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What changed in Lument Finance Trust, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Lument Finance Trust, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+412 added−368 removedSource: 10-K (2025-03-19) vs 10-K (2024-03-15)

Top changes in Lument Finance Trust, Inc.'s 2024 10-K

412 paragraphs added · 368 removed · 275 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

27 edited+4 added−8 removed53 unchanged
Biggest changeAs of December 31, 2023, 100.0% of the investments by total exposure earned a floating rate indexed to 30-day Term SOFR. As of December 31, 2022, 77.4% of the investments by total investment exposure earned a floating rate indexed to one-month LIBOR and 22.6% of the investments by total investment exposure earned a floating rate indexed to 30-day Term SOFR..
Biggest change(2) Weighted average coupon assumes applicable 30-day term SOFR of 4.51% as of December 31, 2024, inclusive of weighted average interest rate floor of 0.63%. As of December 31, 2024, 100.0% of the investments by total investment exposure earned a floating rate indexed to 30-day term SOFR.
We make available free of charge, through our website, our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments thereto that we file pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.
We make available free of charge, through our website, our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments thereto that we file pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.
In order to maintain our REIT qualification, we are required to distribute dividends, other than capital gain dividends, to our stockholders in an amount at least equal to: (1) the sum of (a) 90% of our REIT taxable income computed without regard to our net capital gains and the deduction for dividends paid, and (b) 90% of our net income, if any, (after tax) from foreclosure property; minus (2) the sum of specified items of non-cash income that exceeds a certain percentage of our income.
To maintain our REIT qualification, we are required to distribute dividends, other than capital gain dividends, to our stockholders in an amount at least equal to: (1) the sum of (a) 90% of our REIT taxable income computed without regard to our net capital gains and the deduction for dividends paid, and (b) 90% of our net income, if any, (after tax) from foreclosure property; minus (2) the sum of specified items of non-cash income that exceeds a certain percentage of our income.
ITEM 1. BUSINESS References herein to "Lument Finance Trust," "Company," "LFT," "we," "us," or "our" refer to Lument Finance Trust, Inc., a Maryland corporation, and its subsidiaries unless the context specifically requires otherwise. Our Company We are a real estate investment trust ("REIT") focused on investing in, originating, financing and managing a portfolio of commercial real estate ("CRE") debt investments.
ITEM 1. BUSINESS References herein to "Lument Finance Trust," "Company," "LFT," "we," "us," or "our" refer to Lument Finance Trust, Inc., a Maryland corporation, and its subsidiaries unless the context specifically requires otherwise. Our Company We are a REIT focused on investing in, originating, financing and managing a portfolio of commercial real estate ("CRE") debt investments.
We primarily invest or originate 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 primarily invest in or originate 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 ("CMBS"), fixed rate loans, construction loans and other CRE debt instruments.
Our investments typically 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 tied to one-month term Secured Overnight Financing Rate ("SOFR"), previously to one-month U.S. denominated LIBOR, and/or any applicable replacement index in the future; and • Three-year term with two one-year extension options.
Our investments typically 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 tied to one-month term Secured Overnight Financing Rate ("SOFR") and/or any applicable replacement index in the future; and • Three-year term with two one-year extension options.
As of December 31, 2023, Lument had approximately 600 employees located in over 30 offices throughout the United States. We have access to an extensive loan origination platform through our affiliation with Lument, which is a premier national mortgage originator and asset manager.
As of December 31, 2024, Lument had approximately 600 employees located in over 30 offices throughout the United States. We have access to an extensive loan origination platform through our affiliation with Lument, which is a premier national mortgage originator and asset manager.
We may use non-recourse CRE CLOs, secured revolving repurchase agreements, term loan facilities, warehouse facilities, asset-specific financing structures and other forms of leverage. As of December 31, 2023, our assets were financed with match term, non-recourse CRE CLO and secured financings and one senior corporate credit facility.
We may use non-recourse CRE CLOs, secured revolving repurchase agreements, term loan facilities, warehouse facilities, asset-specific financing structures and other forms of leverage. As of December 31, 2024, our assets were financed with match term, non-recourse CRE CLO and secured financings and one senior corporate credit facility.
Even if we maintain our qualification as a REIT, we may be subject to some U.S. federal, state and local taxes on our income. Taxable income generated by our taxable REIT subsidiary ("TRS"), is subject to regular corporate income tax. For the fiscal year 2023, our TRS did not generate taxable income.
Even if we maintain our qualification as a REIT, we may be subject to some U.S. federal, state and local taxes on our income. Taxable income generated by our taxable REIT subsidiary ("TRS"), is subject to regular corporate income tax. For the fiscal year 2024, our TRS did not generate taxable income.
Qualification as a REIT Continued qualification as a REIT requires that we satisfy a variety of tests relating to our income, assets, distributions and ownership. The significant tests are summarized below. Income Tests . In order to maintain our REIT qualification, we must satisfy two gross income requirements on an annual basis.
Qualification as a REIT Continued qualification as a REIT requires that we satisfy a variety of tests relating to our income, assets, distributions and ownership. The significant tests are summarized below. Income Tests . To maintain our REIT qualification, we must satisfy two gross income requirements on an annual basis.
The carrying value of these MSRs at December 31, 2023 was approximately $0.7 million. The Company ceased the aggregation of residential mortgage loans in 2016 and other than servicing our existing portfolio, we do not anticipate any residential loan activity going forward. Our Financing Strategy We seek to use leverage to increase potential returns to our stockholders.
The carrying value of these MSRs at December 31, 2024 was approximately $0.6 million. The Company ceased the aggregation of residential mortgage loans in 2016 and, other than servicing our existing portfolio, we do not anticipate any residential loan activity going forward. Our Financing Strategy We seek to use leverage to increase potential returns to our stockholders.
Our common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "LFT" and our 7.875% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock") is traded on the NYSE under the symbol "LFTPrA." Our Manager and Lument We are externally managed and advised by our Manager, a subsidiary of Lument.
Our common stock is traded on the NYSE under the symbol "LFT" and our 7.875% Series A Cumulative Redeemable Preferred Stock ("Series A Preferred Stock") is traded on the NYSE under the symbol "LFTPrA." Our Manager and Lument We are externally managed and advised by our Manager, a subsidiary of Lument.
Ownership . In order to maintain our REIT status, we must not be deemed to be closely held and must have more than 100 stockholders.
Ownership . To maintain our REIT status, we must not be deemed to be closely held and must have more than 100 stockholders.
We also expect to opportunistically originate and selectively acquire other CRE-related debt instruments, subject to maintaining our qualification as a REIT for U.S. federal income tax purposes and our exclusion or exemption from regulation under the Investment Company Act, as amended (the 'Investment Company Act"), including, but not limited to, the following: • Mezzanine Loans.
Other Commercial Real Estate-Related Debt Instruments. We also expect to opportunistically originate and selectively acquire other CRE-related debt instruments, subject to maintaining our qualification as a REIT for U.S. federal income tax purposes and our exclusion or exemption from regulation under the Investment Company Act, including, but not limited to, the following: 1 • Mezzanine Loans.
The charts below present the geographic dispersion of our loan portfolio and the property types securing our loan portfolio as of December 31, 2023: 2 MSRs As of December 31, 2023, the Company retained the servicing rights associated with residential mortgage loans having an aggregate unpaid principal balance of approximately $67.3 million that we had previously transferred to three residential mortgage loan securitization trusts.
The charts below present the geographic dispersion of our loan portfolio and the property types securing our loan portfolio as of December 31, 2024: 2 MSRs As of December 31, 2024, the Company retained the servicing rights associated with residential mortgage loans ("MSRs") having an aggregate unpaid principal balance of approximately $62.1 million that we had previously transferred to three residential mortgage loan securitization trusts.
ORIX is a publicly traded, Tokyo-based international financial services company with assets in excess of $111 billion as of December 2023 and was ranked number 371 on Forbes 2023 Global 2000: World's Biggest Public Companies. We are a Maryland corporation that was formed in March 2012 and commenced operations in May 2012.
ORIX is a publicly traded, Tokyo-based international financial services company with assets in excess of $107 billion as of December 2024 and was ranked number 379 on Forbes 2024 Global 2000: World's Biggest Public Companies. We are a Maryland corporation that was formed in March 2012 and commenced operations in May 2012.
Our Portfolio Transitional Multifamily and Commercial Real Estate Loans As of December 31, 2023, our mortgage loan investment portfolio consisted of 88 senior secured floating rate loans with an aggregate unpaid principal balance of $1.4 billion, collectively having a weighted average coupon of 8.9% and a weighted average term to maturity of 2.9 years.
Our Portfolio Transitional Multifamily and Commercial Real Estate Loans As of December 31, 2024, our mortgage loan investment portfolio consisted of 65 senior secured floating rate loans with an aggregate unpaid principal balance of $1.1 billion, collectively having a weighted average coupon of 8.1% and a weighted average term to maturity of 2.1 years.
Our Manager is an investment adviser registered with the U.S. Securities and Exchange Commission ("SEC") and is subject to the supervision and oversight of our board of directors and has only such functions and authority as our board of directors delegates to it.
Our Manager is an investment adviser registered with the SEC and is subject to the supervision and oversight of our board of directors and has only such functions and authority as our board of directors delegates to it.
These loans are secured by a first mortgage lien on a commercial property, may vary in duration, predominantly bear interest at a floating rate, may provide for regularly scheduled principal amortization and typically require a balloon payment of principal at maturity.
These loans are secured by a first mortgage lien on a commercial property, may vary in duration, predominantly bear interest at a floating rate, may provide for regularly scheduled principal amortization and typically require a balloon payment of principal at maturity. These investments may comprise whole commercial mortgage loans or participations representing portions of whole commercial mortgage loans.
(3) Weighted average remaining term assumes all extension options are exercised by the borrower; provided, however, that our loans may be repaid prior to such date. (4) As of December 31, 2023, $1,375,277,312 of the outstanding senior secured loans were held in VIEs and $8,603,886 of the outstanding senior secured loans were held outside of VIEs.
(3) Weighted average remaining term assumes all extension options are exercised by the borrower; provided, however, that our loans may be repaid prior to such date. (4) As of December 31, 2024, $1,049,886,009 of the outstanding senior secured loans were held in VIEs and $(1,082,931) of the outstanding senior secured loans were held outside of VIEs.
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 we earn on investments less the expense of funding these investments.
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 we earn on investments less the expense of funding these investments.
We believe these relationships will enable us to compete effectively for attractive investment opportunities. However, we may not be able to achieve our business goals or expectations due to the competitive risks that we face. Environmental, Social and Governance ("ESG") We are committed to responsibly managing risk and preserving value for our shareholders.
We believe these relationships will enable us to compete effectively for attractive investment opportunities. However, we may not be able to achieve our business goals or expectations due to the competitive risks that we face.
Corporate Offices and Personnel We were formed as a Maryland corporation in 2012. Our corporate headquarters are located at 230 Park Avenue, 20th Floor, New York, NY 10169 and our telephone number is (212) 317-5700. We are externally managed by our Manager pursuant to the management agreement between us and our Manager. We have no employees.
Our corporate headquarters are located at 230 Park Avenue, 20th Floor, New York, NY 10169 and our telephone number is (212) 317-5700. We are externally managed by our Manager pursuant to the management agreement between us and our Manager. We have no employees. Our executive officers, all of whom were provided by our Manager, are employees of Lument.
We finance our current investments in transitional multifamily and other CRE loans primarily through matched term non-recourse secured borrowings, including CRE collateralized loan obligations ("CLO"), which are not subject to margin calls or additional collateralization requirements. We may utilize warehouse repurchase agreements or other forms of financing in the future.
We may also invest in other CRE-related investments including mezzanine loans, preferred equity, CMBS, fixed rate loans, construction loans and other CRE debt instruments. We finance our current investments in transitional multifamily and other CRE loans primarily through matched term non-recourse secured borrowings, including CRE collateralized loan obligations ("CLO"), which are not subject to margin calls or additional collateralization requirements.
As of December 31, 2023, 94.0% of the portfolio was supported by multifamily assets. During 2023, the Company originated or acquired $594.2 million in loans and realized $277.5 million of loan repayments. This activity resulted in net investments of $316.7 million.
As of December 31, 2024, 92.3% of the portfolio was supported by multifamily assets. During 2024, the Company originated or acquired $58.4 million in loans and realized $391.0 million of loan repayments. This activity resulted in net repayments of $332.6 million.
The following table details the overall statistics of our loan portfolio as of December 31, 2023: Weighted Average Loan Type Unpaid Principal Balance Carrying Value (1) Loan Count Floating Rate Loan % Coupon (2) Term (Years) (3) December 31, 2023 Loans held-for-investment Senior secured loans (4) $ 1,397,385,160 $ 1,389,940,203 88 100.0 % 8.9 % 2.9 Allowance for credit losses N/A $ (6,059,006) $ 1,397,385,160 $ 1,383,881,197 88 100.0 % 8.9 % 2.9 (1) Carrying Value includes $7,000,863 in unaccreted purchase discounts as of December 31, 2023, there were no unaccreted purchase discounts as of December 31, 2022.
The following table details the overall statistics of our loan portfolio as of December 31, 2024: Weighted Average Loan Type Unpaid Principal Balance Carrying Value (1) Loan Count Floating Rate Loan % Coupon (2) Term (Years) (3) December 31, 2024 Loans held-for-investment Senior secured loans (4) $ 1,065,563,646 $ 1,060,123,298 65 100.0 % 8.1 % 2.1 Allowance for credit losses N/A $ (11,320,220) $ 1,065,563,646 $ 1,048,803,078 65 100.0 % 8.1 % 2.1 (1) Carrying Value includes $3,466,214 in unaccreted purchase discounts as of December 31, 2024.
Many of our competitors are not subject to the operating constraints associated with REIT compliance or maintenance of an exclusion from regulation under the Investment Company Act. We could face increased competition from banks due to future legislative developments, such as amendments to key provisions of the Dodd-Frank Act including, provisions setting forth capital and risk retention requirements.
We could face increased competition from banks due to future legislative developments, such as amendments to key provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"), including provisions setting forth capital and risk retention requirements.
Removed
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.
Added
Many of our competitors are not subject to the operating constraints associated with REIT compliance or maintenance of an exclusion from regulation under the Investment Company Act.
Removed
These investments may encompass a whole commercial mortgage loan or may include a participation in a portion of a commercial mortgage loan. 1 Other Commercial Real-Estate-Related Debt Instruments.
Added
Sustainability We are committed to investing and operating sustainably as we believe it improves long-term financial performance, mitigates risk, and helps create better outcomes for our shareholders.
Removed
(2) Weighted average coupon assumes applicable one-month LIBOR of 4.18% as of December 31, 2022, and 30-day Term Secured Overnight Financing Rate ("SOFR") of 5.33% and 4.19% as of December 31, 2023 and December 31, 2022, respectively, inclusive of weighted average interest rate floors of 0.38% and 0.27%, respectively.
Added
Our day-to-day operations are managed by our Manager, a subsidiary of ORIX USA, which is committed to driving a culture and approach that seeks responsible creation of long-term value by engaging constructively with our stakeholders and by incorporating generally accepted sustainability factors, including environmental, financial, governance, operational, reputational, and/or social factors, and ethics considerations into investment decisions.
Removed
As of December 31, 2022, $996,511,403 of the outstanding senior secured loans were held in VIEs and $75,378,115 of the outstanding senior secured loans were held outside of VIEs.
Added
We believe the efficiency and resiliency of our operations also depend on strategies and processes we seek to develop and maintain around various sustainability matters. These initiatives are implemented by our Manager with oversight from our board of directors. Corporate Offices and Personnel We were formed as a Maryland corporation in 2012.
Removed
We make capital allocation decisions with ESG factors of our potential collateral and borrowers in mind, and incorporate diligence practices as part of our investment process to identify material ESG matters related to a given asset. Our day-to-day operations are externally managed by our Manager, a subsidiary of ORIX USA.
Removed
As such, much of the ESG initiatives undertaken by ORIX USA impact or apply to us.
Removed
Key ESG initiatives we share with ORIX USA include considerations of ESG in the investment process, dedicated resources to ESG governance and oversight, industry engagement on ESG matters, corporate sustainability and environmental performance improvements at our office locations, and certain employee and community engagement and diversity, equity and inclusion ("DEI") programs.
Removed
Our executive officers, all of whom were provided by our Manager, are employees of Lument.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

131 edited+84 added−45 removed439 unchanged
Biggest changeCertain conflicts of interest may arise from the fact that ORIX, its affiliates, and our Manager may provide investment management and other services both to us and to other persons or entities, whether or not the investment objectives or policies of such other person or entity are similar to those of ours, including without limitation, the sponsoring, closing and/or managing of any Lument IM fund. • ORIX's Investment Advisory and Proprietary Activities.
Biggest changeBecause our Manager is an ORIX subsidiary, it may be incentivized to make decisions for the benefit of one Investing Party to our detriment if dissatisfaction would cause one of the Investing Parties to redeem capital or discontinue its relationship with ORIX or its affiliates. • Allocation of Investment Opportunities: Certain conflicts of interest may arise from the fact that ORIX, its affiliates, and our Manager may provide investment management and other services both to us and to other persons or entities, including without limitation, proprietary accounts of ORIX, other clients of the Manager that may be established in the future or clients of affiliates of the Manager, whether or not the investment objectives or policies of such other persons or entities are similar to ours.
These risks may result in a reduction or elimination of, or return from, a loan secured by a particular property. • Changes in laws and regulations governing our operations, changes in the interpretation thereof or newly enacted laws or regulations and any failure by us to comply with these laws or regulations, could require changes in certain of business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us, subject us to increased competition or otherwise adversely affect our business.
These risks may result in a reduction or elimination of, or return from, a loan secured by a particular property. • Changes in laws and regulations governing our operations, changes in the interpretation thereof or newly enacted laws or regulations and any failure by us to comply with these laws or regulations, could require changes in certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us, subject us to increased competition or otherwise adversely affect our business.
The inability to consummate securitizations of our portfolio to finance our loans and investments on a long-term basis could require us to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price, which could adversely affect or performance and our ability to grow our business.
The inability to consummate securitizations of our portfolio to finance our loans and investments on a long-term basis could require us to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price, which could adversely affect our performance and our ability to grow our business.
As result of the risk retention requirements, we have and may in the future be required to purchase and retain certain interests in a securitization into which we sell mortgage loans and/or when we act as an issuer, may be required to sell certain interests in a securitization at prices below levels that such interests have historically yielded and/or may be required to enter into certain arrangements related to risk retention that we have not historically been required to enter into.
As a result of the risk retention requirements, we have and may in the future be required to purchase and retain certain interests in a securitization into which we sell mortgage loans and/or when we act as an issuer, may be required to sell certain interests in a securitization at prices below levels that such interests have historically yielded and/or may be required to enter into certain arrangements related to risk retention that we have not historically been required to enter into.
The "control share" provisions of the MGCL provide that holders of "control shares" of a Maryland corporation (defined as shares which, when aggregated with other shares controlled by the stockholder (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges 24 of voting power in electing directors) acquired in a "control share acquisition" (defined as the direct or indirect acquisition of ownership or control of "control shares") have no voting rights with respect to such shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, our officers and our employees who are also our directors.
The "control share" provisions of the MGCL provide that holders of "control shares" of a Maryland corporation (defined as shares which, when aggregated with other shares controlled by the stockholder (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a "control share acquisition" (defined as the direct or indirect acquisition of ownership or control of "control shares") have no voting rights with respect to such shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, our officers and our employees who are also our directors.
Risks Related to Our Organization and Structure • Because of their significant ownership of our common stock, Lument Investment Holdings, LLC, an affiliate of our Manager, and Hunt Investors (as described herein) have the ability to influence the outcome of matters that require a vote of stockholders, including change of control. • Stockholders have limited control over changes in our policies and procedures. • Maintenance of our exclusion from the Investment Company Act will impose limits on our business. • Ownership limitations may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their shares.
Risks Related to Our Organization and Structure • Because of their significant ownership of our common stock, Lument Investment Holdings, LLC, an affiliate of our Manager, and Hunt Investors (as described herein) have the ability to influence the outcome of matters that require a vote of stockholders, including change of control. • Stockholders have limited control over changes in our policies and procedures. • Maintenance of our exclusion from the Investment Company Act will impose limits on our business. 6 • Ownership limitations may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their shares.
In addition, we have agreed to indemnify our Manager, its officers, stockholders, members, managers, directors, personnel, trustees, partners, stockholders, equity holders, any person controlling or controlled by our Manager and any person providing sub-advisory services to our Manager with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts or omissions of our Manager not constituting bad faith, willful misconduct, gross negligence or reckless disregard of duties, performed in good faith in accordance with and pursuant to the management agreement.
In addition, we have agreed to indemnify our Manager, its officers, stockholders, members, managers, directors, personnel, trustees, partners, stockholders, equity holders, any person controlling or 22 controlled by our Manager and any person providing sub-advisory services to our Manager with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts or omissions of our Manager not constituting bad faith, willful misconduct, gross negligence or reckless disregard of duties, performed in good faith in accordance with and pursuant to the management agreement.
In recent years, a number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed "lender liability." Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or stockholders.
In recent years, judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed "lender liability." Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or stockholders.
Risks Related to Our Securities • An increase in interest rates may have an adverse effect on the market price of our stock and our abilities to make distributions to stockholders. • We have not established a minimum distribution payment level on our common stock and we cannot assure you of our ability to make distributions in the future, or that our board of directors will not reduce distributions in the future regardless of such ability. • Future offerings of debt or equity securities that rank senior to our common stock may adversely the market price of our common stock.
Risks Related to Our Securities • An increase in interest rates may have an adverse effect on the market price of our stock and our abilities to make distributions to stockholders. • We have not established a minimum distribution payment level on our common stock and we cannot assure you of our ability to make distributions in the future, or that our board of directors will not reduce distributions in the future regardless of such ability. • Future offerings of debt or equity securities that rank senior to our common stock may adversely affect the market price of our common stock.
Conducting our business so that we are not required to register under the Investment Company Act limits, among other things: the types of businesses in which we may engage through our subsidiaries; our organizational structure and business strategy; and the types of assets we and our subsidiaries originate, 23 acquire or sell; and the timing of such originations, acquisitions and dispositions (including doing so when we would not otherwise choose to do so).
Conducting our business so that we are not required to register under the Investment Company Act limits, among other things: the types of businesses in which we may engage through our subsidiaries; our organizational structure and business strategy; and the types of assets we and our subsidiaries originate, acquire or sell; and the timing of such originations, acquisitions and dispositions (including doing so when we would not otherwise choose to do so).
As permitted by Maryland law, our charter eliminates the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from: • actual receipt of an improper benefit or profit in money, property or services; or • a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated.
As permitted by Maryland law, our charter eliminates the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from: • actual receipt of an improper benefit or profit in money, property or services; or 26 • a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated.
If rising interest rates cause us to be unable to acquire a sufficient volume of transitional floating-rate multifamily and CRE loans and other mortgage related investments with a yield that is above our borrowing cost, our ability to satisfy our investment objectives and to generate income and make distributions to our stockholders may be adversely affected.
If rising interest rates cause us to be unable to acquire a sufficient volume 8 of transitional floating-rate multifamily and CRE loans and other mortgage related investments with a yield that is above our borrowing cost, our ability to satisfy our investment objectives and to generate income and make distributions to our stockholders may be adversely affected.
Any sustained period of increased payment delinquencies, foreclosures or losses could have an adverse effect on our business, financial condition, results of operations and our ability to make distributions to our stockholders. The lack of liquidity in our investments may adversely affect our business. 13 We acquire assets that are not liquid or publicly traded.
Any sustained period of increased payment delinquencies, foreclosures or losses could have an adverse effect on our business, financial condition, results of operations and our ability to make distributions to our stockholders. The lack of liquidity in our investments may adversely affect our business. We acquire assets that are not liquid or publicly traded.
In addition, funding our distributions from our net proceeds may constitute a return of capital to our investors, which would have the effect of reducing each stockholder’s basis in its shares of equity securities. 25 We are a "smaller reporting company” and we may avail ourselves of the reduced disclosure requirements, which may make the Company’s securities less attractive to investors.
In addition, funding our distributions from our net proceeds may constitute a return of capital to our investors, which would have the effect of reducing each stockholder’s basis in its shares of equity securities. We are a "smaller reporting company” and we may avail ourselves of the reduced disclosure requirements, which may make the Company’s securities less attractive to investors.
The prices of lower credit quality securities are generally less sensitive to interest rate changes than more highly rated investments, but more sensitive to adverse economic downturns or individual issuer developments. Provisions for credit losses are difficult to estimate. Our provision for credit losses is evaluated on a quarterly basis.
The prices of lower credit quality securities are generally less sensitive to interest rate changes than more highly rated investments, but more sensitive to adverse economic downturns or individual issuer developments. Provisions for credit losses are difficult to estimate. 13 Our provision for credit losses is evaluated on a quarterly basis.
Our Manager utilizes analytical models and data in connection with the valuation of certain of our assets, and any incorrect, misleading or incomplete information used in connection therewith would subject us to potential risks. 14 Given the complexity of certain of our target assets, our Manager may rely heavily on analytical models and information and data supplied by third parties.
Our Manager utilizes analytical models and data in connection with the valuation of certain of our assets, and any incorrect, misleading or incomplete information used in connection therewith would subject us to potential risks. Given the complexity of certain of our target assets, our Manager may rely heavily on analytical models and information and data supplied by third parties.
In addition, we may suffer a loss due to the incurrence of transaction costs related to executing these transactions. To the extent that we incur a loss executing or participating in future securitizations 18 for the reasons described above or for other reasons, it could materially and adversely impact our business and financial condition.
In addition, we may suffer a loss due to the incurrence of transaction costs related to executing these transactions. To the extent that we incur a loss executing or participating in future securitizations for the reasons described above or for other reasons, it could materially and adversely impact our business and financial condition.
These actions could have the effect of reducing our income and the amount available for distribution to our stockholders. In addition to the asset tests set forth above, to maintain our REIT qualification, we must continually satisfy tests concerning, among other things, the sources of our income, the amounts we distribute to our stockholders and the ownership of our stock.
These actions could have the effect of reducing our income and the amount available for distribution to our stockholders. 28 In addition to the asset tests set forth above, to maintain our REIT qualification, we must continually satisfy tests concerning, among other things, the sources of our income, the amounts we distribute to our stockholders and the ownership of our stock.
Governments have considerable discretion in implementing regulations, for example, the possible imposition or 11 increase of taxes on income earned by a borrower or gains recognized by us on our investment in such borrower, that could impact a borrower’s business as well as our return on our investment with respect to such borrower.
Governments have considerable discretion in implementing regulations, for example, the possible imposition or increase of taxes on income earned by a borrower or gains recognized by us on our investment in such borrower, that could impact a borrower’s business as well as our return on our investment with respect to such borrower.
Failure to comply with our financial covenants could result in an event of default, termination of the credit facility and acceleration of all amounts owing under our credit facility and gives the counterparty the right to exercise certain other remedies under the credit agreement, unless we were able to negotiate a waiver.
Failure to comply with our financial covenants could result in an event of default, termination of the credit facility and acceleration of all amounts owing under our credit facility and gives the counterparty the right to exercise certain other remedies under the credit agreement, unless we were able to 17 negotiate a waiver.
As a result, each of Lument Investment Holdings and the Hunt Investors has the ability to influence the outcome of matters that require a vote of our stockholders, including election of our board of directors and other corporate transactions, regardless of whether others believe that the transaction is in our best interests.
As a result, each of Lument Investment Holdings, LLC and the Hunt Investors has the ability to influence the outcome of matters that require a vote of our stockholders, including election of our board of directors and other corporate transactions, regardless of whether others believe that the transaction is in our best interests.
Moreover, some of the mortgage-backed securities that we acquire may have been issued with original issue discount. We will be required to report such original issue discount based on a constant yield method and will be taxed based on the assumption that all future projected payments due on such mortgage- 27 backed securities will be made.
Moreover, some of the mortgage-backed securities that we acquire may have been issued with original issue discount. We will be required to report such original issue discount based on a constant yield method and will be taxed based on the assumption that all future projected payments due on such mortgage-backed securities will be made.
In addition, rising interest rates would result in increased interest expense on our variable rate debt, thereby reducing cash flow and our ability to service our indebtedness and make distributions to our stockholders. An increase in interest rates may have an adverse effect on the market price of our stock and our ability to make distributions to our stockholders.
In addition, rising interest rates 23 would result in increased interest expense on our variable rate debt, thereby reducing cash flow and our ability to service our indebtedness and make distributions to our stockholders. An increase in interest rates may have an adverse effect on the market price of our stock and our ability to make distributions to our stockholders.
We generally rely on guidance published by the SEC or its staff, or on our own analyses, to determine which assets are qualifying real estate assets and real estate-related assets. Certain of our subsidiaries may seek to rely on Rule 3a-7 under the Investment Company Act.
We generally rely on guidance published by the SEC or its staff, or on our own analyses, to determine which assets are qualifying real estate assets and real estate-related assets. 24 Certain of our subsidiaries may seek to rely on Rule 3a-7 under the Investment Company Act.
Risks Related to Our Organization and Structure Because of their significant ownership of our common stock, Lument Investment Holdings, an affiliate of our Manager, and the Hunt Investors have the ability to influence the outcome of matters that require a vote of our stockholders, including a change of control.
Risks Related to Our Organization and Structure Because of their significant ownership of our common stock, Lument Investment Holdings, LLC, an affiliate of our Manager, and the Hunt Investors have the ability to influence the outcome of matters that require a vote of our stockholders, including a change of control.
We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any 28 amendment to any existing U.S. federal tax law, regulations or administrative interpretations, will be adopted, promulgated of become effective and any such law, regulation or interpretation may take effect retroactively.
We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal tax law, regulations or administrative interpretations, will be adopted, promulgated of become effective and any such law, regulation or interpretation may take effect retroactively.
Our board of directors periodically reviews and updates our investment guidelines and also reviews our investment portfolio but does not generally review or approve specific investments. In addition, in conducting periodic reviews, our board of directors may rely primarily on information provided to them by our Manager.
Our board of directors periodically reviews and updates our investment guidelines and our investment portfolio but does not generally review or approve specific investments. In addition, in conducting periodic reviews, our board of directors may rely primarily on information provided to them by our Manager.
Pursuant to the statute, our board of directors has by resolution exempted business combinations between us and the XL Companies and certain affiliates thereof, the parent of which is AXA SA, between us and Hunt Investors and affiliates thereof and between us and Lument Investment Holdings and affiliates thereof.
Pursuant to the statute, our board of directors has by resolution exempted business combinations between us and the XL Companies and certain affiliates thereof, the parent of which is AXA SA, between us and Hunt Investors and affiliates thereof and between us and Lument Investment Holdings, LLC and affiliates thereof.
The properties underlying our CRE loans may be subject to other unknown liabilities that could adversely affect the value of these properties, and as a result, our investments. Properties underlying our commercial real estate loans may be subject to other unknown or unquantifiable liabilities that may adversely affect the value of our investments.
The properties underlying our CRE loans may be subject to other unknown liabilities that could adversely affect the value of these properties, and as a result, our investments. 14 Properties underlying our commercial real estate loans may be subject to other unknown or unquantifiable liabilities that may adversely affect the value of our investments.
Further, hedging transactions, which are intended to limit losses, may actually result in losses, which would adversely affect our earnings and could in turn reduce cash available for distribution to stockholders.
Further, hedging transactions, which are intended to limit losses, may result in losses, which would adversely affect our earnings and could in turn reduce cash available for distribution to stockholders.
In particular, derivatives are required to be highly effective in offsetting changes in the value or cash flows of the hedged items (and appropriately designated and/or documented as such).
Derivatives are required to be highly effective in offsetting changes in the value or cash flows of the hedged items (and appropriately designated and/or documented as such).
To the extent that our portfolio is concentrated in any one region or type of security, downturns relating generally to such region or type of security may result in defaults on a number of our assets within a short time period, which could have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our stockholders.
To the extent that our portfolio is concentrated in any one region or type of security, downturns relating generally to such region or type of security may result in defaults on some of our assets within a short time period, which could have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our stockholders.
Real estate lenders and borrowers may be responsible for compliance with a wide range of laws intended to protect the public interest, including, without limitation, the Truth in Lending, Equal Credit Opportunity, Fair Housing and American with Disabilities Acts and local zoning laws (including, but not limited to, zoning laws that allow permitted non-conforming uses).
Real estate lenders and borrowers may be responsible for compliance with a wide range of laws intended to protect the public interest, including, without limitation, the Truth in Lending, Equal Credit Opportunity, Fair Housing and Americans with Disabilities Acts and local zoning laws (including, but not limited to, zoning laws that allow permitted non-conforming uses).
In addition, other than a few narrow exceptions, ASU 2016-13 requires that all financial instruments subject to the CECL model have some amount of reserve to reflect the GAAP principal underlying the CECL model that all loans, debt securities, and similar assets have some inherent risk of loss, regardless of credit quality, subordinate capital, or other mitigating factors.
In addition, other than a few narrow exceptions, ASU 2016-13 requires that all financial instruments subject to the CECL model have some amount of reserve to reflect the GAAP Principle underlying the CECL model that all loans, debt securities, and similar assets have some inherent risk of loss, regardless of credit quality, subordinate capital, or other mitigating factors.
If general interest rates and credit spreads decline at the same time, the proceeds of such prepayments received during such periods are likely to be reinvested in assets yielding less than than the yields on the asset that were prepaid. We may not be able to reinvest the principal repaid at the same or higher yield of the original investments.
If general interest rates and credit spreads decline at the same time, the proceeds of such prepayments received during such periods are likely to be reinvested in assets yielding less than the yields on the 15 assets that were prepaid. We may not be able to reinvest the principal repaid at the same or higher yield of the original investments.
The FSOC has the authority to review the activities of nonbank financial companies predominantly engaged in financial activities and designate those companies as “systematically important financial institutions” (“SIFIs”) for supervision by the Federal Reserve. Such designation is applicable to companies where material distress or failure could pose risk to the financial stability of the United States.
The FSOC has the authority to review the activities of nonbank financial companies predominantly engaged in financial activities and designate those companies as “systemically important financial institutions” (“SIFIs”) for supervision by the Federal Reserve. Such designation is applicable to companies where material distress or failure could pose risk to the financial stability of the United States.
This guidance implemented a number of reforms to the FSOC’s prior SIFI designation approach by shifting from an “entity-based” approach to an “activities-based” approach whereby the FSOC will primarily focus on regulating activities that pose systematic risk to the financial stability of the United States, rather than designations of individual firms.
This guidance implemented reforms to the FSOC’s prior SIFI designation approach by shifting from an “entity-based” approach to an “activities-based” approach whereby the FSOC will primarily focus on regulating activities that pose systematic risk to the financial stability of the United States, rather than designations of individual firms.
We believe that we do not meet the definition of investment company under Section 3(a)(1)(A) of the Investment Company Act because we do not engage primarily, or hold ourselves out as being engaged primarily, in the business of investing, reinvesting or trading in securities. Rather, we are primarily engaged in a non-investment company businesses related to real estate.
We believe that we do not meet the definition of investment company under Section 3(a)(1)(A) of the Investment Company Act because we do not engage primarily, or hold ourselves out as being engaged primarily, in the business of investing, reinvesting or trading in securities. Rather, we are primarily engaged in a non-investment company businesse related to real estate.
As of December 31, 2023, 100% of our loans by unpaid principal balance earned a floating rate of interest and were financed with liabilities that require interest payments based on floating rates, which resulted in an amount of net equity that is positively correlated to rising interest rates.
As of December 31, 2024, 100% of our loans by unpaid principal balance earned a floating rate of interest and were financed with liabilities that require interest payments based on floating rates, which resulted in an amount of net equity that is positively correlated to rising interest rates.
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.
Due to the generally short-term nature of transitional floating rate-commercial mortgage loans, our CLOs and secured financings 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.
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.
Due to the generally short-term nature of transitional floating-rate commercial mortgage loans, our CLOs and secured financings 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.
Further, significant physical effects of climate change including extreme weather events such as hurricanes or floods, can also have an adverse impact on certain of our borrowers' properties. As the effects of climate change increase, we expect the frequency and impact of weather and climate related events and conditions to increase as well.
Further, significant physical effects of climate change including extreme weather events such as hurricanes, floods, droughts or fires, can also have an adverse impact on certain of our borrowers' properties. As the effects of climate change increase, we expect the frequency and impact of weather and climate related events and conditions to increase as well.
In addition, in this case, we would need to register as an investment company under the Investment Company Act, modify our operations, perhaps significantly, to seek to continue to avoid being require to register under the Investment Company Act, or seek some form of exemptive or other relief from the SEC or its staff.
In addition, in this case, we would need to register as an investment company under the Investment Company Act, modify our operations, perhaps significantly, to seek to continue to avoid being required to register under the Investment Company Act, or seek some form of exemptive or other relief from the SEC or its staff.
While we will seek to manage prepayment risk, in selecting our real estate investments we must balance prepayment risk against other risks, the potential returns of each investment and the cost of hedging our risks. Additionally, we are subject to prepayment risk associated with the terms of our CLOs.
While we will seek to manage prepayment risk, in selecting our real estate investments we must balance prepayment risk against other risks, the potential returns of each investment and the cost of hedging our risks. Additionally, we are subject to prepayment risk associated with the terms of our CLOs and secured financings.
The initial term of our management agreement with our Manager matured on January 3, 2023, and automatically renewed for a one-year renewals term on such date and will automatically renew every year thereafter unless it is terminated in accordance with its terms.
The initial term of our management agreement with our Manager matured on January 3, 2023, and automatically renewed for a one-year renewal term on such date and will automatically renew every year thereafter unless it is terminated in accordance with its terms.
Although we expect to avoid the prohibited transactions tax by contributing those assets to one of our TRSs and conducting the marketing and sale of those assets through that TRS, no assurance can be given that the IRS will respect the transaction by which those assets are contributed to our TRS.
Although we expect to avoid the prohibited transactions tax by contributing those assets to our TRS and conducting the marketing and sale of those assets through that TRS, no assurance can be given that the IRS will respect the transaction by which those assets are contributed to our TRS.
Tax Risks 6 • If we failed to qualify as a REIT, we would be taxed at corporate rates and would not be able to take certain deductions when computing our taxable income. • If we failed to qualify as a REIT, we may default on our current financing facilities and be required to liquidate our assets, and we may face delays or inabilities to procure future financing. • Complying with REIT requirements may cause us to forgo otherwise attractive opportunities and may require us to dispose of our target assets sooner than originally anticipated. • Qualifying as a REIT involves highly technical and complex provisions of the Code.
Tax Risks • If we fail to continue to qualify as a REIT, we would be taxed at corporate rates and would not be able to take certain deductions when computing our taxable income. • If we fail to continue to qualify as a REIT, we may default on our current financing facilities and be required to liquidate our assets, and we may face delays or inabilities to procure future financing. • Complying with REIT requirements may cause us to forgo otherwise attractive opportunities and may require us to dispose of our target assets sooner than originally anticipated. • Qualifying as a REIT involves highly technical and complex provisions of the Code.
If we are unable to negotiate a waiver or replace or refinance our assets under a new credit facility or CLO on favorable terms or at all, our financial conditions, results of operations and cash flows could be adversely affected. 26 Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
If we are unable to negotiate a waiver or replace or refinance our assets under a new credit facility, CLO or secured financing on favorable terms or at all, our financial conditions, results of operations and cash flows could be adversely affected. Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification.
Qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code. 29 Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification.
Additionally, jurisdictions with "one action," "security first" and/or "antideficiency rules" may limit our ability to foreclose on a real property or to realize on obligations secured by a real property. In the future, new laws may be enacted or imposed by U.S. federal, state or local governmental entities, and such laws could have a material adverse effect on us.
Additionally, jurisdictions with "one action," "security first" and/or "anti-deficiency rules" may limit our ability to foreclose on a real property or to realize on obligations secured by a real property. In the future, new laws may be enacted or imposed by U.S. federal, state or local governmental entities, and such laws could have a material adverse effect on us.
If we are unable to adequately address such ESG matters or we or our borrowers fail or are perceived to fail to comply with all laws, regulations, policies and related interpretation, it could negatively impact our reputation and our business results.
If we are unable to adequately address such sustainability-related matters or we or our borrowers fail or are perceived to fail to comply with all laws, regulations, policies and related interpretation, it could negatively impact our reputation and our business results.
Furthermore, any REIT in which we invest directly or indirectly, including Lument Commercial Mortgage Trust, Inc., the REIT through which we own our interests in our CLOs, is independently subject to, and must comply with, the same REIT requirements that we must satisfy in order to qualify as a REIT.
Furthermore, any REIT in which we invest directly or indirectly, including Lument Commercial Mortgage Trust, the REIT through which we own our interests in our CLOs and secured financings, is independently subject to, and must comply with, the same REIT requirements that we must satisfy in order to qualify as a REIT.
Additionally, ESG and other sustainability matters and our response to these matters could harm our business, including in areas such as diversity, equity and inclusion, human rights, climate change and environmental stewardship, support for local communities, corporate governance and transparency and considering ESG factors in our investment processes.
Additionally, sustainability-related matters and our response to these matters could harm our business, including in areas such as diversity, equity and inclusion, human rights, climate change and environmental stewardship, support for local communities, corporate governance and transparency and considering sustainability-related factors in our investment processes.
Any such waiver could be conditioned on an amendment to our CLOs or credit facility and any related guaranty agreements on terms that may be unfavorable to us.
Any such waiver could be conditioned on an amendment to our CLOs, secured financing or credit facility and any related guaranty agreements on terms that may be unfavorable to us.
Accordingly, the risk retention rules may increase our potential liabilities and/or reduce our potential profits in connections with securitization of mortgage loans. It is likely, therefore, that these risk retentions rules will increase the administrative and operational cost of asset securitizations.
Accordingly, the risk retention rules may increase our potential liabilities and/or reduce our potential profits in connection with securitization of mortgage loans. It is likely, therefore, that these risk retention rules will increase the administrative and operational cost of asset securitizations.
A number of other regulators, such as the Federal Reserve, and international organizations, such as the International Organization of Securities Commissions, are studying the shadow banking system. At this time, it is too early to assess whether any rules or regulations will be proposed or to what extent any finalized rules or regulations will have on the nonbank lending market.
Federal Reserve, and international organizations, such as the International Organization of Securities Commissions, are studying the shadow banking system. At this time, it is too early to assess whether any rules or regulations will be proposed or to what extent any finalized rules or regulations will have on the nonbank lending market.
Prior to any such financing, we may use short-term facilities to finance the acquisition of assets until a sufficient quantity of investments had been accumulated, at which time we would refinance these facilities through a securitization, such as a CMBS, or issuance of CLOs, or the private placement of loan participations or other long-term financing.
Prior to any such financing, we may use short-term facilities to finance the acquisition of assets until a sufficient quantity of investments have been accumulated, at which time we would refinance these facilities through a securitization, such as a CMBS, or issuance of CLOs or secured financings, or the private placement of loan participations or other long-term financing.
In addition, because we are a small company, we may be unable to sufficiently deploy capital into a number of assets or asset groups.
In addition, because we are a small company, we may be unable to sufficiently deploy capital into assets or asset groups.
If we identify a material weakness in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or to assert that our internal controls over financial reporting is effective or if, once we are no longer a smaller reporting company, our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.
If we identify a material weakness in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or to assert that our internal controls over financial reporting is effective or, if required, our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.
The manner in which we compete and the products for which we compete are affected by changing conditions, which can take the form of trends or sudden changes in our industry, regulatory environment, changes in the role of GSEs, changes in the role of credit rating agencies or their rating criteria or process, or the U.S. economy more generally.
The manner in which we compete and the products for which we compete are affected by changing conditions, which can take the form of trends or sudden changes in our industry, regulatory environment, changes in the role of government-sponsored enterprises, changes in the role of credit rating agencies or their rating criteria or process, or the U.S. economy more generally.
Our investments in commercial mortgage backed securities, CLOs and other similar structured finance investments, as well as those we structure, sponsor or arrange, pose additional risks, including the risks of the securitization process and the risk that the special servicer, Lument Real Estate Capital, LLC ("LREC"), an affiliate of our Manager, may take actions that could adversely affect our interests.
Our investments in CRE CLOs and other similar structured finance investments, as well as those we structure, sponsor or arrange, pose additional risks, including the risks of the securitization process and the risk that the special servicer, Lument Real Estate Capital, LLC ("LREC"), an affiliate of our Manager, may take actions that could adversely affect our interests.
Your investment has various U.S. federal income tax risks. We urge you to consult your tax advisor concerning the effects of U.S. federal, state, local and foreign tax laws to you with regard to an investment in shares of our stock. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
We urge you to consult your tax advisor concerning the effects of U.S. federal, state, local and foreign tax laws to you with regard to an investment in shares of our stock. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
If we fail to remain qualified as REIT, we may default on our current financing facilities and be required to liquidate our assets, and we may face delays or inabilities to procure future financing.
If we fail to remain qualified as a REIT, we may default on our current financing facilities and be required to liquidate our assets, and we may face delays or inability to procure future financing.
Failure to maintain qualified as a REIT could result in an event of default under our credit facility and CLOs, and we may be required to liquidate all or substantially all of our assets, unless we were able to negotiate a waiver.
Failure to remain qualified as a REIT could result in an event of default under our credit facility, CLOs and secured financings, and we may be required to liquidate all or substantially all of our assets, unless we were able to negotiate a waiver.
Risks Associated with Our Relationship with Our Manager • Our board of directors has approved very broad investment guidelines for our Manager and will not approve each investment and financing decision made by our Manager. • We are dependent on our Manager and its key personnel for our success. • There are conflicts of interest in our relationship with ORIX, including with our Manager and in the allocation of investment opportunities between ORIX affiliates and us, which could result in decisions that are not in the best interests of our stockholders.
Risks Associated with Our Relationship with Our Manager • Our board of directors has approved very broad investment guidelines for our Manager and will not approve each investment and financing decision made by our Manager. • We are dependent on our Manager and its key personnel for our success. • There are conflicts of interest with our Manager, ORIX and ORIX affiliates that could result in decisions that are not in the best interests of our stockholders.
There may be instances where such a company may become insolvent or bankrupt and where an Investing Party’s interests in such company may otherwise conflict with the interests of other Investing Parties.
There may be instances where such a company becomes insolvent or bankrupt or where an Investing Party’s interests in such a company may otherwise conflict with the interests of other Investing Parties.
In addition, we are expected, from time to time, to make an investment in, or a loan to, a company in which ORIX and its affiliates (each, an “Investing Party”) are also expected to invest, or already have invested, in a different part of the capital structure, which may mean that one investor’s interest in that company may have different rights, preferences and privileges than the company interests held by us.
In addition, we are expected, from time to time, to make an investment in, or a loan to, other companies in which ORIX and its affiliates (each, an “Investing Party”) are also expected to invest, or already have invested, in a different part of the capital structure, which may mean that an Investing Party's interest in such a company may have different rights, preferences and privileges than the company interests held by us.
These risks are discussed more fully below and include, but are not limited to, risks related to: Risks Related to Our Investment Strategy and Our Businesses • We may be unable to operate our business successfully or generate sufficient revenue to make or sustain distributions to our stockholders. • If we fail to develop, enhance and implement strategies to adapt to changing conditions in the mortgage industry and capital markets, our business, financial condition, results of operations and our ability to make distributions to our stockholder may be adversely affected. • We may change our target assets, investment or financing strategies and other operational policies without stockholder consent, which may adversely affect our business, financial condition, results of operations and our ability to make distributions to our stockholders. • Our floating-rate commercial mortgage loans are subject to various risks, such as interest rate risk, prepayment risk, real estate risk and credit risk. • Difficulty in redeploying the proceeds from repayments of our existing loans and investments may cause our financial performance and returns to investors to suffer. • Transitional mortgage loans involve greater risk than conventional mortgage loans. • An increase in interest rates may cause a decrease in the volume of certain of our target assets, which could adversely affect our ability to acquire assets that satisfy our investment objectives and to generate income and make distributions to our stockholders. • Increases in interest rates typically adversely affect the value of certain of our investments and cause our interest expense to increase, which could result in reduced earnings or losses and negatively affect our profitability as well as the cash available for distribution to our stockholders. • Our real estate investments are subject to risks particular to real property.
These risks are discussed more fully below and include, but are not limited to, risks related to: Risks Related to Our Investment Strategy and Our Businesses • We may be unable to operate our business successfully or generate sufficient revenue to make or sustain distributions to our stockholders. • If we fail to develop, enhance and implement strategies to adapt to changing conditions in the mortgage industry and capital markets, our business, financial condition, results of operations and our ability to make distributions to our stockholder may be adversely affected. • We may change our target assets, investment or financing strategies and other operational policies without stockholder consent, which may adversely affect our business, financial condition, results of operations and our ability to make distributions to our stockholders. • Our floating-rate commercial mortgage loans are subject to various risks, such as interest rate risk, prepayment risk, real estate risk and credit risk. • Difficulty in redeploying the proceeds from repayments of our existing loans and investments may cause our financial performance and returns to investors to suffer. • Transitional mortgage loans involve greater risk than conventional mortgage loans. • An increase in interest rates may cause a decrease in the volume of certain of our target assets, which could adversely affect our ability to acquire assets that satisfy our investment objectives and to generate income and make distributions to our stockholders. • Fluctuations in interest rates could reduce our ability to generate income on our loans and other investments, which could adversely affect our ability to acquire assets that satisfy our investment objectives and to generate income and make distributions to our stockholders. • Our real estate investments are subject to risks particular to real property.
In certain situations, we may: • acquire investments subject to rights of senior classes, special servicers or collateral managers under intercreditor, servicing agreements or securitization documents; • pledge our investments as collateral for financing arrangements; • acquire only a minority and/or non-controlling participation in an underlying investment; • co-invest with others through partnership, joint ventures or other entities, thereby acquiring non-controlling interests; or • rely on independent third party management or servicing with respect to the management of an asset. 10 Therefore, we may not be able to exercise control over all aspects of our loans or investments.
In certain situations, we may: • acquire investments subject to rights of senior classes, special servicers or collateral managers under intercreditor, servicing agreements or securitization documents; • pledge our investments as collateral for financing arrangements; • acquire only a minority and/or non-controlling participation in an underlying investment; 10 • co-invest with others through partnership, joint ventures or other entities, thereby acquiring non-controlling interests; or • rely on independent third-party management or servicing with respect to the management of an asset.
For example, in August 2013, the Financial Stability Board issued a policy framework for strengthening oversight and regulation of “shadow banking” entities. The report outlined initial steps to define the scope of the shadow banking system and proposed general governing principles for a monitoring and regulatory framework.
For example, in August 2013, the Financial Stability Board issued a policy framework for strengthening oversight and regulation of “shadow banking” entities. The report outlined initial steps to define the scope of the shadow banking system and proposed general governing principles for a monitoring and regulatory framework. Other regulators, such as the U.S.
While the impact of this guidance cannot be known at this time, increased regulation of nonbank credit extension could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business. The U.K.’s exit from the E.U. could adversely affect us.
While the impact of this guidance cannot be known at this time, increased regulation of nonbank credit extension could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business.
Because ORIX is the owner of the Manager, the Manager would experience a conflict of interest in making determinations regarding the senior securities we held, as decisions on behalf of such entity to enforce remedies or take other actions against the obligors under such senior securities or the related collateral could adversely impact the value of the more junior securities held by another Investing Party.
Because ORIX is the owner of the Manager, the Manager would experience a conflict of interest in making determinations regarding the senior securities we held, as decisions to enforce remedies or take other actions against the obligors under such senior securities or the related collateral could adversely impact the value of the more junior securities.
We are subject to conflicts of interests arising out of our relationship with ORIX, including our Manager and its affiliates. In addition, we are managed by our Manager, an ORIX affiliate, and our executive officers are employees of an affiliate of our Manager or one or more of its affiliates.
We are subject to conflicts of interests arising out of our relationship with our Manager, including our Manager's ultimate parent, ORIX, and its affiliates. We are managed by our Manager, an ORIX affiliate, and our executive officers are employees of one or more affiliates of our Manager.
Incurring debt could subject us to many risks that, if realized, would adversely affect us, including the risk that: • our cash flow from operations may be insufficient to make required payments of principal and interest on the debt or we may fail to comply with all of the other covenants contained in the debt, which is likely to result in (1) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision) that we may be unable to repay from internal funds or to refinance on favorable terms, or at all, (2) our inability to borrow unused amounts under our financing arrangements, even if we are current in payments on borrowings under those arrangements, and/or (3) the loss of some or all of our assets to foreclosure or sale; • our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that investment yields will increase with higher financing costs; • we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, investments, stockholder distributions or other purposes; and 17 • we may not be able to refinance debt that matures prior to the investment it was used to finance on favorable terms or at all.
Incurring debt could subject us to many risks that, if realized, would adversely affect us, including the risk that: • our cash flow from operations may be insufficient to make required payments of principal and interest on the debt or we may fail to comply with all of the other covenants contained in the debt, which is likely to result in (1) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision) that we may be unable to repay from internal funds or to refinance on favorable terms, or at all, (2) our inability to borrow unused amounts under our financing arrangements, even if we are current in payments on borrowings under those arrangements, and/or (3) the loss of some or all of our assets to foreclosure or sale; • our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that investment yields will increase with higher financing costs; • we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, investments, stockholder distributions or other purposes; • we may not be able to refinance debt that matures prior to the investment it was used to finance on favorable terms or at all; and • we may be required to maintain specified minimum levels of liquidity, and as a result, we may not be able to leverage our assets as fully as we would otherwise choose, which could reduce our return on assets; if we are unable to meet these collateral obligations, our financial condition and prospects could deteriorate significantly.
To 20 the extent that we hold securities or other financial interests (e.g., bank debt) in a company with rights, preferences and privileges that are different than interests held by an Investing Party in the same company, the Manager and its affiliates may be presented with decisions when and/or where our interests and the interests of the Investing Parties are in conflict.
To the extent that LFT holds securities or other financial interests (e.g., bank debt) in a company with rights, preferences and privileges that are different than interests held by an Investing Party in the same company, the Manager and its affiliates may be presented with decisions when LFT’s interests and the interests of the Investing Parties conflict.
Our business may be adversely affected by social, political, and economic instability, unrest, or disruption, including protests, demonstrations, strikes, riots, civil disturbance, disobedience, insurrection and looting in geographic regions where the properties securing our investments are located.
Social, political, and economic instability, unrest, and other circumstances beyond our control could adversely affect our business operations. Our business may be adversely affected by social, political, and economic instability, unrest, or disruption, including protests, demonstrations, strikes, riots, civil disturbance, disobedience, insurrection and looting in geographic regions where the properties securing our investments are located.
Moreover, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or Dodd-Frank Act, contains a risk retention requirement for all asset-backed securities, which requires both public and private securitizers to retain not less than 5% of the credit risk of the assets collateralizing any asset-backed issuance.
Moreover, the Dodd-Frank Act, contains a risk retention requirement for all asset-backed securities, which requires both public and private securitizers to retain not less than 5% of the credit risk of the assets collateralizing any asset-backed issuance.
In addition, the securitization of our portfolio might magnify our exposure to losses because any equity interest or other subordinate interest we retain in the issuing entity would be subordinate to the notes issued to investors and we would, therefore, absorb all of the losses sustained with respect to a securitized pool of assets before the owners of the notes experience any losses.
In addition, the inability to securitize our portfolio may hurt our performance and our ability to grow our business. 18 In addition, the securitization of our portfolio might magnify our exposure to losses because any equity interest or other subordinate interest we retain in the issuing entity would be subordinate to the notes issued to investors and we would, therefore, absorb all of the losses sustained with respect to a securitized pool of assets before the owners of the notes experience any losses.
In addition, we can be expected, from time to time, to hold an interest in the more senior portion of an issuer’s capital structure while another Investing Party holds a more junior security of that issuer.
From time to time, we also expect to hold an interest in the more senior portion of an issuer’s capital structure while another Investing Party holds a more junior security of that issuer.
While the interest-rate spreads of our collateralized loan obligations are fixed until 7 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.
While the interest-rate spreads of our CLOs and secured financings 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.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe ORIX USA information and cybersecurity team's responsibilities cover three main areas: (i) operations and engineering, (ii) threat detection and response, and (iii) governance. The team comprises members with diverse and relevant skill sets and expertise.
Biggest changeThe ORIX USA Information Technology and Cybersecurity Team's responsibilities cover three main areas: (i) operations and engineering, (ii) threat detection and response, and (iii) governance. The ORIX USA CTO leads the cybersecurity team with over four years of experience at ORIX USA and 18 prior years of experience at a large asset management firm.
Mobile device management software is employed with the objective of protecting corporate email and data on mobile devices and is designed to prevent unauthorized data transfer. ORIX USA maintains a Cybersecurity incident response capability that includes detailed policies, plans and modular run books and maps designed around different types of Cyber Incidents.
Mobile device management software is employed with the objective of protecting corporate email and data on mobile devices and is designed to prevent unauthorized data transfer. ORIX USA maintains a cybersecurity incident response capability that includes detailed policies, plans and modular run books and maps designed around different types of cybersecurity incidents.
The plan and run books are tested annually through Cybersecurity tabletop simulations where incident response technical, and executive team members go through real-world scenarios focused on current Cyber threats. ORIX USA’s Cybersecurity incident response plan provides for escalation of identified Cybersecurity threats and incidents, including, as appropriate, to our management.
The plan and run books are tested annually through cybersecurity tabletop simulations where incident response technical, and executive team members go through real-world scenarios focused on current cybersecurity threats. ORIX USA’s cybersecurity incident response plan provides for escalation of identified cybersecurity threats and incidents, including, as appropriate, to our management.
Our business is highly dependent on the communications and information systems of our Manager, its affiliates and third-party service providers. Our Manager is an affiliate of ORIX Corporation USA ("ORIX USA"), a diversified financial company and a subsidiary of ORIX Corporation ("ORIX") and participates in and is subject to ORIX USA's cybersecurity program.
Our business is highly dependent on the communications and information systems of our Manager, its affiliates and third-party service providers. Our Manager is an affiliate of ORIX USA, a diversified financial company and subsidiary of ORIX and participates in and is subject to ORIX USA's cybersecurity program.
In particular, the audit committee of our board of directors (the “audit committee”) has the responsibility to consider and discuss our major financial risk exposures and the steps our Manager takes, or is required to take, to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken.
In particular, the audit committee of our board of directors (the “Audit Committee”) has the responsibility to consider and discuss our major financial risk exposures and the steps our Manager should take, or is required to take, to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken.
Our audit committee also monitors compliance with legal and regulatory requirements, in addition to overseeing the performance of our internal audit function. Pursuant to the management agreement between us and our Manager, our Manager is responsible for identifying, assessing, and managing our material risks from cybersecurity threats.
Our Audit Committee also monitors compliance with legal and regulatory requirements, in addition to overseeing the performance of our internal audit function. Pursuant to the Management Agreement, our Manager is responsible for identifying, assessing, and managing our material risks from cybersecurity threats.
Periodically, at least annually, ORIX USA's CIO and/or other members of the ORIX USA information and cybersecurity team will present to the LFT audit committee on various topics relating to ORIX USA's technology risks, including ORIX USA's cybersecurity program (including the results of cybersecurity tabletop exercises) , cybersecurity issues (including those relating to data protection, insider threats, regulatory changes and geopolitical cyber threat management) and risk management (including the results of periodic technology audits).
Periodically, at least annually, ORIX USA's CTO and/or other members of the ORIX USA Information Technology and Cybersecurity Team will present to the Audit Committee on various topics relating to ORIX USA's technology risks, including ORIX USA's cybersecurity program (including the results of cybersecurity tabletop exercises), cybersecurity issues (including those relating to data protection, insider threats, regulatory changes and geopolitical cyber threat management) and risk management (including the results of periodic technology audits).
ORIX USA has established a notification decision framework to determine when the notifications regarding certain cybersecurity incidents, with different severity thresholds triggering notification to different recipient groups, including our Manager and officers of LFT.
ORIX USA has established a notification decision framework to determine when to send notifications regarding certain cybersecurity incidents, with different severity thresholds triggering notification to different recipient groups, including our Manager and officers of LFT.
This includes the deployment of firewalls, email protection technologies and web gateway, antivirus, and endpoint detection and response ("EDR") systems. Our firewalls (intrusion detection systems and intrusion prevention systems) are designed to secure the organization's perimeter complemented by an antivirus and EDR platform designed to detect malware and threats on systems.
This includes the deployment of next generation firewalls, web application firewalls, email protection technologies, DLP technologies, internet proxy, and next generation antivirus and endpoint detection and response ("EDR") systems. Our firewalls (intrusion detection systems and intrusion prevention systems) are designed to secure the organization's perimeter complemented by an antivirus and EDR platform designed to detect malware and threats on systems.
Risk Factors - the occurrence of cyber-incidents, or a deficiency in our Manager's Cybersecurity or those of any of our third party service providers, could negatively affect our business by causing a disruption to our operations, a compromise of our confidential information or damage to our business relationships or reputation, all of which could negatively impact our business and results of operations” in this Annual Report on Form 10-K. 29 Cybersecurity Governance Our board of directors is responsible for directing and overseeing our risk management.
Risk Factors - the occurrence of cyber-incidents, or a deficiency in our Manager's Cybersecurity or those of any of our third party service providers, could negatively affect our business by causing a disruption to our operations, a compromise of our confidential information or damage to our business relationships or reputation, all of which could negatively impact our business and results of operations” in this Annual Report on Form 10-K.
ORIX USA employs a 'defense in depth' cybersecurity strategy and program based on the NIST Cybersecurity Framework, which includes multiple layers of security policies, protections, and controls designed to safeguard the confidentiality, integrity, and availability of infrastructure, network and information assets from malware and threats.
This cybersecurity program is aligned with the NIST Cybersecurity Framework ("NIST CSF"), emphasizing training and development. ORIX USA employs a 'defense in depth' cybersecurity strategy and program based on the NIST CSF, which includes multiple layers of security policies, protections, and controls designed to safeguard the confidentiality, integrity, and availability of infrastructure, network and information assets from malware and threats.
To date, Cybersecurity threats, including as a result of any previous Cybersecurity incidents, have not had a material impact nor, are they anticipated to significantly affect the Company, including our business strategy, results of operations or financial condition. For a discussion of how risks from cybersecurity threats affect our business see, "Part I. Item IA.
To date, cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected nor, are they reasonably likely to materially affect the Company, including our business strategy, results of operations or financial condition. For a discussion of how risks from cybersecurity threats affect our business see, "Part I. Item IA.
Our Manager relies on ORIX USA and ORIX USA information and security team, including the ORIX USA CIO, to provide us with a comprehensive cybersecurity risk management program.
Our Manager relies on ORIX USA and ORIX USA Information Technology and Cybersecurity Team, including the ORIX USA Chief Technology Officer ("CTO"), to provide us with a comprehensive cybersecurity risk management program.
Cybersecurity Risk Management and Strategy ORIX USA has a Chief Information Officer (the "ORIX USA CIO"), who leads an information and cybersecurity team (the "ORIX USA information and cybersecurity team") responsible for managing information security at ORIX USA's asset management business, including its Cybersecurity strategy and program, which encompasses annual employee training about Cybersecurity risks and new employee onboarding about ORIX USA's security policies.
The ORIX USA CTO, leads the ORIX USA Information Technology and Cybersecurity Team responsible for managing information security at ORIX USA's asset management business, including its cybersecurity strategy and program, which encompasses annual employee training about cybersecurity risks and new employee onboarding about ORIX USA's security policies.
Web application firewalls are designed to protect external facing applications, while our email security gateway utilizes machine learning and multilayered detection techniques designed to filter malicious emails. Mobile device management software monitors security events via a Security Information and Event Management platform, managed by a detection and response provider.
Web application firewalls are designed to protect external facing applications, while our email security gateway utilizes machine learning and multilayered detection techniques designed to filter malicious emails. 31 The ORIX USA Information Technology and Cybersecurity Team monitors security events via a SIEM (security information and event management) and SOAR (security orchestration, automation, and response) platform.
Our board of directors administers this oversight function directly, with support from its committees.
Cybersecurity Governance Our board of directors is responsible for directing and overseeing our risk management. Our board of directors administers this oversight function directly, with support from its committees.
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The ORIX USA CIO leads the cybersecurity team with over twenty years of experience at ORIX USA and prior experience as a principal with a large management consulting firm.
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Cybersecurity Risk Management and Strategy ORIX USA has engaged HCLTech ("HCL") to manage all infrastructure and cybersecurity services for ORIX USA and its subsidiaries, under the governance of the ORIX information and cybersecurity leadership team. HCL has over twenty-five years' experience in cybersecurity, nine cybersecurity delivery centers strategically placed across the globe, and employs over 7,000 cybersecurity professionals.
Removed
This team has developed a program aligned with the NIST CSF framework, emphasizing training and development, with team members holding industry-recognized certifications complemented by industry-recognized third-party providers for threat and incident management.
Added
The ORIX information and cybersecurity leadership team and HCL are considered the "ORIX USA Information Technology and Cybersecurity Team".
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HCL will deliver the managed security services to ORIX USA from its Offshore Management Center (OMC) and Cybersecurity Fusion Centers (CSFC) providing 24x7 operations that cover ORIX USA's cybersecurity landscape including network security, email security, endpoint security, data security, application security, cloud security, privileged access management, vulnerability management, cybersecurity incident response, cybersecurity third-party risk, cybersecurity awareness training, phishing simulations and identity and access management.

Item 2. Properties

Properties — owned and leased real estate

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Overview We are a Maryland corporation that is focused on investing in, originating, financing and managing a portfolio of CRE debt investments.
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In January 2020, we entered into a series of transactions with subsidiaries of 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.
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We entered into a new management agreement with Lument IM, while another affiliate of ORIX USA purchased an ownership stake of approximately 5.0% through a privately placed stock issuance. On February 22, 2022, the affiliate purchased an additional 13,071,895 shares of common stock from the transferable common stock rights offering, increasing its beneficial ownership in the Company to approximately 27.4%.
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These transactions have enhanced the scale of LFT and are expected to generate shareholder value through leveraging ORIX USA's expansive originations, asset management and servicing platform. Lument IM is an affiliate of Lument, a nationally recognized leader in multifamily and seniors housing and health care finance. The Company leverages Lument's broad platform and significant expertise when originating and underwriting investments.
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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.
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We finance our current investments in transitional multifamily and other CRE loans primarily through matched term non-recourse secured borrowings, including CLOs, which are not subject to margin calls or additional collateralization requirements. We may utilize warehouse repurchase agreements or other forms of financing in the future.
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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.
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Our investments typically 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 tied to one-month term SOFR, and/or in the future potentially other index replacement; and • Three-year term with two one-year extension options.
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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.
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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.
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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.
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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.
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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 TRS, Five Oaks Acquisition Corp. ("FOAC").
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Recent Developments The last several quarters have been characterized by significant volatility in global markets, driven by heightened inflation, higher interest rates, slowing economic growth, geopolitical uncertainty and instability in the banking sector following multiple bank failures.
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Inflation reached generational highs in many economies, prompting central banks to take monetary policy tightening actions that have and are likely to continue to create headwinds to economic growth. Notwithstanding the current period of relatively high interest rates, the U.S. Federal Reserve began decreasing rates in 2024. Although decelerating, inflation remains above the U.S. Federal Reserve's target levels.
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Despite multiple federal fund rate decreases over the course of 2024, interest rates have remained elevated, with the U.S. Federal reserve indicating in 2025 an expectation of slower rate decreases moving forward.
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Although our business model is such that higher interest rates will, all else being equal, correlate to increases in our net income, interest rates remaining elevated for an extended period of time may adversely affect our existing borrowers.
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Additionally, higher interest rates and unpredictable geopolitical landscape may cause further dislocation in the 32 capital markets resulting in a continual reduction of available liquidity and an increase in borrowing costs. A lack of liquidity for a prolonged period of time could limit our ability to grow our business.
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It remains difficult to predict the full impact of recent events and any future changes in interest rate or inflation. 2024 Highlights Operating results • Net income attributable to common stockholders of $17.9 million, or $0.34 per share of common stock • Distributable Earnings of $23.2 million, or $0.44 per share of common stock • Declared aggregate quarterly common dividends of $16.2 million, or $0.31 per share of common stock in addition to a special dividend of $4.7 million, or $0.09 per share of common stock.
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In the second quarter we increased the common dividend from $0.07 per share of common stock to $0.08 per share of common stock, a 14% increase from the first quarter.
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The fourth quarter dividend of $0.08 per share of common stock produced an annualized yield of 12.4% on our closing stock price as of December 31, 2024 • Book value of common stock as of December 31, 2024 was $177.8 million, or $3.40 per share of book value of common stock Investment Activity • Acquired three loans with an initial unpaid principal balance of $58.4 million and a weighted average interest rate of 30-day term SOFR plus 3.35% • Experienced $391.0 million in loan payoffs • $1.1 billion senior loan portfolio is 100% floating rate with an average spread to 30-day term SOFR of 3.58%, excluding unamortized purchase discounts of $3.5 million and deferred loan fees of $1.2 million as of December 31, 2024 • Multifamily assets represent 92.3% of loan portfolio Portfolio Financing • Non-mark-to-market financing is $0.8 billion with an average spread to 30-day term SOFR of 2.26% as of December 31, 2024, representing 100% of our secured financings

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS As of the date of this filing, we are not party to any litigation or legal proceeding or, to the best of our knowledge, any threatened litigation or legal proceeding. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 30 PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we are or may become involved in various claims and legal actions arising in the ordinary course of business. As of December 31, 2024, we were not involved in any material legal proceedings. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 33 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 30 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 31 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32 Item 8. Financial Statements and Supplementary Data 47
Biggest changeItem 4. Mine Safety Disclosures 33 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 34 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Item 8. Financial Statements and Supplementary Data 49

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table presents cash dividends declared on our common stock from January 1, 2022 through December 31, 2023: Common Dividends Declared per Share Declaration Date Amount Record Date Date of Payment March 15, 2022 $ 0.060 March 31, 2022 April 15, 2022 June 15, 2022 $ 0.060 June 30, 2022 July 15, 2022 September 15, 2022 $ 0.060 September 30, 2022 October 17, 2022 December 15, 2022 $ 0.060 December 31, 2022 January 17, 2023 March 16, 2023 $ 0.060 March 31, 2023 April 17, 2023 June 14, 2023 $ 0.060 June 30, 2023 July 17, 2023 September 14, 2023 $ 0.070 September 29, 2023 October 16, 2023 December 12, 2023 $ 0.070 December 29, 2023 January 16, 2024 Purchases of Equity Securities by the Issuer and Affiliated Purchasers On December 16, 2015, we announced a share repurchase program, pursuant to which our Board authorized us to repurchase up to $10 million of our common shares.
Biggest changeThe following table presents cash dividends declared on our common stock from January 1, 2023 through December 31, 2024: Common Dividends Declared per Share Declaration Date Amount Record Date Date of Payment March 16, 2023 $ 0.06 March 31, 2023 April 17, 2023 June 14, 2023 $ 0.06 June 30, 2023 July 17, 2023 September 14, 2023 $ 0.07 September 29, 2023 October 16, 2023 December 14, 2023 $ 0.07 December 29, 2023 January 16, 2024 March 15, 2024 $ 0.07 March 28, 2024 April 15, 2024 June 13, 2024 $ 0.08 June 28, 2024 July 15, 2024 September 16, 2024 $ 0.08 September 30, 2024 October 15, 2024 December 12, 2024 $ 0.08 December 31, 2024 January 15, 2025 December 12, 2024 $ 0.09 December 31, 2024 January 15, 2025 Purchases of Equity Securities by the Issuer and Affiliated Purchasers On December 16, 2015, we announced a share repurchase program, pursuant to which our Board authorized us to repurchase up to $10 million of our common shares.
See Item 1A, "Risk Factors," and Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations," of this Annual Report on Form 10-K, for information regarding the sources of funds used for dividends and for a discussion of factors, if any, which may adversely affect our ability to pay dividends at the same level in 2024 and thereafter.
See Item 1A, "Risk Factors," and Item 7, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations," of this Annual Report on Form 10-K, for information regarding the sources of funds used for dividends and for a discussion of factors, if any, which may adversely affect our ability to pay dividends at the same level in 2025 and thereafter.
Under this program, we have discretion to determine the dollar amount of common shares to be repurchased and the timing of any repurchases in compliance with applicable law and regulations. The program does not have an expiration date. The Company did not purchase any common shares under the plan during the twelve months ended December 31, 2023. 31
Under this program, we have discretion to determine the dollar amount of common shares to be repurchased and the timing of any repurchases in compliance with applicable law and regulations. The program does not have an expiration date. The Company did not purchase any common shares under the plan during the twelve months ended December 31, 2024. 34
As of March 13, 2024, there were 17 registered holders. The number of beneficial stockholders is substantially greater than the number of holders of record as a large portion of our stock is held in "street name" through banks or broker dealers. Dividends Dividends on our common stock are paid on a quarterly basis.
As of March 17, 2025, there were 17 registered holders. The number of beneficial stockholders is substantially greater than the number of holders of record as a large portion of our stock is held in "street name" through banks or broker dealers. Dividends Dividends on our common stock are paid on a quarterly basis.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information On March 13, 2024, the last reported sales price for our common stock on the New York Stock Exchange under symbol "LFT" was $2.28. Holders At December 31, 2023, there were 52,248,631 shares of our common stock outstanding.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information On March 17, 2025, the last reported sales price for our common stock on the New York Stock Exchange under symbol "LFT" was $2.74. Holders At December 31, 2024, there were 52,309,209 shares of our common stock outstanding.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe table below sets forth additional information relating to the Company's portfolio as of December 31, 2023: Loan # Form of Investment Origination Date Total Loan Commitment (1) Committed Principal Amount (2) Current Principal Amount Location Property Type Coupon Max Remaining Term (Years) LTV (3) 1 Senior secured December 16, 2021 54,455,784 51,375,000 51,375,000 Daytona, FL Multi-Family 1mS + 3.2 3.1 71.7 % 2 Senior secured November 22, 2019 42,600,000 42,600,000 36,781,588 Virginia Beach, VA Multi-Family 1mS + 3.3 0.0 77.1 % 36 3 Senior secured June 28, 2021 39,263,000 37,364,267 36,658,084 Barrington, NJ Multi-Family 1mS + 3.2 2.7 78.1 % 4 Senior secured June 8, 2021 35,877,500 35,148,793 33,360,000 Chattanooga, TN Multi-Family 1mS + 3.8 2.6 79.8 % 5 Senior secured March 22, 2022 32,996,700 32,053,323 31,876,244 Seneca, SC Multi-Family 1mS + 3.4 3.3 74.5 % 6 Senior secured June 28, 2022 33,550,000 31,940,124 31,602,808 Dallas, TX Multi-Family 1mS + 3.9 3.6 71.6 % 7 Senior secured December 29, 2021 34,464,000 30,709,146 30,709,146 Multi, NC Multi-Family 1mS + 4.0 3.1 59.9 % 8 Senior secured June 8, 2021 32,500,000 32,400,828 30,576,666 Miami, FL Multi-Family 1mS + 3.3 2.6 74.3 % 9 Senior secured May 20, 2021 33,000,000 30,220,508 30,220,508 Marietta, GA Multi-Family 1mS + 3.2 2.5 77.0 % 10 Senior secured August 25, 2022 30,700,000 29,251,966 28,653,440 Wilmington, NC Multi-Family 1mS + 4.0 3.8 71.5 % 11 Senior secured June 7, 2021 29,400,000 28,007,982 27,569,521 San Antonio, TX Multi-Family 1mS + 3.5 2.6 80.0 % 12 Senior secured November 2, 2021 26,728,000 26,049,291 26,049,291 Melbourne, FL Multi-Family 1mS + 3.8 2.9 72.1 % 13 Senior secured August 26, 2021 27,268,000 26,163,008 25,440,413 Clarkston, GA Multi-Family 1mS + 3.6 2.7 79.0 % 14 Senior secured November 15, 2021 26,003,000 25,607,252 24,330,000 El Paso, TX Multi-Family 1mS + 3.2 3.0 76.0 % 15 Senior secured October 18, 2021 28,250,000 24,252,193 23,348,000 Cherry Hill, NJ Multi-Family 1mS + 3.1 2.9 72.4 % 16 Senior secured August 26, 2021 23,370,000 23,006,417 22,872,354 Union City, GA Multi-Family 1mS + 3.5 2.8 70.4 % 17 Senior secured April 27, 2022 54,470,000 50,050,000 22,182,443 North Brunswick, NJ Multi-Family 1mS + 3.4 3.4 79.9 % 18 Senior secured March 22, 2022 22,845,000 22,242,924 21,934,375 York, PA Multi-Family 1mS + 3.3 3.3 79.2 % 19 Senior secured November 16, 2021 21,975,000 21,937,806 21,916,753 Dallas, TX Multi-Family 1mS + 3.3 3.0 73.5 % 20 Senior secured July 8, 2022 23,095,000 21,818,465 21,818,465 Arlington, TX Multi-Family 1mS + 3.8 3.7 67.1 % 21 Senior secured August 31, 2021 21,750,000 21,725,235 21,644,684 Houston, TX Multi-Family 1mS + 3.4 2.8 74.2 % 22 Senior secured November 29, 2022 21,283,348 20,360,000 20,360,000 Glendale, WI Healthcare 1mS + 4.0 3.0 45.0 % 23 Senior secured June 10, 2022 21,468,240 20,250,372 20,250,372 Various, GA Multi-Family 1mS + 3.8 3.6 75.8 % 24 Senior secured November 5, 2021 20,965,000 19,625,274 19,625,274 Orlando, FL Multi-Family 1mS + 3.1 2.9 78.1 % 25 Senior secured April 13, 2022 20,651,725 18,989,494 18,989,494 Decatur, GA Multi-Family 1mS + 3.6 3.4 75.7 % 26 Senior secured November 21, 2022 21,135,000 18,920,000 18,920,000 Houston, TX Healthcare 1mS + 4.0 3.0 67.0 % 27 Senior secured November 23, 2021 19,925,000 19,086,151 18,834,024 Orange, NJ Multi-Family 1mS + 3.3 3.0 78.0 % 28 Senior secured February 2, 2022 19,740,000 18,963,264 18,660,822 Houston, TX Multi-Family 1mS + 3.5 3.2 77.5 % 29 Senior secured February 11, 2022 20,165,000 19,346,365 18,599,480 Tampa, FL Multi-Family 1mS + 3.6 3.3 78.0 % 30 Senior secured October 12, 2021 17,500,000 17,500,000 17,500,000 Atlanta, GA Multi-Family 1mS + 3.3 0.8 42.9 % 31 Senior secured May 26, 2022 17,500,000 17,263,000 17,263,000 Brooklyn, NY Multi-Family 1mS + 3.8 1.5 64.3 % 32 Senior secured March 31, 2022 18,140,000 16,956,276 16,956,276 Tallahassee, FL Multi-Family 1mS + 3.3 3.3 74.8 % 33 Senior secured November 10, 2022 18,590,000 16,690,000 16,690,000 Austin, TX Healthcare 1mS + 4.0 3.0 65.0 % 34 Senior secured December 1, 2021 16,071,800 16,008,526 15,449,323 Horn Lake, MS Multi-Family 1mS + 3.4 3.0 75.7 % 35 Senior secured February 1, 2022 16,160,000 15,792,145 15,400,000 San Antonio, TX Multi-Family 1mS + 3.5 3.2 79.8 % 37 36 Senior secured April 6, 2022 16,400,000 15,674,743 15,347,180 Vineland, NJ Multi-Family 1mS + 3.8 3.3 77.0 % 37 Senior secured April 6, 2022 17,443,500 16,091,603 15,156,425 Haltom City, TX Multi-Family 1mS + 3.5 3.3 74.1 % 38 Senior secured December 2, 2021 16,250,000 15,010,343 15,010,343 Colorado Springs, CO Multi-Family 1mS + 3.1 3.0 72.5 % 39 Senior secured February 22, 2022 18,241,527 15,524,795 15,000,000 Philadelphia, PA Multi-Family 1mS + 3.8 3.3 80.0 % 40 Senior secured June 15, 2022 15,371,600 14,881,463 14,511,455 Denton, TX Multi-Family 1mS + 3.9 3.6 73.0 % 41 Senior secured July 26, 2022 17,100,000 14,886,485 14,351,599 Atlanta, GA Multi-Family 1mS + 3.7 3.7 65.2 % 42 Senior secured April 27, 2022 15,000,000 14,171,704 14,171,704 Houston, TX Multi-Family 1mS + 3.7 3.4 79.6 % 43 Senior secured January 13, 2022 15,180,000 14,341,699 14,119,842 Indianapolis, IN Multi-Family 1mS + 3.8 3.2 80.0 % 44 Senior secured November 21, 2022 15,735,000 14,030,000 14,030,000 Southlake, TX Healthcare 1mS + 4.0 3.0 48.0 % 45 Senior secured December 28, 2021 14,000,000 14,000,000 14,000,000 Houston, TX Multi-Family 1mS + 3.3 3.1 71.2 % 46 Senior secured May 13, 2022 18,500,000 15,108,835 13,885,769 Decatur, AL Multi-Family 1mS + 3.5 3.5 59.2 % 47 Senior secured April 12, 2021 15,000,000 13,666,721 13,666,721 Cedar Park, TX Multi-Family 1mS + 3.9 2.4 66.7 % 48 Senior secured June 10, 2022 15,250,000 13,880,081 13,625,505 Blakely, PA Multi-Family 1mS + 3.9 3.6 75.0 % 49 Senior secured October 6, 2023 13,191,852 13,191,852 13,191,852 Garfield, NJ Multi-Family 1mS + 4.0 1.8 65.5 % 50 Senior secured December 13, 2021 15,656,650 12,919,018 12,600,000 Evansville, IN Multi-Family 1mS + 3.4 3.1 74.3 % 51 Senior secured December 28, 2021 38,800,000 37,613,170 12,322,717 Houston, TX Multi-Family 1mS + 3.3 3.1 71.2 % 52 Senior secured January 25, 2022 13,000,000 12,406,810 12,249,079 Corpus Christi, TX Multi-Family 1mS + 3.6 3.2 78.8 % 53 Senior secured May 12, 2022 12,750,000 11,926,591 11,926,591 Ypsilanti, MI Multi-Family 1mS + 3.5 3.5 68.4 % 54 Senior secured December 10, 2021 13,000,000 11,815,776 11,662,582 Los Angeles, CA Multi-Family 1mS + 3.6 3.1 67.9 % 55 Senior secured March 4, 2022 12,047,625 11,738,608 11,467,505 Houston, TX Multi-Family 1mS + 3.5 3.3 78.3 % 56 Senior secured April 14, 2022 11,823,000 11,749,195 11,287,602 Irving, TX Multi-Family 1mS + 3.5 3.4 74.9 % 57 Senior secured October 28, 2021 12,250,000 11,828,154 11,202,535 Tampa, FL Multi-Family 1mS + 3.1 2.9 75.7 % 58 Senior secured April 23, 2021 11,600,000 11,245,262 10,986,357 Tualatin, OR Multi-Family 1mS + 3.3 2.4 73.9 % 59 Senior secured May 3, 2022 11,349,250 11,056,240 10,818,945 Port Richey, FL Multi-Family 1mS + 3.6 3.4 79.1 % 60 Senior secured September 30, 2021 11,300,000 11,022,226 10,795,000 Clearfield, UT Multi-Family 1mS + 3.3 2.8 68.0 % 61 Senior secured December 29, 2021 11,000,000 10,795,116 10,615,094 Phoenix, AZ Multi-Family 1mS + 3.8 3.1 75.9 % 62 Senior secured June 28, 2022 12,880,000 10,531,845 10,531,845 Colorado Springs, CO Multi-Family 1mS + 3.9 3.6 73.1 % 63 Senior secured December 2, 2021 9,975,000 9,975,000 9,975,000 Tomball, TX Multi-Family 1mS + 3.5 3.0 68.5 % 64 Senior secured November 23, 2021 10,706,000 10,433,651 9,856,000 Atlanta, GA Multi-Family 1mS + 3.5 3.0 79.5 % 65 Senior secured January 14, 2022 10,234,000 9,902,979 9,609,250 Houston, TX Multi-Family 1mS + 3.6 3.2 78.8 % 66 Senior secured July 14, 2022 10,153,000 9,580,765 9,429,206 Bradenton, FL Multi-Family 1mS + 3.9 3.7 74.4 % 67 Senior secured August 5, 2022 10,232,000 9,127,649 9,127,649 San Antonio, TX Multi-Family 1mS + 4.4 3.7 75.0 % 68 Senior secured October 21, 2021 11,500,000 9,699,777 9,100,000 Madison, TN Multi-Family 1mS + 3.3 2.9 68.4 % 38 69 Senior secured August 16, 2021 8,889,177 8,889,177 8,889,177 Columbus, OH Multi-Family 1mS + 0.0 2.8 75.0 % 70 Senior secured October 29, 2021 9,000,000 8,824,877 8,717,380 Riverside, MO Multi-Family 1mS + 3.5 2.9 76.6 % 71 Senior secured May 12, 2021 8,950,000 8,866,850 8,220,000 Lakeland, FL Multi-Family 1mS + 3.5 2.5 76.8 % 72 Senior secured June 22, 2022 9,772,000 8,499,173 8,175,500 Des Moines, IA Multi-Family 1mS + 4.0 3.6 72.0 % 73 Senior secured May 26, 2022 8,497,500 8,116,833 8,116,833 Haltom City, TX Multi-Family 1mS + 4.0 3.5 74.4 % 74 Senior secured June 24, 2022 7,934,160 7,934,160 7,934,160 Moncks Corner, SC Multi-Family 1mS + 4.2 3.6 67.8 % 75 Senior secured November 16, 2021 7,680,000 7,680,000 7,680,000 Cape Coral, FL Multi-Family 1mS + 3.4 1.0 79.2 % 76 Senior secured June 03, 2022 10,367,500 7,367,500 7,367,500 Deer Park, NY Self Storage 1mS + 3.6 3.5 72.5 % 77 Senior secured September 28, 2021 8,125,000 7,286,000 7,286,000 Chicago, IL Multi-Family 1mS + 3.8 2.8 75.9 % 78 Senior secured July 01, 2021 7,285,000 7,262,519 7,169,838 Harker Heights, TX Multi-Family 1mS + 3.7 2.6 72.3 % 79 Senior secured October 07, 2022 7,000,000 7,000,000 7,000,000 Fairborn, OH Multi-Family 1mS + 4.1 1.9 79.1 % 80 Senior secured October 24, 2022 6,100,000 6,100,000 6,100,000 Various, FL Healthcare 1mS + 4.5 1.9 71.0 % 81 Senior secured April 08, 2022 6,191,853 6,096,412 6,096,412 St.
Biggest changeThe table below sets forth additional information relating to the Company's portfolio as of December 31, 2024: Loan # Form of Investment Origination Date Total Loan Commitment (1) Committed Principal Amount (2) Current Principal Amount Location Property Type Coupon Max Remaining Term (Years) LTV (3) 1 Senior secured December 16, 2021 54,455,784 52,725,000 51,375,000 Daytona Beach, FL Multifamily 1mS + 3.2 2.1 71.7 % 2 Senior secured March 22, 2022 32,996,700 32,053,323 31,876,243 Seneca, SC Multifamily 1mS + 3.4 2.3 74.5 % 3 Senior secured June 28, 2022 33,550,000 31,940,124 31,602,807 Dallas, TX Multifamily 1mS + 3.9 2.6 71.6 % 4 Senior secured June 8, 2021 31,401,983 31,400,000 29,543,565 Miami, FL Multifamily 1mS + 3.3 1.6 74.3 % 5 Senior secured August 25, 2022 30,700,000 29,955,208 28,653,440 Wilmington, NC Multifamily 1mS + 4.0 2.8 71.5 % 6 Senior secured December 29, 2021 29,549,146 27,549,146 27,549,145 Multi, NC Multifamily 1mS + 4.0 2.1 59.9 % 7 Senior secured April 19, 2024 27,120,000 27,120,000 27,120,000 Battle Creek, MI Multifamily 1mS + 3.1 2.9 74.0 % 8 Senior secured June 7, 2021 28,425,000 27,032,982 26,609,785 San Antonio, TX Multifamily 1mS + 3.5 1.6 80.0 % 9 Senior secured November 2, 2021 26,049,291 26,049,291 26,049,291 Melbourne, FL Multifamily 1mS + 3.8 1.9 72.1 % 10 Senior secured August 26, 2021 25,163,008 25,163,008 24,468,032 Clarkston, GA Multifamily 1mS + 3.6 1.7 79.0 % 11 Senior secured October 18, 2021 28,250,000 24,252,193 23,348,000 Cherry Hill, NJ Multifamily 1mS + 3.1 1.9 72.4 % 12 Senior secured August 26, 2021 23,370,000 23,065,021 22,872,354 Union City, GA Multifamily 1mS + 3.5 1.8 70.4 % 13 Senior secured March 22, 2022 22,845,000 22,308,996 21,934,375 York, PA Multifamily 1mS + 3.3 2.3 79.2 % 14 Senior secured November 16, 2021 21,975,000 21,975,000 21,916,753 Dallas, TX Multifamily 1mS + 3.3 2.0 73.5 % 38 15 Senior secured July 8, 2022 23,095,000 22,118,543 21,818,465 Arlington, TX Multifamily 1mS + 3.8 2.7 67.1 % 16 Senior secured April 27, 2022 53,470,000 49,050,000 21,739,237 North Brunswick, NJ Multifamily 1mS + 3.4 2.4 79.9 % 17 Senior secured August 31, 2021 21,750,000 21,725,235 21,644,684 Houston, TX Multifamily 1mS + 3.4 1.8 74.2 % 18 Senior secured November 29, 2022 21,283,348 20,360,000 20,360,000 Glendale, WI Healthcare 1mS + 4.0 2.0 45.0 % 19 Senior secured November 5, 2021 20,965,000 19,625,274 19,625,274 Orlando, FL Multifamily 1mS + 3.1 1.9 78.1 % 20 Senior secured April 13, 2022 20,651,725 18,989,494 18,989,494 Decatur, GA Multifamily 1mS + 3.6 2.4 75.7 % 21 Senior secured November 21, 2022 21,135,000 18,920,000 18,920,000 Houston, TX Healthcare 1mS + 4.0 2.0 67.0 % 22 Senior secured November 23, 2021 19,925,000 19,119,983 18,834,024 Orange, NJ Multifamily 1mS + 3.3 2.0 78.0 % 23 Senior secured February 2, 2022 19,740,000 19,328,491 18,660,822 Houston, TX Multifamily 1mS + 3.5 2.2 77.5 % 24 Senior secured February 11, 2022 20,165,000 19,695,670 18,599,480 Tampa, FL Multifamily 1mS + 3.6 2.3 78.0 % 25 Senior secured April 30, 2024 19,000,000 18,500,000 18,303,744 Garfield, NJ Multifamily 1mS + 3.5 1.4 66.1 % 26 Senior secured March 31, 2022 18,140,000 16,956,276 16,956,276 Tallahassee, FL Multifamily 1mS + 3.3 2.3 74.8 % 27 Senior secured November 10, 2022 18,590,000 16,690,000 16,690,000 Austin, TX Healthcare 1mS + 4.0 2.0 65.0 % 28 Senior secured December 1, 2021 16,071,800 16,039,141 15,449,323 Horn Lake, MS Multifamily 1mS + 3.4 2.0 75.7 % 29 Senior secured February 1, 2022 16,160,000 15,792,145 15,400,000 San Antonio, TX Multifamily 1mS + 3.5 2.2 79.8 % 30 Senior secured April 6, 2022 16,400,000 16,079,676 15,347,180 Vineland, NJ Multifamily 1mS + 3.8 2.3 77.0 % 31 Senior secured December 2, 2021 16,250,000 15,010,343 15,010,343 Colorado Springs, CO Multifamily 1mS + 3.1 2.0 72.5 % 32 Senior secured February 22, 2022 18,241,527 15,524,795 15,000,000 Philadelphia, PA Multifamily 1mS + 3.8 2.3 80.0 % 33 Senior secured June 15, 2022 15,371,600 15,100,334 14,511,455 Denton, TX Multifamily 1mS + 3.9 2.6 73.0 % 34 Senior secured July 26, 2022 17,100,000 14,886,485 14,351,599 Atlanta, GA Multifamily 1mS + 3.7 2.7 65.2 % 35 Senior secured April 27, 2022 15,000,000 14,171,704 14,171,704 Houston, TX Multifamily 1mS + 3.7 2.4 79.6 % 36 Senior secured November 21, 2022 15,735,000 14,030,000 14,030,000 Southlake, TX Healthcare 1mS + 4.0 2.0 48.0 % 37 Senior secured December 28, 2021 14,000,000 14,000,000 14,000,000 Houston, TX Multifamily 1mS + 3.3 2.1 71.2 % 38 Senior secured April 12, 2021 13,666,721 13,666,721 13,666,721 Cedar Park, TX Multifamily 1mS + 3.9 1.4 66.7 % 39 Senior secured June 10, 2022 15,250,000 14,598,318 13,625,505 Blakely, PA Multifamily 1mS + 3.9 2.6 75.0 % 40 Senior secured October 6, 2023 13,191,852 13,191,852 13,191,852 Garfield, NJ Multifamily 1mS + 4.0 0.8 65.5 % 41 Senior secured December 20, 2024 60,000,000 58,265,271 13,000,000 Olympia, WA Multifamily 1mS + 3.8 5.1 68.5 % 42 Senior secured December 28, 2021 38,800,000 37,613,170 12,322,717 Houston, TX Multifamily 1mS + 3.3 2.1 71.2 % 43 Senior secured January 25, 2022 13,000,000 12,406,810 12,249,079 Corpus Christi, TX Multifamily 1mS + 3.6 2.2 78.8 % 44 Senior secured May 12, 2022 12,750,000 11,926,591 11,926,591 Ypsilanti, MI Multifamily 1mS + 3.5 2.5 68.4 % 45 Senior secured December 10, 2021 13,000,000 11,815,776 11,662,582 Los Angeles, CA Multifamily 1mS + 3.6 2.1 67.9 % 46 Senior secured March 4, 2022 12,047,625 11,738,608 11,467,505 Houston, TX Multifamily 1mS + 3.5 2.3 78.3 % 39 47 Senior secured October 28, 2021 12,250,000 12,020,228 11,202,535 Tampa, FL Multifamily 1mS + 3.1 1.9 75.7 % 48 Senior secured April 23, 2021 11,600,000 11,464,693 10,986,357 Tualatin, OR Multifamily 1mS + 3.3 1.4 73.9 % 49 Senior secured May 3, 2022 11,349,250 11,056,240 10,818,945 Port Richey, FL Multifamily 1mS + 3.6 2.4 79.1 % 50 Senior secured September 30, 2021 11,300,000 11,022,226 10,795,000 Clearfield, UT Multifamily 1mS + 3.3 1.8 68.0 % 51 Senior secured December 29, 2021 11,000,000 10,795,116 10,615,094 Phoenix, AZ Multifamily 1mS + 3.8 2.1 75.9 % 52 Senior secured June 28, 2022 10,531,845 10,531,845 10,531,845 Colorado Springs, CO Multifamily 1mS + 3.9 2.6 73.1 % 53 Senior secured January 14, 2022 10,234,000 9,902,979 9,609,250 Houston, TX Multifamily 1mS + 3.6 2.2 78.8 % 54 Senior secured July 14, 2022 10,153,000 9,719,457 9,429,206 Bradenton, FL Multifamily 1mS + 3.9 2.7 74.4 % 55 Senior secured August 5, 2022 10,232,000 9,127,649 9,127,649 San Antonio, TX Multifamily 1mS + 4.4 2.7 75.0 % 56 Senior secured June 22, 2022 9,772,000 8,593,992 8,175,500 Des Moines, IA Multifamily 1mS + 4.0 2.6 72.0 % 57 Senior secured May 26, 2022 8,149,098 8,149,098 8,116,833 Haltom City, TX Multifamily 1mS + 4.0 2.5 74.4 % 58 Senior secured September 28, 2021 8,125,000 7,286,000 7,286,000 Chicago, IL Multifamily 1mS + 3.8 1.8 75.9 % 59 Senior secured July 1, 2021 7,285,000 7,285,000 7,169,838 Harker Heights, TX Multifamily 1mS + 3.7 1.6 72.3 % 60 Senior secured October 7, 2022 7,000,000 7,000,000 7,000,000 Fairborn, OH Multifamily 1mS + 4.1 0.9 79.1 % 61 Senior secured October 24, 2022 6,100,000 6,100,000 6,100,000 Various, FL Healthcare 1mS + 4.5 0.9 71.0 % 62 Senior secured June 3, 2022 6,067,500 6,067,500 6,067,500 Deer Park, NY Self Storage 1mS + 3.6 2.5 72.5 % 63 Senior secured May 21, 2021 6,937,427 6,937,427 5,994,000 Youngtown, AZ Multifamily 1mS + 3.8 1.5 71.4 % 64 Senior secured April 30, 2021 5,472,000 5,472,000 5,285,500 Daytona Beach, FL Multifamily 1mS + 3.8 1.4 77.4 % 65 Senior secured October 6, 2023 4,808,148 4,808,148 4,808,148 Garfield, NJ Multifamily 1mS + 4.0 0.8 65.5 % (1) Total Loan Commitment represents the total commitment of the entire whole loan originated.
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.
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.
Expenses We incurred management and incentive fees of $4,335,904 for the year ended December 31, 2023 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $7,917,970, of which $1,897,699 was payable to our Manager and $6,020,271 was payable to third parties.
For the year ended December 31, 2023, we incurred management and incentive fees of $4,335,904 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $7,917,970, of which $1,897,699 was payable to our Manager and $6,020,271 was payable to third parties.
This loss was primarily driven by provision for credit losses of $2,524,216 primarily related to an increase in loan portfolio as a result of the loans acquired in the LMF 2023-1 Financing as well as changes in macroeconomic forecast and the impact of net unrealized losses on mortgage servicing rights of $103,684 as a result of reduction in principal balance in the period which more than offset mortgage servicing income of $208,997.
This loss was primarily driven by provision for credit losses of $2,524,216 primarily related to an increase in loan portfolio as a result of the loans acquired in the LMF 2023-1 Financing as well as changes in macroeconomic forecast and the impact of net unrealized losses on mortgage servicing rights of $103,684 as a result of reduction in principal balance in the period which more than offset net mortgage servicing income of $208,997.
Financing Activities For the year ended December 31, 2023, net cash provided by financing activities totaled $296.1 million and primarily related to proceeds from issuance of investment-grade senior secured floating rate loan of $270.4 million and issuance of $47.3 million in investment-grade rated notes, which more than offset payments of common stock dividends of $13.1 million, payments of preferred stock dividends of $4.7 million and payment of debt issuance costs of $3.8 million.
For the year ended December 31, 2023, net cash provided by financing activities totaled $296.1 million and primarily related to proceeds from issuance of investment-grade senior secured floating rate loan of $270.4 million and issuance of $47.3 million in investment-grade rated notes, which more than offset payments of common stock dividends of $13.1 million, payment of preferred stock dividends of $4.7 million and payment of debt issuance costs of $3.8 million.
The following table illustrates the day-one financial statement impact of the adoption of ASU 2016-13 on January 1, 2023: 42 Pre-adoption Transition adjustment Post-adoption Assets Commercial mortgage loans, held-for-investment $ 1,076,148,186 $ — $ 1,076,148,186 Less: Allowance for credit losses (4,258,668) (3,549,501) (7,808,169) Commercial mortgage loans, held-for-investment, net $ 1,071,889,518 $ (3,549,501) $ 1,068,340,017 Liabilities Other liabilities (1) $ 583,989 $ 41,939 $ 625,928 Equity Accumulated earnings $ 31,250,852 $ (3,591,440) $ 27,659,412 (1) Includes reserve for unfunded loan commitments 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 following table illustrates the day-one financial statement impact of the adoption of ASU 2016-13 on January 1, 2023: Pre-adoption Transition adjustment Post-adoption Assets Commercial mortgage loans, held-for-investment $ 1,076,148,186 $ — $ 1,076,148,186 Less: Allowance for credit losses (4,258,668) (3,549,501) (7,808,169) Commercial mortgage loans, held-for-investment, net $ 1,071,889,518 $ (3,549,501) $ 1,068,340,017 Liabilities Other liabilities (1) $ 583,989 $ 41,939 $ 625,928 Equity Accumulated earnings $ 31,250,852 $ (3,591,440) $ 27,659,412 (1) Includes reserve for unfunded loan commitments 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.
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 41 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.
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.
To monitor this risk, the Manager's asset management team reviews our portfolio and maintains regular contact with borrowers, co-lenders 33 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.
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.
While the interest rate spreads of our secured borrowings 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 current inflationary environment.
While the interest rate spreads of our secured borrowings 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 the current inflationary environment.
Thereafter, the outstanding debt balance will be reduced as loans are repaid. The following table presents certain loan and borrowing characteristics of 2021-FL1 CLO and LMF 2023-1 Financing as of December 31, 2023: As of December 31, 2023 Collateralized Loan Obligations Count Principal Value Carrying Value (1) Wtd. Avg.
Thereafter, the outstanding debt balance will be reduced as loans are repaid. The following table presents certain loan and borrowing characteristics of 2021-FL1 CLO and LMF 2023-1 Financing as of December 31, 2024: As of December 31, 2024 Collateralized Loan Obligations Count Principal Value Carrying Value (1) Wtd. Avg.
For the year ended December 31, 2023, our cash flows from operating activities were primarily driven by interest received from the junior retained notes and preferred shares of the 2021-FL1 CLO and LMF 2023-1 Financing of $34.0 million interest received from our senior secured loans held outside the VIEs we consolidate of $1.5 million, interest received on cash accounts of $2.4 million and cash received from mortgage servicing rights of $0.2 million exceeding cash interest expense paid on our Secured Term Loan of $3.5 million, management and incentive fees of $4.3 million, expense reimbursements of $1.9 million and other operating expenditures of $3.5 million.
For the year ended December 31, 2023, our cash flows from operating activities were primarily driven by $34.0 million of interest received from the junior retained notes and preferred shares of 2021-FL1 CLO and LMF 2023-1 Financing, interest received on cash accounts of $2.4 million, $1.5 million of interest received from our senior secured loans held outside the VIE we consolidate and $0.2 million of cash received from mortgage servicing rights exceeding cash interest expense paid on our Secured Term Loan of $3.5 million, management and incentive fees of $4.3 million, expense reimbursements of $1.9 million and other operating expenditures of $3.5 million.
For the period beyond which the Company is able to make reasonable and supportable forecasts, the Company reverts, on a straight-line basis over four quarters, to the historical loss information derived from CRE data set.
For the 43 period beyond which the Company is able to make reasonable and supportable forecasts, the Company reverts, on a straight-line basis over four quarters, to the historical loss information derived from CRE data set.
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.
In 35 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.
As of December 31, 2023, the ratio of our recourse debt to equity was 0.2:1. As of December 31, 2023, we consolidated the assets and liabilities of the 2021-FL1 CLO and LMF 2023-1 collateralized financings.
As of December 31, 2024, the ratio of our recourse debt to equity was 0.2:1. As of December 31, 2024, we consolidated the assets and liabilities of the 2021-FL1 CLO and LMF 2023-1 collateralized financings.
As of December 31, 2023, 99.9% of our investments by total investment exposure earned a floating rate of interest, of which 100.0% were indexed to 30-day term SOFR, and all of our collateralized loan obligations and secured financings were indexed to 30-day term SOFR, and as a result we are less sensitive to variability in our net interest income resulting from interest rate changes.
As of December 31, 2024, 99.9% of our investments by total investment exposure earned a floating rate of interest, of which 100.0% were indexed to 30-day term SOFR, and all of our collateralized loan obligations and secured financings were indexed to 30-day term SOFR, and as a result we are less sensitive to variability in our net interest income resulting from interest rate changes.
As of December 31, 2023 and December 31, 2022, we were in compliance with these covenants. The Credit Agreement contains events of default that are customary for facilities of this type, including, but not limited to, nonpayment of principal, interest, fees and other amounts when due, violation of covenants, cross default with material indebtedness, and change of control.
As of December 31, 2024 and December 31, 2023, we were in compliance with these covenants. The Credit Agreement contains events of default that are customary for facilities of this type, including, but not limited to, nonpayment of principal, interest, fees and other amounts when due, violation of covenants, cross default with material indebtedness, and change of control.
Default Risk : imminent risk of default, a loss is likely in the event of default Capital Allocation The following tables set forth our allocated capital by investment type at December 31, 2023 and December 31, 2022: This information represents non-GAAP financial measures within the meaning of Item 10(e) of Regulation S-K, as promulgated by the SEC.
Default Risk : imminent risk of default, a loss is likely in the event of default Capital Allocation The following tables set forth our allocated capital by investment type at December 31, 2024 and December 31, 2023: This information represents non-GAAP financial measures within the meaning of Item 10(e) of Regulation S-K, as promulgated by the SEC.
When interest rates are below our average interest rate floor, an increase in interest rates will decrease our net interest income until such time as interest rates rise above our average interest rate floor.
When interest rates are above our average interest rate floor, an increase in interest rates will increase our interest income. Alternatively, when interest rates are below our average interest rate floor, an increase in interest rates will decrease our net interest income until such time as interest rates rise above our average interest rate floor.
As of December 31, 2023, 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.
As of December 31, 2024, 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.
The allowance for credit losses estimation methodology used by LFT includes a probability of default and loss given default method utilizing a widely-used third-party analytical model with historical loan losses for over 100,000 commercial real estate loans dating back to 1998.
The allowance for credit losses estimation methodology used by LFT includes a probability of default and loss given default method utilizing a widely used third-party analytical model with historical loan losses for over 125,000 commercial real estate loans dating back to 1998.
We anticipate debate on residential housing and mortgage reform to continue through 2024 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.
We anticipate debate on residential housing and mortgage reform to continue through 2025 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.
A specific allowance for credit loss of $4.3 million was recorded for this impaired loan in the year ended December 31, 2022. Upon the discounted payoff, a $4.3 million charge off against the allowance for credit losses was recorded, with de minimis impact to income in the year ended December 31, 2023.
A specific allowance for credit loss of $4.3 million was recorded for this impaired loan in the year ended December 31, 2023. Upon the discounted payoff, a $4.3 million charge off against the allowance for credit losses was recorded, with de minimis impact to income in the year ended December 31, 2024.
Investing Activities For the year ended December 31, 2023, net cash used in investing activities totaled $316.7 million. This was a result of 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, 2023, net cash used in investing activities totaled $316.7 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 for the year ended December 31, 2023.
For the year ended December 31, 2023, we experienced loan payoffs on 12 loans with net principal balances of $152.6 million which generated exit fees of $1.9 million included in interest income and 7 loans with net principal balances of $112.7 million which waived exit fees 44 of $1.0 million resulting in a reduction to expense reimbursement of $0.5 million included in operating expenses reimbursable to Manager.
For the year ended December 31, 2023, we experienced loan payoffs on 12 loans with net principal balance of $152.6 million which generated exit fees of $1.9 million included in interest income and 7 loans with net principal balance of $112.7 million which waived exit fees of $1.0 million resulting in a reduction to expense reimbursement of $0.5 million included in operating expenses reimbursable to Manager.
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.
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. 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.
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 credit losses. Impairment is typically measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan.
However, if a loan is classified as impaired as the result of adverse credit performance, an allowance is recorded to reduce the carrying value through a charge to the provision for credit losses. Impairment is typically measured by comparing the estimated fair value of the underlying collateral, less costs to sell, to the book value of the respective loan.
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.
Factors Impacting Our Operating Results 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.
Loan modifications and amendments are commonplace in the transitional lending business. We may amend or modify a loan depending on the loan's specific fact and circumstances.
Loan modifications and amendments are commonplace in the transitional lending business. We may amend or modify a loan depending on the loan's specific facts and circumstances.
Further, as of December 31, 2023, we had not guaranteed any obligations of unconsolidated entities or entered into any commitment or intent to provide funding to any such entities.
Further, as of December 31, 2024, we had not guaranteed any obligations of unconsolidated entities or entered into any commitment or intent to provide funding to any such entities.
This risk is partially mitigated during the underwriting process, which generally includes a requirement for our borrowers to purchase interest rate cap contracts with an unaffiliated third-party, provide an interest rate reserve deposit, and/or provide other structural protections. As of December 31, 2023, 97.7% of our performing loans have interest rate caps with a weighted-average strike price of 2.5%.
This risk is partially mitigated during the underwriting process, which generally includes a requirement for our borrowers to purchase interest rate cap contracts with an unaffiliated third-party, provide an interest rate reserve deposit, and/or provide other structural protections. As of December 31, 2024, 79.7% of our performing loans have interest rate caps with a weighted-average strike price of 2.4%.
On August 23, 2021 we drew an additional $7.5 million of our Secured Term Loan pursuant to the Third Amendment. As of December 31, 2023, our balance sheet included $47.8 million of a secured term loan and $1.2 billion in collateralized loan financing, gross of discounts and debt issuance costs.
On August 23, 2021 we drew an additional $7.5 million of our Secured Term Loan pursuant to the Third Amendment. As of December 31, 2024, our balance sheet included $47.8 million of a secured term loan and $0.8 billion in collateralized loan financing, gross of discounts and debt issuance costs.
Other Income (Loss) For the year ended December 31, 2023, we incurred a loss of $2,418,903.
For the year ended December 31, 2023, we incurred other loss of $2,418,903.
During the period ended December 31, 2022 and throughout 2023, management identified one loan, collateralized by a multifamily property in Columbus, Ohio, with an initial unpaid principal value of $12.8 million as impaired due to monetary default resulting in a risk rating of "5." In the first quarter of 2023, this loan was placed on non-accrual status with interest collections accounted for under the cost recovery method.
Throughout 2023, management identified one loan, collateralized by a multifamily property in Columbus, Ohio, with an initial unpaid principal value of $12.8 million as impaired due to monetary default resulting in a risk rating of "5." In the first quarter of 2023, this loan was placed on non-accrual status with interest collections accounted for under the cost recovery method.
As of December 31, 2023, our aggregate unaccreted purchase discount was $7.0 million, and accordingly we do not believe this to be a material risk to interest income for us at present. Additionally, we are subject to prepayment risk associated with the terms of our secured borrowings.
As of December 31, 2024, our aggregate unaccreted purchase discount was $3.5 million, and accordingly we do not believe this to be a material risk to interest income for us at present. Additionally, we are subject to prepayment risk associated with the terms of our secured borrowings.
As of December 31, 2022, 99.0% of the loans in our commercial loan portfolio are structured with SOFR floors with a weighted average SOFR floor of 0.38%, none of which currently has a floor greater than the current spot interest rate.
As of December 31, 2024, 99.0% of the loans in our commercial mortgage loan portfolio are structured with SOFR floors with a weighted average SOFR floor of 0.63%, none of which currently has a floor greater than the current spot interest rate.
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, 2023, 96.7% of the commercial mortgage loans in our portfolio were current as to principal and interest.
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, 2024, 97.8% of the commercial mortgage loans in our portfolio were current as to principal and interest.
The weighted average risk rating of our total loan exposure was 3.5 as of December 31, 2023 and 3.0 as of December 31, 2022, respectively.
The weighted average risk rating of our total loan exposure was 3.5 as of December 31, 2024 and December 31, 2023, respectively.
Additionally, higher interest rates and unpredictable geopolitical landscape may cause further dislocation in the capital markets resulting in a continual reduction of available liquidity and an increase in borrowing costs. A lack of liquidity for a prolonged period of time could limit our ability to grow our business.
The higher-for-longer interest rate environment and unpredictable geopolitical landscape may cause a further dislocation in the capital markets resulting in a continual reduction of available liquidity and an increase in borrowing costs. A lack of liquidity for a prolonged period of time could limit our ability to grow this business.
With the exception of twenty-nine loans acquired and seventeen funded loan advances with an initial aggregate unpaid principal balance of $473.1 million with an aggregate purchase discount of $8.1 million, all of our commercial mortgage loans were acquired at par.
We have acquired twenty-nine loans and seventeen funded loan advances with an initial aggregate unpaid principal balance of $473.1 million with an aggregate purchase discount of $8.1 million. All of our other commercial mortgage loans were acquired at par.
As of December 31, 2023, we had unrestricted cash and cash equivalents of $51.2 million, compared to $43.9 million as of December 31, 2022. 45 As of December 31, 2023, 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, 2024, we had unrestricted cash and cash equivalents of $69.2 million, compared to $51.2 million as of December 31, 2023. As of December 31, 2024, 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, 2023, the carrying value of this loan was $8.9 million, which reflects a $5.0 million payment received on November 25, 2023 under an insurance claim, of which $3.1 million was applied to principal reduction and a $1.9 million liability established primarily for a tenant settlement.
As of December 31, 2023, the carrying value of this loan was $8.9 million, which reflected a $5.0 million payment received on November 25, 2023 under an insurance claim, of which $3.1 million was applied to carrying value reduction and a $1.9 million payable established primarily related to a tenant settlement.
Earnings Per Share and Dividends Declared The following table sets forth the calculation of basic and diluted net income per share and dividends declared per share: 34 Three Months Ended December 31, Year Ended December 31, 2023 2023 2022 Net income attributable to common stockholders $ 3,828,893 $ 14,974,496 $ 5,123,660 Weighted-average shares outstanding, basic and diluted 52,231,722 52,231,296 48,342,347 Net income per share, basic and diluted $ 0.07 $ 0.29 $ 0.11 Dividends declared per share $ 0.07 $ 0.26 $ 0.24 Distributable Earnings 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 Board and approved by a majority of the Company's independent directors.
Earnings Per Share and Dividends Declared The following table sets forth the calculation of basic and diluted net income per share and dividends declared per share: Three Months Ended December 31, Year Ended December 31, 2024 2024 2023 Net income attributable to common stockholders $ 3,604,879 $ 17,909,190 $ 14,974,496 Weighted-average shares outstanding, basic and diluted 52,300,100 52,274,904 52,231,296 Net income per share, basic and diluted $ 0.07 $ 0.34 $ 0.29 Dividends declared per share $ 0.17 $ 0.40 $ 0.26 Distributable Earnings 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 Board and approved by a majority of the Company's independent directors.
As further described below, Distributable Earnings is a measure that is not prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, which helps 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.
As further described below, Distributable Earnings is a measure that is not prepared in accordance with GAAP, which helps 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.
Due to the generally short-term nature of transitional floating-rate commercial mortgage loans, our secured borrowings 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.
Due to shorter maturities of transitional floating-rate commercial mortgage loans, our secured borrowings 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.
FOAC and Changes to Our Residential Mortgage Loan 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.
FOAC and Changes to Our Residential Mortgage Loan Business 42 In June 2013, we established FOAC as a TRS to increase the range of our investments in mortgage-related assets.
As of December 31, 2023, the carrying value of these non-recourse liabilities aggregated to $1,146.2 million. As of December 31, 2023, our total debt to equity ratio was 5.0:1 on a GAAP basis. As of December 31, 2023, LCMT had $6.7 million of unfunded commitments related to loans held in LFT 2021-FL1, Ltd.
As of December 31, 2024, the carrying value of these non-recourse liabilities aggregated to $828.4 million. As of December 31, 2024, our total debt to equity ratio was 3.7:1 on a GAAP basis. As of December 31, 2024, LCMT had $6.7 million of unfunded commitments related to loans held in LFT 2021-FL1, Ltd.
For the year ended December 31, 2022, we experienced loan payoffs on 12 loans with net principal balances of $133.1 million which generated exit fees of $1.3 million included in interest income and 9 loans with net principal balances of $128.9 million which waived exit fees of $1.2 million resulting in a reduction to expense reimbursement of $0.6 million included in operating expenses reimbursable to Manager.
For the year ended December 31, 2024, we experienced loan payoffs on 23 loans with net principal balances of $314.5 million which generated exit fees of $2.6 million included in interest income and 5 loans with net principal balances of $46.9 million which waived exit fees of $0.6 million resulting in a reduction to expense reimbursement of $0.3 million included in operating expenses reimbursable to Manager.
(3) LTV as of the date the loan was originated by a Hunt/ORIX affiliate and is calculated after giving effect to capex and earn-out 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) 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.
Income Tax Expense For the year ended December 31, 2023 the Company recognized a provision for income taxes in the amount of $5,723 and for the year ended December 31, 2022, the Company recognized a provision for income taxes in the amount of $11,088.
Income Tax Expense For the year ended December 31, 2024 the Company recognized a provision for income taxes in the amount of $18,808 and for the year ended December 31, 2023, the Company recognized a provision for income taxes in the amount of $5,723.
For the three months ended December 31, 2023, we recorded earnings per share of $0.07, declared a quarterly common dividend of $0.07 per share, and reported $0.10 per share of Distributable Earnings. In addition, our book value per share was $3.46 per share.
For the three months ended December 31, 2024, we recorded earnings per share of $0.07, declared a quarterly common dividend of $0.08 per share, declared a one-time special dividend of $0.09 per share, and reported $0.10 per share of Distributable Earnings. In addition, our book value per share was $3.40 per share.
The anticipated continual rise in interest rates and unpredictable geopolitical landscape may cause a further dislocation in the capital markets resulting in a continual reduction of available liquidity and an increase in borrowing costs. A lack of liquidity for a prolonged period of time could limit our ability to grow this business.
The expectation of slower interest rate decreases moving forward and unpredictable geopolitical landscape may cause a further dislocation in the capital markets resulting in a continual reduction of available liquidity and an increase in borrowing costs. A lack of liquidity for a prolonged period could limit our ability to grow our business.
For the year ended December 31, 2022, our cash flows from operating activities were primarily driven by $26.1 million of interest received from the junior retained notes and preferred shares of 2021-FL1 CLO, $3.3 million of interest received from our senior secured loans held outside the VIE we consolidate and $0.3 million of cash received from mortgage servicing rights exceeding cash interest expense paid on our Secured Term Loan of $3.5 million, management fees of $4.2 million, expense reimbursement of $2.3 million and other operating expenditures of $3.5 million.
For the year ended December 31, 2024, our cash flows from operating activities were primarily driven by interest received from the junior retained notes and preferred shares of the 2021-FL1 CLO and LMF 2023-1 Financing of $37.8 million interest received from our senior secured loans held outside the VIEs we consolidate of $3.8 million, interest received on cash accounts of $2.7 million and cash received from mortgage servicing rights of $0.1 million exceeding cash interest expense paid on our Secured Term Loan of $3.5 million, management and incentive fees of $6.6 million, expense reimbursements of $1.8 million and other operating expenditures of $5.3 million.
The following table summarizes our financing agreements: December 31, 2023 December 31, 2022 Maximum Collateral Borrowings Borrowings Non-/Mark-to-Market Facility Size (1) Assets (2) Outstanding Available Outstanding Collateralized loan obligations Non-Mark-to-Market $ 1,000,000,000 $ 1,002,144,587 $ 1,000,000,000 $ — $ 1,000,000,000 Secured Financings Non-Mark-to-Market 386,300,000 386,351,397 386,300,000 — — Secured term loan Non-Mark-to-Market 47,750,000 N/A 47,750,000 — 47,750,000 $ 1,434,050,000 $ 1,434,050,000 $ — $ 1,047,750,000 (1) Maximum facility size represents the largest amount of borrowings under a given facility once sufficient collateral assets have been approved by the lender and pledged by us.
The following table summarizes our financing agreements: December 31, 2024 December 31, 2023 Maximum Collateral Borrowings Borrowings Non-/Mark-to-Market Facility Size (1) Assets (2) Outstanding Available Outstanding Collateralized loan obligations Non-Mark-to-Market $ 1,000,000,000 $ 681,368,674 $ 679,248,696 $ — $ 1,000,000,000 Secured Financings Non-Mark-to-Market 386,300,000 384,194,972 386,300,000 — 386,300,000 Secured term loan Non-Mark-to-Market 47,750,000 N/A 47,750,000 — 47,750,000 $ 1,434,050,000 $ 1,113,298,696 $ — $ 1,434,050,000 (1) Maximum facility size represents the largest amount of borrowings under a given facility once sufficient collateral assets have been approved by the lender and pledged by us.
For the year ended December 31, 2023, we recorded earnings per share of $0.29, declared aggregate common dividends of $0.26 per share, and reported $0.26 per share of Distributable Earnings.
For the year ended December 31, 2024, we recorded earnings per share of $0.34, declared aggregate common dividends of $0.40 per share, and reported $0.44 per share of Distributable Earnings.
On December 12, 2023, we announced that our board of directors had declared a cash dividend rate for the fourth quarter of 2023 of $0.07 per share of common stock.
On December 12, 2024, we announced that our board of directors had declared a cash dividend rate for the fourth quarter of 2024 of $0.08 per share of common stock and a one-time special cash dividend of $0.09 per share of common stock.
Operating Activities For the years ended December 31, 2023 and December 31, 2022, net cash provided by operating activities totaled $24.7 million and $16.3 million, respectively.
Operating Activities 47 For the years ended December 31, 2024 and December 31, 2023, net cash provided by operating activities totaled $27.1 million and $24.7 million, respectively.
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).
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.
This was partially offset by (i) a $150.6 million increase in weighted-average principal balance of our secured borrowings; (ii) a 363bps increase in weighted-average floating rate for our secured borrowings for the year-ended December 31, 2023, compared to the corresponding period in 2022; (iii) a 53bps increase in weighted-average spread for our secured borrowing liabilities and (iv)amortization of debt issuance costs of $0.5 million for the year ended December 31, 2023 compared to the corresponding period in 2022.
This was partially offset by (i) a $18.0 million increase in weighted-average principal balance of our secured borrowings; (ii) a 24bps increase in weighted-average floating rate for our secured borrowings for the year-ended December 31, 2024, compared to the corresponding period in 2023 and (iii) a 37bps increase in weighted-average spread for our secured borrowing liabilities for the year ended December 31, 2024 compared to the corresponding period in 2023.
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.
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, primarily derived from our retained beneficial interest in CRE CLOs and secured financings.
Investment Portfolio 35 Commercial Mortgage Loans As of December 31, 2023, we have determined that we are the primary beneficiary of the 2021-FL1 CLO and LMF 2023-1 Financing 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.
Investment Portfolio Commercial Mortgage Loans As of December 31, 2024, we have determined that we are the primary beneficiary of the 2021-FL1 CLO and LMF 2023-1 Financing based on our obligation to absorb losses derived from ownership of our residual interests.
The change in underlying risk rating consisted of loans that paid off with a risk rating of "2" of $41.2 million, a risk rating of "3" of $192.6 million and a risk rating of "5" of $14.1 million, offset by purchases of commercial mortgage loans with a risk rating of "2" of $7.0 million, a risk rating of "3" of $475.5 million and a risk rating of "4" of $85.9 million during the year ended December 31, 2023.
The change in underlying risk rating consisted of loans that paid off with a risk rating of "3" of $277.5 million, a risk rating of "4" of $67.1 million and a risk rating of "5" of $45.7 million, offset by purchases of commercial mortgage loans with a risk rating of "2" of $27.1 million and a risk rating of "3" of $31.3 million during the year ended December 31, 2024.
For the year ended December 31, 2022 net cash used in investing activities totaled $51.8 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 for the year ended December 31, 2022.
Investing Activities For the year ended December 31, 2024, net cash provided by investing activities totaled $334.1 million. This was a result of cash received from the principal repayment of commercial mortgage loans exceeding the cash used for the purchase and funding of commercial mortgage loans held for investment during the period.
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.
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. Notwithstanding the current period of relatively high interest rates, the U.S. Federal Reserve began decreasing rates in 2024.
Net Interest Income For the years ended December 31, 2023 and December 31, 2022, our net interest income was $34,392,996 and $23,874,804, respectively.
Net Interest Income For the years ended December 31, 2024 and December 31, 2023, our net interest income was $41,356,609 and $34,392,996, respectively.
(2) Weighted average coupon assumes applicable one-month LIBOR of 4.18% as of December 31, 2022 and 30-day Term SOFR of 5.33% and 4.19% as of December 31, 2023 and December 31, 2022, respectively, inclusive of weighted average interest rate floors of 0.38% and 0.25%, respectively.
(2) Weighted average coupon assumes applicable 30-day term SOFR of 4.51% and 5.33% as of December 31, 2024 and December 31, 2023, respectively, inclusive of weighted average interest rate floor of 0.63% and 0.38%, respectively.
The increase was primarily due to (i) a $151.5 million increase in weighted-average principal balance of our loan portfolio; (ii) a 328bps increase in weighted-average floating rate of our loan portfolio; (iii) a 13bps increase in weighted-average spread on the loan portfolio; (iv) an increase in exit/extension fees of $0.6 million for our loan portfolio for the year-ended December 31, 2023, compared to the corresponding period in 2022; (v) accretion of purchase discount of $1.0 million and (vi) an increase in interest earned on cash of $2.3 million for the year-ended December 31, 2023, compared to the corresponding period in 2022.
The increase was primarily due to (i) a $44.1 million increase in weighted-average principal balance of our loan portfolio; (ii) a 16bps increase in weighted-average floating rate of our loan portfolio; (iii) a 7bps increase in weighted-average spread on the loan portfolio; (iv) an increase in exit/extension fees of $1.1 million for our loan portfolio for the year-ended December 31, 2024, compared to the corresponding period in 2023 and (v) accretion of purchase discount of $2.5 million for the year-ended December 31, 2024, compared to the corresponding period in 2023, and (vi) a one-time income of $2.8 million related to the resolution of the defaulted Columbus, Ohio loan.
Although our Manager is currently originating loans with SOFR floors, there can be no assurance that we will continue to obtain SOFR floors on future originations or acquisitions.
Although our Manager is currently originating loans with SOFR floors, there can be no assurance that we will continue to obtain SOFR floors on future originations or acquisitions. Similarly, net interest income is also impacted by the spread in our commercial mortgage loan portfolio.
The principal drivers of this net income variance were an increase in net interest income from $23,874,804 for the year ended December 31, 2022 to $34,392,996 for the year ended December 31, 2023 and a decrease in total other loss from $3,667,171 for the year ended December 31, 2022 to $2,418,903 for the year ended December 31, 2023, which more than offset an increase in total expenses from $10,332,885 for the year ended December 31, 2022 to $12,253,874 for the year ended December 31, 2023.
The principal drivers of this net income variance were an increase in net interest income from $34,392,996 for the year ended December 31, 2023 to $41,356,609 for the year ended December 31, 2024 which more than offset an increase in total other loss from $2,418,903 for the year ended December 31, 2023 to $5,180,578 for the year ended December 31, 2024 and an increase in total expenses from $12,253,874 for the year ended December 31, 2023 to $13,508,033 for the year ended December 31, 2024.
These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for operations. 46 Off-Balance Sheet Arrangements As of December 31, 2023, 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.
Off-Balance Sheet Arrangements As of December 31, 2024, 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.
Additionally, $82.1 million of loans with a risk rating of "2" transitioned to a risk rating of "3", $169.9 million of loans with a risk rating of "3" transitioned to a risk rating of "4", $36.8 million of loans transitioned from a risk rating of "3" to a risk rating of "5", and $9.1 million of loans transitioned from a risk rating of "4" to a risk rating of "3".
Additionally, $7.0 million of loans with a risk rating of "2" transitioned to a risk rating of "3", $225.7 million of loans with a risk rating of "3" transitioned to a risk rating of "4", $6.1 million of loans transitioned from a risk rating of "3" to a risk rating of "5", $67.8 million of loans transitioned from a risk rating of "4" to a risk rating of "3", and $92.2 million of loans transitioned from a risk rating of "4" to a risk rating of "5".
As disclosed above, we experienced an increase of $0.6 million in exit and extension fees for the year ended December 31, 2023. The primary driver of this change was attributed to exit fees.
As disclosed above, we experienced an increase of $1.1 million in exit and extension fees for the year ended December 31, 2024.
Cash Flows The following table sets forth changes in cash, cash equivalents and restricted cash for the years ended December 31, 2023 and December 31, 2022: For the years ended December 31, 2023 2022 Cash Flows From Operating Activities 24,738,341 16,289,054 Cash Flows From Investing Activities (316,720,169) (51,831,854) Cash Flows From Financing Activities 296,132,655 64,630,113 Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash $ 4,150,827 $ 29,087,313 During the year ended December 31, 2023, cash, cash equivalents and restricted cash increased by $4.2 million and for the year ended December 31, 2022, cash, cash equivalents and restricted cash increased by $29.1 million.
Cash Flows The following table sets forth changes in cash, cash equivalents and restricted cash for the years ended December 31, 2024 and December 31, 2023: For the years ended December 31, 2024 2023 Cash Flows From Operating Activities 27,129,666 24,738,341 Cash Flows From Investing Activities 334,089,347 (316,720,169) Cash Flows From Financing Activities (341,172,107) 296,132,655 Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash $ 20,046,906 $ 4,150,827 During the year ended December 31, 2024, cash, cash equivalents and restricted cash increased by $20.0 million and for the year ended December 31, 2023, cash, cash equivalents and restricted cash increased by $4.2 million.
The following table provides a reconciliation of Distributable Earnings to GAAP net income: Three Months Ended December 31, Year Ended December 31, 2023 2023 2022 Net income attributable to common stockholders $ 3,828,893 $ 14,974,496 $ 5,123,660 Realized loss on commercial mortgage loans — (4,271,672) — Unrealized gain (loss) on mortgage servicing rights 56,334 103,684 (243,659) Unrealized provision for credit losses 1,357,254 2,524,216 4,258,668 Recognized compensation expense related to restricted common stock — 6,194 15,980 Adjustment for (provision for) income taxes (4,057) 5,723 11,088 Distributable Earnings $ 5,238,424 $ 13,342,641 $ 9,165,737 Weighted-average shares outstanding, basic and diluted 52,231,722 52,231,296 48,342,347 Distributable Earnings per share, basic and diluted $ 0.10 $ 0.26 $ 0.19 Book Value Per Share The following table calculates our book value per share: December 31, 2023 December 31, 2022 Total stockholders' equity $ 240,692,880 $ 242,901,997 Less preferred stock (liquidation preference of $25.00 per share) (60,000,000) (60,000,000) Total common stockholders' equity 180,692,880 182,901,997 Common stock outstanding 52,248,631 52,231,152 Book value per share (1) $ 3.46 $ 3.50 (1) Book value as of December 31, 2023 includes the impact of an estimated CECL allowance of $6,059,006 or $0.12 per common share.
The following table provides a reconciliation of Distributable Earnings to GAAP net income: Three Months Ended December 31, Year Ended December 31, 2024 2024 2023 Net income attributable to common stockholders $ 3,604,879 $ 17,909,190 $ 14,974,496 Realized loss on commercial mortgage loans — — (4,271,672) Unrealized gain (loss) on mortgage servicing rights (8,978) 42,686 103,684 Unrealized provision for credit losses 1,781,098 5,275,122 2,524,216 Recognized compensation expense related to restricted common stock — — 6,194 Adjustment for (provision for) income taxes 5,457 18,808 5,723 Distributable Earnings $ 5,382,456 $ 23,245,806 $ 13,342,641 Weighted-average shares outstanding, basic and diluted 52,300,100 52,274,904 52,231,296 Distributable Earnings per share, basic and diluted $ 0.10 $ 0.44 $ 0.26 Book Value Per Share The following table calculates our book value per share: December 31, 2024 December 31, 2023 Total stockholders' equity $ 237,799,532 $ 240,692,880 Less preferred stock (liquidation preference of $25.00 per share) (60,000,000) (60,000,000) Total common stockholders' equity 177,799,532 180,692,880 Common stock outstanding 52,309,209 52,248,631 Book value per share (1) $ 3.40 $ 3.46 (1) Book value as of December 31, 2024 and December 31, 2023 includes the impact of an estimated CECL allowance of $11,320,220 or $0.22 per common share and $6,059,006 or $0.12 per common share, respectively.
This loan is on non-accrual status as a result as a result of monetary default and impaired loan classification. 39 Subsequent to December 31, 2023, the Company and the borrower entered into a loan modification and the loan was loan returned to accrual status. See Note 16 for further discussion.
This loan was on non-accrual status as a result of monetary default and impaired loan classification. In the first quarter of 2024, the Company and the borrower entered into a loan modification and the loan was returned to accrual status.
See Note 11 Commitments and Contingencies to our consolidated financial statements for further discussion of unfunded commitments. (2) Committed Principal Amount includes funded participations by LFT affiliated entities and third parties that are syndicated/sold.
See Note 11 Commitments and Contingencies to our consolidated financial statements for further discussion of unfunded commitments. (2) Committed Principal Amount includes funded participations by LFT-affiliated entities and third parties that are syndicated/sold. (3) LTV as of the date the loan was originated by a Hunt/ORIX affiliate and is calculated after giving effect to capex and earn-out reserves, if applicable.
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.
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. 46 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.
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.
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. 36 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.
Initially, the proceeds of the issuance of the securities also included $330.3 million for the purpose of acquiring additional loan obligations for a period up to 180 days from the CLO closing date, resulting in the issuer owning loan obligations with a face value of $1.0 billion, representing leverage of 83%. 40 On July 12, 2023, the Company entered into and closed a matched-term non-recourse collateralized commercial real estate financing (the "LMF 2023-1 Financing"), secured by $386.4 million of first lien floating-rate multifamily mortgage assets and is not subject to margin calls or additional collateralization requirements.
On July 12, 2023, the Company entered into and closed a matched-term non-recourse collateralized commercial real estate financing (the "LMF 2023-1 Financing"), secured by $386.4 million of first lien floating-rate multifamily mortgage assets and is not subject to margin calls or additional collateralization requirements.
For the year ended December 31, 2022, we incurred management and incentive fees of $4,197,819 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $6,135,066, of which $2,116,636 was payable to our Manager and $4,018,430 was payable to third parties.
Expenses We incurred management and incentive fees of $6,630,571 for the year ended December 31, 2024 representing amounts payable to our Manager under our management agreement. We also incurred operating expenses of $6,877,462, of which $1,799,570 was payable to our Manager and $5,077,892 was payable to third parties.
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. (5) As of December 31, 2023, $1,375,277,312 of the outstanding senior secured loans were held in VIEs and $8,603,886 of the outstanding senior secured loans were held outside of VIEs.
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. We did not have any impaired loans, non-accrual loans, or loans in maturity default other than the loans discussed below as of December 31, 2024 or December 31, 2023.

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