preferred offering costs related to
the issuance of the Series A Preferred Stock.

Investment portfolio

Commercial Mortgages

As of December 31, 2021, we have determined that we are the primary beneficiary
of LFT CRE 2021-FL1, Ltd. 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.

The following table details our lending activity by outstanding principal balance:

                                         Year Ended December 31, 2021
Balance at December 31, 2020            $                 547,345,334
Purchases and advances                                    983,694,326
Proceeds from principal repayments                       (528,802,705)
Accretion of purchase discount          $                      46,088
Amortization of purchase discount       $                    (457,749)
Balance at December 31, 2021            $               1,001,825,294



The following table details the overall statistics of our loan portfolio in
December 31, 2021 and December 31, 2020:

                                       36
--------------------------------------------------------------------------------
                                                                                                                                                             Weighted Average
                                        Unpaid Principal                                                          Floating Rate
           Loan Type                         Balance               Carrying Value           Loan Count               Loan %                Coupon(1)            Term (Years)(2)           LTV(3)
December 31, 2021
Loans held-for-investment
Senior secured loans(4)                $  1,001,869,994          $ 1,001,825,294                 66                      100.0  %                 3.9  %                     3.7            71.2  %
                                       $  1,001,869,994          $ 1,001,825,294                 66                      100.0  %                 3.9  %                     3.7            71.2  %



                                                                                                                                                         Weighted Average
                                      Unpaid Principal                                                        Floating Rate
           Loan Type                       Balance             Carrying Value           Loan Count               Loan %                Coupon(1)            Term (Years)(2)           LTV(3)
December 31, 2020
Loans held-for-investment             $  547,345,334          $  547,345,334                 40                      100.0  %                 5.1  %                     3.1            73.6  %
Senior secured loans(3)               $  547,345,334          $  547,345,334                 40                      100.0  %                 5.1  %                     3.1            73.6  %



(1)  Weighted average coupon assumes applicable one-month LIBOR of 0.10% and
0.14% as of December 31, 2021 and December 31, 2020, respectively, and weighted
average LIBOR floors of 0.49% and 1.64%, respectively.
(2)  Weighted average term assumes all extension options are exercised by the
borrower; provided, however, that our loans may be repaid prior to such date.
(3)  LTV 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 origination date.
(4)  As of December 31, 2021, $974,025,294 of the outstanding senior secured
loans were held in VIEs and $27,800,000 of the outstanding senior secured loans
were held outside VIEs. As of December 31, 2020, $531,363,401 of the outstanding
senior secured loans were held in VIEs and $15,981,933 of the outstanding senior
secured loans were held outside VIEs.


The table below presents additional information relating to the Company’s portfolio as at December 31, 2021:

                                                                                                                                                                                                                           Max Remaining

Loan No. Form of Investment Date of Origination Total Loan Commitment(1) Current Principal Amount

Location                    Property Type             Coupon             Term (Years)             LTV(2)
    1            Senior secured                November 22, 2019             39,500,000                       36,781,588                  Virginia Beach, VA                Multi-Family             1mL + 2.8                         3.0             77.1  %
    2            Senior secured                    June 28, 2021             39,263,000                       34,690,000                  Barrington, NJ                    Multi-Family             1mL + 3.1                         4.6             78.1  %
    3            Senior secured                 November 2, 2021             33,500,000                       33,500,000                  Warner Robbins, GA                Multi-Family             1mL + 3.0                         2.9             51.4  %
    4            Senior secured                     June 8, 2021             35,877,500                       33,360,000                  Chattanooga, TN                   Multi-Family             1mL + 3.7                         4.6             79.8  %
    5            Senior secured                     June 8, 2021             32,500,000                       30,576,666                  Miami, FL                         Multi-Family             1mL + 3.2                         4.6             74.3  %
    6            Senior secured                    June 30, 2021             32,250,000                       28,650,000                  Porter, TX                        Multi-Family             1mL + 3.3                         4.6             71.6  %
    7            Senior secured                February 25, 2021             28,000,000                       28,000,000                  Sacramento, CA                    Multi-Family             1mL + 3.5                         0.3             63.6  %
    8            Senior secured                     May 20, 2021             33,000,000                       27,803,800                  Marietta, GA                      Multi-Family             1mL + 3.1                         4.5             77.0  %
    9            Senior secured                   April 22, 2021             27,750,000                       27,750,000                  Los Angeles, CA                   Multi-Family             1mL + 3.3                         0.9             55.0  %
   10            Senior secured                December 10, 2019             37,046,136                       27,411,724                  San Antonio, TX                   Multi-Family             1mL + 3.2                         3.1             71.9  %
   11            Senior secured                     June 7, 2021             29,400,000                       26,400,000                  San Antonio, TX                   Multi-Family             1mL + 3.4                         4.6             80.0  %
   12            Senior secured                December 16, 2021             25,000,000                       25,000,000                  Daytona, FL                       Multi-Family             1mL + 3.1                         5.1             71.7  %
   13            Senior secured                  August 26, 2021             27,268,000                       24,832,000                  Clarkston, GA                     Multi-Family             1mL + 3.5                         4.7             79.0  %
   14            Senior secured                November 15, 2021             26,003,000                       24,330,000                  El Paso, TX                       Multi-Family             1mL + 3.1                         5.0             76.0  %
   15            Senior secured                 October 18, 2021             28,250,000                       23,348,000                  Cherry Hill, NJ                   Multi-Family             1mL + 3.0                         4.9             72.4  %


                                       37
--------------------------------------------------------------------------------
  16           Senior secured              August 26, 2021         23,370,000            21,957,240           Union City, GA                 Multi-Family           1mL + 3.4                  4.8          70.4  %
  17           Senior secured            November 16, 2021         21,975,000            20,960,000           Dallas, TX                     Multi-Family           1mL + 3.2                  5.0          73.5  %
  18           Senior secured              August 31, 2021         21,750,000            20,700,000           Houston, TX                    Multi-Family           1mL + 3.3                  4.8          74.2  %
  19           Senior secured             October 29, 2021         20,500,000            20,500,000           Knoxville, TN                  Multi-Family           1mL + 3.8                  4.9          70.0  %
  20           Senior secured                June 30, 2021         21,968,000            20,188,700           Jacksonville, FL               Multi-Family           1mL + 3.5                  4.6          77.1  %
  21           Senior secured             October 13, 2017         20,000,000            19,648,818           Seattle, WA                    Self Storage           1mL + 3.6                  2.9          46.5  %
  22           Senior secured             November 5, 2021         20,965,000            19,200,000           Orlando, FL                    Multi-Family           1mL + 3.0                  4.9          78.1  %
  23           Senior secured             October 12, 2021         17,500,000            17,500,000           Atlanta, GA                    Multi-Family           1mL + 3.2                  2.8          42.9  %
  24           Senior secured            December 28, 2018         24,123,000            17,172,623           Austin, TX                     Retail                 1mL + 4.1                  1.1          60.5  %
  25           Senior secured                 July 8, 2021         17,000,000            17,000,000           Knoxville, TN                  Multi-Family           1mL + 4.0                  2.7          69.7  %
  26           Senior secured           September 30, 2021         17,583,000            16,663,000           Hanahan, SC                    Multi-Family           1mL + 3.2                  4.8          76.4  %
  27           Senior secured               April 12, 2021         17,000,000            15,000,000           Cedar Park, TX                 Multi-Family           1mL + 3.8                  4.4          66.7  %
  28           Senior secured             October 11, 2019         17,000,000            14,500,000           Pompano Beach, FL              Self Storage           1mL + 3.8                  2.8          75.0  %
  29           Senior secured            February 28, 2018         14,550,000            14,230,100           Portland, OR                   Multi-Family           1mL + 7.5                  1.2          75.9  %
  30           Senior secured             November 3, 2021         13,870,000            13,720,000           Louisville, KY                 Multi-Family           1mL + 3.4                  4.9          75.4  %
  31           Senior secured             October 14, 2021         13,440,000            13,440,000           Bridgeton, NJ                  Multi-Family           1mL + 3.3                  1.4          70.0  %
  32           Senior secured                 May 28, 2021         13,675,000            13,332,734           Houston, TX                    Multi-Family           1mL + 3.4                  2.5          73.8  %
  33           Senior secured                 May 12, 2021         13,930,000            13,026,000           Fort Worth, TX                 Multi-Family           1mL + 3.4                  4.5          74.9  %
  34           Senior secured              August 16, 2021         15,886,000            12,750,000           Columbus, OH                   Multi-Family           1mL + 3.7                  4.8          75.0  %
  35           Senior secured               March 12, 2021         13,703,000            12,375,000           Mesa, AZ                       Multi-Family           1mL + 3.6                  4.3          75.0  %
  36           Senior secured              October 1, 2021         13,775,000            12,100,000           East Nashville, TN             Multi-Family           1mL + 3.4                  4.8          79.1  %
  37           Senior secured                July 23, 2018         16,200,000            11,748,199           Chicago, IL                    Office                 1mL + 3.8                  1.7          72.7  %
  38           Senior secured             October 28, 2021         12,250,000            11,202,535           Tampa, FL                      Multi-Family           1mL + 3.0                  4.9          75.7  %
  39           Senior secured           September 30, 2021         11,300,000            10,795,000           Clearfield, UT                 Multi-Family           1mL + 3.2                  4.8          68.0  %
  40           Senior secured             February 8, 2019         12,625,000            10,676,822           Federal Way, WA                Self Storage           1mL + 4.8                  2.2          65.8  %
  41           Senior secured               April 23, 2021         11,600,000            10,497,000           Tualatin, OR                   Multi-Family           1mL + 3.2                  4.4          73.9  %
  42           Senior secured               March 26, 2021          9,623,000             9,623,000           Alhambra, CA                   Multi-Family           1mL + 3.3                  0.8          49.0  %
  43           Senior secured             October 21, 2021         11,500,000             9,100,000           Madison, TN                    Multi-Family           1mL + 3.2                  4.9          68.4  %
  44           Senior secured            November 13, 2019          9,310,000             8,620,367           Holly Hill, FL                 Multi-Family           1mL + 2.9                  1.0          77.8  %
  45           Senior secured                 May 12, 2021          8,950,000             8,220,000           Lakeland, FL                   Multi-Family           1mL + 3.4                  4.5          76.8  %
  46           Senior secured             January 13, 2020          8,510,000             8,037,399           Fort Lauderdale, FL            Multi-Family           1mL + 3.2                  3.2          78.4  %
  47           Senior secured                April 7, 2021         10,152,000             7,963,794           Phoenix, AZ                    Multi-Family           1mL + 3.6                  4.4          69.5  %
  48           Senior secured             October 29, 2021          9,000,000             7,934,000           Riverside, MO                  Multi-Family           1mL + 3.4                  4.9          76.6  %


                                       38
--------------------------------------------------------------------------------

  49           Senior secured               March 12, 2018         9,112,000            7,912,000           Waco, TX                    Multi-Family           1mL + 4.8                  1.3          72.9  %
  50           Senior secured            November 16, 2021         7,680,000            7,680,000           Cape Coral, FL              Multi-Family           1mL + 3.3                  3.0          79.2  %
  51           Senior secured             October 27, 2021         9,300,000            7,624,400           Ambler, PA                  Multi-Family           1mL + 3.3                  4.9          79.9  %
  52           Senior secured               March 19, 2021         8,348,000            7,513,000           Glendora, CA                Multi-Family           1mL + 3.6                  4.3          72.2  %
  53           Senior secured           September 28, 2021         8,125,000            7,286,000           Chicago, IL                 Multi-Family           1mL + 3.7                  4.8          75.9  %
  54           Senior secured             February 3, 2020         7,250,000            6,959,953           Fort Worth, TX              Self Storage           1mL + 3.8                  3.3          63.8  %
  55           Senior secured               March 31, 2021         8,432,000            6,893,000           Tucson, AZ                  Multi-Family           1mL + 3.6                  4.3          72.8  %
  56           Senior secured                 July 1, 2021         7,285,000            6,290,000           Harker Heights, TX          Multi-Family           1mL + 3.6                  4.6          72.3  %
  57           Senior secured              August 28, 2019         6,250,000            6,054,427           Austin, TX                  Multi-Family           1mL + 3.3                  2.8          69.9  %
  58           Senior secured                 May 21, 2021         7,172,000            5,994,000           Youngtown, AZ               Multi-Family           1mL + 3.7                  4.5          71.4  %
  59           Senior secured             October 26, 2021         6,807,000            5,812,000           Indianapolis, IN            Multi-Family           1mL + 3.9                  4.9          77.1  %
  60           Senior secured                June 10, 2019         6,000,000            5,295,605           San Antonio, TX             Multi-Family           1mL + 2.9                  2.6          62.9  %
  61           Senior secured               April 30, 2021         5,472,000            5,285,500           Daytona Beach, FL           Multi-Family           1mL + 3.7                  4.4          77.4  %
  62           Senior secured                July 14, 2021         6,048,000            5,248,000           Birmingham, AL              Multi-Family           1mL + 3.7                  4.7          71.7  %
  63           Senior secured            November 19, 2021         6,453,000            5,040,000           Huntsville, AL              Multi-Family           1mL + 3.8                  5.0          78.8  %
  64           Senior secured            December 29, 2020         4,920,000            4,920,000           Fayetteville, NC            Multi-Family           1mL + 4.0                  0.6          70.3  %
  65           Senior secured            November 30, 2018         4,446,000            4,446,000           Anderson, SC                Multi-Family           1mL + 3.3                  0.9          53.7  %
  66           Senior secured            December 28, 2021         2,800,000            2,800,000           Houston, TX                 Multi-Family           1mL + 3.2                  5.1          71.2  %



(1)  See Note 11 Commitments and Contingencies to our consolidated financial
statements for further discussion of unfunded commitments.
(2)   LTV as of the date the loan was originated by a Hunt/ORIX affiliate 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
origination date.

Our loan portfolio is 100% performing with no loan impairments, defaults or unearned loans from December 31, 2021.

We maintain strong relationships with our borrowers and utilized those
relationships to address potential impacts of the COVID-19 pandemic on loans
secured by properties experiencing cash flow pressure. All of our loans are
current with respect to principal and interest, however, some of our borrowers
have expressed concern on delays in the implementation of business plans due to
the prolonged impact of the COVID-19 pandemic. Accordingly, we will continue to
engage in discussions with them to work towards the maximization of cash flows
and values of our commercial mortgage loan assets should these difficulties
arise.

We have not entered into any forbearance agreements or loan modifications to
date. However, due to the widespread economic impact of the COVID-19 pandemic we
consider there to be heightened credit risk associated with our commercial
mortgage loan portfolio. As such, we can provide no assurances that our
borrowers will remain current as to principal and interest, or that we will not
enter into any forbearance agreements or loan modifications on order to protect
the value of our commercial mortgage loan assets.

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 weighted average risk rating of our total loan exposure was
2.3 and 3.1 as of December 31, 2021 and December 31, 2020, respectively. The
decrease in risk ratings is primarily the result of commercial mortgage loans
that paid off with a risk rating of "2" of $133.6 million, a risk rating of "3"
of $276.1 million and a risk rating of "4" of $17.8 million, offset by purchases
of commercial mortgage loans with a risk rating of "2" of $599.0 million, a risk
rating of "3" of $283.0 million and a risk rating of '4" of $0.1 million during
the year ended December 31, 2021. The following table presents the principal
balance and net book value based on our internal risk ratings:

                                       39
--------------------------------------------------------------------------------
                                              December 31, 2021
 Risk Rating       Number of Loans      Unpaid Principal Balance       Net Carrying Value
      1                         -      $                      -                   -
      2                        40                   634,438,386         634,438,386
      3                        23                   342,350,405         342,305,705
      4                         3                    25,081,203          25,081,203
      5                         -                             -                   -
                               66                 1,001,869,994       1,001,825,294

Secured Loan Obligations

We may seek to enhance returns on our commercial mortgage loan investments
through securitizations, or CLOs, if available, as well as the utilization of
warehouse or repurchase agreement financing. To the extent available, we intend
to securitize the senior portion of some of our loans, while retaining the
subordinate securities in our investment portfolio. The securitizations of this
senior portion will be accounted for as either a "sale" or as a "financing." If
they are accounted for as a sale, the loan will be removed from the balance
sheet and if they are accounted for as a financing the loans will be classified
as "commercial mortgage loans held-for-investment" in our consolidated balance
sheets, depending on the structure of the securitization. As of December 31,
2021, the carrying amounts and outstanding principal balances of our
collateralized loan obligations were $826.8 million and $833.8 million,
respectively. See Note 4 to our consolidated financial statements included in
this Annual Report on Form 10-K for additional terms and details of our CLOs.

FOAC and changes to our residential mortgage business

In June 2013, we established FOAC as a Taxable REIT Subsidiary, or TRS, to
increase the range of our investments in mortgage-related assets. Until August
1, 2016, FOAC aggregated mortgage loans primarily for sale into securitization
transactions, with the expectation that we would purchase the subordinated
tranches issued by the related securitization trusts, and that these would
represent high quality credit investments for our portfolio. Residential
mortgage loans for which FOAC owns the MSRs continue to be directly serviced by
two licensed sub-servicers since FOAC does not directly service any residential
mortgage loans.

As noted above, we previously determined to cease the aggregation of prime jumbo
loans for the foreseeable future, and therefore no longer maintain warehouse
financing to acquire prime jumbo loans. We do not expect the previous changes to
our mortgage loan business strategy to impact the existing MSRs that we own, nor
the securitizations we have sponsored to date.

Pursuant to a Master Agreement dated June 15, 2016, as amended on August 29,
2016, January 30, 2017 and June 27, 2018, among MAXEX, LLC ("MAXEX"), MAXEX
Clearing LLC, MAXEX's wholly-owned clearinghouse subsidiary and FOAC, FOAC
provided seller eligibility review services under which it reviewed, approved
and monitored sellers that sold loans via MAXEX Clearing LLC. To the extent that
a seller approved by FOAC fails to honor its obligations to repurchase a loan
based on an arbitration finding that it breached its representations and
warranties, FOAC was obligated to backstop the seller's repurchase obligation.
The term of such backstop guarantee was the earlier of the contractual maturity
of the underlying mortgage and its repayment in full. However, the incidence of
claims for breaches of representations and warranties over time is considered
unlikely to occur more than five years from the sale of a mortgage. FOAC's
obligations to provide such seller eligibility review and backstop guarantee
services terminated on November 28, 2018. 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 (the "Alternative
Backstop Fee"). MAXEX Clearing LLC represented to FOAC in the Assumption
Agreement that it (i) is rated at least "A" (or equivalent) by at least one
nationally recognized statistical rating agency or (ii) has (a) adjusted
tangible net worth of at least $20.0 million and (b) minimum available liquidity
equal to the greater of (x) $5.0 million and (y) 0.1% multiplied by the
scheduled unpaid principal balance of each outstanding loan covered by the
backstop guarantees. MAXEX's chief financial officer is required to certify
ongoing compliance by MAXEX Clearing LLC with the aforementioned criteria on a
quarterly basis and if MAXEX Clearing LLC fails to satisfy such criteria, MAXEX
Clearing LLC is required to deposit into an escrow account for FOAC's benefit an
amount equal to the greater of (A) the unamortized Alternative Backstop Fee for
each outstanding loan covered by the backstop guarantee and (B) the product of
0.01% multiplied by the scheduled unpaid principal balance of each outstanding
loan covered by the backstop guarantees. See Notes 13 and 14 to our consolidated
financial statements included in this Annual Report for a further description of
MAXEX.

Significant 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 loan 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 mortgages held for investment

Commercial mortgage loans held-for-investment represent floating-rate
transitional loans and other commercial mortgage loans purchased by the Company.
These loans include loans sold into securitizations that the Company
consolidates. Commercial mortgage loans held-for-investment are intended to be
held-to-maturity and, accordingly, are carried at their unpaid principal
balances, adjusted for net unamortized loan fees and costs (in respect of
originated loans), premiums and discounts (in respect of purchased loans) and
impairment, if any.

Interest income is recognized as revenue using the effective interest method and
is recorded on the accrual basis according to the terms of the underlying loan
agreement. Any fees, costs, premiums and discounts associated with these loan
investments are deferred and amortized over the term of the loan using the
                                       40
--------------------------------------------------------------------------------

effective interest method, or on a straight line basis when it approximates the
effective interest method. Income accrual is generally suspended and loans are
placed on non-accrual status on the earlier of the date at which payment has
become 90 days past due or when full and timely collection of interest and
principal is considered not probable. The Company may return a loan to accrual
status when repayment of principal and interest is reasonably assured under the
terms of the underlying loan agreement. As of December 31, 2021, the Company did
not hold any loans placed in non-accrual status.

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: in-line 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

The Company evaluates each loan rated High Risk or above as to whether it is
impaired on a quarterly basis. Impairment occurs when the Company determines
that the facts and circumstances of the loan deem it probable that the Company
will not be able to collect all amounts due in accordance with the contractual
terms of the loan. If a loan is considered to be impaired, an allowance is
recorded to reduce the carrying value of the loan through a charge to the
provision for loan losses. Impairment of these loans, which are collateral
dependent, is measured by comparing the estimated fair value of the underlying
collateral, less costs to sell, to the book value of the respective loan. These
valuations require significant judgments, which include assumptions regarding
capitalization rates, leasing, creditworthiness of major tenants, occupancy
rates, availability of financing, exit plan, actions of other lenders, and other
factors deemed necessary by the Manager. Actual losses, if any, could ultimately
differ from estimated losses.

In addition, the Company evaluates the entire portfolio to determine whether the
portfolio has any impairment that requires a valuation allowance on the
remainder of the loan portfolio. As of December 31, 2021, the Company has not
recognized any impairments on its loans held-for-investment. We also assessed
the remainder of the loan portfolio, considering the absence of delinquencies
and current market conditions, and, as such has not recorded any allowance for
loan losses.

See Note 2 to our Consolidated Financial Statements for a complete list of our significant accounting policies.

Capital allocation

The following tables present our capital allocated by type of investment to
December 31, 2021 and December 31, 2020:

This information constitutes 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.

                                                                                                December 31, 2021
                                                  Commercial Mortgage
                                                         Loans                       MSRs                Unrestricted Cash(1)                  Total(2)
Market Value                                          1,001,825,294                    551,997                    14,749,046                    

1,017,126,337

Collateralized Loan Obligations                        (826,782,543)                         -                             -                     (826,782,543)
Other(3)                                                 25,769,860                          -                    (3,422,658)                      22,347,202
Restricted Cash                                           3,530,006                          -                             -                        3,530,006
Capital Allocated                                       204,342,617                    551,997                    11,326,388                      216,221,002
% Capital                                                      94.5  %                     0.3  %                        5.2  %                         100.0  %



                                                                                  December 31, 2020
                                                    Commercial                                 Unrestricted
                                                  Mortgage Loans             MSRs                Cash(1)                Total(2)
Market Value                                     $  547,345,334          $  

919 678 $11,375,960 $559,640,972
Secured Loan Obligations

                    (463,060,090)                  -                      -           (463,060,090)
Other(3)                                              1,663,740                   -             (2,984,668)            (1,320,928)
Restricted Cash                                      57,999,396                   -                      -             57,999,396
Capital Allocated                                $  143,948,380          $  919,678          $   8,391,292          $ 153,259,350
% Capital                                                  93.9  %              0.6  %                 5.5  %               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.

                                       41
--------------------------------------------------------------------------------

Operating results

As of December 31, 2021, we consolidated the assets and liabilities of one CRE
CLO, LFT CRE 202-FL1, Ltd. Additionally, although the COVID-19 pandemic did not
significantly impact our operating results for the year ended December 31, 2021,
should the pandemic and resulting economic deterioration persist, we expect it
may affect our business, financial condition, results of operations and cash
flows going forward, including but not limited to, interest income credit losses
and commercial mortgage loan reinvestment, in ways that may vary widely
depending on the duration and magnitude of the COVID-19 pandemic and ensuing
economic turmoil, as well as numerous other factors, many of which are outside
of our control.

Further in May 2021, we issued 2,400,000 shares of 7.875% Series A Cumulative
Redeemable Preferred Stock resulting in net proceeds (after underwriting
discount and commission but before operating expenses) of $58.1 million. On
August 23, 2021, the Incremental Secured Term Loan of $7.5 million provided for
in the Third Amendment to the Credit and Guaranty Agreement was funded. We
believe that Lument IM and its affiliates continue to identify attractive CRE
lending opportunities, which we expect will allow us to deploy our capital base
into assets that are consistent with our investment strategy. The deployment of
these proceeds into our target assets took time and as such, and resulted in a
temporary decline in net interest income. Additionally, as a result of the
Series A Preferred Stock issuances, Stockholders' Equity as calculated per our
management agreement will increase, resulting in increased management fees,
changes to the core earnings hurdle over which incentive fees are due and
payable to our Manager and increase the reimbursable expense cap.

The table below presents certain information from our income statement for the years ended December 31, 2021 and December 31, 2020:

                                                                                                Year Ended
                                                                                               December 31,
                                                                                        2021                  2020
Revenues:
Interest income:
Commercial mortgage loans held-for-investment                                        36,162,050            33,570,949
Cash and cash equivalents                                                                28,779                45,782
Interest expense:
Collateralized loan obligations                                                     (12,178,545)          (12,047,300)
Secured term loan                                                                    (3,333,536)           (3,138,917)
Net interest income                                                                  20,678,748            18,430,514
Other income:
Realized loss on mortgage servicing rights                                              (10,910)                    -
Change in unrealized (loss) on mortgage servicing rights                               (356,772)           (1,780,528)
Loss on extinguishment of debt                                                       (1,663,926)                    -
Servicing income, net                                                                   398,939               709,565
Other income                                                                                  -                     2
Total other (loss)                                                                   (1,632,669)           (1,070,961)
Expenses:
Management fee                                                                        3,041,600             2,524,139
General and administrative expenses                                                   2,879,655             3,518,500
Operating expenses reimbursable to Manager                                            2,038,130             1,644,886
Other operating expenses                                                                280,970             1,493,214
Compensation expense                                                                    200,608               205,292
Total expenses                                                                        8,440,963             9,386,031
Net income before provision for income taxes                                         10,605,116             7,973,522
Benefit from income taxes                                                               (77,894)              476,248
Net income                                                                           10,527,222             8,449,770
Dividends to preferred stockholders                                                  (3,112,500)              (15,000)
Net income attributable to common stockholders                                     $  7,414,722          $  8,434,770
Earnings per share:
Net income attributable to common stockholders (basic and diluted)                 $  7,414,722          $  8,434,770
Weighted average number of shares of common stock outstanding                        24,945,824            24,934,505
Basic and diluted income per share                                                 $       0.30          $       0.34
Dividends declared per share of common stock                                       $       0.36          $       0.37



Net Income Summary

For the year ended December 31, 2021, our net income attributable to common
stockholders was $7,414,722 or $0.30 basic and diluted net income per average
share, compared with net income of $8,434,770 or $0.34 basic and diluted net
loss per share, for the year ended December 31, 2020.  The principal drivers of
this net income variance were an increase in net interest income from
$18,430,514 for the year ended December 31, 2020 to $20,678,748 for the year
ended December 31, 2021, and a decrease in total expenses from $9,386,031 for
the year ended December 31, 2020 to $8,440,963 for the year ended December 31,
2021, which was more than offset by an increase in total other loss from
$1,070,961 for the year ended December 31, 2020 to a loss of
                                       42
--------------------------------------------------------------------------------

$1,632,669 for the year ended December 31, 2021, and an increase in preferred
dividends from $15,000 for the year ended December 31, 2020 to $3,112,500 for
the year ended December 31, 2021.

Net interest income

For the years ended December 31, 2021 and December 31, 2020, our net interest
income was $20,678,748 and $18,430,514, respectively. The increase was primarily
due to (i) a $67.6 million increase in weighted-average principal balance of our
CLO loan portfolio; (ii) a decrease in weighted-average LIBOR of 49bps for our
CLO liabilities, and (iii) an increase in exit/extension fees of $3.2 million
for our loan portfolio. This was offset by (i) a $156.2 million increase in
weighted average principal balance of our CLO liabilities; (ii) a decrease of
54bps in weighted-average LIBOR floor on our CLO loan portfolio for the
year-ended December 31, 2021 compared to the corresponding period in 2020 (iii)
a 3bps decrease in weighted-average spread on the CLO loan portfolio for the
year-ended December 31, 2021 compared to the corresponding period in 2020, and
(iv) an increase of 4bps in weighted-average spread for our CLO liabilities for
the year-ended December 31, 2021 compared to the corresponding period in 2020 .

Other (Loss)

 For the year ended December 31, 2021, we incurred a loss of $1,632,669. This
loss was driven by loss on extinguishment of debt of $1,663,926 resulting from
the unwind of Hunt CRE 2018-FL2 and the impact of net unrealized losses on
mortgage servicing rights of $356,772 caused by decreased unpaid principal
balances, which more than offset net mortgage servicing income of $398,939.

For the year ended December 31, 2020, we incurred a loss of $1,070,961. This
loss was primarily driven by the impact of net realized losses on mortgage
servicing rights of $1,780,528 caused by a decrease in interest rates which
increased prepayment speeds and decreased projected float income, which more
than offset net mortgage servicing income of $709,565.

The year-over-year increase in other loss was primarily due to the change in
loss on extinguishment of debt and unrealized loss on mortgage servicing rights
as a result of higher prepayment speeds.

Expenses

We incurred management and incentive fees of $3,041,600 for the year ended
December 31, 2021 representing amounts payable to our manager under our management agreement. We also incurred operating expenses of $5,399,363of which $2,038,130 was payable to our manager and $3,361,233 was payable to third parties.

For the year ended December 31, 2020, we incurred management and incentive fees
of $2,524,139 representing amounts payable to our Manager under our management
agreement. We also incurred operating expenses of $6,861,892, of which
$1,644,886 was payable to our Manager and $5,217,006 was payable to third
parties.

The year-over-year decrease in expenses primarily reflects a decrease in
accounting, audit and legal fees, CLO expense and discontinued deal costs, which
more than offset increased insurance, management and incentive fees and expense
reimbursement.

Impairment

We review each loan classified as held-for-investment for impairment on a
quarterly basis. For the years ended December 31, 2021 and December 31, 2020,
the Company has not recognized any impairments on its loans held-for-investment
and therefore has not recorded any allowance for loan losses.

Income tax expense (benefits)

For the year ended December 31, 2021 the Company recognized a provision for
income taxes in the amount of $77,894 and for the year ended December 31, 2020,
the Company recognized a benefit from income taxes in the amount of $476,248.
The year-over-year increase in tax expense primarily reflects the change in
gross deferred revenue at FOAC due to the change in unrealized loss on mortgage
servicing rights.

Cash 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 have been met with net proceeds of
common or preferred stock issuance, net proceeds from debt offerings and net
cash provided by operating activities. We have added to our liquidity position
in May 2021 by issuing 2,400,000 shares of 7.875% Series a Cumulative Redeemable
Preferred Stock resulting in net proceeds (after underwriting discount and
commission but before operating expense) of $ 58.1 million. We finance our
commercial mortgage loans primarily with match term collateralized loan
obligations, which are not subject to margin calls or additional
collateralization requirements. On June 14, 2021, we closed LFT CRE 2021-FL1
issuing eight tranches of CLO notes totaling $903.8 million. 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. On
August 23, 2021, we drew an additional $7.5 million of our Secured Term Loan
pursuant to the Third Amendment. Additionally, on February 22, 2022, the Company
issued 27,277,269 shares of common stock resulting in gross proceeds of $83.5
million. As of December 31, 2021, our balance sheet included $47.8 million of a
secured term loan and $833.8 million in collateralized loan financing, gross of
discounts and debt issuance costs. Our secured term loan matures in January 2026
and our collateralized loan financing is term-matched and matures in 2039 or
later. However, to the extent that we seek to invest in additional commercial
mortgage loans, we will in part be dependent on our ability to issue additional
collateralized loan obligations to secure alternative financing facilities or to
raise additional common or preferred equity.

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 ongoing COVID-19 pandemic. 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 collateralized loan obligations 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.
                                       43
--------------------------------------------------------------------------------


We intend to continue to maintain a level of liquidity in relation to our assets
that enables us to meet reasonably anticipated investment 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
December 31, 2021, we had unrestricted cash and cash equivalents of $14.7
million, compared to $11.4 million as of December 31, 2020.

As of December 31, 2021, we had $47.8 million in outstanding principal under our
Senior Secured Term Loan, with a borrowing rate of 7.25%. As of December 31,
2021, the ratio of our recourse debt to our equity was 0.2:1.

As of December 31, 2021, we consolidated the assets and liabilities of LFT
2021-FL1, Ltd. The assets of the trust 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. As of December 31, 2021, the
carrying value of these non-recourse liabilities aggregated to $826.8 million.
As of December 31, 2021, our total debt-to-equity ratio was 5.2:1 on a GAAP
basis.

Cash flow

The following table shows the changes in cash, cash equivalents and restricted cash for the years ended December 31, 2021 and December 31, 2020:

                                                                For the 

years ended December 31, 2021

                                                                    2021                        2020
Cash Flows From Operating Activities                                 13,846,947               12,219,209
Cash Flows From Investing Activities                               (477,291,621)              87,915,086
Cash Flows From Financing Activities                                412,348,370              (46,770,769)
Net Increase (Decrease) in Cash, Cash Equivalents
and Restricted Cash                                        $        (51,096,304)         $    53,363,526



During the year ended December 31, 2021, cash, cash equivalents and restricted
cash decreased by $51.1 million and for the year ended December 31, 2020, cash,
cash equivalents and restricted cash increased by $53.4 million.

Operational activities

For the years ended December 31, 2021 and December 31, 2020, net cash provided
by operating activities totaled $13.8 million and $12.2 million, respectively.
For the year ended December 31, 2021, our cash flows from operating activities
were primarily driven by $23.8 million of interest received from the junior
retained notes and preferred shares of Hunt CRE 2017-FL1, Ltd., Hunt CRE
2018-FL2, Ltd. and LFT 2021-FL1, Ltd., the CRE CLOs that we consolidate, $0.6
million of interest received from our senior secured loans held outside the CRE
CLOs we consolidate and $0.4 million of cash received from mortgage servicing
rights exceeding cash interest expense paid on our Secured Term Loan of $3.1
million, management fees of $2.7 million, expense reimbursements of $1.7 million
and other operating expenditures of $3.4 million. For the year ended
December 31, 2020, our cash flows from operating activities were primarily
driven by $22.1 million of interest received from the junior retained notes and
preferred shares of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd., the CRE
CLOs we consolidate, $0.7 million of interest received from our senior secured
loans held outside the CRE CLOs we consolidate and $0.7 million of cash received
from mortgage servicing rights exceeding cash interest expense paid on our
Secured Term Loan of $3.0 million, management fees of $2.3 million, expense
reimbursement of $1.7 million and other operating expenditures of $4.5 million.

Investing activities

For the year ended December 31, 2021, net cash used in investing activities
totaled $477.3 million. This was a result of the cash used for the purchase and
funding of commercial mortgage loans held for investment exceeding the principal
repayment of commercial mortgage loans held for investment during the period.
For the year ended December 31, 2020 net cash provided by investing activities
totaled $87.9 million. This was a result of the cash received from principal
repayments of commercial mortgage loans held-for-investment exceeding the
purchase and funding of commercial mortgage loans held for investment for the
year ended December 31, 2020.

Financing Activities

For the year ended December 31, 2021, net cash provided by financing activities
totaled $412.3 million and primarily related to proceeds from issuance of our
Series A Preferred Stock of $57.3 million, proceeds from issuance of
collateralized loan obligations of $833.8 million and proceeds from our Secured
Term Loan of $7.5 million which more than offset by payments of common and
preferred dividends of $12.1 million, repayment of collateralized loan
obligations of $465.3 million and payment of debt issuance costs of $8.7
million. For the year ended December 31, 2020, net cash used in financing
activities totaled $46.8 million and primarily related to proceeds of issuing
common stock of $5.7 million more than offset by payments of common and
preferred dividends of $7.6 million and repayment of collateralized loan
obligations of $44.9 million.

Forward-Looking Statements Regarding Liquidity

Based upon our current portfolio, leverage rate and available borrowing
arrangements, we believe that the net proceeds of our prior equity sales,
combined with 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
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.

                                       44
--------------------------------------------------------------------------------

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 December 31, 2021, 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
December 31, 2021, we had not guaranteed any obligations of unconsolidated
entities or entered into any commitment or intent to provide funding to any such
entities.

In connection with the provision of seller eligibility and backstop guarantee
services provided to MAXEX, we previously accounted for the related
non-contingent liability at its fair value on our consolidated balance sheet as
a liability. As of December 31, 2021, 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 guarantees. See Note 11 for further information.
Distributions

We intend to continue to make regular quarterly distributions to holders of our
common stock. 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." We have
historically made regular monthly distributions, but with effect from the third
quarter of 2018 we now make regular quarterly distributions, to our stockholders
in an amount equal to all or substantially all of our 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 December 15, 2021, we announced that
our board of directors had declared a cash dividend rate for the fourth quarter
of 2021 of $0.09 per share of common stock.

© Edgar Online, source Previews

Share.

Comments are closed.