ADAMAS TRUST, INC. 10-K

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We are a REIT for U.S. federal income tax purposes, in the business of acquiring, investing in, financing and managing primarily mortgage-related single-family and multi-family residential assets, including joint venture equity investments in multi-family apartment communities. Our objective is to deliver long-term stable distributions to our stockholders over changing economic conditions through a combination of net interest margin and capital gains from a diversified investment portfolio. Our investment portfolio includes credit sensitive single-family and multi-family assets. Executive Summary The global pandemic associated with COVID-19 and its related economic conditions have caused and continue to cause disruption in the U.S. and world economies. During the initial months of the pandemic in 2020, financial and mortgage-related asset markets came under extreme duress, resulting in credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets. As a result of and in response to these conditions, we significantly reduced the size of our investment portfolio and portfolio leverage during 2020. Since that time, we have endeavored to build out a low-levered, higher-yielding portfolio of credit sensitive single-family and multi-family assets through proprietary sourcing channels while reducing our exposure to investment securities. During 2021, we funded the acquisition or origination of $2.1 billion of investments, including $1.6 billion of residential loans and $306.9 million of new structured multi-family investments, while disposing of $432.6 million of investment securities that tend to rely on short-term callable mark-to-market financing, with accelerated activity in the fourth quarter of 2021 that generated new investments of $851.0 million, including $606.2 million of residential loans and $188.6 million of new structured multi-family investments. On a net basis, investments increased by approximately $368.3 million during the year ended December 31, 2021, with prepayments and redemptions fueled, in part, by the low interest rate environment, offsetting some of our investment activity. Since the market disruption and through the date hereof, we have continued our deliberate and patient approach to enhancing liquidity and strengthening our balance sheet to put us in a position to capture superior market opportunities. During this time, we have focused on assets and markets that provide compelling risk-adjusted returns through either an unlevered strategy or through residential loan repurchase agreement financing with terms of one year or more or sustainable non-mark-to-market financing arrangements, including securitizations and non-mark-to-market repurchase agreement financings, and reduced our exposure to short term, callable mark-to-market repurchase agreement financing (with generally terms of 30 days of less). As of December 31, 2021, we reduced our mark-to-market repurchase agreement financing by 83% from December 31, 2019 levels and have completed multiple securitization financings, including two securitization financings subsequent to December 31, 2021. In addition, we took advantage of the lower interest rate environment and accessed the market with three capital markets transactions. In April 2021, we completed a private placement of $100.0 million of rated senior unsecured notes with a 5-year term at an interest rate of 5.75% per annum. In July and November 2021, respectively, we completed an offering of our 6.875% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (the "Series F Preferred Stock") for net proceeds of approximately $138.6 million and an offering of our 7.000% Series G Cumulative Redeemable Preferred Stock (the "Series G Preferred Stock") for net proceeds of approximately $72.1 million. We used proceeds from the Series F Preferred Stock and Series G Preferred Stock offerings to redeem our 7.875% Series C Cumulative Redeemable Preferred Stock (the "Series C Preferred Stock") and 7.750% Series B Cumulative Redeemable Preferred Stock (the "Series B Preferred Stock"), respectively, thereby lowering the weighted average cost of the capital represented by the redeemed preferred stock by 90 basis points. We expect to continue to place a greater emphasis on procuring longer-termed and/or more committed financing arrangements that provide less or no exposure to fluctuations in the collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets. 51 Table of Contents We intend to focus on asset growth through our core portfolio strengths of single-family residential and multi-family credit assets, which we believe will deliver better risk adjusted returns over time. Our targeted investments currently include (i) residential loans and business purpose loans, (ii) structured multi-family property investments such as preferred equity in, and mezzanine loans to, owners of multi-family properties, as well as joint venture equity investments in multi-family properties, (iii) non-Agency RMBS, (iv) Agency RMBS, (v) CMBS and (vi) certain other mortgage-, residential housing- and credit-related assets. Taking into consideration the flexibility that our strong balance sheet and low cost operating structure provide, we anticipate utilizing a more offensive posture as it relates to investment opportunities in this current higher interest rate environment. In light of current market conditions, we believe there are particularly attractive opportunities to organically grow our portfolios of residential and business purpose loans and structured multi-family investments, which tend to be higher-yielding assets. We also expect to continue to selectively and opportunistically sell certain of our investment securities and residential loans. In periods where we have working capital in excess of our short-term liquidity needs, we may invest the excess in more liquid assets until such time as we are able to re-invest that capital in credit assets that meet our underwriting and return requirements. Our investment and capital allocation decisions depend on prevailing market conditions, among other factors, and may change over time in response to opportunities available in different economic and capital market environments. The Company currently has a hybrid work arrangement, where employees have the option to work from home or in the office. Our investments in technology, business continuity planning and cyber-security protocols have enabled our employees to continue working remotely with limited operational impact and we expect to continue our hybrid work arrangement for the foreseeable future. 52 Table of Contents Historical Financial Information The following tables set forth our selected historical operating and financial data. The selected historical operating and balance sheet data for the years ended and as of December 31, 2021, 2020, 2019, 2018 and 2017 have been derived from our historical financial statements. Prior year information has been conformed to current year financial statement presentation. The information presented below is only a summary and does not provide all of the information contained in our historical consolidated financial statements, including the related notes. You should read the information below in conjunction with our historical consolidated financial statements, including the related notes (amounts in thousands, except per share data): Selected Statement of Operations Data: For the Years Ended December 31, 2021 2020 2019 2018 2017 Interest income $ 206,866 $ 350,161 $ 694,614 $ 455,799 $ 366,087 Interest expense 83,248 223,068 566,750 377,071 308,101 Net interest income 123,618 127,093 127,864 78,728 57,986 Non-interest income (loss) 171,741 (359,792) 94,448 66,480 75,013 General, administrative and operating expenses 104,425 54,563 49,835 41,470 41,077 Net income (loss) attributable to Company's common stockholders 144,176 (329,696) 144,835 79,186 76,320 Basic earnings (loss) per common share $ 0.38 $ (0.89) $ 0.65 $ 0.62 $ 0.68 Diluted earnings (loss) per common share $ 0.38 $ (0.89) $ 0.64 $ 0.61 $ 0.66 Dividends declared per common share $ 0.40 $ 0.23 $ 0.80 $ 0.80 $ 0.80 Weighted average shares outstanding-basic 379,232 371,004 221,380 127,243 111,836 Weighted average shares outstanding-diluted 380,968 371,004 242,596 147,450 130,343 Selected Balance Sheet Data: As of December 31, 2021 2020 2019 2018 2017 Residential loans $ 3,575,601 $ 3,049,166 $ 2,961,396 $ 1,022,784 $ 492,437 Multi-family loans 120,021 163,593 17,996,791 11,845,402 9,796,341 Investment securities available for sale, at fair value 200,844 724,726 2,006,140 1,512,252 1,413,081 Equity investments 239,631 259,095 189,965 73,466 51,143 Real estate, net 1,017,583 50,532 — 29,704 64,202 Total assets (1) 5,641,698 4,655,587 23,843,369 14,737,638 12,056,285 Repurchase agreements 554,259 405,531 3,105,416 2,131,505 1,425,981 Collateralized debt obligations 1,522,221 1,623,658 17,817,709 11,117,623 9,341,304 Convertible notes 137,898 135,327 132,955 130,762 128,749 Senior unsecured notes 96,704 — — — — Subordinated debentures 45,000 45,000 45,000 45,000 45,000 Mortgages and notes payable on real estate, net 709,356 36,752 — 31,227 57,124 Total liabilities (1) 3,209,916 2,348,014 21,278,340 13,557,345 11,080,284 Total equity 2,365,390 2,307,573 2,205,029 1,180,293 976,001 (1) Our consolidated balance sheets include assets and liabilities of Consolidated VIEs, as the Company is the primary beneficiary of these VIEs. Assets and liabilities of the Company's Consolidated VIEs for each of the balance sheet dates presented are included in the following table (dollar amounts in thousands): 53 Table of Contents As of December 31, 2021 2020 2019 2018 2017 Consolidated VIEs Assets $ 2,924,678 $ 2,150,984 $ 19,270,384 $ 11,984,374 $ 10,041,468 Liabilities $ 2,219,830 $ 1,667,306 $ 17,878,314 $ 11,191,736 $ 9,436,421 54 Table of Contents Portfolio Update During the year ended December 31, 2021, we pursued new single-family residential loans and multi-family investments while we opportunistically sold certain investment securities. The following table presents the activity for our investment portfolio for the year ended December 31, 2021 (dollar amounts in thousands): December 31, 2020 Acquisitions Repayments (1) Sales Fair Value Changes and Other (2) December 31, 2021 Residential loans $ 1,782,381 $ 1,581,979 $ (858,226) $ (77,127) $ 75,712 $ 2,504,719 Preferred equity investments, mezzanine loans and equity investments (3) 422,688 145,143 (201,328) — (6,851) 359,652 Investment securities Agency RMBS 139,395 — (10,827) (123,622) (4,946) — CMBS 186,440 — (22,869) (132,797) 2,372 33,146 Non-Agency RMBS 355,666 51,705 (110,300) (176,166) 7,114 128,019 ABS 43,225 2,006 — — (5,552) 39,679 Total investment securities available for sale 724,726 53,711 (143,996) (432,585) (1,012) 200,844 Consolidated SLST (4) 212,144 — — — 18,200 230,344 Total investment securities 936,870 53,711 (143,996) (432,585) 17,188 431,188 Equity investments in consolidated multi-family properties (3) — 261,599 (1,238) — 1,278 261,639 Other investments (5) 9,434 40,337 — — (11,022) 38,749 Total investment portfolio $ 3,151,373 $ 2,082,769 $ (1,204,788) $ (509,712) $ 76,305 $ 3,595,947 (1) Includes principal repayments and return of invested capital (2) Primarily includes net realized gains or losses, changes in net unrealized gains or losses (including reversals of previously recognized net unrealized gains or losses on sales), a write-down on non-Agency RMBS, net amortization/accretion and net loss from real estate attributable to the Company. (3) Repayments of preferred equity investments, mezzanine loans and equity investments include $72.9 million of preferred equity investments that were recapitalized as joint venture equity investments and included as acquisitions in equity investments in consolidated multi-family properties. (4) Consolidated SLST is presented on our consolidated balance sheets as residential loans, at fair value and collateralized debt obligations, at fair value. A reconciliation to our consolidated financial statements as of December 31, 2021 and 2020, respectively, follows (dollar amounts in thousands): December 31, 2021 December 31, 2020 Residential loans, at fair value $ 1,070,882 $ 1,266,785 Deferred interest (a) (1,119) (306) Less: Collateralized debt obligations, at fair value (839,419) (1,054,335) Consolidated SLST investment securities owned by NYMT $ 230,344 $ 212,144 (a) Included in other liabilities on our consolidated balance sheets as of December 31, 2021 and 2020. (5) Includes the following balances as of December 31, 2021 and 2020, respectively (dollar amounts in thousands): December 31, 2021 December 31, 2020 Preferred equity investment in Consolidated VIE $ — $ 9,434 Single-family rental properties 38,749 — Total other investments $ 38,749 $ 9,434 55 Table of Contents Current Market Conditions and Commentar y The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income, the market value of our assets, which is driven by numerous factors including the supply and demand for mortgage, housing and credit assets in the marketplace, the ability of our operating partners and tenants and the borrowers of our loans and those that underlie our investment securities to meet their payment obligations, the terms and availability of adequate financing and capital, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate, mortgage, credit and financial markets, and the credit performance of our credit sensitive assets. Financial and mortgage-related asset market conditions were solid during the fourth quarter of 2021. U.S. stocks finished a record year in 2021 despite historically high inflation, supply chain issues and the emergence of new COVID-19 variants. Overall, U.S. economic activity remained strong in the fourth quarter of 2021, buoyed by increases in corporate and residential fixed investment, high consumer spending and strong employment markets. The U.S. economy experienced a robust recovery in 2021, with the recovery expected to continue into 2022. As was the case for credit-sensitive assets generally across markets, pricing for many of the assets in our investment portfolio during the fourth quarter remained stable. Thus far in 2022 to date, equity markets have been challenged with investors digesting expected rate hikes in the first half of 2022. Accordingly, fixed-income markets have been similarly impacted with the yield on the 2-year U.S. Treasury note rising 45 basis points as of the end of January. Due to the emergence of new COVID-19 variants, high inflation and expected increases in the federal funds rate, we anticipate markets will continue to experience volatility in 2022. The market conditions discussed below significantly influence our investment strategy and results, many of which continue to be significantly impacted by the ongoing COVID-19 pandemic: Select U.S. Financial and Economic Data. The 2021 fiscal year was once again marked by the COVID-19 pandemic and its impact on the global economy and markets generally. For the second year during the COVID-19 pandemic, U.S. stocks saw large gains, with the S&P 500 up 28.7%, an increase over the total return of 18.4% in 2020. The interest rate environment remained relatively stable during 2021 with the Treasury curve steepening and then declining as the Federal Reserve held short-term interest rates near zero throughout the year. On December 31, 2021, the spread between the 2-Year U.S. Treasury yield and the 10-Year U.S. Treasury yield closed at 79 basis points, almost flat with the start of the year. However, as of the end of January 2022, that spread has narrowed to 60 basis points, as markets absorbed a reduction in accommodative monetary policy and expected rate hikes. Despite the ongoing COVID-19 pandemic and related economic consequences, the U.S. economy strongly rebounded in 2021, with real gross domestic product (“GDP”) increasing by 5.7% for full year 2021, versus a decrease of 3.4% for full year 2020. The fourth quarter of 2021 marked the sixth consecutive quarter of GDP growth following the short but severe recession in 2020. The U.S. economy continues to recover, but may lose momentum if supply chain issues and labor shortages undermine business activity. However, according to the minutes of the Federal Reserve’s December 2021 meeting, Federal Reserve policymakers expect the GDP growth rate to remain strong in 2022 with a median projection for GDP growth at or slightly above 4.0%, while projecting a deceleration in GDP growth in 2023 and 2024. Labor force participation increased in 2021 as many rejoined the workforce as a result of a strong job market. According to the U.S. Department of Labor, the U.S. unemployment rate declined from 6.7% at the end of December 2020 to 3.9% at the end of December 2021. The number of unemployed persons decreased by 4.5 million year over year to 6.3 million as of December 2021. The labor force participation rate remains lower than pre-pandemic rates, and many employees who left the workforce during the pandemic may not return. As a result, there is a wide disparity between the number of available workers and job openings, resulting in a competitive labor market and rising wages. 56 Table of Contents Single-Family Homes and Residential Mortgage Market. The residential real estate market maintained robust growth throughout 2021. Data released by the S&P Dow Jones Indices for their S&P CoreLogic Case-Shiller National Home Price NSA Indices for November 2021 showed that, on average, home prices increased 18.3% for the 20-City Composite over November 2020. According to the National Association of Realtors (“NAR”), the median existing-home price for all housing types in December 2021 was $358,000, up 15.8% from December 2020 ($309,800). In addition, according to data provided by the U.S. Department of Commerce, privately-owned housing starts for single-family homes averaged a seasonally adjusted annual rate of 1,149,000 and 1,127,000 for the quarter and year ended December 31, 2021, respectively, as compared to an annual rate of 1,002,000 for the year ended December 31, 2020. Overall though, existing home inventory for sale has fallen to its lowest point on record at 1.8 months of supply according to Realtor.com. If interest rates move higher, we would expect this to put downward pressure on home prices and borrowers, although we believe the current backdrop also presents opportunities for us in our business purpose bridge loan and scratch and dent loan strategies. Declining single-family housing fundamentals may adversely impact the overall credit profile of our existing portfolio of single-family residential credit investments, as well as the availability of certain of our targeted assets. As of December 31, 2021, less than 1% of borrowers in our residential loan portfolio remained in an active COVID-19 relief plan. Multi-family Housing. According to data provided by the U.S. Department of Commerce, starts on multi-family homes containing five or more units averaged a seasonally adjusted annual rate of 484,000 and 460,000 for the quarter and year ended December 31, 2021, as compared to 382,000 for the full year 2020. Demand for new apartments will likely remain high as occupancy rates remain strong and rents continue to rise, particularly in the South and Southeastern U.S. Nationally, rent growth has continued at a double-digit pace according to data published by Yardi Matrix in their National Multifamily Market Report for December 2021. Data released by the National Multifamily Housing Council (“NMHC”) shows that 77.1% of apartment households made a full or partial December rent payment by December 6, 2021 in its survey of 11.8 million professionally-managed apartment units across the country. This represents a 1.5% increase in the share who paid rent through December 6, 2020 and compares to 78.2% that had paid by November 6, 2021. These data encompass a wide variety of market-rate rental properties, which can vary by size, type and average rental price. As of December 31, 2021, the Company had one loan that is delinquent in making its distributions to us, representing 1.3% of our total preferred equity and mezzanine loan investment portfolio. Although the multi-family housing sector performed well during 2021, weakening multi-family housing fundamentals may cause our operating partners to fail to meet their obligations to us and/or contribute to valuation declines for multi-family properties, and in turn, many of the structured multi-family investments that we own. Credit Spreads . Investment grade credit spreads tightened during the first half of 2021 as economic activity accelerated and then widened modestly in the second half of the year as new COVID-19 variants emerged. High-yield spreads were more volatile than investment grade credit spreads in 2021, but were tighter overall. Tightening credit spreads generally increase the value of many of our credit sensitive assets, while widening credit spreads tend to have a negative impact on the value of many of our credit sensitive assets. Financial markets. During 2021, the bond market experienced a large yield gain with the closing yield of the 10-year U.S. Treasury Note rising from 0.93% on January 4, 2021 to as high as 1.74% in March 2021, and closing at 1.52% on December 31, 2021. As of January 31, 2022, the closing yield had increased to 1.79%. Overall interest rate volatility tends to increase the costs of hedging and may place downward pressure on some of our strategies. During 2021, the Treasury curve steepened before declining with the spread between the 2-Year U.S. Treasury yield and the 10-Year U.S. Treasury yield closing at 159 basis points on March 29, 2021, and closing at 79 basis points on December 31, 2021. This spread is important as it is indicative of opportunities for investing in levered assets. Increases in interest rates raise the costs of many of our liabilities, while overall interest rate volatility generally increases the costs of hedging. Monetary and Fiscal Policy and Recent Regulatory Developments. The Federal Reserve has taken a number of actions to stabilize markets during the ongoing COVID-19 pandemic and continued those actions throughout 2021. To address funding disruptions resulting from the economic crisis and market dislocations resulting from the COVID-19 pandemic, the Federal Reserve has been conducting large scale overnight repo operations in the U.S. Treasury, Agency debt and Agency RMBS financing markets. In March 2020, the Federal Reserve announced an asset purchase program to provide liquidity to the U.S. Treasury and Agency RMBS markets, which remained in place throughout 2021. Recently, the Federal Reserve stated that it plans to reduce the monthly pace of its asset purchases under the program and to cease the program entirely in March 2022. In February 2022, the Federal Reserve plans to increase its holdings of U.S. Treasury securities by at least $20 billion per month, down from its initial policy of purchasing $80 billion per month, and of Agency mortgage-backed securities by at least $10 billion per month, down from its initial policy of purchasing $40 billion per month. 57 Table of Contents In view of the COVID-19 pandemic and to foster maximum employment and price stability, the Federal Reserve maintained the target range for the federal funds of 0% to 0.25% throughout 2021. The Federal Reserve indicated that in determining the size and timing of future adjustments to the target range for the federal funds rate, it would assess “realized and expected economic conditions relative to its maximum employment objective and its symmetric 2% inflation objective.” With recent inflation well above the 2% objective and a strong labor market, the Federal Reserve indicated in January 2022 that it would soon be appropriate to raise the target range for the federal funds rate. To address the ongoing COVID-19 pandemic and its effects on the economy, the federal government enacted three major relief bills during the first year of the pandemic, including the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). In March 2021, the federal government enacted an additional relief spending bill to further combat the effect of the pandemic on the economy. Amid the strong economic recovery, many of the pandemic response benefits have concluded, with enhanced unemployment benefits expiring in September 2021 and the U.S. Supreme Court striking down an attempt to extend the eviction moratorium through the Centers for Disease Control. To address the severe dislocations experienced in the mortgage and fixed-income markets that resulted from the COVID-19 pandemic, the Federal Housing Finance Agency (“FHFA”) took steps beginning in March 2020 to implement portions of the CARES Act and to support mortgage servicers. Under the CARES Act, borrowers experiencing hardship from the COVID-19 pandemic were eligible to receive forbearance of up to 12 months. The FHFA announced that the GSEs will offer such forbearance to qualifying multi-family borrowers and in September 2021, the FHFA extended the forbearance program indefinitely. The GSEs will also offer such forbearance arrangements to single-family mortgages until the GSEs provide further notice. In response to such forbearance arrangements and to assist servicers facing revenue losses caused by the COVID-19 pandemic, the FHFA limited the advance payments required to be made to the GSEs. Specifically, servicers of Agency RMBS are only required to advance four months of missed payments on loans in forbearance. In 2017, policymakers announced that LIBOR would be replaced by 2021. The directive was spurred by the fact that banks are uncomfortable contributing to the LIBOR panel given the shortage of underlying transactions on which to base levels and the liability associated with submitting an unfounded level. The ARRC, which was convened by the Federal Reserve Board and the New York Fed to help ensure a successful transition from LIBOR, proposed that SOFR, a rate based on U.S. repo trading, would replace LIBOR. This new benchmark rate will be based on overnight Treasury General Collateral repo rates. The administrator of LIBOR, with the support of the Federal Reserve and the United Kingdom’s Financial Conduct Authority, ceased publication of USD LIBOR on December 31, 2021, for only the one week and two month USD LIBOR tenors, and plans to cease publication of USD LIBOR on June 30, 2023 for all other USD LIBOR tenors. While the transition period has been extended to June 2023, the Federal Reserve issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021. We continue to monitor the emergence of this new rate carefully, as it will likely become the new benchmark for hedges and a range of interest rate investments. The scope and nature of the actions the Federal Reserve and other governmental authorities will ultimately undertake are unknown and will continue to evolve. There can be no assurance as to how, in the long term, these and other actions, as well as the negative impacts from the ongoing COVID-19 pandemic, will affect the efficiency, liquidity and stability of the financial, credit and mortgage markets, and thus, our business. Greater uncertainty frequently leads to wider asset spreads or lower prices and higher hedging costs. 58 Table of Contents Full Year 2021 Summary Earnings and Return Metrics The following table presents key earnings and return metrics for the year ended December 31, 2021 (dollar amounts in thousands, except per share data): Year Ended December 31, 2021 Net income attributable to Company's common stockholders $ 144,176 Net income attributable to Company's common stockholders per share (basic) $ 0.38 Undepreciated earnings (1) $ 159,881 Undepreciated earnings per common share (1) $ 0.42 Comprehensive income attributable to Company's common stockholders $ 144,960 Comprehensive income attributable to Company's common stockholders per share (basic) $ 0.38 Net interest income $ 123,618 Portfolio net interest margin 3.07 % Book value per common share at the end of the period $ 4.70 Undepreciated book value per common share at the end of the period (1) $ 4.74 Economic return on book value (2) 8.28 % Economic return on undepreciated book value (3) 9.13 % Dividends per common share $ 0.40 (1) Represents a non-GAAP financial measure. A reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measure is included in "Non-GAAP Financial Measures" elsewhere in this section. (2) Economic return on book value is based on the periodic change in GAAP book value per common share plus dividends declared per common share, if any, during the period. (3) Economic return on undepreciated book value is based on the periodic change in undepreciated book value per common share, a non-GAAP financial measure, plus dividends declared per common share, if any, during the period. Developments Investing Activities • Purchased approximately $1.6 billion in residential loans and received approximately $858.2 million in repayments and sales proceeds of approximately $77.1 million. • Purchased approximately $53.7 million in investment securities and received approximately $432.6 million in sales proceeds. • F unded multi-family joint venture investments for approximately $198.5 million and Mezzanine Lending investments for approximately $108.4 million. Received approximately $96.0 million in proceeds from redemptions of Mezzanine Lending investments. Financing Activities • Issued $100.0 million in aggregate principal amount of 5.75% senior unsecured notes due April 2026 at par. • Completed a securitization of business purpose bridge loans resulting in approximately $178.4 million of net proceeds to the Company, of which $117.1 million was used to repay an outstanding repurchase agreement. • Redeemed a residential loan securitization with an outstanding balance of $203.5 million at the time of redemption and completed a new securitization of certain performing, re-performing and non-performing residential loans resulting in approximately $254.9 million of net proceeds to the us. 59 Table of Contents • Issued 5.75 million shares of our Series F Preferred Stock for net proceeds of approximately $138.6 million and fully redeemed our Series C Preferred Stock for approximately $104.9 million, lowering the cost of capital represented by the redeemed shares by 100 basis points. • Issued 3 million shares of our Series G Preferred Stock for net proceeds of approximately $72.1 million and fully redeemed our Series B Preferred Stock for approximately $80.0 million, lowering the cost of capital represented by the redeemed shares by 75 basis points. Subsequent Developments • Completed a securitization of residential loan s, resulting in approximately $286.3 million in net proceeds to the Company after deducting estimated expenses associated with the transaction. The Company utilized the net proceeds to repay approximately $195.6 million on an outstanding repurchase agreement related to residential loans. • Completed a securitization of business purpose loans, resulting in approximately $223.5 million in net proceeds to the Company after deducting estimated expenses associated with the transaction. The Company utilized the net proceeds to repay approximately $121.1 million on an outstanding repurchase agreement related to residential loans. • Redeemed our Convertible Notes at maturity for $138.0 million. • The Company's Board of Directors has authorized a share repurchase program for up to $200.0 million of the Company's common stock. 60 Table of Contents Capital Allocation The following provides an overview of the allocation of our total equity as of December 31, 2021 and 2020, respectively. We fund our investing and operating activities with a combination of cash flow from operations, proceeds from common and preferred equity and debt securities offerings, including convertible notes and senior unsecured notes, short-term and longer-term repurchase agreements, CDOs and trust preferred debentures. A detailed discussion of our liquidity and capital resources is provided in “Liquidity and Capital Resources” elsewhere in this section. The following tables set forth our allocated capital by investment category at December 31, 2021 and 2020, respectively (dollar amounts in thousands). At December 31, 2021: Single-Family Multi-Family Other Total Residential loans $ 3,575,601 $ — $ — $ 3,575,601 Consolidated SLST CDOs (839,419) — — (839,419) Multi-family loans — 120,021 — 120,021 Investment securities available for sale 128,019 33,146 39,679 200,844 Equity investments — 191,238 48,393 239,631 Equity investments in consolidated multi-family properties (1) — 261,639 — 261,639 Other investments (2) 38,749 — — 38,749 Total investment portfolio carrying value 2,902,950 606,044 88,072 3,597,066 Liabilities: Repurchase agreements (554,259) — — (554,259) Residential loan securitizations CDOs (682,802) — — (682,802) Convertible notes — — (137,898) (137,898) Senior unsecured notes — — (96,704) (96,704) Subordinated debentures — — (45,000) (45,000) Cash, cash equivalents and restricted cash (3) 39,366 — 260,279 299,645 Other 29,612 (13,205) (55,424) (39,017) Net Company capital allocated $ 1,734,867 $ 592,839 $ 13,325 $ 2,341,031 Company Recourse Leverage Ratio (4) 0.4x Portfolio Recourse Leverage Ratio (5) 0.2x (1) Represents the Company's equity investments in consolidated multi-family apartment communities. See "Balance Sheet Analysis—Equity Investments in Multi-Family and Residential Entities—Equity Investments in Consolidated Multi-family Properties" for a reconciliation of equity investments in consolidated multi-family properties to the Company's consolidated financial statements. (2) Represents the Company's single-family rental properties. (3) Excludes cash in the amount of $30.1 million and restricted cash in the amount of $8.1 million held in the Company's equity investments in consolidated multi-family properties. Restricted cash is included in the Company's accompanying consolidated balance sheets in other assets. (4) Represents the Company's total outstanding repurchase agreement financing, subordinated debentures, convertible notes and senior unsecured notes divided by the Company’s total stockholders’ equity. Does not include Consolidated SLST CDOs amounting to $839.4 million, residential loan securitization CDOs amounting to $682.8 million and mortgages payable on real estate amounting to $709.4 million as they are non-recourse debt for which the Company has no obligation. (5) Represents the Company's outstanding repurchase agreement financing divided by the Company’s total stockholders’ equity. 61 Table of Contents At December 31, 2020: Single-Family Multi-Family Other Total Residential loans $ 3,049,166 $ — $ — $ 3,049,166 Consolidated SLST CDOs (1,054,335) — — (1,054,335) Multi-family loans — 163,593 — 163,593 Investment securities available for sale (1) 495,061 186,440 43,225 724,726 Equity investments — 182,765 76,330 259,095 Other investments (2) — 9,434 — 9,434 Total investment portfolio carrying value 2,489,892 542,232 119,555 3,151,679 Liabilities: Repurchase agreements (405,531) — — (405,531) Collateralized debt obligations Residential loan securitizations (554,067) — — (554,067) Non-Agency RMBS re-securitization (15,256) — — (15,256) Convertible notes — — (135,327) (135,327) Subordinated debentures — — (45,000) (45,000) Cash, cash equivalents and restricted cash (3) 50,687 45,563 207,789 304,039 Other 59,516 (6,078) (52,773) 665 Net Company capital allocated $ 1,625,241 $ 581,717 $ 94,244 $ 2,301,202 Company Recourse Leverage Ratio (4) 0.3x Portfolio Recourse Leverage Ratio (5) 0.2x (1) Agency RMBS with a fair value of $139.4 million are included in Single-Family. (2) Represents the Company's preferred equity investment in a Consolidated VIE. (3) Excludes cash in the amount of $0.5 million held in the Company's preferred equity investment in a Consolidated VIE. Restricted cash is included in the Company's accompanying consolidated balance sheets in other assets. (4) Represents the Company's total outstanding repurchase agreement financing, subordinated debentures and convertible notes divided by the Company’s total stockholders’ equity. Does not include Consolidated SLST CDOs amounting to $1.1 billion, residential loan securitization CDOs amounting to $554.1 million, non-Agency RMBS re-securitization amounting to $15.3 million and mortgages payable on real estate amounting to $36.8 million as they are non-recourse debt for which the Company has no obligation. (5) Represents the Company's outstanding repurchase agreement financing divided by the Company’s total stockholders’ equity. 62 Table of Contents Results of Operations The following discussion provides information regarding our results of operations for the years ended December 31, 2021 and 2020, including a comparison of year-over-year results and related commentary. A number of the tables contain a “change” column that indicates the amount by which results from the year ended December 31, 2021 are greater or less than the results from the year ended December 31, 2020. Unless otherwise specified, references in this section to increases or decreases in 2021 refer to the change in results for the year ended December 31, 2021 when compared to the year ended December 31, 2020. For a discussion related to our results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019, please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 26, 2021 and is available on the SEC’s website at www.sec.gov. The following table presents the main components of our net income (loss) for the years ended December 31, 2021 and 2020, respectively (dollar amounts in thousands, except per share data): For the Years Ended December 31, 2021 2020 $ Change Net interest income $ 123,618 $ 127,093 $ (3,475) Total non-interest income (loss) 171,741 (359,792) 531,533 General and administrative expenses 48,908 42,228 6,680 Expenses related to real estate 28,849 763 28,086 Portfolio operating expenses 26,668 11,572 15,096 Income (loss) from operations before income taxes 190,934 (287,262) 478,196 Income tax expense 2,458 981 1,477 Net income (loss) attributable to Company 193,200 (288,510) 481,710 Preferred stock dividends 42,859 41,186 1,673 Preferred stock redemption charge 6,165 — 6,165 Net income (loss) attributable to Company's common stockholders 144,176 (329,696) 473,872 Basic earnings (loss) per common share $ 0.38 $ (0.89) $ 1.27 Diluted earnings (loss) per common share $ 0.38 $ (0.89) $ 1.27 Net Interest Income Our results of operations for our investment portfolio during a given period typically reflect, in large part, the net interest income earned on our investment portfolio of residential loans, RMBS, CMBS, ABS, and preferred equity investments and mezzanine loans, where the risks and payment characteristics are equivalent to and accounted for as loans (collectively, our “Interest Earning Assets”). The net interest spread is impacted by factors such as our cost of financing, the interest rate that our investments bear and our interest rate hedging strategies. Furthermore, the amount of premium or discount paid on purchased portfolio investments and the prepayment rates on portfolio investments will impact the net interest spread as such factors will be amortized over the expected term of such investments. The decrease in net interest income in 2021 was primarily driven by a $469.5 million decrease in average Interest Earning Assets due to asset sales in 2020, largely in response to the impacts of the COVID-19 pandemic during the first half of 2020, opportunistic asset sales in 2020 and 2021 and higher prepayment speeds in 2021. In particular, we sold our entire portfolio of higher-yielding first loss POs within the Consolidated K-Series in March 2020 and continued to reduce our portfolio of remaining investment securities through the sale of non-Agency RMBS and CMBS in 2021. The decrease in net interest income was partially offset by the acquisition of higher-yielding business purpose loans over the last 12 months. Portfolio net interest margin for the year ended December 31, 2021 increased from the prior year period primarily due to continued investment in higher-yielding business purpose loans. The change was partially offset by increased average borrowing costs associated with the non-mark-to-market financings (including securitizations) completed in 2020 and 2021 that replaced repurchase agreement financings that had lower interest costs. 63 Table of Contents Portfolio Net Interest Margin The following tables set forth certain information about our portfolio by investment category and their related interest income, interest expense, average yield on interest earning assets, average portfolio financing cost and portfolio net interest margin for our average interest earning assets (by investment category) for the years ended December 31, 2021 and 2020, respectively (dollar amounts in thousands): Year Ended December 31, 2021 Single-Family (1) (3) Multi- Family (2) (3) Other (7) Total Interest Income (4) $ 151,931 $ 19,900 $ 6,900 $ 178,731 Interest Expense (33,787) — (21,326) (55,113) Net Interest Income (Expense) $ 118,144 $ 19,900 $ (14,426) $ 123,618 Average Interest Earning Assets (3) (5) $ 2,559,713 $ 238,273 $ 28,025 $ 2,826,011 Average Yield on Interest Earning Assets (6) 5.94 % 8.35 % 24.62 % 6.32 % Average Portfolio Financing Cost (7) (3.25) % — — (3.25) % Portfolio Net Interest Margin (8) 2.69 % 8.35 % 24.62 % 3.07 % Year Ended December 31, 2020 Single-Family (1) (3) Multi- Family (2) (3) Other (7) Total Interest Income (4) $ 128,287 $ 54,707 $ 5,741 $ 188,735 Interest Expense (41,109) (7,351) (13,182) (61,642) Net Interest Income (Expense) $ 87,178 $ 47,356 $ (7,441) $ 127,093 Average Interest Earning Assets (3) (5) $ 2,595,576 $ 656,067 $ 43,855 $ 3,295,498 Average Yield on Interest Earning Assets (6) 4.94 % 8.34 % 13.08 % 5.73 % Average Portfolio Financing Cost (7) (3.14) % (3.18) % — (3.14) % Portfolio Net Interest Margin (8) 1.80 % 5.16 % 13.08 % 2.59 % (1) The Company has determined it is the primary beneficiary of Consolidated SLST and has consolidated Consolidated SLST into the Company’s consolidated financial statements. Interest income amounts represent interest income earned by securities that are actually owned by the Company. A reconciliation of net interest income generated by our single-family portfolio to our consolidated financial statements for the years ended December 31, 2021 and 2020, respectively, is set forth below (dollar amounts in thousands): For the Years Ended December 31, 2021 2020 Interest income, residential loans $ 122,793 $ 81,782 Interest income, investment securities available for sale 16,329 32,974 Interest income, Consolidated SLST 40,944 45,194 Interest expense, Consolidated SLST CDOs (28,135) (31,663) Interest income, Single-Family, net 151,931 128,287 Interest expense, repurchase agreements and derivatives (13,844) (30,852) Interest expense, residential loan securitizations (19,660) (6,967) Interest expense, non-Agency RMBS re-securitization (283) (3,290) Net interest income, Single-Family $ 118,144 $ 87,178 64 Table of Contents (2) Prior to the sale of first loss POs in March 2020, the Company had determined it was the primary beneficiary of the Consolidated K-Series and had consolidated the Consolidated K-Series into the Company’s consolidated financial statements. Interest income amounts represent interest income earned by securities that were owned by the Company. A reconciliation of net interest income generated by our multi-family portfolio to our consolidated financial statements for the years ended December 31, 2021 and 2020, respectively, is set forth below (dollar amounts in thousands): For the Years Ended December 31, 2021 2020 Interest income, multi-family loans held in Consolidated K-Series $ — $ 151,841 Interest income, investment securities available for sale 4,579 11,729 Interest income, preferred equity and mezzanine loan investments 15,321 20,899 Interest expense, Consolidated K-Series CDOs — (129,762) Interest income, Multi-Family, net 19,900 54,707 Interest expense, repurchase agreements — (7,351) Net interest income, Multi-Family $ 19,900 $ 47,356 (3) Average Interest Earning Assets for the periods indicated exclude all Consolidated SLST assets and all Consolidated K-Series assets (for the year ended December 31, 2020) other than, in each case, those securities owned by the Company. (4) Includes interest income earned on cash accounts held by the Company. (5) Average Interest Earning Assets is calculated based on daily average amortized cost for the respective periods. (6) Average Yield on Interest Earning Assets is calculated by dividing our interest income relating to our interest earning assets by our Average Interest Earning Assets for the respective periods. (7) Average Portfolio Financing Cost is calculated by dividing our interest expense relating to our interest earning assets by our average interest bearing liabilities, excluding our subordinated debentures, convertible notes, senior unsecured notes and mortgages payable on real estate, for the respective periods. For the years ended December 31, 2021 and 2020, respectively, interest expense generated by our subordinated debentures, convertible notes, senior unsecured notes and mortgages payable on real estate is set forth below (dollar amounts in thousands): For the Years Ended December 31, 2021 2020 Subordinated debentures $ 1,831 $ 2,187 Convertible notes 11,196 10,997 Senior unsecured notes 4,335 — Mortgages payable on real estate 3,964 — Total $ 21,326 $ 13,184 (8) Portfolio Net Interest Margin is the difference between our Average Yield on Interest Earning Assets and our Average Portfolio Financing Cost, excluding the weighted average cost of subordinated debentures, convertible notes, senior unsecured notes and mortgages payable on real estate. Non-interest Income (Loss) Realized Gains (Losses), Net The following table presents the components of realized gains (losses), net recognized for the years ended December 31, 2021 and 2020, respectively (dollar amounts in thousands ): For the Years Ended December 31, 2021 2020 $ Change Residential loans $ 15,723 $ (13,431) $ 29,154 Investment securities and related hedges 5,728 (134,627) 140,355 Total realized gains (losses), net $ 21,451 $ (148,058) $ 169,509 65 Table of Contents During the year ended December 31, 2021, the company recognized net realized gains of $15.7 million related to our residential loan portfolio primarily as a result of loan prepayments and sales activity during the year. The Company also recognized net realized gains of $5.7 million related to our investment securities, which consist of $11.2 million of net realized gains on the sale of Agency RMBS, non-Agency RMBS and CMBS, offset by a write-down of $5.5 million recognized on the Company's investments in non-Agency RMBS. The Company sold approximately $2.5 billion of assets during the year ended December 31, 2020, the majority of which was in response to the disruption of the financial markets caused by the COVID-19 pandemic during the first half of 2020. During the year ended December 31, 2020, the Company recognized net realized losses of $61.5 million on the sale of Agency RMBS, Agency CMBS, non-Agency RMBS and CMBS and realized losses of $73.1 million on the termination of interest rate swaps. The Company also sold residential loans during the year ended December 31, 2020 with an aggregate unpaid principal balance of $119.8 million that resulted in net realized losses of $18.1 million. Realized Loss on De-consolidation of Consolidated K-Series In March 2020, the Company sold its entire portfolio of first loss POs and certain mezzanine securities issued by the Consolidated K-Series. These sales, for total proceeds of approximately $555.2 million, resulted in the de-consolidation of each Consolidated K-Series as of the sale date of each first loss PO and a realized net loss on de-consolidation of Consolidated K-Series of $54.1 million for the year ended December 31, 2020. The sal es also resulted in the de-consolidation of $17.4 billion in multi-family loans held in the Consolidated K-Series and $16.6 billion in Cons olidated K-Series CDOs. Unrealized Gains (Losses), Net Pricing for our investment portfolio improved during the year ended December 31, 2021 with credit spreads tightening on a majority of our assets. During the first quarter of 2020, the disruptions of the financial markets due to the COVID-19 pandemic caused credit spread widening, a sharp decrease in interest rates and unprecedented illiquidity in repurchase agreement financing and MBS markets. These conditions put significant downward pressure on the fair value of our assets and resulted in unrealized losses for the year ended December 31, 2020. The following table presents the components of unrealized gains (losses), net recognized for the years ended December 31, 2021 and 2020, respectively (dollar amounts in thousands): For the Years Ended December 31, 2021 2020 $ Change Residential loans $ 55,335 $ 25,249 $ 30,086 Consolidated SLST 23,832 (32,073) 55,905 Consolidated K-Series — (171,011) 171,011 Preferred equity and mezzanine loan investments 1,016 (1,542) 2,558 Investment securities and related hedges 15,466 19,216 (3,750) Total unrealized gains (losses), net $ 95,649 $ (160,161) $ 255,810 For the year ended December 31, 2021, the Company recognized $95.6 million in net unrealized gains, primarily due to improved pricing on our credit assets, particularly our residential loans, investment in Consolidated SLST and our non-Agency RMBS. For the year ended December 31, 2020, the Company recognized $160.2 million in net unrealized losses. Pricing for our investment portfolio during the second, third, and fourth quarters of 2020 rebounded with credit spreads tightening on a majority of our assets, which resulted in a partial reversal of unrealized losses recognized in the first quarter of 2020. Included in unrealized losses on both investment securities and related hedges and the Consolidated K-Series are $135.3 million of net unrealized gain reversals due to sales and interest rate swap terminations recognized during the year ended December 31, 2020. The majority of this activity occurred in the first quarter of 2020 when the Company recognized $168.5 million of net unrealized gain reversals due to the sale of first loss POs issued by the Consolidated K-Series and $29.0 million of net unrealized loss reversals due to interest rate swap terminations. 66 Table of Contents Income from Equity Investments The following table presents the components of income from equity investments for the years ended December 31, 2021 and 2020, respectively (dollar amounts in thousands): For the Years Ended December 31, 2021 2020 $ Change Preferred return on preferred equity investments accounted for as equity $ 24,256 $ 16,330 $ 7,926 Unrealized gains, net on preferred equity investments accounted for as equity 377 257 120 Income (loss) from unconsolidated joint venture equity investments in multi-family properties 150 (949) 1,099 Income from entities that invest in or originate residential properties and loans 9,113 11,032 (1,919) Total income from equity investments $ 33,896 $ 26,670 $ 7,226 Income from equity investments increased during the year ended December 31, 2021, primarily due to an increase in preferred return on preferred equity investments due to additional investments made since December 31, 2020 and an increase in fair value of entities that invest in or originate residential properties and loans, which were partially offset by the redemption of a residential equity investment during the second quarter of 2021. Impairment of Goodwill In March 2020, the Company sold its entire portfolio of first loss POs issued by the Consolidated K-Series, certain senior and mezzanine securities issued by the Consolidated K-Series, Agency CMBS and CMBS that were held by its multi-family investment reporting unit. As a result of the sales, the Company re-evaluated its goodwill balance associated with the multi-family investment reporting unit for impairment. This analysis yielded an impairment of the entire goodwill balance of $25.2 million for the year ended December 31, 2020. Net Income (Loss) from Real Estate The following table presents the components of net income (loss) from real estate for the years ended December 31, 2021 and 2020, respectively (dollar amounts in thousands): For the Years Ended December 31, 2021 2020 $ Change Income from real estate $ 15,230 $ 419 $ 14,811 Interest expense, mortgages payable on real estate (1) (3,964) — (3,964) Expenses related to real estate: Depreciation expense on operating real estate (5,662) (155) (5,507) Amortization of lease intangibles related to operating real estate (13,588) (231) (13,357) Other expenses (9,599) (377) (9,222) Total expenses related to real estate (28,849) (763) (28,086) Net loss from real estate (17,583) (344) (17,239) Net loss attributable to non-controlling interest 4,724 437 4,287 Net (loss) income from real estate attributable to Company $ (12,859) $ 93 $ (12,952) (1) Included in interest expense in the Company's consolidated statements of operations. Net loss from real estate in 2021 is primarily related to consolidated joint venture multi-family investments made during the year ended December 31, 2021 as well as a multi-family apartment community consolidated during the fourth quarter of 2020. A significant portion of the net loss in 2021 is attributable to depreciation expense and amortization of lease intangibles related to the operating real estate. The Company recognized depreciation and amortization expenses totaling $5.7 million and $13.6 million, respectively, during the year ended December 31, 2021. 67 Table of Contents Other Income The following table presents the components of other income for the years ended December 31, 2021 and 2020, respectively (dollar amounts in thousands): For the Years Ended December 31, 2021 2020 $ Change Loss on extinguishment of collateralized debt obligations $ (1,583) $ — $ (1,583) Preferred equity and mezzanine loan premiums resulting from early redemption (1) 5,294 1,105 4,189 Operating loss in Consolidated VIEs (2) — (2,668) 2,668 Miscellaneous income 1,804 2,241 (437) Total other income $ 5,515 $ 678 $ 4,837 (1) Includes premiums resulting from early redemptions of preferred equity and mezzanine loan investments accounted for as loans. (2) Operating loss in Consolidated VIEs excludes income or loss from Consolidated SLST and the Consolidated K-Series. The net increase in other income in 2021 is primarily due to premiums recognized on the early redemption of preferred equity and mezzanine loan investments during the year ended December 31, 2021. Expenses The following tables present the components of general, administrative and portfolio operating expenses for the years ended December 31, 2021 and 2020, respectively (dollar amounts in thousands): For the Years Ended December 31, 2021 2020 $ Change General and Administrative Expenses Salaries, benefits and directors’ compensation $ 36,970 $ 29,762 $ 7,208 Professional fees 3,468 5,394 (1,926) Other 8,470 7,072 1,398 Total general and administrative expenses $ 48,908 $ 42,228 $ 6,680 The increase in general and administrative expenses in 2021 is primarily related to an increase in stock-based compensation expense related to 2021 equity awards, due in part to a larger number of employees receiving stock-based compensation in 2021. The Company also recognized additional incentive expense related to improved performance in 2021. The increase was partially offset by a decrease in professional fees, as the Company incurred additional legal expenses in 2020 in connection with the disruptions in the financial markets. For the Years Ended December 31, 2021 2020 $ Change Portfolio operating expenses $ 26,668 $ 11,572 $ 15,096 The increase in portfolio operating expenses in 2021 can be attributed primarily to increased servicing fees related to business purpose loans as a result of increased investment activity in those assets since December 31, 2020. 68 Table of Contents Comprehensive Income (Loss) The main components of comprehensive income (loss) for the years ended December 31, 2021 and 2020, respectively, are detailed in the following table (dollar amounts in thousands): For the Years Ended December 31, 2021 2020 $ Change NET INCOME (LOSS) ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS $ 144,176 $ (329,696) $ 473,872 OTHER COMPREHENSIVE INCOME (LOSS) Increase (decrease) in fair value of available for sale securities Non-Agency RMBS 4,663 (23,599) 28,262 CMBS 86 (8,055) 8,141 Total 4,749 (31,654) 36,403 Reclassification adjustment for net (gain) loss included in net income (loss) (3,965) 7,516 (11,481) TOTAL OTHER COMPREHENSIVE INCOME (LOSS) 784 (24,138) 24,922 COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS $ 144,960 $ (353,834) $ 498,794 The changes in other comprehensive income ("OCI") in 2021 can be attributed primarily to an increase in the fair value of our investment securities, where the fair value option was not elected, as a result of general spread tightening in 2021. Additionally, previously recognized net unrealized gains reported in OCI were reclassified to net realized gains in relation to the sale of certain investment securities in 2021. Beginning in the fourth quarter of 2019, the Company’s newly purchased investment securities are presented at fair value as a result of a fair value election made at the time of acquisition pursuant to ASC 825, Financial Instruments (“ASC 825”). The fair value option was elected for these investment securities to provide stockholders and others who rely on our financial statements with a more complete and accurate understanding of our economic performance. Changes in the market values of investment securities where the Company elected the fair value option are reflected in earnings instead of in OCI. As of December 31, 2021, the majority of the Company's investment securities are accounted for using the fair value option. 69 Table of Contents Analysis of Changes in GAAP Book Value The following table analyzes the changes in GAAP book value of our common stock for the year ended December 31, 2021 (amounts in thousands, except per share): Year Ended December 31, 2021 Amount Shares Per Share (1) Beginning Balance $ 1,779,380 377,744 $ 4.71 Common stock issuance, net (2) 10,239 1,661 Preferred stock issuance, net 210,738 Preferred stock issuance liquidation preference (218,750) Preferred stock redemption charge 6,165 Balance after share activity 1,787,772 379,405 4.71 Redemption of non-controlling interest in Consolidated VIEs 3,420 0.01 Dividends and dividend equivalents declared (152,246) (0.40) Net change in accumulated other comprehensive income: Investment securities available for sale (3) 784 — Net income attributable to Company's common stockholders 144,176 0.38 Ending Balance $ 1,783,906 379,405 $ 4.70 (1) Outstanding shares used to calculate book value per common share for the year ended December 31, 2021 are 379,405,240. (2) Includes amortization of stock based compensation. (3) The net increase relates to the reclassification of unrealized gains and losses to net income in relation to the sale of investment securities and net unrealized gains on our investment securities due to improved pricing. The following table analyzes the changes in GAAP book value of our common stock for the year ended December 31, 2020 (amounts in thousands, except per share): Year Ended December 31, 2020 Amount Shares Per Share (1) Beginning Balance $ 1,683,911 291,371 $ 5.78 Cumulative-effect adjustment for implementation of fair value option (2) 12,284 Common stock issuance, net (3) 522,012 86,373 Balance after cumulative-effect adjustment and share activity 2,218,207 377,744 5.87 Dividends declared (84,993) (0.23) Net change in accumulated other comprehensive income (loss): Investment securities available for sale (4) (24,138) (0.06) Net loss attributable to Company's common stockholders (329,696) (0.87) Ending Balance $ 1,779,380 377,744 $ 4.71 (1) Outstanding shares used to calculate book value per common share for the year ended December 31, 2020 are 377,744,476. (2) On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and elected to apply the fair value option provided by ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief to our residential loans, net, preferred equity and mezzanine loan investments that are accounted for as loans and preferred equity investments that are accounted for under the equity method, resulting in a cumulative-effect adjustment to beginning book value of our common stock and book value per common share. (3) Includes amortization of stock based compensation. (4) The decrease relates to unrealized losses in our investment securities due to reductions in pricing. 70 Table of Contents Non-GAAP Financial Measures In addition to the results presented in accordance with GAAP, this Annual Report on Form 10-K includes certain non-GAAP financial measures, including undepreciated earnings and undepreciated book value per common share. Our management team believes that these non-GAAP financial measures, when considered with our GAAP financial statements, provide supplemental information useful for investors as it enables them to evaluate our current performance using the same metrics that management uses to operate the business. Our presentation of non-GAAP financial measures may not be comparable to similarly-titled measures of other companies, who may use different calculations. Because these measures are not calculated in accordance with GAAP, they should not be considered a substitute for, or superior to, the financial measures calculated in accordance with GAAP. Our GAAP financial results and the reconciliations of the non-GAAP financial measures included in this Annual Report on Form 10-K to the most directly comparable financial measures prepared in accordance with GAAP should be carefully evaluated. Undepreciated Earnings (Loss) Undepreciated earnings (loss) is a supplemental non-GAAP financial measure defined as GAAP net income (loss) attributable to Company's common stockholders excluding the Company's share in depreciation expense and lease intangible amortization expense related to operating real estate, net. By excluding these non-cash adjustments from our operating results, we believe that the presentation of undepreciated earnings (loss) provides a consistent measure of our operating performance and useful information to investors to evaluate the effective net return on our portfolio. In addition, we believe that presenting undepreciated earnings (loss) enables our investors to measure, evaluate, and compare our operating performance to that of our peers. A reconciliation of net income (loss) attributable to Company's common stockholders to undepreciated earnings (loss) for the years ended December 31, 2021 and 2020, respectively, is presented below (dollar amounts in thousands, except per share data). For the Years Ended December 31, 2021 2020 Net income (loss) attributable to Company's common stockholders $ 144,176 $ (329,696) Add: Depreciation expense on operating real estate 4,381 — Amortization of lease intangibles related to operating real estate 11,324 — Undepreciated earnings (loss) $ 159,881 $ (329,696) Weighted average shares outstanding - basic 379,232 371,004 Undepreciated earnings (loss) per common share $ 0.42 $ (0.89) 71 Table of Contents Undepreciated Book Value Per Common Share Undepreciated book value per common share is a supplemental non-GAAP financial measure defined as GAAP book value excluding the Company's share of cumulative depreciation and lease intangible amortization expenses related to operating real estate, net. By excluding these non-cash adjustments, undepreciated book value reflects the value of the Company’s rental property portfolio at its undepreciated basis. The Company's rental property portfolio includes single-family rental homes directly owned by the Company and consolidated multi-family apartment communities. We believe that the presentation of undepreciated book value per common share is useful to investors and us as it allows management to consider our investment portfolio exclusive of non-cash adjustments to operating real estate, net and facilitates the comparison of our financial performance to that of our peers. A reconciliation of GAAP book value to undepreciated book value and calculation of undepreciated book value per common share as of December 31, 2021 and 2020, respectively, is presented below (dollar amounts in thousands, except per share data). December 31, 2021 December 31, 2020 Company's stockholders' equity $ 2,341,031 $ 2,301,202 Preferred stock liquidation preference (557,125) (521,822) GAAP book value 1,783,906 1,779,380 Add: Cumulative depreciation expense on operating real estate 4,381 — Cumulative amortization of lease intangibles related to operating real estate 11,324 — Undepreciated book value $ 1,799,611 $ 1,779,380 Common shares outstanding 379,405 377,744 GAAP book value per common share (1) $ 4.70 $ 4.71 Undepreciated book value per common share (2) $ 4.74 $ 4.71 (1) GAAP book value per common share is calculated using the GAAP book value and the common shares outstanding for the periods indicated. (2) Undepreciated book value per common share is calculated using the undepreciated book value and the common shares outstanding for the periods indicated. 72 Table of Contents Critical Accounting Estimates We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based, in part, on our judgment and assumptions regarding various economic conditions that we believe are reasonable based on facts and circumstances existing at the time of reporting. We believe that the estimates, judgments and assumptions utilized in the preparation of our consolidated financial statements are prudent and reasonable. Although our estimates contemplate conditions as of December 31, 2021 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially affect reported amounts of assets, liabilities and accumulated other comprehensive income at the date of the consolidated financial statements and the reported amounts of income, expenses and other comprehensive income during the periods presented. Moreover, the uncertainty over the ultimate impact that the COVID-19 pandemic will have on the global economy generally, and on our business in particular, makes any estimates and assumptions inherently less certain than they would be absent the current and potential impacts of the COVID-19 pandemic. Changes in the estimates and assumptions could have a material effect on these financial statements. Accounting policies and estimates related to specific components of our consolidated financial statements are disclosed in the notes to our consolidated financial statements. In accordance with SEC guidance, the estimates that we believe are most critical to an investor’s understanding of our financial results and condition and which require complex management judgment are discussed below. Valuation of Financial Instruments Residential Loans The Company’s acquired residential loans are recorded at fair value, which is determined using valuations obtained from a third party that specializes in providing valuations of residential loans. For performing and re-performing loans, estimates of fair value are derived using a discounted cash flow model, where estimates of cash flows are determined from scheduled payments for each loan, adjusted using forecast prepayment rates, default rates and rates for loss upon default. For non-performing loans, asset liquidation cash flows are derived based on the estimated time to liquidate the loan, expected liquidation costs and home price appreciation. Estimated cash flows for both performing and non-performing loans are discounted at yields considered appropriate to arrive at a reasonable exit price for the asset. Indications of loan value such as actual trades, bids, offers and generic market color may be used in determining the appropriate discount yield. The estimation of cash flows used in pricing models is inherently subjective and imprecise. Changes to cash flow model assumptions, including prepayment speeds, default rates, rates for loss upon default, liquidation costs, home price appreciation and discount rates may significantly impact the fair value estimate of residential loans, as well as unrealized gains and losses recognized on these assets. Investment Securities Issued by Consolidated SLST The Company invests in first loss subordinated securities and certain IOs issued by Consolidated SLST. The investment securities that we own in Consolidated SLST are generally illiquid and trade infrequently. The fair valuation of these investment securities is determined based on an internal valuation model that considers expected cash flows from the underlying loans and yields required by market participants. The significant assumptions used in the measurement of these investments are projected losses within the pool of loans and a discount rate. The discount rate used in determining fair value incorporates default rate, loss severity, prepayment rate and current market interest rates. The estimation of cash flows used in pricing models is inherently subjective and imprecise. Significant changes in model assumptions, including projected losses, discount rate, prepayment speeds, default rate and loss severity may significantly impact the fair value estimate of investments securities that we own in Consolidated SLST, as well as unrealized gains and losses recognized on these assets. The Company’s valuation methodologies are described in “Note 14 – Fair Value of Financial Instruments” included in Item 8 of this Annual Report on Form 10-K. Refer to Item 7A., "Quantitative and Qualitative Disclosures about Market Risk—Fair Value Risk" for a quantitative interest rate sensitivity analysis of our investment portfolio. 73 Table of Contents Revenue Recognition Investment Securities Issued by Consolidated SLST Interest income on first loss subordinated securities and certain IOs issued by Consolidated SLST is recognized based on the securities' effective yield. The effective yield on these securities is based on management’s estimate of the projected cash flows from each security, which incorporates assumptions related to fluctuations in interest rates, prepayment speeds and the timing and amount of credit losses. On at least a quarterly basis, management reviews and, if appropriate, adjusts its cash flow projections based on input and analysis received from external sources, internal models, and its judgment about interest rates, prepayment rates, the timing and amount of credit losses, and other factors. Changes in cash flows from those originally projected, or from those estimated at the last evaluation, may result in a prospective change in the yield (or interest income) recognized on these securities. The estimation of cash flows used in determining effective yield is inherently subjective and imprecise. Changes in the underlying cash flow assumptions, including prepayment speeds and timing and amount of credit losses, may significantly impact the calculation of effective yield and the interest income recognized for these securities. Variable Interest Entities and Consolidation Reporting Requirements A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company consolidates a VIE when it is the primary beneficiary of such VIE. Determining whether an entity has a controlling financial interest in a VIE requires significant judgment related to assessing the purpose and design of the VIE and determination of the activities that most significantly impact its economic performance. We must also identify explicit and implicit variable interests in the entity and consider our involvement in both the design of the VIE and its ongoing activities. To determine whether consolidation of the VIE is required, we must apply judgment to assess whether we have the power to direct the most significant activities of the VIE and whether we have either the rights to receive benefits or the obligation to absorb losses that could be potentially significant to the VIE. The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE. As of December 31, 2021 and 2020, we owned 100% of the first loss subordinated securities of Consolidated SLST. Consolidated SLST represents a Freddie Mac-sponsored residential mortgage loan securitization, of which we own or owned the first loss subordinated securities and certain IOs and senior securities. We determined that Consolidated SLST was a VIE and that we are the primary beneficiary of Consolidated SLST. As a result, we are required to consolidate Consolidated SLST’s underlying residential loans including their liabilities, income and expenses in our consolidated financial statements. The Company also invests in joint venture investments that own multi-family apartment communities, which the Company determined to be VIEs and for which the Company is the primary beneficiary. Accordingly, the Company consolidated the assets, liabilities, income and expenses of these VIEs in the accompanying consolidated financial statements with non-controlling interests for the third-party ownership of the joint ventures' membership interests. The Company accounted for the initial consolidation of the joint venture investments as asset acquisitions, as substantially all of the fair value of the assets within the entities are concentrated in either a single identifiable asset or group of similar identifiable assets. The Company records its initial investments in income-producing real estate at fair value. The purchase price of acquired properties is apportioned to the tangible and identified intangible assets and liabilities acquired at their respective estimated fair values. In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective real estate, its own analysis of recently-acquired and existing comparable properties, property financial results, and other market data. The Company also considers information obtained about the real estate as a result of its due diligence, including marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired. The Company considers the value of acquired in-place leases and utilizes an amortization period that is the average remaining term of the acquired leases. 74 Table of Contents The estimation of fair value for purposes of allocating the purchase price of investments in real estate requires significant judgement based on the available sources. The allocation may significantly impact the carrying value of intangible assets and liabilities consolidated as asset acquisitions, as well as the amount and timing of depreciation and amortization expense recognized in relation to these assets and liabilities over time. A discussion of significant accounting policies is included in “Note 2 — Summary of Significant Accounting Policies” included in Item 8 of this Annual Report on Form 10-K. 75 Table of Contents Balance Sheet Analysis As of December 31, 2021, we had approximately $5.6 billion of total assets. Included in this amount is approximately $1.1 billion of assets held in Consolidated SLST and $1.0 billion of assets related to equity investments in multi-family properties that we consolidate in accordance with GAAP. As of December 31, 2020, we had approximately $4.7 billion of total assets, approximately $1.3 billion of which represented Consolidated SLST and $54.0 million of which related to equity investments in multi-family properties that we consolidate in accordance with GAAP. For a reconciliation of our actual interests in Consolidated SLST, see “Capital Allocation” and “Portfolio Net Interest Margin” above. For a reconciliation of our equity investments in consolidated multi-family properties, see "Equity Investments in Multi-Family and Residential Entities—Equity Investments in Consolidated Multi-family Properties" below. 76 Table of Contents Residential Loans The following table presents the Company’s residential loans, which include acquired residential loans held by the Company and residential loans held in Consolidated SLST, as of December 31, 2021 and 2020, respectively (dollar amounts in thousands): December 31, 2021 December 31, 2020 Acquired residential loans $ 2,504,719 $ 1,782,381 Consolidated SLST 1,070,882 1,266,785 Total $ 3,575,601 $ 3,049,166 Acquired Residential Loans The Company’s acquired residential loans, including performing, re-performing, and non-performing residential loans and business purpose loans, are presented at fair value on our consolidated balance sheets. Subsequent changes in fair value are reported in current period earnings and presented in unrealized gains (losses), net on the Company’s consolidated statements of operations. The following table details our acquired residential loans by strategy at December 31, 2021 and 2020, respectively (dollar amounts in thousands): December 31, 2021 Number of Loans Unpaid Principal Fair Value Weighted Average FICO Weighted Average LTV (1) Weighted Average Coupon Re-performing residential loan strategy 5,515 $ 769,779 $ 818,900 628 65 % 4.8 % Performing residential loan strategy 2,807 616,763 606,711 722 65 % 4.0 % Business purpose bridge loan strategy 2,028 988,963 992,870 728 65 % 8.7 % Business purpose rental loan strategy 266 83,071 86,238 747 68 % 4.8 % Total 10,616 $ 2,458,576 $ 2,504,719 December 31, 2020 Number of Loans Unpaid Principal Fair Value Weighted Average FICO Weighted Average LTV (1) Weighted Average Coupon Re-performing residential loan strategy 6,453 $ 945,625 $ 945,038 620 74 % 4.9 % Business purpose bridge loan strategy 980 371,562 371,360 719 82 % 9.7 % Performing residential loan strategy 2,472 476,884 465,983 706 73 % 4.8 % Total 9,905 $ 1,794,071 $ 1,782,381 77 Table of Contents (1) For second mortgages (included in performing residential loan strategy), the Company calculates the combined LTV. For business purpose bridge loans, the Company calculates as the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan. Characteristics of Our Acquired Residential Loans: Loan to Value at Purchase (1) December 31, 2021 December 31, 2020 50% or less 11.8 % 13.9 % >50% - 60% 11.9 % 12.2 % >60% - 70% 27.9 % 23.4 % >70% - 80% 26.8 % 21.0 % >80% - 90% 9.0 % 11.9 % >90% - 100% 6.3 % 8.7 % > 100% 6.3 % 8.9 % Total 100.0 % 100.0 % (1) For second mortgages, the Company calculates the combined LTV. For business purpose bridge loans, the Company calculates as the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan. FICO Scores at Purchase December 31, 2021 December 31, 2020 550 or less 11.3 % 18.9 % 551 to 600 10.0 % 16.7 % 601 to 650 11.0 % 15.4 % 651 to 700 16.1 % 16.0 % 701 to 750 23.4 % 15.9 % 751 to 800 22.1 % 13.0 % 801 and over 6.1 % 4.1 % Total 100.0 % 100.0 % Current Coupon December 31, 2021 December 31, 2020 3.00% or less 10.0 % 6.2 % 3.01% - 4.00% 15.5 % 18.8 % 4.01% - 5.00% 19.7 % 29.6 % 5.01% - 6.00% 7.5 % 11.7 % 6.01% - 7.00% 5.9 % 6.4 % 7.01% - 8.00% 13.2 % 4.8 % 8.01% and over 28.2 % 22.5 % Total 100.0 % 100.0 % Delinquency Status December 31, 2021 December 31, 2020 Current 92.6 % 85.0 % 31 – 60 days 2.5 % 3.6 % 61 – 90 days 0.8 % 1.9 % 90+ days 4.1 % 9.5 % Total 100.0 % 100.0 % 78 Table of Contents Origination Year December 31, 2021 December 31, 2020 2007 or earlier 28.2 % 47.1 % 2008 - 2016 5.6 % 9.3 % 2017 1.9 % 3.8 % 2018 3.6 % 8.0 % 2019 6.0 % 13.4 % 2020 16.1 % 18.4 % 2021 38.6 % — Total 100.0 % 100.0 % Consolidated SLST The Company owns first loss subordinated securities and certain IOs issued by a Freddie Mac-sponsored residential loan securitization. In accordance with GAAP, the Company has consolidated the underlying seasoned re-performing and non-performing residential loans of the securitization and the CDOs issued to permanently finance these residential loans, representing Consolidated SLST. We do not have any claims to the assets or obligations for the liabilities of Consolidated SLST (other than those securities owned by the Company). Our investment in Consolidated SLST as of December 31, 2021 and 2020 was limited to the RMBS comprised of first loss subordinated securities and IOs issued by the securitization with an aggregate net carrying value of $230.3 million and $212.1 million, respectively. For more information on investment securities held by the Company within Consolidated SLST, refer to "Investment Securities" section below. 79 Table of Contents The following table details the loan characteristics of the underlying residential loans that back our first loss subordinated securities issued by Consolidated SLST as of December 31, 2021 and 2020, respectively (dollar amounts in thousands, except current average loan size): December 31, 2021 December 31, 2020 Current fair value $ 1,070,882 $ 1,266,785 Current unpaid principal balance $ 1,071,228 $ 1,231,669 Number of loans 6,802 7,645 Current average loan size $ 157,487 $ 188,532 Weighted average original loan term (in months) at purchase 351 351 Weighted average LTV at purchase 67 % 67 % Weighted average credit score at purchase 710 705 Current Coupon: 3.00% or less 2.8 % 2.9 % 3.01% – 4.00% 37.2 % 36.4 % 4.01% – 5.00% 39.9 % 40.2 % 5.01% – 6.00% 12.1 % 12.3 % 6.01% and over 8.0 % 8.2 % Delinquency Status: Current 70.3 % 63.3 % 31 - 60 12.3 % 12.4 % 61 - 90 4.7 % 5.1 % 90+ 12.7 % 19.2 % Origination Year: 2005 or earlier 30.9 % 30.9 % 2006 15.4 % 15.4 % 2007 21.1 % 20.8 % 2008 or later 32.6 % 32.9 % Geographic state concentration (greater than 5.0%): California 10.5 % 10.9 % Florida 10.5 % 10.5 % New York 9.8 % 9.3 % New Jersey 7.3 % 7.1 % Illinois 7.1 % 6.8 % 80 Table of Contents Residential Loans Financing Repurchase Agreements As of December 31, 2021, the Company had repurchase agreements with three third-party financial institutions to fund the purchase of residential loans. The following table presents detailed information about these repurchase agreements and associated assets pledged as collateral at December 31, 2021 and 2020, respectively (dollar amounts in thousands): Maximum Aggregate Uncommitted Principal Amount Outstanding Repurchase Agreements (1) Net Deferred Finance Costs (2) Carrying Value of Repurchase Agreements Fair Value of Loans Pledged Weighted Average Rate Weighted Average Months to Maturity (3) December 31, 2021 $ 1,252,352 $ 554,784 $ (525) $ 554,259 $ 729,649 2.79 % 4.38 December 31, 2020 $ 1,301,389 $ 407,213 $ (1,682) $ 405,531 $ 575,380 2.92 % 11.92 (1) Includes a non-mark-to-market repurchase agreement with an outstanding balance of $15.6 million, a rate of 4.00%, and months to maturity of 2.03 months as of December 31, 2021. Includes non-mark-to-market repurchase agreements with an outstanding balance of $49.8 million, weighted average rate of 4.00%, and weighted average maturity of 8.80 months as of December 31, 2020. (2) Costs related to the repurchase agreements, which include commitment, underwriting, legal, accounting and other fees, are reflected as deferred charges. Such costs are presented as a deduction from the corresponding debt liability on the Company’s accompanying consolidated balance sheets and are amortized as an adjustment to interest expense using the effective interest method, or straight line-method, if the result is not materially different. (3) The Company expects to roll outstanding amounts under these repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity. The following table details the quarterly average balance, ending balance and maximum balance at any month-end during each quarter in 2021, 2020 and 2019 for our repurchase agreements secured by residential loans (dollar amounts in thousands): Quarter Ended Quarterly Average Balance End of Quarter Balance Maximum Balance at any Month-End December 31, 2021 $ 397,651 $ 554,784 $ 554,784 September 30, 2021 337,295 335,434 345,620 June 30, 2021 401,466 341,791 506,750 March 31, 2021 441,006 538,632 538,632 December 31, 2020 415,625 407,213 425,903 September 30, 2020 651,384 673,787 673,787 June 30, 2020 892,422 876,923 905,776 March 31, 2020 731,245 715,436 744,522 December 31, 2019 764,511 754,132 774,666 September 30, 2019 745,972 736,348 755,299 June 30, 2019 705,817 761,361 761,361 March 31, 2019 595,897 619,605 619,605 Collateralized Debt Obligations Included in our portfolio are residential loans that are pledged as collateral for CDOs issued by the Company or by Consolidated SLST. The Company had a net investment in Consolidated SLST and other residential loan securitizations of $231.8 million and $135.2 million, respectively, as of December 31, 2021. 81 Table of Contents The following table summarizes Consolidated SLST CDOs and CDOs issued by the Company's residential loan securitizations as of December 31, 2021 (dollar amounts in thousands): Outstanding Face Amount Carrying Value Weighted Average Interest Rate (1) Stated Maturity (2) Consolidated SLST (3) $ 814,256 $ 839,419 2.75 % 2059 Residential loan securitizations $ 686,122 $ 682,802 2.43 % 2026 - 2061 (1) Weighted average interest rate is calculated using the outstanding face amount and stated interest rate of notes issued by the securitization and not owned by the Company. (2) The actual maturity of the Company's CDOs are primarily determined by the rate of principal prepayments on the assets of the issuing entity. The CDOs are also subject to redemption prior to the stated maturity according to the terms of the respective governing documents. As a result, the actual maturity of the CDOs may occur earlier than the stated maturity. (3) The Company has elected the fair value option for CDOs issued by Consolidated SLST. 82 Table of Contents Mezzanine Lending The Company's Mezzanine Lending strategy includes preferred equity in, and mezzanine loans to, entities that have multi-family real estate assets (referred to in this section as “Preferred Equity and Mezzanine Loans”). A preferred equity investment is an equity investment in the entity that owns the underlying property and mezzanine loans are secured by a pledge of the borrower’s equity ownership in the property. We evaluate our Preferred Equity and Mezzanine Loans for accounting treatment as loans versus equity investments. Preferred Equity and Mezzanine Loans for which the characteristics, facts and circumstances indicate that loan accounting treatment is appropriate are included in multi-family loans on our consolidated balance sheets. Preferred Equity and Mezzanine Loans where the risks and payment characteristics are equivalent to an equity investment are accounted for using the equity method of accounting and are included in equity investments on our consolidated balance sheets. As of December 31, 2021, one preferred equity investment was greater than 90 days delinquent. This investment represents 1.3% of the total fair value of our Preferred Equity and Mezzanine Loans. The following tables summarize our Preferred Equity and Mezzanine Loans as of December 31, 2021 and 2020, respectively (dollar amounts in thousands): December 31, 2021 Count Fair Value (1) (2) Investment Amount (2) Weighted Average Interest or Preferred Return Rate (3) Weighted Average Remaining Life (Years) Preferred equity investments 33 $ 300,819 $ 298,330 11.80 % 4.6 December 31, 2020 Count Fair Value (1) (2) Investment Amount (2) Weighted Average Interest or Preferred Return Rate (3) Weighted Average Remaining Life (Years) Preferred equity investments 45 $ 341,266 $ 340,871 11.53 % 6.4 Mezzanine loans 1 5,092 5,031 11.50 % 31.3 Preferred equity investment in Consolidated VIE (4) 1 9,434 9,939 11.77 % 7.2 Total 47 $ 355,792 $ 355,841 11.54 % 6.7 (1) Preferred equity and mezzanine loan investments in the amounts of $120.0 million and $163.6 million are included in multi-family loans on the accompanying consolidated balance sheets as of December 31, 2021 and 2020, respectively. Preferred equity investments in the amounts of $180.8 million and $182.8 million are included in equity investments on the accompanying consolidated balance sheets as of December 31, 2021 and 2020, respectively. (2) The difference between the fair value and investment amount consists of any unamortized premium or discount, deferred fees or deferred expenses, and any unrealized gain or loss. (3) Based upon investment amount and contractual interest or preferred return rate. (4) Represents the Company's preferred equity investment in a Consolidated VIE that owns a multi-family apartment community. During the year ended December 31, 2021, the Company reconsidered its evaluation of its investment in the entity and determined that the entity no longer met the criteria for being characterized as a VIE and is a wholly-owned subsidiary of the Company as of December 31, 2021 (see "Balance Sheet Analysis—Equity Investments in Multi-Family and Residential Entities—Equity Investments in Consolidated Multi-family Properties"). A reconciliation of our preferred equity investment in the Consolidated VIE to our consolidated financial statements as of December 31, 2020 is shown below (dollar amounts in thousands): 83 Table of Contents Cash and cash equivalents $ 452 Real estate, net 50,532 Lease intangible, net (a) 1,388 Other assets 1,611 Total assets $ 53,983 Mortgage payable on real estate, net $ 36,752 Other liabilities 1,426 Total liabilities $ 38,178 Non-controlling interest in Consolidated VIE $ 6,371 Preferred equity investment in Consolidated VIE $ 9,434 (a) Included in other assets in the accompanying consolidated balance sheets. Preferred Equity and Mezzanine Loans Characteristics The following tables present characteristics of our Preferred Equity and Mezzanine Loans summarized by geographic concentrations of credit risk exceeding 5% of our total investment amount as of December 31, 2021 and 2020, respectively (dollar amounts in thousands): December 31, 2021 State Count Investment Amount % Total Weighted Average Coupon Weighted Average LTV Weighted Average DSCR (1) Florida 6 $ 83,786 28.1 % 12.5 % 72 % 2.43x Texas 9 70,523 23.6 % 11.2 % 84 % 2.13x Alabama 3 40,960 13.7 % 12.2 % 73 % 2.12x Ohio 3 28,482 9.5 % 11.6 % 88 % 2.05x North Carolina 3 19,214 6.4 % 12.0 % 74 % 1.50x Other 9 55,365 18.7 % 11.2 % 84 % 1.91x Total 33 $ 298,330 100.0 % 11.8 % 79 % 2.05x December 31, 2020 State Count Investment Amount % Total Weighted Average Coupon Weighted Average LTV Weighted Average DSCR (1) Texas 12 $ 107,312 30.2 % 11.4 % 79 % 1.34x Alabama 5 46,929 13.2 % 12.0 % 75 % 1.88x Florida 4 33,795 9.5 % 11.4 % 81 % 1.30x Ohio 3 27,316 7.7 % 11.6 % 88 % 1.47x Tennessee 3 23,356 6.6 % 11.2 % 89 % 1.63x North Carolina 3 18,199 5.1 % 12.0 % 74 % 1.28x Other 17 98,934 27.7 % 11.6 % 84 % 1.40x Total 47 $ 355,841 100.0 % 11.5 % 81 % 1.45x (1) Represents the weighted average debt service coverage ratio ("DSCR") of the underlying properties. 84 Table of Contents Consolidated K-Series In March 2020, in response to the market turmoil related to the COVID-19 pandemic, the Company elected to sell its entire portfolio of first loss POs and certain mezzanine securities issued by the Consolidated K-Series. The Consolidated K-Series were comprised of multi-family mortgage loans held in, and related debt issued by, Freddie Mac-sponsored multi-family loan K-Series securitizations of which we, or one of our SPEs, owned the first loss POs and, in certain cases, IOs and/or senior or mezzanine securities issued by these securitizations. We determined that the securitizations comprising the Consolidated K-Series were VIEs and that we were the primary beneficiary of these securitizations. Accordingly, we were required to consolidate the Consolidated K-Series’ underlying multi-family loans and related debt, income and expense in our consolidated financial statements. The sales of the first loss POs and certain mezzanine securities issued by the Consolidated K-Series, for total proceeds of approximately $555.2 million, resulted in the de-consolidation of $17.4 billion in multi-family loans held in the Consolidated K-Series and $16.6 billion in CDOs issued by the Consolidated K-Series. 85 Table of Contents Equity Investments in Multi-Family and Residential Entities Equity Investments in Consolidated Multi-family Properties The Company has invested in eleven joint venture investments that own multi-family apartment communities. The Company determined that these joint venture entities are VIEs and that the Company is the primary beneficiary, resulting in consolidation of the VIEs, including their assets, liabilities, income and expenses, in our financial statements in accordance with GAAP. We receive preferred return and/or pro rata variable distributions from these investments and management fees based upon property performance. We also will participate in allocation of excess cash upon sale of the multi-family real estate assets. The Company's net equity in these entities totaled $247.0 million as of December 31, 2021. The Company held a preferred equity interest in a VIE that owns a multi-family apartment community for which the Company was the primary beneficiary. During the year ended December 31, 2021, the VIE redeemed its non-controlling interest and the Company reconsidered its evaluation of its investment in the entity. The Company determined that the entity no longer met the criteria for being characterized as a VIE and is a wholly-owned subsidiary of the Company. The Company's net equity in this entity totaled $14.6 million as of December 31, 2021. The geographic concentrations in consolidated multi-family properties exceeding 5% of our total net equity investments in consolidated multi-family properties as of December 31, 2021 are shown below (dollar amounts in thousands): State Property Count Total Equity Ownership Interest Net Equity Investment Percentage of Total Net Equity Investment Florida 6 47% - 100% $ 81,754 31.2 % Texas 9 66% - 95% $ 79,527 30.4 % Alabama 2 80% - 95% $ 37,162 14.2 % South Carolina 2 63% - 66% $ 16,540 6.3 % A reconciliation of our net equity investments in consolidated multi-family properties to our consolidated financial statements as of December 31, 2021 is shown below (dollar amounts in thousands): Cash and cash equivalents $ 30,130 Real estate, net 978,834 Lease intangible, net (a) 39,769 Other assets 31,006 Total assets $ 1,079,739 Mortgages payable on real estate, net (b) $ 709,356 Other liabilities 17,993 Total liabilities $ 727,349 Redeemable non-controlling interest in Consolidated VIEs $ 66,392 Non-controlling interest in Consolidated VIEs $ 24,359 Net equity investment $ 261,639 (a) Included in other assets in the accompanying consolidated balance sheets. (b) See Note 12 in the Notes to Consolidated Financial Statements for further information regarding our mortgages payable on real estate. 86 Table of Contents Unconsolidated Multi-Family Joint Venture Equity Investments The Company has invested in two additional joint venture entities that own multi-family apartment communities. The Company determined that these joint venture entities are VIEs but that the Company is not the primary beneficiary, resulting in the Company recording its equity investments at fair value. We receive variable distributions from these investments on a pro rata basis and management fees based upon property performance. We also will participate in allocation of excess cash upon sale of the multi-family real estate assets. The following table summarizes our unconsolidated multi-family joint venture equity investments as of December 31, 2021 (dollar amounts in thousands): State Property Count Ownership Interest Fair Value Texas 2 70% $ 10,440 Equity Investments in Entities That Invest in or Originate Residential Properties and Loans As of December 31, 2021, the Company had an ownership interest in an entity that invests in residential properties. We may receive variable distributions from this investment based upon underlying asset performance and we record our position at fair value. Also as of December 31, 2021, the Company invested in an entity that originates residential loans. The Company's ownership interest in an entity that invested in residential loans was redeemed during the year ended December 31, 2021. The following table summarizes our ownership interests in entities that invest in residential properties and invest in or originate residential loans as of December 31, 2021 and 2020, respectively (dollar amounts in thousands): December 31, 2021 December 31, 2020 Strategy Ownership Interest Carrying Amount Ownership Interest Carrying Amount Morrocroft Neighborhood Stabilization Fund II, LP Single-Family Rental Properties 11% $ 19,143 11% $ 13,040 Constructive Loans, LLC (1) Residential Loans — 29,250 — — Headlands Asset Management Fund III (Cayman), LP (Headlands Flagship Opportunity Fund Series I) Residential Loans — — 49% 63,290 Total $ 48,393 $ 76,330 (1) As of December 31, 2021, the Company has the option to purchase 50% of the issued and outstanding interests of an entity that originates residential loans. The Company accounts for this investment using the equity method and has elected the fair value option. 87 Table of Contents Investment Securities At December 31, 2021, our investment securities portfolio included non-Agency RMBS, CMBS and ABS, which are classified as investment securities available for sale. Our investment securities also include first loss subordinated securities and certain IOs issued by Consolidated SLST. At December 31, 2021, we had no investment securities in a single issuer or entity that had an aggregate book value in excess of 5% of our total assets. The decrease in the carrying value of our investment securities as of December 31, 2021 as compared to December 31, 2020 is primarily due to sales and paydowns of Agency RMBS, non-Agency RMBS and CMBS partially offset by an increase in the fair value of a number of our investment securities during the year. The following tables summarize our investment securities portfolio as of December 31, 2021 and 2020, respectively (dollar amounts in thousands): December 31, 2021 Unrealized Weighted Average Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value Coupon (1) Yield (2) Available for Sale (“AFS”) Non-Agency RMBS Senior $ 14,055 $ 14,054 $ — $ (6) $ 14,048 5.97 % 5.97 % Mezzanine 40,350 39,243 1,787 (8) 41,022 6.72 % 6.18 % Subordinated 63,153 53,386 374 (2,265) 51,495 4.35 % 6.12 % IO 633,530 21,246 575 (367) 21,454 1.01 % 12.08 % Total Non-Agency RMBS 751,088 127,929 2,736 (2,646) 128,019 1.80 % 6.86 % CMBS Mezzanine 26,600 26,600 159 (138) 26,621 3.81 % 3.81 % Subordinated 6,000 6,000 525 — 6,525 7.69 % 7.69 % Total CMBS 32,600 32,600 684 (138) 33,146 4.52 % 4.52 % ABS Residuals 117 21,795 17,884 — 39,679 — 24.58 % Total ABS 117 21,795 17,884 — 39,679 — 24.58 % Total - AFS $ 783,805 $ 182,324 $ 21,304 $ (2,784) $ 200,844 5.49 % 9.36 % Consolidated SLST Non-Agency RMBS Subordinated $ 256,807 $ 212,254 $ 1,514 $ — $ 213,768 4.57 % 4.88 % IO 174,483 26,415 — (9,839) 16,576 3.50 % 8.48 % Total Non-Agency RMBS 431,290 238,669 1,514 (9,839) 230,344 4.11 % 5.30 % Total - Consolidated SLST $ 431,290 $ 238,669 $ 1,514 $ (9,839) $ 230,344 4.11 % 5.30 % Total Investment Securities $ 1,215,095 $ 420,993 $ 22,818 $ (12,623) $ 431,188 4.90 % 6.97 % (1) Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods. (2) Our weighted average yield was calculated by dividing our annualized interest income by our weighted average amortized cost for the respective periods. 88 Table of Contents December 31, 2020 Unrealized Weighted Average Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value Coupon (1) Yield (2) Available for Sale (“AFS”) Agency RMBS Agency Fixed-Rate $ 133,231 $ 138,541 $ 854 $ — $ 139,395 2.00 % 1.38 % Total Agency RMBS 133,231 138,541 854 — 139,395 2.00 % 1.38 % Non-Agency RMBS Senior 104,192 104,457 4 (1,822) 102,639 4.13 % 4.27 % Mezzanine 191,389 188,691 4,332 (5,049) 187,974 4.19 % 4.80 % Subordinated 48,198 48,196 170 — 48,366 4.63 % 5.33 % IO 472,049 25,976 — (9,289) 16,687 0.44 % 5.91 % Total Non-Agency RMBS 815,828 367,320 4,506 (16,160) 355,666 1.83 % 4.74 % CMBS Mezzanine 106,153 101,221 5,440 (2,276) 104,385 4.24 % 4.73 % Subordinated 6,000 6,000 — (1,080) 4,920 8.00 % 8.00 % IO 12,245,039 75,233 2,277 (375) 77,135 0.10 % 4.53 % Total CMBS 12,357,192 182,454 7,717 (3,731) 186,440 0.14 % 4.73 % ABS Residuals 113 34,139 9,086 — 43,225 — 12.93 % Total ABS 113 34,139 9,086 — 43,225 — 12.93 % Total - AFS $ 13,306,364 $ 722,454 $ 22,163 $ (19,891) $ 724,726 0.48 % 5.35 % Consolidated SLST Non-Agency RMBS Subordinated $ 256,651 $ 213,593 $ — $ (29,556) $ 184,037 4.66 % 4.92 % IO 208,932 30,708 — (2,601) 28,107 3.50 % 8.38 % Total - Non-Agency RMBS 465,583 244,301 — (32,157) 212,144 4.13 % 5.38 % Total - Consolidated SLST $ 465,583 $ 244,301 $ — $ (32,157) $ 212,144 4.13 % 5.38 % Total Investment Securities $ 13,771,947 $ 966,755 $ 22,163 $ (52,048) $ 936,870 0.55 % 5.35 % (1) Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods. (2) Our weighted average yield was calculated by dividing our annualized interest income by our weighted average amortized cost for the respective periods. 89 Table of Contents Investment Securities Financing Repurchase Agreements In March 2020, in reaction to the market turmoil related to the COVID-19 pandemic, our investment securities repurchase agreement providers dramatically changed their risk tolerances, including reducing or eliminating availability to add or roll maturing repurchase agreements, increasing haircuts and reducing security valuations. In turn, this led to significant disruptions in our financing markets, negatively impacting the Company as well as the entire mortgage REIT industry, generally. In response, the Company completely eliminated its securities repurchase agreement exposure in 2020. The Company will continue to evaluate the securities repurchase agreement market before increasing its exposure in the future. The Company has historically financed its investment securities primarily through repurchase agreements with third-party financial institutions. These repurchase agreements are short-term financings that bear interest rates typically based on a spread to LIBOR or an index that is expected over time to be closely correlated to changes in LIBOR and are secured by the investment securities which they finance. Upon entering into a financing transaction, our counterparties negotiate a “haircut”, which is the difference expressed in percentage terms between the fair value of the collateral and the amount the counterparty will advance to us. The size of the haircut represents the counterparty’s perceived risk associated with holding the investment securities as collateral. The haircut provides counterparties with a cushion for daily market value movements that reduce the need for margin calls or margins to be returned as normal daily changes in investment security market values occur. The following table details the quarterly average balance, ending balance and maximum balance at any month-end during each quarter in 2021, 2020 and 2019 for our repurchase agreements secured by investment securities (dollar amounts in thousands): Quarter Ended Quarterly Average Balance End of Quarter Balance Maximum Balance at any Month-End December 31, 2021 $ — $ — $ — September 30, 2021 — — — June 30, 2021 — — — March 31, 2021 — — — December 31, 2020 — — — September 30, 2020 29,190 — 87,571 June 30, 2020 108,529 87,571 150,445 March 31, 2020 1,694,933 713,364 2,237,399 December 31, 2019 2,212,335 2,352,102 2,352,102 September 30, 2019 1,776,741 1,823,910 1,823,910 June 30, 2019 1,749,293 1,843,815 1,843,815 March 31, 2019 1,604,421 1,654,439 1,654,439 Non-Agency RMBS Re-Securitization In June 2020, the Company completed a re-securitization of certain non-Agency RMBS primarily for the purpose of obtaining non-recourse, longer-term financing on a portion of its non-Agency RMBS portfolio. In February 2021, the Company exercised its right to an optional redemption of its non-Agency RMBS re-securitization with an outstanding principal balance of $14.7 million at the time of redemption, returning the non-Agency RMBS held by the re-securitization trust to the Company. 90 Table of Contents Derivative Assets and Liabilities The Company enters into derivative instruments in connection with its risk management activities. These derivative instruments may include interest rate swaps, swaptions, futures, options on futures and mortgage derivatives such as forward-settling purchases and sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced,” or TBAs. We have generally used interest rate swaps to hedge variable cash flows associated with our variable rate borrowings. We typically paid a fixed rate and received a floating rate based on one- or three- month LIBOR, on the notional amount of the interest rate swaps. The floating rate we received under our swap agreements had the effect of offsetting the repricing characteristics and cash flows of our financing arrangements. Derivative financial instruments may contain credit risk to the extent that the institutional counterparties may be unable to meet the terms of the agreements. All of the Company’s interest rate swaps were cleared through CME Group Inc. (“CME Clearing”) which is the parent company of the Chicago Mercantile Exchange Inc. CME Clearing serves as the counterparty to every cleared transaction, becoming the buyer to each seller and the seller to each buyer, limiting the credit risk by guaranteeing the financial performance of both parties and netting down exposures. In March 2020, in response to the turmoil in the financial markets, we terminated our interest rate swaps, recognizing a realized loss of $73.1 million which was partially offset by a reversal of $29.0 million in unrealized losses, resulting in a total net loss of $44.1 million for the year ended December 31, 2020. 91 Table of Contents Debt The Company’s debt as of December 31, 2021 included convertible notes, senior unsecured notes and subordinated debentures. Convertible Notes As of December 31, 2021, the Company had $138.0 million aggregate principal amount of its 6.25% Senior Convertible Notes (the "Convertible Notes") outstanding. The Convertible Notes were issued at a discount with a total cost to the Company of approximately 8.24%. The Company redeemed the Convertible Notes at maturity on January 15, 2022. Senior Unsecured Notes As of December 31, 2021, the Company had $100.0 million aggregate principal amount of its 5.75% Senior Unsecured Notes (the "Senior Unsecured Notes") outstanding, due on April 30, 2026. The Senior Unsecured Notes were issued at par and carry deferred charges resulting in a total cost to the Company of approximately 6.64%. The Company's Senior Unsecured Notes contain various covenants including the maintenance of a minimum net asset value, ratio of unencumbered assets to unsecured indebtedness and senior debt service coverage ratio and limit the amount of leverage the Company may utilize and its ability to transfer the Company’s assets substantially as an entirety or merge into or consolidate with another person. Subordinated Debentures As of December 31, 2021, certain of our wholly-owned subsidiaries had trust preferred securities outstanding of $45.0 million with a weighted average interest rate of 4.02% which are due in 2035. The securities are fully guaranteed by us with respect to distributions and amounts payable upon liquidation, redemption or repayment. These securities are classified as subordinated debentures in the liability section of our consolidated balance sheets. 92 Table of Contents Balance Sheet Analysis - Company ’ s Stockholders’ Equity The following table provides a summary of the Company's stockholders' equity at December 31, 2021 and 2020, respectively (dollar amounts in thousands): December 31, 2021 December 31, 2020 7.750% Series B Cumulative Redeemable Preferred Stock (1) $ — $ 76,180 7.875% Series C Cumulative Redeemable Preferred Stock (2) — 101,102 8.000% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock 148,134 148,134 7.875% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock 179,349 179,349 6.875% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (2) 138,650 — 7.000% Series G Cumulative Redeemable Preferred Stock (1) 72,088 — Common stock 3,794 3,777 Additional paid-in capital 2,356,576 2,342,934 Accumulated other comprehensive income 1,778 994 Accumulated deficit (559,338) (551,268) Company's stockholders' equity $ 2,341,031 $ 2,301,202 (1) During the year ended December 31, 2021, we i ssued 3 million shares of our Series G Preferred Stock for net proceeds of approximately $72.1 million and fully redeemed our Series B Preferred Stock for approximately $80.0 million, lowering the cost of capital represented by the redeemed shares by 75 basis points. (2) During the year ended December 31, 2021, we i ssued 5.75 million shares of our Series F Preferred Stock for net proceeds of approximately $138.6 million and fully redeemed our Series C Cumulative Preferred Stock for approximately $104.9 million, lowering the cost of capital represented by the redeemed shares by 100 basis points. 93 Table of Contents Liquidity and Capital Resources General Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, comply with margin requirements, fund our operations, pay dividends to our stockholders and other general business needs. Generally, our investments and assets generate liquidity on an ongoing basis through principal and interest payments, prepayments, net earnings retained prior to payment of dividends and distributions from equity investments. In addition, we may generate liquidity through the sale of assets from our investment portfolio or the securitization or collateralized financing of our assets. As discussed throughout this Annual Report on Form 10-K, the COVID-19 pandemic-driven disruptions in the real estate, mortgage and financial markets negatively impacted our liquidity during the first half of 2020 and may negatively affect our liquidity in the future. In response to the difficult conditions encountered in March and April 2020, since late March 2020, we have focused on strengthening our balance sheet and long-term capital preservation through the selective disposition of assets and by focusing on assets and markets that provide compelling risk-adjusted returns through either an unlevered strategy or through residential loan repurchase agreement financing with terms of one year or more or sustainable non-mark-to-market financing arrangements, including securitizations and non-mark-to-market repurchase agreement financing. Since March 2020, we have completed seven securitization transactions and, as of December 31, 2021, reduced our mark-to-market repurchase agreement financing by 83% from December 31, 2019 levels, which has pushed our portfolio recourse leverage ratio down to 0.2 times as of December 31, 2021. At December 31, 2021, we had $289.6 million of cash and cash equivalents, $431.2 million of unencumbered investment securities (including the securities we own in Consolidated SLST), $973.6 million of unencumbered residential loans and $300.8 million of unencumbered preferred equity investments in owners of multi-family properties. Both of our residential and multi-family asset management teams have been active in responding to the government assistance programs that were instituted in response to the impacts of the COVID-19 pandemic providing relief to residential and multi-family loan borrowers. We have endeavored to work with any of our borrowers or operating partners that require relief because of the pandemic. As of December 31, 2021, less than 1% of our residential loan portfolio had an active COVID-19 assistance plan. We have a long history of dealing with distressed borrowers and currently do not expect these levels of forbearance to have a material impact on our liquidity. In our multi-family portfolio, one loan is delinquent in making its distributions to us. This loan represents 1.3% of our total preferred equity and mezzanine loan investment portfolio. Although we did not see a significant increase in forbearance and delinquency rates in our portfolio since the onset of the COVID-19 pandemic, we would expect delinquencies, defaults and requests for forbearance arrangements to rise should savings, incomes and revenues of borrowers, operating partners and other businesses become further constrained from the ongoing impacts of the COVID-19 pandemic. We cannot assure you that any increase in or prolonged period of payment deferrals, forbearance, delinquencies, defaults, foreclosures or losses will not adversely affect our net interest income, the fair value of our assets or our liquidity. We historically have endeavored to fund our investments and operations through a balanced and diverse funding mix, including proceeds from the issuance of common and preferred equity and debt securities, short-term and longer-term repurchase agreements and CDOs. The type and terms of financing used by us depends on the asset being financed and the financing available at the time of the financing. As discussed above, as a result of the severe market dislocations related to the COVID-19 pandemic and, more specifically, the unprecedented illiquidity in our repurchase agreement financing and MBS markets, we have placed and expect to continue to place a greater emphasis on procuring longer-termed and/or more committed financing arrangements, such as securitizations, term financings and corporate debt securities that provide less or no exposure to fluctuations in the collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets. To this end, we have completed non-mark-to-market securitizations and non-mark-to-market repurchase agreement financings with new and existing counterparties since March 2020. Additionally, we completed a senior unsecured notes offering and two underwritten public offerings of preferred stock during the year ended December 31, 2021, the proceeds from which we used to redeem our Series B Preferred Stock and Series C Preferred Stock. Based on current market conditions, our current investment portfolio, new investment initiatives, leverage ratio and available and future possible financing arrangements, we believe our existing cash balances, funds available under our various financing arrangements and cash flows from operations will meet our liquidity requirements for at least the next 12 months. We have explored and will continue in the near term to explore additional financing arrangements to further strengthen our balance sheet and position ourselves for future investment opportunities, including, without limitation, additional issuances of our equity and debt securities and longer-termed financing arrangements; however, no assurance can be given that we will be able to access any such financing, or the size, timing or terms thereof. 94 Table of Contents Cash Flows and Liquidity for the Year Ended December 31, 2021 During the year ended December 31, 2021, net cash, cash equivalents and restricted cash increased by $33.4 million. Cash Flows from Operating Activities We generated net cash flows from operating activities of $138.9 million during the year ended December 31, 2021. Our cash flow provided by operating activities differs from our net income due to these primary factors: (i) differences between (a) accretion, amortization, depreciation and recognition of income and losses recorded with respect to our investments and (b) the cash received therefrom and (ii) unrealized gains and losses on our investments. Cash Flows from Investing Activities During the year ended December 31, 2021, our net cash flows used in investing activities were $133.0 million, primarily as a result of purchases of residential loans, the funding of multi-family joint venture and preferred equity investments, the purchase of non-Agency RMBS and ABS and the purchases of and capital expenditures on single-family residential properties. This was partially offset by principal repayments and refinancing of residential loans, repayments of investment securities and preferred equity and mezzanine loan investments, returns of capital from equity investments and proceeds from the sales of Agency RMBS, non-Agency RMBS, CMBS and residential loans during the period. Although we generally intend to hold our assets as long-term investments, we may sell certain of these assets in order to manage our interest rate risk and liquidity needs, to meet other operating objectives or to adapt to market conditions. We cannot predict the timing and impact of future sales of assets, if any. Because a portion of our assets are financed through repurchase agreements or CDOs, a portion of the proceeds from any sales of or principal repayments on our assets may be used to repay balances under these financing sources. Accordingly, all or a significant portion of cash flows from principal repayments received from residential loans, including residential loans held in Consolidated SLST, principal repayments received on multi-family loans held in the Consolidated K-Series and proceeds from sales or principal paydowns received from investment securities available for sale were used to repay CDOs issued by the respective Consolidated VIEs or repurchase agreements (included as cash used in financing activities). Cash Flows from Financing Activities During the year ended December 31, 2021, our cash flows provided by financing activities were $27.5 million. The main sources of cash flows from financing activities were proceeds from the issuance of residential CDOs, Senior Unsecured Notes, and preferred stock and proceeds from repurchase agreements related to our residential loans. This was partially offset by paydowns on CDOs, redemption of preferred stock and dividend payments on both common and preferred stock. 95 Table of Contents Liquidity – Financing Arrangements As of December 31, 2021, we had no amounts outstanding under short-term repurchase agreements on our investment securities. These repurchase agreements are typically secured by certain of our investment securities and bear interest rates that have historically moved in close relationship to LIBOR. Any financings under these repurchase agreements are based on the fair value of the assets that serve as collateral under these agreements. Interest rate changes and increased prepayment activity can have a negative impact on the valuation of these securities, reducing the amount we can borrow under these agreements. Moreover, our repurchase agreements allow the counterparties to determine a new market value of the collateral to reflect current market conditions and because these lines of financing are not committed, the counterparty can effectively call the loan at any time. Market value of the collateral represents the price of such collateral obtained from generally recognized sources or the most recent closing bid quotation from such source plus accrued income. If a counterparty determines that the value of the collateral has decreased, the counterparty may initiate a margin call and require us to either post additional collateral to cover such decrease or repay a portion of the outstanding amount financed in cash, on minimal notice, and repurchase may be accelerated upon an event of default under the repurchase agreements. Moreover, in the event an existing counterparty elected to not renew the outstanding balance at its maturity into a new repurchase agreement, we would be required to repay the outstanding balance with cash or proceeds received from a new counterparty or to surrender the securities that serve as collateral for the outstanding balance, or any combination thereof. If we were unable to secure financing from a new counterparty and had to surrender the collateral, we would expect to incur a loss. In addition, in the event one of our repurchase agreement counterparties defaults on its obligation to “re-sell” or return to us the assets that are securing the financing at the end of the term of the repurchase agreement, we would incur a loss on the transaction equal to the amount of “haircut” associated with the short-term repurchase agreement, which we sometimes refer to as the “amount at risk.” At December 31, 2021, we had longer-term repurchase agreements with terms of up to two years with three third-party financial institutions that are secured by certain of our residential loans and that function similar to our short-term repurchase agreements. The financings under two of these repurchase agreements are subject to margin calls to the extent the market value of the residential loans falls below specified levels and repurchase may be accelerated upon an event of default under the repurchase agreements. Beginning in the third quarter of 2020, we entered into or amended agreements with new and existing counterparties that are secured by certain of our residential loans and are not subject to margin calls in the event the market value of the collateral declines. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Analysis—Residential Loans Financing—Repurchase Agreements" for further information. During the terms of the repurchase agreements secured by residential loans, proceeds from the residential loans will be applied to pay any price differential, if applicable, and to reduce the aggregate repurchase price of the collateral. The repurchase agreements secured by residential loans contain various covenants, including among other things, the maintenance of certain amounts of liquidity and total stockholders' equity. As of December 31, 2021, we had an aggregate amount at risk under our residential loan repurchase agreements of approximately $174.9 million, which represents the difference between the fair value of the loans pledged and the outstanding balance of our repurchase agreements. Significant margin calls have had, and could in the future have, a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders. See “Liquidity and Capital Resources – General” above. At December 31, 2021, the Company had $138.0 million aggregate principal amount of Convertible Notes outstanding. The Convertible Notes were issued at 96% of the principal amount, bore interest at a rate equal to 6.25% per year, payable semi-annually in arrears on January 15 and July 15 of each year, and were redeemed by the Company at maturity on January 15, 2022 for $138.0 million. At December 31, 2021, the Company had $100.0 million aggregate principal amount of Senior Unsecured Notes outstanding. The Senior Unsecured Notes were issued at 100% of the principal amount and bear interest at a rate equal to 5.75% per year (subject to adjustment from time to time based on changes in the ratings of the Senior Unsecured Notes by one or more nationally recognized statistical rating organizations), payable semi-annually in arrears on April 30 and October 30 of each year, and are expected to mature on April 30, 2026, unless earlier redeemed. The Company has the right to redeem the Senior Unsecured Notes, in whole or in part, prior to maturity, subject to a "make-whole" premium or other date-dependent multiples of principal amount redeemed. No sinking fund is provided for the Senior Unsecured Notes. 96 Table of Contents At December 31, 2021, we also had other longer-term debt which includes Company-sponsored residential loan securitization CDOs with a carrying value of $682.8 million. The real estate assets held by our multi-family joint venture investments are subject to mortgages payable. We have no obligation for repayment of the mortgages payable but, with respect to certain of the mortgages payable, we may execute a non-recourse guaranty related to commitment of bad acts. As of December 31, 2021, our Company recourse leverage ratio, which represents our total outstanding repurchase agreement financing, subordinated debentures, Convertible Notes and Senior Unsecured Notes divided by our total stockholders' equity, was approximately 0.4 to 1. Our overall leverage ratio does not include debt associated with CDOs or mortgages payable on real estate. As of December 31, 2021, our portfolio recourse leverage ratio, which represents our outstanding repurchase agreement financing divided by our total stockholders’ equity, was approximately 0.2 to 1. We monitor all at risk or short-term financings to enable us to respond to market disruptions as they arise. Liquidity – Hedging and Other Factors Certain of our hedging instruments may also impact our liquidity. We may use interest rate swaps, swaptions, TBAs or other futures contracts to hedge interest rate and market value risk associated with investments in Agency RMBS. With respect to interest rate swaps, futures contracts and TBAs, initial margin deposits, which can be comprised of either cash or securities, will be made upon entering into these contracts. During the period these contracts are open, changes in the value of the contract are recognized as unrealized gains or losses by marking to market on a daily basis to reflect the market value of these contracts at the end of each day’s trading. We may be required to satisfy variable margin payments periodically, depending upon whether unrealized gains or losses are incurred. In addition, because delivery of TBAs extend beyond the typical settlement dates for most non-derivative investments, these transactions are more prone to market fluctuations between the trade date and the ultimate settlement date, and thereby are more vulnerable to increasing amounts at risk with the applicable counterparties. In March 2020, in response to the turmoil in the financial markets, we terminated our interest rate swaps and currently do not have any hedges in place. For additional information regarding the Company’s derivative instruments and hedging activities for the periods covered by this report, including the fair values and notional amounts of these instruments and realized and unrealized gains and losses relating to these instruments, please see Note 8 to our consolidated financial statements included in this report. Liquidity — Securities Offerings In addition to the financing arrangements described above under the caption “Liquidity—Financing Arrangements,” we also rely on follow-on equity offerings of common and preferred stock, and may utilize from time to time debt securities offerings, as a source of both short-term and long-term liquidity. We also may generate liquidity through the sale of shares of our common stock or preferred stock in “at-the-market” equity offering programs pursuant to equity distribution agreements, as well as through the sale of shares of our common stock pursuant to our Dividend Reinvestment Plan (“DRIP”), which provides for the issuance of up to $20.0 million of shares of our common stock. The Company had no common stock offerings during the year ended December 31, 2021. In July 2021, the Company completed an underwritten public offering of 5.75 million shares of Series F Preferred Stock for total net proceeds to the Company of approximately $138.6 million after deduction of underwriting discounts and commissions and offering expenses. The Company used the net proceeds to fund the redemption of all outstanding shares of its Series C Preferred Stock at an aggregate redemption price of approximately $25.08 per share, which included accumulated and unpaid dividends up to, but not including, the redemption date of July 30, 2021. This lowered the coupon on the capital represented by the redeemed Series C Preferred Stock by 100 basis points. In November 2021, the Company completed an underwritten public offering of 3.00 million shares of Series G Preferred Stock for total net proceeds to the Company of approximately $72.1 million after deduction of underwriting discounts and commissions and offering expenses. The Company used the net proceeds to fund the redemption of all outstanding shares of its Series B Preferred Stock at an aggregate redemption price of approximately $25.34 per share, which included accumulated and unpaid dividends up to, but not including, the redemption date of December 18, 2021. This lowered the coupon on the capital represented by the redeemed Series B Preferred Stock by 75 basis points. 97 Table of Contents Dividends For information regarding the declaration and payment of dividends on our common stock and preferred stock for the periods covered by this report, please see Note 15 to our consolidated financial statements included in this report. Our Board of Directors will continue to evaluate our dividend policy each quarter and will make adjustments as necessary, based on our earnings and financial condition, capital requirements, maintenance of our REIT qualification, restrictions on making distributions under Maryland law and such other factors as our Board of Directors deems relevant. Our dividend policy does not constitute an obligation to pay dividends. We intend to make distributions to our stockholders to comply with the various requirements to maintain our REIT status and to minimize or avoid corporate income tax and the nondeductible excise tax. However, differences in timing between the recognition of REIT taxable income and the actual receipt of cash could require us to sell assets or to borrow funds on a short-term basis to meet the REIT distribution requirements and to minimize or avoid corporate income tax and the nondeductible excise tax. In the event we fail to pay dividends on our preferred stock, the Company would become subject to certain limitations on its ability to pay dividends or redeem or repurchase its common stock or preferred stock. Summary of Material Contractual Obligations The Company had the following material contractual obligations at December 31, 2021 (dollar amounts in thousands): Less than 1 year 1 to 3 years 4 to 5 years More than 5 years Total Repurchase agreements (1) $ 561,045 $ — $ — $ — $ 561,045 Subordinated debentures (1) 1,847 3,699 3,694 60,735 69,975 Convertible notes (1) 142,313 — — — 142,313 Senior unsecured notes (1) 5,750 11,500 108,625 — 125,875 Total contractual obligations (2) $ 710,955 $ 15,199 $ 112,319 $ 60,735 $ 899,208 (1) Amounts include projected interest payments during the period. Projected interest payments are based on interest rates in effect and outstanding balances as of December 31, 2021. (2) We exclude our CDOs from the contractual obligations disclosed in the table above as this debt is non-recourse and not cross-collateralized and, therefore, must be satisfied exclusively from the proceeds of the residential loans held in securitization trusts. See Note 11 in the Notes to Consolidated Financial Statements for further information regarding our CDOs. We also exclude mortgages payable on real estate as they are non-recourse debt for which we have no obligation for repayment. See Note 12 in the Notes to Consolidated Financial Statements for further information regarding our mortgages payable on real estate. In addition, pursuant to the operating agreement for one of our joint venture investments, subject to certain conditions, third party investors in this joint venture have the ability to sell their ownership interests to us, at their election, and we are obligated to purchase such interests for cash. We have also entered into an agreement with certain third party investors in this joint venture to fund future investments in multi-family properties totaling $40.0 million. 98 Table of Contents