LUMENT FINANCE TRUST: MANAGEMENT REPORT AND ANALYSIS OF THE FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)

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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 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 the financing of housing and care for the elderly and multi-family. The company leverages Lument’s broad platform and significant expertise when creating 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 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;
•Loan to Value ratio up to 85% of as-is value and up to 75% of as stabilized
value;
•Floating rate loans tied to one-month U.S. denominated LIBOR or any 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 of December 31, 2020, there is an ongoing global outbreak of a novel
coronavirus, or COVID-19. On March 11, 2020, the WHO declared COVID-19 a global
pandemic, and numerous countries, including the United States, declared national
emergencies with respect to COVID-19. The United States and other countries
reacted to the COVID-19 outbreak with unprecedented government intervention,
including interest rate cuts and economic stimulus. The global impact of the
outbreak rapidly evolved (and continues to do so), and many countries reacted by
instituting, or strongly encouraging, quarantines and restrictions on travel,
closing financial markets and/or restricting trading, limiting operations of
non-essential offices, retail centers, hotels, and other businesses, and taking
other restrictive measures to help slow the spread of COVID-19. Businesses also
implemented similar precautionary measures. Such measures, as well as the
general uncertainty surrounding the dangers and impact of COVID-19, have created
disruption in global supply chains, increasing rates of unemployment and
adversely impacting many industries, including industries related to the
collateral underlying certain of our loans. Moreover, with the continued spread
of COVID-19, governments and businesses are likely to continue to take
aggressive measures to help slow its spread. For this reason, among others, as
COVID-19 continues to spread, the potential impacts, including a global,
regional, or other economic recession, are increasingly uncertain and difficult
to assess.

Although we are still uncertain of the potential full magnitude or duration of
the COVID-19 outbreak and its impact on the current financial, economic and
capital markets environment, and future developments in these and other areas,
we face future uncertainty and risk with respect to our financial condition,
results of operations, liquidity and ability to pay distributions. Possible
future declines in rental rates and expectations of future rental concessions,
including free rent to renew tenants early, to retain tenants who are up for
renewal or to attract new tenants, or rent abatements for tenants severely
impacted by the COVID-19 pandemic may result in decreases in cash flows to our
borrowers and potentially in defaults in paying debt service on outstanding
indebtedness, which could adversely impact our results of operations and
financial performance. Impending declines in economic conditions could
negatively impact real estate and real estate capital markets and result in
lower occupancy, lower rental rates and declining values in our portfolio, which
could adversely impact the value of investments, making it more difficult for us
to make distributions or meet our financing obligations. Although there are
effective vaccines for COVID-19 that have been approved for use, distribution of
the vaccines did not begin until late 2020, and a majority of the public will
likely not have access to a vaccination until sometime in 2021. Accordingly, the
full extent of the impact and effects of COVID-19 will depend on future
developments, including, among other factors, the duration and spread of the
outbreak, along with travel advisories, quarantines and restrictions, the
recovery time of the disrupted
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supply chains and industries, the impact of labor market interruptions, the
impact of government interventions, and uncertainty with respect to the duration
of the economic slowdown. We are unable to predict or control these factors.
The effects of the COVID-19 pandemic did not significantly impact our operating
results for the year ended December 31, 2020, other than previously deferred
debt issuance costs of $624,816 expensed in the second quarter of 2020 as a
result of the current market environment related to a collateralized loan
obligations transaction that has been determined as unlikely to be executed
prior to December 31, 2020. 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, 2021 and potentially longer.

Highlights of 2020

•We believe we successfully navigated the challenging economic environment
resulting from the COVID-19 pandemic during 2020. As of December 31, 2020, our
loan portfolio is 100% performing with no loan impairments, loan defaults or
non-accrual loans and no forbearance requests granted within our loan portfolio.
•Our net income attributable to our common stockholders increased from $2.7
million, or $0.11 per share of common stock, in 2019 to $8.4 million, or $0.34
per share of common stock, in 2020. Our Distributable Earnings increased by 22%
from $7.6 million, or $0.32 per share of common stock, in 2019 to $9.8 million,
or $0.39 per share of common stock, in 2020. Distributable Earnings is a
non-GAAP financial measure. For a definition of Distributable Earnings and a
reconciliation of our Distributable Earnings to our net income attributable to
common stockholders, see "Key Financial Measure and Indicators."
•On September 17, 2020, we announced a dividend increase from $0.075 per share
of common stock to $0.085 per share of common stock, a 13.3% increase over the
previous quarter. On December 18, 2020, we announced our second consecutive
dividend increase from $0.085 per share of common stock to $0.09 per share of
common stock, a 5.9% increase over the previous quarter. On December 21, 2020,
we announced a one-time special cash dividend of $0.04 per share of common
stock.
•Our book value per share of common stock was $4.56 as of December 31, 2020,
which was substantially consistent with our book value per share of common stock
of $4.59 as of December 31, 2019.
•We acquired four loans with an initial unpaid principal balance of $46.4
million and a weighted average interest rate of one-month LIBOR plus 3.36%.
•We funded $11.2 million in future funding obligations associated with existing
loans with a weighted average interest rate of one-month LIBOR plus 3.27%
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.
In connection with the transaction, an affiliate of ORIX USA purchased 1,246,719
shares of the Company's common stock in a private placement by the Company at a
purchase price of $4.61 per share, resulting in an aggregate capital raise of
$5,747,375. The purchase price per share represented a 43% premium over the LFT
common share price on January 2, 2020. As a result of this share purchase, an
affiliate of ORIX USA owns approximately 5.0% of LFT's outstanding common
shares. Also, in connection with the transaction, James C. Hunt resigned as the
Company's Chairman of the Board, but continues to serve as a member of the
Board. In addition, the Board appointed Interim Chief Financial Officer James A.
Briggs as Chief Financial Officer of 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, particularly in light of 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 rates will generally 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. Additionally, we
benefit from 100% of our commercial loan portfolio having LIBOR floors as a
further mitigant to interest variability, with a weighted average LIBOR floor of
1.64% as of December 31, 2020. As of December 31, 2020, 100% of the loans in our
commercial loan portfolio had a LIBOR floor greater than the current spot LIBOR
rate. While we expect low LIBOR rates to persist amidst the current COVID-19
pandemic, no assurance can be made that our current portfolio profile, including
its LIBOR floor will be maintained. A decrease to the weighted average LIBOR
floor would result in a decrease to net interest income if the prevailing spot
LIBOR rate is less than the weighted average LIBOR floor. LIBOR is expected to
be discontinued after 2021. As of December 31, 2020, 100% of commercial mortgage
loans by principal balance earned a floating rate of interest indexed to LIBOR,
and 100% of our outstanding collateralized loan obligations bear interest
indexed to 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 potential discontinuation of LIBOR. We intend to
monitor the developments with respect to the potential phasing out of LIBOR
after 2021 and to work with our borrowers to minimize the impact of any LIBOR
transition on our financial condition and results of operations, but can provide
no assurances regarding the impact of the discontinuation of LIBOR. We finance a
portion of our commercial loan portfolio with equity, and as such, decreases in
interest rates may reduce our net interest income and may impact the competition
for and supply of new investment opportunities. In addition to the risk related
to fluctuations in cash flows associated with movements in interest rates, there
is also the risk of non-performance
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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 the mortgages and,
potentially, contribute to non-performance or, in severe cases, default.

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,
2020, 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, 2020, 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 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, 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. Additionally, due to the
expiration of the reinvestment period of Hunt CRE 2017-FL1, our interest earning
assets will continue to decline as loans payoff in this collateralized loan
obligation until such time this collateralized loan obligation is refinanced.
However, due to the current market environment created by the COVID-19 pandemic,
it may make obtaining this refinance more difficult.

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. All of our commercial
mortgage loans were acquired at par, 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 Hunt CRE 2017-FL1 expired on February 20, 2020 and
remains in place for Hunt CRE 2018-FL2. As of December 31, 2020, we have
experienced $44.9 million in loan prepayments in Hunt CRE 2017-FL1 subsequent to
the expiration of its reinvestment period. 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.

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 2021 and beyond, but a deep
divide persists between factions on Congress and as such it remains unclear what
shape any reform would take and what impact, if any, reform would have on
mortgage REITs.

Running our business with 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. The WFH policy remains in
effect as of the date of this filing. 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 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 taking a
more measured approach in our new investment activity and our evaluation of any
new investments to incorporate the impact of COVID-19. We are mindful of local
ordinance constraints on lender protection and continue to monitor the impact of
fiscal stimulus on our loan portfolio. More recently, the CDC issued a
nationwide moratorium on residential evictions. Specifically, from September 4,
2020 through March 31, 2021 residential landlords and those with similar
eviction rights may 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. As a
result of this national restriction, multifamily apartment borrowers have less
ability to address non-payment of tenants, which in turn may negatively impact a
property's cashflow coverage of the debt service of their loans. Additionally,
due to COVID-19, there are potential challenges facing third-party providers,
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like the appraisers, environmental and engineering consultants we rely on to make new investments that may make it more difficult to make those investments.

Key financial metrics 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. For the three months ended
December 31, 2020, we recorded earnings per share of $0.10, declared a quarterly
dividend of $0.09 per share and a special dividend of $0.04 per share, and
reported $0.10 per share of Distributable Earnings. In addition, our book value
per share was $4.56 per share. For the year ended December 31, 2020, we recorded
earnings per share of $0.34, declared aggregate dividends of $0.37 per share,
and reported $0.39 per share of Distributable Earnings.

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

Earnings per share and declared dividends

The following table presents the calculation of basic and diluted net income per share and dividends declared per share:

                                                        Three Months
                                                            Ended                        Year Ended
                                                        December 31,                    December 31,
                                                            2020                  2020                 2019
Net income(1)                                          $  2,464,678$ 8,434,770$ 2,664,098
Weighted-average shares outstanding, basic and
diluted                                                  24,943,383           24,934,505           23,687,812
Net income per share, basic and diluted                $       0.10$      0.34$      0.11
Dividends declared per share(2)                        $       0.13$      0.37$      0.30


(1)  Represents net income attributable to Lument Finance Trust, Inc.
(2)  Includes $0.04 special dividend declared on December 21, 2020.

Distributable profits

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) incentive compensation payable
to the Manager, (iii) depreciation and amortization, (iv) any unrealized gains
or losses or other similar non-cash items that are included in net income for
that applicable repotting period, regardless of whether such items are included
in other comprehensive income (loss) or net income (loss), and (v) 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. Distributable
Earnings mirrors how we calculate Core Earnings (as defined in our management
agreement between our Manager and us) for purposes of calculating the incentive
fee payable to our Manager.

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 same
or similar performance measures, and accordingly, our reported Distributable
Earnings may not be comparable to the Distributable Earnings reported by other
companies.

The following table presents a reconciliation of distributable income and GAAP net income:

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                                                       Three Months
                                                           Ended                        Year Ended
                                                       December 31,                    December 31,
                                                           2020                  2020                 2019
Net income(1)                                         $  2,464,678$ 8,434,770$ 2,664,098
Realized loss on sale of investments, net                        -                    -              709,439
Unrealized gain (loss) on mortgage servicing
rights                                                     177,476            1,780,528            1,297,579
Unrealized (gain) on multifamily loans held in
securitization trusts                                            -                    -             (694,339)
Recognized compensation expense related to
restricted common stock                                      2,949               20,292                8,962
Adjustment for consolidated securities                           -                    -                3,269
Adjustment for one-time charges                                  -                    -              512,115
Adjustment for (provision for) income taxes                (38,861)            (476,248)             (43,523)
Adjustment for deemed dividend related
preferred stock redemption                                       -                    -            3,093,028
Distributable Earnings                                $  2,606,242$ 9,759,342$ 7,550,628
Weighted-average shares outstanding, basic and
diluted                                                 24,943,383           24,934,505           23,687,812
Distributable Earnings per share, basic and
diluted                                               $       0.10

$ 0.39$ 0.32

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

Book Value Per Share

The following table calculates our book value per share:

                                 December 31, 2020       December 31, 2019
Equity                        $      113,703,152$      108,644,712
Common stock outstanding              24,943,383              23,692,164
Book value per share          $             4.56      $             4.59



As of December 31, 2020, our equity was $113.7 million, and our book value per
common share was $4.56 on a basic and fully diluted basis. Our equity increased
by $5.1 million compared to our stockholders' equity as of December 31, 2019 as
a result of the ORIX private placement on January 3, 2020, while book value per
common share declined by 0.7% from the previous year-end amount of $4.59. The
slight decrease in book value per share is primarily reflective of the one-time
special cash dividend of $0.04 per share of common stock declared in December
2020 in order to satisfy REIT distribution requirements.

Investment portfolio

Commercial mortgage loans

As of December 31, 2020, we have determined that we are the primary beneficiary
of Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2, 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 capital balance:

                                                 Year Ended December 31, 

2020

        Balance at December 31, 2019            $                 

635 260 420

        Purchases and advances                                     

57 601 572

        Proceeds from principal repayments                       

(145,516,658)

        Balance at December 31, 2020            $                 

547 345 334



The following table details overall statistics for our loan portfolio as of
December 31, 2020:

                                                                                                                                                         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
Senior secured loans(4)               $  547,345,334          $ 
547,345,334                 40                      100.0  %                 5.1  %                     3.1            74.2  %
                                      $  547,345,334$  547,345,334                 40                      100.0  %                 5.1  %                     3.1            74.2  %



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                                                                                                                                                         Weighted Average
                                      Unpaid Principal                                                        Floating Rate
           Loan Type                       Balance             Carrying Value           Loan Count               Loan %                Coupon(1)            Term (Years)(2)           LTV(3)
December 31, 2019
Loans held-for-investment             $  635,260,420$  635,260,420                 51                      100.0  %                 5.4  %                     3.8            73.6  %
Senior secured loans(3)               $  635,260,420$  635,260,420                 51                      100.0  %                 5.4  %                     3.8            73.6  %



(1)  Weighted average coupon assumes applicable one-month LIBOR of 0.14% and
1.70% as of December 31, 2020 and December 31, 2019, respectively, and weighted
average LIBOR floors of 1.64% and 1.56%, 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, 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. As of December 31, 2019, $629,157,956 of the outstanding
senior secured loans were held in VIEs and $6,102,464 of the outstanding senior
secured loans were held outside VIEs.


The table below presents additional information relating to the Company’s portfolio as of December 31, 2019:

                                                                                                                                                                                                                      Max Remaining

Loan number Form of investment Creation date Total loan commitment (1) Current capital

Location                 Property Type             Coupon             Term (Years)             LTV(2)
    1           Senior Loan                        June 5, 2018             44,699,829                       35,625,000                  Palatine, IL                   Multifamily             1mL + 4.3%                        2.5             68.5  %
    2           Senior Loan                   November 30, 2018             35,441,350                       35,441,348                  Nacogdoches, TX               Multifamily              1mL + 4.1%                        4.0             70.4  %
    3           Senior Loan                        July 9, 2018             33,830,000                       33,752,111                  Pikesville, MD                Multifamily              1mL + 3.3%                        2.7             77.6  %
    4           Senior Loan                      August 8, 2018             35,000,000                       32,526,660                  Dallas, TX                    Multifamily              1mL + 3.7%                        2.7             81.2  %
    5           Senior Loan                   November 22, 2019             31,163,300                       26,500,000                  Virginia Beach, VA            Multifamily              1mL + 2.8%                        4.0             77.1  %
    6           Senior Loan                        May 18, 2018             28,000,000                       25,355,116                  Woodridge, IL                 Multifamily              1mL + 3.8%                        2.5             76.4  %
    7           Senior Loan                   December 10, 2019             26,871,000                       24,540,507                  San Antonio, TX               Multifamily              1mL + 3.2%                        4.1             71.9  %
    8           Senior Loan                    January 15, 2020             27,350,000                       24,180,000                  Chattanooga, TN               Multifamily              1mL + 3.0%                        4.2             80.6  %
    9           Senior Loan                   November 26, 2019             21,625,000                       20,000,000                  Doraville, GA                 Multifamily              1mL + 2.8%                        4.0             76.1  %
   10           Senior Loan                    December 6, 2018             21,000,000                       18,703,039                  Greensboro, NC                Multifamily              1mL + 3.4%                        3.0             79.8  %
   11           Senior Loan                   December 28, 2018             20,850,000                       18,000,000                  Austin, TX                     Retail                  1mL + 3.9%                        2.1             71.4  %
   12           Senior Loan                       July 10, 2019             19,000,000                       17,754,112                  Amarillo, TX                  Multifamily              1mL + 2.9%                        3.7             76.4  %
   13           Senior Loan                   December 28, 2018             24,123,000                       17,172,624                  Austin, TX                     Retail                  1mL + 4.1%                        2.1             60.5  %
   14           Senior Loan                      March 13, 2019             19,360,000                       16,707,856                  Baytown, TX                   Multifamily              1mL + 3.1%                        2.3             80.5  %
   15           Senior Loan                       June 28, 2018             17,000,000                       15,245,253                  Greenville, SC                Multifamily              1mL + 3.9%                        2.6             76.3  %
   16           Senior Loan                     August 29, 2019             16,800,000                       14,632,203                  Austell, GA                   Multifamily              1mL + 3.4%                        3.8             72.5  %
   17           Senior Loan                       July 23, 2018             16,200,000                       12,828,794                  Chicago, IL                    Office                  1mL + 3.8%                        2.7             72.7  %
   18           Senior Loan                      August 8, 2019             14,400,000                       12,649,099                  Fort Worth, TX                Multifamily              1mL + 3.0%                        3.8             75.8  %
   19           Senior Loan                     January 9, 2018             10,317,000                       10,158,934                  North Highlands, CA           Multifamily              1mL + 4.0%                        2.2             79.0  %
   20           Senior Loan                      March 29, 2019             10,000,000                       10,000,000                  Portsmouth, VA                Multifamily              1mL + 3.3%                        1.3             61.4  %


                                       36
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  21          Senior Loan            September 10, 2020         9,527,000           9,527,000           Winchester, OH               Multifamily            1mL + 4.3%                  0.8         61.9  %
  22          Senior Loan            September 11, 2019        11,135,000           9,135,000           Orlando, FL                  Multifamily            1mL + 2.8%                  3.8         69.2  %
  23          Senior Loan                March 12, 2018         8,612,000           8,612,000           Waco, TX                     Multifamily            1mL + 4.8%                  3.3         72.9  %
  24          Senior Loan                August 7, 2018         9,000,000           8,235,825           Birmingham, AL               Multifamily            1mL + 3.5%                  2.8         78.0  %
  25          Senior Loan             February 23, 2018         8,070,000           8,070,000           Little Rock, AR              Multifamily            1mL + 4.3%                  2.3         81.3  %
  26          Senior Loan              January 13, 2020         8,510,000           7,930,194           Fort Lauderdale, FL          Multifamily            1mL + 3.2%                  4.2         78.4  %
  27          Senior Loan             November 13, 2019         9,310,000           7,780,000           Holly Hill, FL               Multifamily            1mL + 2.9%                  2.0         77.8  %
  28          Senior Loan                 June 10, 2019         7,000,000           6,525,817           San Antonio, TX              Multifamily            1mL + 3.4%                  3.6         77.7  %
  29          Senior Loan              December 9, 2019         6,495,000           6,230,000           Fort Worth, TX               Multifamily            1mL + 3.2%                  4.1         77.7  %
  30          Senior Loan                March 29, 2019         6,270,000           5,992,424           Raleigh, NC                  Multifamily            1mL + 3.5%                  3.3         79.0  %
  31          Senior Loan               August 28, 2019         6,250,000           5,966,157           Austin, TX                   Multifamily            1mL + 3.3%                  3.8         69.9  %
  32          Senior Loan                 June 22, 2018         6,200,000           5,900,550           Chicago, IL                  Multifamily            1mL + 4.1%                  2.6         80.5  %
  33          Senior Loan                 June 10, 2019         6,000,000           5,295,605           San Antonio, TX              Multifamily            1mL + 2.9%                  3.6         62.9  %
  34          Senior Loan             December 13, 2019         5,900,000           5,070,339           Jacksonville, FL             Multifamily            1mL + 2.9%                  4.1         74.9  %
  35          Senior Loan             November 30, 2018         8,250,000           5,036,066           Decatur, GA                   Office                1mL + 4.1%                  2.9         56.8  %
  36          Senior Loan             December 29, 2020         4,920,000           4,920,000           Fayetteville, NC             Multifamily            1mL + 4.0%                  1.6         70.3  %
  37          Senior Loan                  May 31, 2019         4,350,000           4,275,035           Austin, TX                   Multifamily            1mL + 3.5%                  3.5         74.1  %
  38          Senior Loan             November 12, 2019         4,225,000           4,225,000           Chesapeake, VA                Self-Storage          1mL + 3.2%                  4.0         64.5  %
  39          Senior Loan             December 13, 2019         4,407,000           4,010,000           Marietta, GA                 Multifamily            1mL + 3.0%                  4.1         77.9  %
  40          Senior Loan                  June 5, 2018         2,835,667           2,835,666           Palatine, IL                 Multifamily            1mL + 4.3%                  2.5         68.5  %



(1)  See Note 12 Commitments and Contingencies to our consolidated financial
statements for further discussion of unfunded commitments.
(2)   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.

Our loan portfolio is 100% performing with no loan write-downs, defaults or non-accrual loans as of December 31, 2020.

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 potential future difficulties due to the prolonged
impact of the COVID-19 pandemic. Accordingly, we will 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
3.1 and 2.8 as of December 31, 2020 and December 31, 2019, respectively. The
increase in risk rating was primarily the result of downgrading non multifamily
loans to a risk rating of "4" to reflect higher risk in loans collateralized by
retail and office properties that are more negatively impacted by the COVID-19
pandemic. The following table presents the principal balance and net book value
based on our internal risk ratings:

                                       37
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                                             December 31, 2020
 Risk Rating       Number of Loans      Unpaid Principal Balance      Net Carrying Value
      1                         -      $                      -                 -
      2                        14                   168,401,366       168,401,366
      3                        20                   309,726,343       309,726,343
      4                         6                    69,217,625        69,217,625
      5                         -                             -                 -
                               40                   547,345,334       547,345,334

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 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,
2020, the carrying amounts and outstanding principal balances of our
collateralized loan obligations were $463.1 million and $465.3 million,
respectively. See Note 5 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 lending 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 $20,000,000 and (b) minimum available liquidity
equal to the greater of (x) $5,000,000 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.

Accounting policies and critical 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. The year ended December
31, 2020 was characterized by heightened uncertainty due to the COVID-19
pandemic which could impact estimates made by management. 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, tax liability, 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.

                                       38
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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
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, 2020, 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, 2020, 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.

Mortgage management rights, at fair value

Mortgage servicing rights ("MSRs") are associated with residential mortgage
loans that the Company historically purchased and subsequently sold or
securitized. MSRs are held and managed at Five Oaks Acquisition Corp. ("FOAC"),
the Company's taxable REIT subsidiary ("TRS"). As the owner of MSRs, the Company
is entitled to receive a portion of the interest payments from the associated
residential mortgage loan, and is obligated to service, directly or through a
subservicer, the associated loan. MSRs are reported at fair value as a result of
a fair value option election. Residential mortgage loans for which the Company
owns the MSRs are directly serviced by one or more sub-servicers retained by the
Company. The Company does not directly service any residential mortgage loans.

MSR income is recognized at the contractually agreed upon rate, net of the costs
of sub-servicers retained by the Company. If a sub-servicer with which the
Company contracts were to default, an evaluation of MSR assets for impairment
would be undertaken at that time.

See note 2 to our consolidated financial statements for a complete list of our significant accounting policies.

Capital allocation

The following tables show our allocated capital by type of investment at
December 31, 2020 and December 31, 2019:

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, 2020
                                                 Commercial Mortgage
                                                        Loans                       MSRs                Unrestricted Cash(1)                 Total(2)
Market Value                                           547,345,334                    919,678                    11,375,960                     559,640,972
Collateralized 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  %



                                       39
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                                                                                  December 31, 2019
                                                    Commercial                                  Unrestricted
                                                  Mortgage Loans              MSRs                Cash(1)                Total(2)
Market Value                                     $  635,260,420          $ 

2,700,207 $ 10,942,115$ 648,902,742
Secured loan obligations

                    (505,930,065)                   -                      -           (505,930,065)
Other(3)                                              1,610,181                    -             (1,623,820)               (13,639)
Restricted Cash                                       5,069,715                    -                      -              5,069,715
Capital Allocated                                $  136,010,251$ 2,700,207$   9,318,295$ 148,028,753
% Capital                                                  91.9  %               1.8  %                 6.3  %               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.

Results of operations

As of December 31, 2020, we no longer consolidated the assets and liabilities of
the FREMF 2012-KF01 Trust, which repaid in full in January 2019, and no longer
consolidate the interest and expenses of the trust. As of December 31, 2020, we
consolidated the assets and liabilities of two commercial real estate
collateralized loan obligations, Hunt CRE 2017-FL1, Ltd. and Hunt CRE 2018-FL2,
Ltd. Our results of operations were impacted in part by (i) the repayment in
full of the FREMF 2012-KF01 Trust in the first quarter of 2019; (ii) the
redemption of preferred stock in the first quarter of 2019; and (iii) the draw
of Secured Term Loan in the first quarter of 2019. Consequently, our results of
operations for the periods ended December 31, 2020 and December 31, 2019 are not
directly comparable. Additionally, although the COVID-19 pandemic did not
significantly impact our operating results for the period ended December 31,
2020, other than previously deferred debt costs of $624,816 expensed in the
second quarter of 2020, should the pandemic and resulting economic deterioration
persist, we expect it may further affect our business, financial condition,
results of operations and cash flows going forward, including but not limited
to, interest income, credit losses and commercial 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 factors, many of
which are out of our control.

The table below presents certain information from our income statement for the years ended. December 31, 2020 and December 31, 2019:

                                       40
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                                                                                                Year Ended
                                                                                               December 31,
                                                                                        2020                  2019
Revenues:
Interest income:
Commercial mortgage loans held-for-investment                                        33,570,949            38,969,471
Multifamily loans held in securitization trusts                                               -                78,361
Cash and cash equivalents                                                                45,782                 9,647
Interest expense:
Collateralized loan obligations                                                     (12,047,300)          (20,882,076)
Secured term loan                                                                    (3,138,917)           (2,761,561)
Net interest income                                                                  18,430,514            15,413,842
Other income:
Realized (loss) on investments, net                                                           -              (709,439)
Change in unrealized (loss) on mortgage servicing rights                             (1,780,528)           (1,297,579)
Change in unrealized gain on multifamily loans held in securitization trusts                  -               694,339
Servicing income, net                                                                   709,565               869,032
Other income                                                                                  2                     -
Total other (loss)                                                                   (1,070,961)             (443,647)
Expenses:
Management fee                                                                        2,524,139             2,245,065
General and administrative expenses                                                   3,518,500             4,335,376
Operating expenses reimbursable to Manager                                            1,644,886             1,629,908
Other operating expenses                                                              1,493,214               360,517
Compensation expense                                                                    205,292               193,962
Total expenses                                                                        9,386,031             8,764,828
Net income before provision for income taxes                                          7,973,522             6,205,367
Benefit from income taxes                                                               476,248                43,523
Net income                                                                            8,449,770             6,248,890
Dividends to preferred stockholders                                                     (15,000)             (491,764)
Deemed dividend on preferred stock related to redemption                           $          -          $ (3,093,028)
Net income attributable to common stockholders                                     $  8,434,770$  2,664,098
Earnings per share:
Net income attributable to common stockholders (basic and diluted)                 $  8,434,770$  2,664,098
Weighted average number of shares of common stock outstanding                        24,934,505            23,687,812
Basic and diluted income per share                                                 $       0.34$       0.11
Dividends declared per share of common stock                                       $       0.37$       0.30



Net Income Summary

For the year ended December 31, 2020, our net income attributable to common
stockholders was $8,434,770 or $0.34 basic and diluted net income per average
share, compared with net income of $2,664,098 or $0.11 basic and diluted net
loss per share, for the year ended December 31, 2019.  The principal drivers of
this net income variance were an increase in net interest income from
$15,413,842 for the year ended December 31, 2019 to $18,430,514 for the year
ended December 31, 2020, a decrease in preferred dividends from $491,764 for the
year ended December 31, 2019 to $15,000 for the year ended December 31, 2020 and
the deemed dividend of $3,093,028 for the year ended December 31, 2019, which
more than offset an increase in total other loss from $443,647 for the year
ended December 31, 2019 to a loss of $1,070,961 for the year ended December 31,
2020, and an increase in total expenses from $8,764,828 for the year ended
December 31, 2019 to $9,386,031 for the year ended December 31, 2020.

The year over year increase in net income was primarily the result of an
increase in net interest income by $3.0 million and the deemed preferred
dividend of $3.1 million declared in 2019. Net interest income benefited in 2020
from 100% of our commercial mortgage loan portfolio having LIBOR floors greater
than prevailing spot LIBOR throughout 2020 as a result of the drastic decline in
LIBOR due to the COVID-19 pandemic.

Net interest income

For the years ended December 31, 2020 and December 31, 2019, our net interest
income was $18,430,514 and $15,413,842, respectively. The increase was primarily
due to (i) a $26.3 million increase in weighted-average principal balance of our
loan portfolio; (ii) an increase of 22bps in weighted-average LIBOR floor on our
loan portfolio for the year-ended December 31, 2020 compared to the
corresponding period in 2019 and; (iii) a decrease in weighted-average LIBOR of
167bps for our CLO liabilities. This was offset by (i) a 35bps decrease in
weighted-average spread on the loan portfolio for the year-ended December 31,
2020 compared to the corresponding period in 2019, and (ii) a full period of
Secured Term Loan interest expense in 2020, compared to a partial period of
interest expense due to the draw of the Secured Term Loan on February 14, 2019.

Other (loss)

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

For the year ended December 31, 2019, we incurred a loss of $443,647. This loss
was primarily driven by the impact of (i) net realized losses on the FREMF
2012-KF01 Trust of $709,439 and (ii) net unrealized losses on mortgage servicing
rights of $1,297,579. These factors were partially offset by (i) net unrealized
gains on multifamily mortgage loans held in the FREMF 2012-KF01 Trust of
$694,339 and (ii) net mortgage servicing income of $869,032.

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

Expenses

We incurred management fees of $2,524,139 for the year ended December 31, 2020
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.

For the year ended December 31, 2019, we incurred management fees of $2,245,065
representing amounts payable to our Manager under our management agreement. We
also incurred operating expenses of $6,519,763, of which $1,629,908 was payable
to our Manager and $4,889,855 was payable to third parties.

The year-over-year increase in expenses reflects the impact of the January 3,
2020 ORIX equity offering increasing management fees, accrual of incentive fees
during the period, an increase in insurance and legal fees as well as deferred
costs expensed during the period, which more than offset decreased accounting,
audit and other fees.

Impairment

We review each loan classified as held-for-investment for impairment on a
quarterly basis. For the years ended December 31, 2020 and December 31, 2019,
the Company has not recognized any impairments on its loans held-for-investment
and therefore has not recorded any allowance for loan losses.

Tax expenditures (benefits)

For the year ended December 31, 2020 and December 31, 2019, the Company recognized an income tax benefit in the amount of $ 476,248 and $ 43,523, respectively.

Liquidity 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 finance our commercial mortgage loans
primarily with match term collateralized loan obligations, which are not subject
to margin calls or additional collateralization requirements. A of December 31,
2020, our balance sheet included $40.2 million of a secured term loan and $465.3
million in collateralized loan financing, gross of discounts and debt issuance
costs. Our secured term loan matures in January 2025 and our collateralized loan
financing is term-matched and matures in 2028 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. On July 13, 2020, we entered into a closing agreement with the
IRS relating to our application of Section 856(c)(6) of the Code in our 2018 tax
return, facilitating our ability to execute certain financing transactions and
equity capital raises. However, due to the current market environment created by
the COVID-19 pandemic, it may make obtaining this financing more difficult.

In addition, 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.

On August 5, 2020, the Company entered into an amendment to its Participation
Agreements amongst Hunt CRE 2017-FL1 Seller LLC ("FL1 Seller"), Hunt Commercial
Mortgage Trust and ORIX Real Estate Capital LLC to transfer future funding
participation interests from FL1 Seller to OREC Structured Finance, LLC ("OREC
SF"), an affiliate of our Manager (the "FL1 Future Funding Participation
Transfer"). As a result of the FL1 Future Funding Participation Transfer, OREC
SF will make advances pursuant to the unfunded loan commitments. In connection
with the FL1 Future Funding Participation Transfer, the Company has agreed that
at such time it (i) has available excess capital and (ii) the satisfaction of
the applicable requirements for acquiring such assets, each as determined by the
Manager, it will purchase from OREC SF, at a price equal to par, any FL1
Participations funded by OREC SF. We will generally finance the purchase of FL1
Participations funded by OREC SF with net cash provided by operating activities
and proceeds from common or preferred stock issuances. Future loan fundings
comprise funding for capital improvements, leasing costs, interest and carry
costs, and fundings will vary depending on the progress of the business plan and
cash flows of the mortgage assets. Therefore, the exact timing and amounts of
such future loan fundings are uncertain and will depend on the current and
future performance of the underlying mortgage assets. The maximum amount of
future advances that the Company could be required to purchase from OREC SF
under the Future Funding Participation Transfer, which represents the unfunded
commitments of Hunt CRE 2017-FL1, Ltd. was $28.9 million as of December 31,
2020. As of December 31, 2020, OREC SF had funded $7.7 million of participation
interests and $21.2 million remain unfunded.

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
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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, 2020, we had unrestricted cash and cash equivalents of $11.4
million, compared to $10.9 million as of December 31, 2019.

As of December 31, 2020, we had $40.2 million in outstanding principal under our
Senior Secured Term Loan, with a borrowing rate of 7.25%, which we used to
redeem our 8.75% Series A Cumulative Redeemable Preferred Stock during the first
quarter of 2019. As of December 31, 2020, the ratio of our recourse debt to our
equity was 0.4:1.

As of December 31, 2020, we consolidated the assets and liabilities of Hunt CRE
2017-FL1, Ltd. and Hunt CRE 2018-FL2, Ltd. The assets of the trusts are
restricted and can only be used to fulfill their respective obligations, and
accordingly the obligations of the trusts, which we classify as collateralized
loan obligations, do not have any recourse to us as the consolidator of the
trusts. As of December 31, 2020, the carrying value of these non-recourse
liabilities aggregated to $463,060,090. As of December 31, 2020, our total
debt-to-equity ratio was 4.4:1 on a GAAP basis.

Cash flow

The following table presents the changes in cash, cash equivalents and restricted cash for the years ended. December 31, 2020 and December 31, 2019:

                                                                For the years ended December 31, 2020
                                                                    2020                       2019
Cash Flows From Operating Activities                                12,219,209                7,282,343
Cash Flows From Investing Activities                                87,915,086              (42,298,246)
Cash Flows From Financing Activities                               (46,770,769)              (8,186,079)
Net Increase (Decrease) in Cash, Cash Equivalents
and Restricted Cash                                        $        

53 363 526 ($ 43,201,982)



During the year ended December 31, 2020, cash, cash equivalents and restricted
cash increased by $53.4 million and for the year ended December 31, 2019, cash,
cash equivalents and restricted cash decreased by $43.2 million.

Operational activities

For the years ended December 31, 2020 and December 31, 2019, net cash provided
by operating activities totaled $12.2 million and $7.3 million, respectively.
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 that 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 reimbursements of $1.7 million and other operating
expenditures of $4.5 million. For the year ended December 31, 2019, our cash
flows from operating activities were primarily driven by $18.8 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,
$0.4 million of interest received from our senior secured loans held outside the
CRE CLOs we consolidate and $0.9 million of cash received from mortgage
servicing rights exceeding cash interest expense paid on our Secured Term Loan
of $2.5 million, management fees of $2.3 million, expense reimbursement of $1.8
million and other operating expenditures of $6.3 million.

Investment activities

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 during the
period. For the year ended December 31, 2019 net cash used in investing
activities totaled $42.3 million. This was primarily a result of the cash used
in the purchase and funding of commercial mortgage loans held-for-investment
exceeding cash received from unsettled trades, principal repayment of loans
held-for-investment and retained beneficial interests for the year ended
December 31, 2019.

Fundraising activities

For the year ended December 31, 2020, net cash used in financing activities
totaled $46.8 million and primarily related to proceeds from issuance of 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. For the year ended December 31, 2019, net cash used in financing
activities totaled $8.2 million and primarily related to the redemption of
preferred stock of $40.3 million, payment of common and preferred dividends of
$7.2 million and payment of deferred financing costs of $1.0 million partially
offset by proceeds from our Secured Term Loan of $40.3 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.

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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, 2020, 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, 2020, 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, 2020, 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 18, 2020, we announced that
our board of directors had declared a cash dividend rate for the fourth quarter
of 2020 of $0.09 per share of common stock. Additionally, on December 21, 2020,
we announced that our board of directors had declared a one-time special cash
dividend of $0.04 per share of common stock.

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