16 unchanged sentences
• Our investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property as well as the risks of delinquency, default and foreclosure.
+Added: • Declining real estate valuations and impairment charges to real estate assets, such as those held by our joint venture equity investments in multi-family properties, have adversely affected our earnings and financial condition in the past and may adversely affect our earnings and financial condition in the future.
• Our operating partners could subject us to liabilities in excess of those contemplated or prevent us from taking actions which are in the best interests of our stockholders.
28 unchanged sentences
Government may materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders.
−Removed: • The planned discontinuation of LIBOR and the transition from LIBOR to an alternative reference rate may adversely impact our borrowings and assets.
+Added: • The discontinuation of LIBOR and the transition from LIBOR to an alternative reference rate, such as SOFR, may adversely impact our borrowings, operations, cash flows and assets and the value of our Series D Preferred Stock and Series E Preferred Stock.
Risks Related To Our Organization, Our Structure and Other Risks
1 unchanged sentence
• Maintenance of our Investment Company Act exemption imposes limits on our operations.
+Added: • The accrual of dividends on certain of our series of preferred stock at a floating rate in the future could adversely affect our ability to make cash distributions at our intended levels, or at all, or otherwise materially adversely affect our earnings, cash flows or financial condition.
• Mortgage loan modification programs and future legislative action may adversely affect the value of, and the returns on, our targeted assets.
18 unchanged sentences
Risks Related to Our Business
−Removed: Declines in the market values of assets in our investment portfolio may adversely affect periodic reported results and credit availability, which may reduce our earnings and book value and, in turn, may constrain our liquidity and cash available for distribution to our stockholders.
+Added: Declines in the market values of assets in our investment portfolio may adversely affect periodic reported results and credit availability, which may reduce our earnings, book value and the market value of our securities and, in turn, may constrain our liquidity and cash available for distribution to our stockholders.
The market value of our investment portfolio may move inversely with changes in interest rates.
−Removed: We anticipate that increases in interest rates will generally tend to decrease our net income and the market value of our investment portfolio, as occurred during much of 2022.
+Added: We anticipate that increases in interest rates will generally tend to decrease our net income and the market value of our investment portfolio, as occurred during much of 2022 and in 2023.
Changes in the market values of assets in our investment portfolio where the Company elected the fair value option will be reflected in earnings and changes in the market values of assets in our investment portfolio where the Company did not elect the fair value option will be reflected in stockholders’ equity.
−Removed: As a result, a decline in market values of assets in our investment portfolio may reduce our earnings and book value.
+Added: As a result, a decline in market values of assets in our investment portfolio may reduce our earnings, book value and the market value of our securities.
A decline in the market value of our interest-bearing assets may adversely affect us, particularly in instances where we have borrowed money based on the market value of those assets.
13 unchanged sentences
The value of the properties we own interests in or that are collateralizing or underlying the loans, securities or interests we own may decline, particularly if we experience a significant or prolonged economic downturn and/or interest rates rise.
−Removed: The frequency of default and the loss severity on our assets upon default may be greater than we anticipate or price into the assets at acquisition.
+Added: The frequency of default and the loss severity on our assets upon default or otherwise may be greater than we anticipate or price into the assets at acquisition.
Credit sensitive assets that are partially collateralized by non-real estate assets may have increased risks and severity of loss.
5 unchanged sentences
An increase in interest rates may cause a decrease in the availability of certain of our targeted assets and could cause our interest expense to increase, which could materially adversely affect our ability to acquire targeted assets that satisfy our investment objectives, our earnings and our ability to make distributions to our stockholders.
−Removed: Rising interest rates, which we experienced throughout much of 2022, generally reduce economic activity, which, in turn, generally reduces the demand for mortgage loans due to the higher cost of borrowing and new construction redevelopment or renovation.
+Added: A higher interest rate environment, which we have experienced since 2022, generally reduces economic activity, which, in turn, generally reduces the demand for mortgage loans due to the higher cost of borrowing and new construction redevelopment or renovation.
A reduction in the volume of mortgage loans originated or in new construction, redevelopment or renovation of multi-family properties may affect the volume of targeted assets available to us, which could adversely affect our ability to acquire assets that satisfy our investment and business objectives.
−Removed: We also expect that rising interest rates will cause our targeted assets that were issued, originated or acquired prior to an interest rate increase to experience a decline in their fair value or provide yields that are below prevailing market interest rates.
−Removed: If rising interest rates or interest rate volatility cause us to be unable to acquire a sufficient volume of our targeted assets with a yield that is sufficiently above our borrowing cost, our ability to satisfy our investment objectives and to generate income and make distributions to our stockholders will be materially and adversely affected.
+Added: We also expect that higher interest rates will cause our targeted assets that were issued, originated or acquired prior to an interest rate increase to experience, as certain of them did in 2023, a decline in their fair value or provide yields that are below prevailing market interest rates.
+Added: If higher interest rates or interest rate volatility cause us to be unable to acquire a sufficient volume of our targeted assets with a yield that is sufficiently above our borrowing cost, our ability to satisfy our investment objectives and to generate income and make distributions to our stockholders will be materially and adversely affected.
In addition, a portion of the RMBS and residential loans we invest in may be comprised of ARMs that are subject to periodic and lifetime interest rate caps.
10 unchanged sentences
Additionally, to the extent cash flows from investments that return scheduled and unscheduled principal are reinvested, the spread between the yields of the new investments and available borrowing rates may decline, which would likely decrease our net income.
−Removed: It is also possible that short-term interest rates may exceed longer-term interest rates (a yield curve inversion), as occurred most recently during 2022, in which event our borrowing costs may exceed our interest income and we could incur significant operating losses.
+Added: It is also possible that short-term interest rates may exceed longer-term interest rates (a yield curve inversion), as they do currently, in which event our borrowing costs may exceed our interest income and we could incur significant operating losses.
Interest rate mismatches between the interest-earning assets held in our investment portfolio and the borrowings used to fund the purchases of those assets may reduce our net income or result in a loss during periods of changing interest rates.
2 unchanged sentences
In addition, the average maturity of our borrowings generally will be shorter than the average maturity of the assets currently in our portfolio and certain other targeted assets in which we seek to invest.
−Removed: We have used swap agreements in the past and currently use interest rate caps as a means for attempting to fix the cost of certain of our liabilities over a period of time;
+Added: We use swap agreements and interest rate caps as a means for attempting to fix the cost of certain of our liabilities over a period of time;
however, these agreements would not be sufficient to match the cost of all our liabilities against all of our investments.
In the event we experience unexpectedly high or low prepayment rates on the assets in our portfolio, our strategy for matching our assets with our liabilities is more likely to be unsuccessful which may result in reduced earnings or losses and reduced cash available for distribution to our stockholders.
−Removed: Our portfolio of assets may at times be concentrated in certain asset types or secured by properties concentrated in a limited number of real estate sectors or geographic areas, which increases, with respect to those asset types, property types or geographic locations, our exposure to economic downturns and risks associated with the real estate and lending industries in general.
+Added: Our investment portfolio may at times be concentrated in certain asset types or secured by properties concentrated in a limited number of real estate sectors or geographic areas, which increases, with respect to those asset types, property types or geographic locations, our exposure to economic downturns and risks associated with the real estate and lending industries in general.
We are not required to observe any specific diversification criteria.
−Removed: As a result, our portfolio of assets may, at times, be concentrated in certain asset types that are subject to higher risk of delinquency, default or foreclosure, or secured by properties concentrated in a limited number of real estate sectors or geographic locations, which increases, with respect to those sectors or geographic locations, our exposure to economic downturns and risks associated with the real estate and lending industries in general, thereby increasing the risk of loss and the magnitude of potential losses to us and our stockholders if one or more of these asset or property types perform poorly or the states or regions in which these properties are located are negatively impacted.
+Added: As a result, our investment portfolio may, at times, be concentrated in certain asset types that are subject to higher risk of delinquency, default or foreclosure, or secured by properties concentrated in a limited number of real estate sectors or geographic locations, which increases, with respect to those sectors or geographic locations, our exposure to economic downturns and risks associated with the real estate and lending industries in general, thereby increasing the risk of loss and the magnitude of potential losses to us and our stockholders if one or more of these asset or property types perform poorly or the states or regions in which these properties are located are negatively impacted.
As of December 31, 2023, approximately 8.8% of our total investment portfolio represented direct or indirect investments in multi-family properties.
−Removed: Moreover, as of December 31, 2022, 33.8%, 17.7% and 13.9% of the outstanding balance of our Mezzanine Lending investments were made on properties located in Florida, Texas and Alabama, respectively, and 42.9%, 28.7% and 10.1% of our joint venture equity investments owned multi-family properties located in Florida, Texas and Alabama, respectively.
+Added: Moreover, as of December 31, 2023, 26.3%, 20.2% and 10.3% of the outstanding balance of our Mezzanine Lending investments were made on properties located in Florida, Texas and Utah, respectively, and 38.5%, 25.0% and 11.6% of our joint venture equity investments owned multi-family properties located in Florida, Texas and Alabama, respectively.
Our direct and indirect investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property, which is impacted by numerous factors and developments, including many risks that affect real estate generally.
−Removed: See “-Our investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property as well as the risks of delinquency, default and foreclosure” and “-Our business is subject to risks particular to the real property and real estate-related assets.” To the extent any of these factors materially adversely impact the multi-family property sector or the geographic regions in which we invest, the market values of our multi-family assets and our business, financial condition and results of operations may be materially adversely affected.
+Added: See “-Our investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property as well as the risks of delinquency, default and foreclosure” and “-Our business is subject to risks particular to real property and real estate-related assets.” To the extent any of these factors materially adversely impact the multi-family property sector or the geographic regions in which we invest, the market values of our multi-family assets and our business, financial condition and results of operations may be materially adversely affected.
Similarly, as of December 31, 2023, approximately 48.9% of our total investment portfolio was comprised of residential loans and non-Agency RMBS.
−Removed: Moreover, as of December 31, 2022, significant portions of the properties that secure our residential loans, including loans that secure Consolidated SLST, were concentrated in California, Florida, Texas, New York and New Jersey among other states.
+Added: Moreover, as of December 31, 2023, significant portions of the properties that secure our residential loans, including loans that secure Consolidated SLST, were concentrated in California, Florida, Texas, New York, New Jersey and Illinois among other states.
California is particularly susceptible to wildfire risk while Florida and Texas are susceptible to hurricane, wind and flood risks.
59 unchanged sentences
Numerous factors may affect an issuing entity’s ability to repay or fulfill its payment obligations on its subordinated securities, including, without limitation, the failure to meet its business plan, a downturn in its industry, rising interest rates, negative economic conditions or risks particular to real property.
−Removed: As of December 31, 2022, our portfolio included approximately $185.4 million of subordinated, first loss non-Agency RMBS and $0.9 million of first loss ABS.
+Added: As of December 31, 2023, our portfolio included approximately $143.5 million of subordinated, first loss non-Agency RMBS.
In the event any of these factors cause the securitization entities in which we own subordinated securities to experience losses, the market value of our assets, our business, financial condition and results of operations and ability to make distributions to our stockholders may be materially adversely affected.
2 unchanged sentences
Generally, borrowers tend to prepay their mortgages when prevailing mortgage rates fall below the interest rates on their mortgage loans.
−Removed: In general, “premium” assets (assets whose market values exceed their principal or par amounts) are adversely affected by faster-than-anticipated prepayments because the above-market coupon that such premium assets carry will be earned for a shorter period of time.
+Added: In general, “premium” assets (i.e., assets, such as Agency RMBS, whose market values exceed their principal or par amounts) are adversely affected by faster-than-anticipated prepayments because the above-market coupon that such premium assets carry will be earned for a shorter period of time.
Generally, “discount” assets (assets whose principal or par amounts exceed their market values) are adversely affected by slower-than-anticipated prepayments.
39 unchanged sentences
Our preferred equity and mezzanine loan investments involve greater risks of loss than more senior loans secured by income-producing properties.
−Removed: We own and originate mezzanine loans, which are loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property.
−Removed: We also own and make preferred equity investments in entities that own property.
+Added: We own and originate mezzanine loans, which are loans secured by a pledge of the ownership interests of either the entity owning the multi-family property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the multi-family property.
+Added: We also own and make preferred equity investments in entities that own multi-family property.
These types of assets involve a higher degree of risk than senior mortgage lending secured by income-producing real property, because the loan may become unsecured or our equity investment may be effectively extinguished as a result of foreclosure by the senior lender.
1 unchanged sentence
If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan or preferred equity investment will be satisfied only after the senior debt, in the case of a mezzanine loan, or all senior and subordinated debt, in the case of a preferred equity investment, is paid in full.
−Removed: Where senior debt exists, the presence of intercreditor arrangements, which in this case are arrangements between the lender of the senior loan and the mezzanine lender or preferred equity investor that stipulate the rights and obligations of the parties, may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies or control decisions made in bankruptcy proceedings relating to borrowers or preferred equity investors.
+Added: Where senior debt exists, the presence of intercreditor arrangements, which in this case are arrangements between the lender of the senior loan and the mezzanine lender or preferred equity investor that stipulate the rights and obligations of the parties, may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies or control decisions made in bankruptcy proceedings relating to borrowers or preferred equity issuers.
As a result, we may not recover some or all of our investment, which could result in significant losses.
+Added: Declining real estate valuations and impairment charges to real estate assets, such as certain multi-family properties owned by entities in which we have joint venture equity investments, have adversely affected our earnings and financial condition in the past and may adversely affect our earnings and financial condition in the future.
+Added: We periodically evaluate real estate assets for indicators of impairment, which include, among other indicators, deteriorating operational performance, declining market conditions, legal and environmental concerns, and our ability and intent to hold each asset.
+Added: If impairment indicators exist for long-lived assets to be held and used, such as real estate held by our joint venture equity investments in multi-family properties or our single-family rental properties, we may record an impairment of real estate to reduce the carrying value of such asset to its estimated fair value.
+Added: Real estate assets that are held for sale or in disposal group held for sale, such as those owned by certain of our joint venture equity investments in multi-family properties, are recorded at the lower of their net depreciated carrying amount or estimated net fair value.
+Added: In the event that the estimated net fair value of a real estate asset is determined to be less than its net depreciated carrying amount, an impairment of real estate is recorded on our consolidated statements of operations for the amount of the difference.
+Added: Subsequent decreases, if any, in the net fair value of the real estate assets held for sale are recorded as impairments of real estate.
+Added: Further, if real estate or joint venture equity investments are determined to no longer meet the criteria to be accounted for as held for sale, they are returned to held and used at the lower of (a) their carrying amount before they were classified as held for sale, adjusted for any depreciation (amortization) expense that would have been recognized had the assets remained in their previous classification, or (b) their fair value at the date of the subsequent decision not to sell the real estate or joint venture equity investment, and downward adjustments, if any, are reported in loss on reclassification of disposal group in the consolidated statements of operations.
+Added: We determine the fair value of real estate assets based upon discounted cash flow analyses using property financial information and assumptions regarding market rent, revenue and expense growth, capitalization rates and return rates.
+Added: The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods.
+Added: A worsening real estate market may cause us to reevaluate the assumptions used in our estimation of fair value and/or impairment analysis.
+Added: For the years ended December 31, 2023 and 2022, we recognized net impairment losses of approximately $89.5 million and $2.4 million, respectively.
+Added: Also in the year ended December 31, 2023, we recognized a loss on reclassification of disposal group of approximately $16.2 million.
+Added: These losses have a direct, adverse impact on our net income because recording an impairment loss or loss on reclassification of disposal group results in an immediate negative adjustment to net income.
+Added: Impairment charges, such as those incurred in 2023 and 2022, adversely affect our financial condition, results of operations, cash available for distribution, including cash available for us to pay distributions to our stockholders, and per share trading price of our common stock.
+Added: Such impairment charges could adversely affect our earnings and financial condition in the future, particularly as we seek to opportunistically dispose of our joint venture equity investments in multi-family properties and they are reclassified as held for sale or held and used.
Our investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property as well as the risks of delinquency, default and foreclosure.
1 unchanged sentence
The ability of a borrower to repay a loan or obligation secured by, and the return on an equity interest in an entity that owns, an income-producing property typically is dependent primarily upon the successful operation of such property.
−Removed: If the net operating income of the subject property is reduced, the borrower's ability to repay the loan, on a timely basis or at all, or our ability to receive adequate returns on our investment, may be impaired.
+Added: If the net operating income of the subject property is reduced, the borrower's ability to repay the loan or recapitalize the property, on a timely basis or at all, or our ability to receive adequate returns on our investment, may be impaired.
Similarly, the single-family rental properties we own are subject to the risk that the tenant will be unable to pay rent timely or at all.
8 unchanged sentences
• declines in regional or local real estate values or economic conditions;
−Removed: • declines in regional or local rental or occupancy rates;
−Removed: • increases in interest rates, real estate tax rates, construction costs, energy costs and other operating expenses;
+Added: • declines in individual property or regional or local rental or occupancy rates;
+Added: • increases in interest rates, overall financing costs, real estate tax rates, construction costs, energy costs and other operating expenses;
• costs of remediation and liabilities associated with environmental conditions;
8 unchanged sentences
We make mezzanine loans to and preferred equity investments in owners of multi-family properties as part of our investment strategy and presently own joint venture equity investments in owners of multi-family properties.
−Removed: We consider such owners to be our operating partners with respect to the acquisition, improvement or financing of the underlying properties, as the case may be.
+Added: We consider such owners (or other owners in the case of joint venture equity investments) to be our operating partners with respect to the acquisition, improvement or financing of the underlying properties, as the case may be.
We may also make indirect investments in properties through other arrangements.
Such investments may involve risks not otherwise present when acquiring real estate directly, including, for example:
−Removed: • operating partners may share certain approval rights over major decisions;
−Removed: • our operating partners may have economic or business interests or goals that are or become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in the joint venture or the timing of termination or liquidation of the joint venture;
+Added: • operating partners may share or control certain approval rights over major decisions;
+Added: • our operating partners may have economic or business interests or goals that are or become inconsistent with our business interests or goals, including inconsistent goals relating to the sale or refinancing of properties held in the joint venture or the timing of termination or liquidation of the joint venture;
• we may be limited in our ability to dispose of or refinance properties on a timely basis without financial penalty or at all;
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If our interest is subject to a buy/sell right, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to elect to purchase the interest of our operating partner that is subject to the buy/sell right, in which case we may be forced to sell our interest as the result of the exercise of such right when we would otherwise prefer to keep our interest.
−Removed: Pursuant to the operating agreement for one of our joint venture investments, s third party investors have the ability to sell their ownership interests to us at their election once a year subject to annual minimum and maximum amount limitations and we are obligated to purchase such interests for cash.
+Added: Pursuant to the operating agreement for one of our joint venture investments, third party investors have the ability to sell their ownership interests to us at their election once a year subject to annual minimum and maximum amount limitations and we are obligated to purchase such interests for cash.
We may not have sufficient cash, available borrowing capacity or other capital resources to allow us to finance the purchase of such interests, which may cause us to breach our obligations under the operating agreement, or we may be required to purchase such interest at a time when it would not otherwise be in our best interest to do so.
1 unchanged sentence
The proposed disposition of our portfolio of joint venture equity interests in multi-family properties is subject to a number of risks, including the risk that we may be unable to complete the sale of our joint venture equity portfolio on terms acceptable to us, or at all.
−Removed: In September 2022, we announced that our Board of Directors had approved a strategic repositioning of our business pursuant to which we will opportunistically dispose of our joint venture equity interests in multi-family properties over time and, following disposition, we will reallocate the capital associated with such assets to our targeted assets.
−Removed: As a result, we are considering various opportunities to monetize our multi-family joint venture equity investments.
+Added: In September 2022, we announced that our Board of Directors had approved a strategic repositioning of our business pursuant to which we will opportunistically dispose over time our joint venture equity investments in multi-family properties and, following disposition, we will reallocate the capital associated with such assets to our targeted assets.
+Added: Accordingly, we are considering various opportunities to monetize our multi-family joint venture equity investments.
As of December 31, 2023 , we held $236.3 million in joint venture equity interests in multi-family properties, representing approximately 4.6% of our total investment portfolio.
−Removed: To date, we have disposed of one multi-family property under this disposition strategy.
+Added: As a result of unfavorable market conditions that negatively impacted our ability to secure a reasonable buyer and completely exit our investment in the joint venture equity interests, as of December 31, 2023, we have disposed of six multi-family joint venture equity investments under this disposition strategy.
+Added: Additionally, as of December 31, 2023, we have reclassified certain of these joint venture equity investments from held for sale to held and used because of the increased expected time to completion of sales.
Although we intend to acquire additional targeted assets with the proceeds from the sale of our joint venture equity interests, we face significant competition for acquisition of our targeted assets and we may not be able or have the opportunity to make suitable investments on favorable terms.
We can provide no assurances regarding the timing or pricing of the sales of our joint venture equity interests in multi-family properties, or that such sales will occur at all.
−Removed: If we cannot sell these joint venture equity interests in a timely manner and/or on terms acceptable to us, we may have less flexibility to rotate into more preferred asset classes, which may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
+Added: Moreover, to the extent we hold these investments as held for sale, we are required to carry the properties at the lesser of the net carrying amount of the assets or the estimated net fair value.
+Added: If the estimated net fair value of the real estate held for sale is less than the net carrying amount of the assets, an impairment of real estate charge is recorded.
+Added: We have incurred and may in the future incur impairment charges on these properties while we hold them for sale.
+Added: If we cannot sell these joint venture equity interests in a timely manner and/or on terms acceptable to us, we may have less flexibility to rotate into more preferred asset classes and/or we may incur a loss on these investments, which may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Our business is subject to risks particular to real property and real estate-related assets.
5 unchanged sentences
• adverse changes in global, national, regional and local economic and market conditions, including those relating to pandemics and health crises, ;
−Removed: • changes in federal, state or local governmental laws and regulations, fiscal policies, zoning ordinances and environmental legislation and the related costs of compliance with federal, state or local laws and regulations, fiscal policies and ordinances;
+Added: • changes in federal, state or local governmental laws and regulations, fiscal or tax policies, zoning ordinances and environmental legislation and the related costs of compliance with federal, state or local laws and regulations, fiscal policies and ordinances;
• adverse developments or conditions resulting from or associated with climate change.
4 unchanged sentences
Such due diligence may include (i) an assessment of the strengths and weaknesses of the asset’s or underlying asset's credit profile, (ii) a review of all or merely a subset of the documentation related to the asset or underlying asset or (iii) other reviews that we may deem appropriate to conduct.
−Removed: There can be no assurance that we will conduct any specific level of due diligence, or that, among other things, the due diligence process will uncover all relevant facts, the materials provided to us or that we review will be accurate and complete or that any purchase will be successful, which could result in losses on these assets, which, in turn, could adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
+Added: There can be no assurance that we will conduct any specific level of due diligence, or that, among other things, the due diligence process will uncover all relevant facts, the materials provided to us or that we review will be accurate and complete or that any purchase or our projection for that purchase will prove successful, which could result in losses on these assets, which, in turn, could adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
The lack of liquidity in certain of our assets may adversely affect our business.
1 unchanged sentence
For example, certain of our assets may be securitized and are held in a securitization trust and may not be sold or transferred until the note issued by the securitization trust matures or is repaid.
+Added: Similarly, our joint venture equity and Mezzanine Lending investments may require the consent of our operating partner or a lender to transfer or sell our investment and may also be less attractive to a buyer due to certain contractual provisions.
Moreover, because many of our assets are subordinated to more senior securities or loans or depend on the ability of a borrower, tenant or operating partner to meet their contractual obligations, any potential buyer of those assets may request to conduct due diligence on those assets, which may delay the sale or transfer of those assets.
10 unchanged sentences
Valuations of some of our assets are subject to inherent uncertainty, may be based on estimates, may fluctuate over short periods of time and may differ from the values that would have been used if a ready market for these assets existed.
−Removed: While the determination of the fair value of our investment assets generally takes into consideration valuations provided by third-party dealers and pricing services, the final determination of exit price fair values for our investment assets is based on our judgment, and such valuations may differ from those provided by third-party dealers and pricing services.
+Added: While the determination of the fair value of our assets generally takes into consideration valuations provided by third-party dealers and pricing services, the final determination of exit price fair values for our assets is based on our judgment, and such valuations may differ from those provided by third-party dealers and pricing services.
Valuations of certain assets may be difficult to obtain or may not be reliable (particularly as related to residential loans, as discussed below).
22 unchanged sentences
Our net income largely depends on our ability to acquire our targeted assets at favorable spreads over our borrowing costs.
−Removed: In acquiring our targeted assets, we compete with other REITs, investment banking firms, savings and loan associations, banks, insurance companies, mutual funds, private investors, lenders and other entities that purchase mortgage-related assets, many of which have greater financial resources than us.
+Added: In acquiring our targeted assets, we compete with other REITs, investment banking firms, savings and loan associations, banks, insurance companies, mutual funds, private investors, lenders and other entities that purchase mortgage-related assets, many of which have greater financial resources or access to opportunities than us.
Greater demand for the assets we target for investment tends to increase prices and reduce the estimated yield on the asset.
Additionally, many of our potential competitors are not subject to REIT tax compliance or required to maintain an exclusion from the Investment Company Act.
−Removed: During much of 2021, increased demand for the assets we target resulted in reduced levels of investment by us which negatively impacted our net earnings during those periods.
+Added: During much of 2021, increased demand for the assets we targeted resulted in reduced levels of investment by us which negatively impacted our net earnings during those periods.
As in the recent past, we may not in the future be able to acquire sufficient quantities of our targeted assets at favorable spreads over our borrowing costs, which could have a material adverse effect on our business, financial condition, results of operations and ability to make distributions to our stockholders.
29 unchanged sentences
We depend upon the availability of adequate capital and financing sources on acceptable terms to fund our operations, meet financial obligations, and finance asset acquisitions.
−Removed: However, the capital and credit markets have experienced unprecedented levels of volatility and disruption in recent years, including most recently in 2020 as a result of the COVID-19 pandemic and, prior to that, the 2008 financial crisis, that have generally negatively impacted the availability of credit from time-to-time.
−Removed: Continued volatility or disruption in the credit or finance markets or a downturn in the global economy could materially adversely affect one or more of our lenders and could cause one or more of our lenders to be unwilling or unable to provide us with financing, to increase the costs of that financing or make the terms less attractive, or to become insolvent.
+Added: However, the capital and credit markets have experienced unprecedented levels of volatility and disruption in recent years, including in 2020 as a result of the COVID-19 pandemic and most recently in 2023 due to concerns with the solvency of certain regional banks, that have generally negatively impacted the availability of credit from time-to-time.
+Added: Continued volatility or disruption in the credit or finance markets or a downturn in the global economy could materially adversely affect one or more of our lenders and could cause lenders to be unwilling or unable to provide us with financing, to increase the costs of that financing or make the terms less attractive, or to become insolvent.
Such volatility or disruption could also limit or halt our access to securitization financing.
10 unchanged sentences
Finally, securitization financing has been limited from time to time in the recent past.
−Removed: Currently, due to rising interest rates and current market conditions, residential loan securitization activity has fallen in a significant way as the terms of such financing, in many cases, have become less attractive.
+Added: Currently, due to a higher interest rate environment and current market conditions, residential loan securitization activity has fallen in a significant way as the terms of such financing, in many cases, have become less attractive.
A prolonged decline in securitization activity may limit borrowings under warehouse facilities and other credit facilities that are intended to be refinanced by such securitizations.
4 unchanged sentences
We use repurchase agreements to finance a portion of our investments.
−Removed: In certain cases, these repurchase agreements allows the lender, to varying degrees, to revalue the collateral to values that the lender considers to reflect the market value.
+Added: In certain cases, these repurchase agreements allow the lender, to varying degrees, to revalue the collateral to values that the lender considers to reflect the market value.
In these cases, when a lender determines that the value of the collateral has decreased, it may initiate a margin call, in which case we may be required by the lending institution to provide additional collateral or pay down a portion of the funds advanced, but we may not have the funds available to do so.
8 unchanged sentences
As a result of the COVID-19 outbreak, we observed a mark-down of a portion of our assets by our repurchase agreement counterparties during the first quarter of 2020, resulting in us having to pay cash and securities to satisfy margin calls that were well beyond historical norms.
−Removed: Events of this type, were they to occur again in the future, could have a material adverse impact on our liquidity and could lead to significant losses, a rapid deterioration of our financial condition and possibly require us to file for protection under the U.S.
+Added: Disruptive events, including events similar to these, could have a material adverse impact on our liquidity and could lead to significant losses, a rapid deterioration of our financial condition and possibly require us to file for protection under the U.S.
Bankruptcy Code.
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Moreover, our repurchase agreements frequently contain cross-default provisions, so that if a default occurs under any one agreement, the lenders under our other agreements may also be entitled to declare a default, which could exacerbate our losses and cause a rapid deterioration of our financial condition.
−Removed: Any losses we incur on our repurchase transactions through our default or the default of our counterparty could adversely affect our earnings and thus our cash available for distribution to our stockholders.
+Added: Any losses we incur on our repurchase transactions through our default or the default of our counterparty could adversely affect our liquidity and earnings and thus our cash available for distribution to our stockholders.
Our use of repurchase agreements to borrow funds may give our lenders greater rights in the event that either we or a lender files for bankruptcy.
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The repurchase agreements that finance a portion of our investment portfolio and certain of our other existing financing arrangements, including our senior unsecured notes, and those we enter into in the future, contain or may contain financial covenants.
−Removed: Negative impacts on our business, including those caused by significant market disruptions like the COVID-19 pandemic or an economic recession, have and/or may make it more difficult to meet or satisfy these covenants, and we cannot assure you that we will remain in compliance with these covenants in the future.
+Added: Negative impacts on our business, including those caused by significant market disruptions or an economic downturn, have and/or may make it more difficult to meet or satisfy these covenants, and we cannot assure you that we will remain in compliance with these covenants in the future.
If we fail to meet or satisfy any of these covenants, we would be in default under these agreements, which could result in a cross-default or cross-acceleration under other financing arrangements, and the financing counterparties could elect to declare the repurchase price or principal and interest due and payable (or such amounts may automatically become due and payable), terminate their commitments, require the posting of additional collateral and enforce their respective interests against existing collateral.
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Subject to compliance with the requirements to maintain our qualification as a REIT, we may engage in certain hedging transactions to limit our exposure to changes in interest rates and credit markets and therefore may expose ourselves to risks associated with such transactions.
−Removed: We may utilize instruments such as interest rate swaps, interest rate swaptions, Eurodollars and U.S.
+Added: We may utilize instruments such as interest rate swaps, interest rate swaptions, interest rate caps, Eurodollars and U.S.
Treasury futures to seek to hedge the interest rate risk associated with our portfolio.
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Such hedging transactions may also limit the opportunity for gain if the values of the portfolio positions should increase.
+Added: In addition, to the extent the joint venture entities in which we own a common equity interest own multi-family properties that are required to purchase an interest rate cap to fix the variable interest rate on a senior mortgage on such property, any required reset of the interest rate cap at a time when interest rates are higher than they were at the time we initially underwrote the investment may materially adversely impact the cash flow from and value of such property.
Moreover, at any point in time we may choose not to hedge all or a portion of these risks, and we generally will not hedge those risks that we believe are appropriate for us to take at such time, or that we believe would be impractical or prohibitively expensive to hedge.
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• to the extent that the creditworthiness of a hedging counterparty deteriorates, it may be difficult or impossible to terminate or assign any hedging transactions with such counterparty.
−Removed: The use of derivative instruments is also subject to an increasing number of laws and regulations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank") and its implementing regulations.
+Added: The use of derivative instruments is also subject to an increasing number of laws and regulations, including the Dodd-Frank Act and its implementing regulations.
These laws and regulations are complex, compliance with them may be costly and time consuming, and our failure to comply with any of these laws and regulations could subject us to lawsuits or government actions and damage our reputation.
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The residential and commercial mortgage markets were materially adversely affected by changes in the lending landscape during the financial market crisis of 2008 and again by the significant market disruption in March and April 2020 resulting from the COVID-19 pandemic, the severity of which, in each case, was largely unanticipated by the markets, and there can be no assurance that such adverse markets will not occur in the future, particularly in light of current economic uncertainty.
−Removed: In addition, an economic slowdown or general disruption in the mortgage markets may result in decreased demand for residential and commercial property, which would likely further compress homeownership rates and place pressure on home price performance, while potentially forcing commercial property owners to lower rents on properties with excess supply or experience higher vacancy rates.
+Added: In addition, an economic slowdown, elevated interest rates or general disruption in the mortgage markets may result in decreased demand for residential and commercial property, which would likely further compress homeownership rates and place pressure on home price performance, while potentially forcing commercial property owners to lower rents on properties with excess supply or experience higher vacancy rates.
We believe there is a strong correlation between home price growth rates and mortgage loan delinquencies.
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Government and the Federal Reserve have taken significant actions in response to the current inflationary environment in the U.S.
−Removed: Indeed, the Federal Reserve increased the target rate for the fed funds rate by 425 bps during 2022 to reduce inflation, creating a great deal of volatility in markets.
+Added: through, among other things, numerous increases in the target rate for the fed funds rate since 2022, creating a great deal of volatility in markets.
There can be no assurance as to how, in the long term, these and other actions by the U.S.
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There has been a corresponding meaningful increase in uncertainty with respect to interest rates, inflation, foreign exchange rates, trade volumes and trade, fiscal and monetary policy.
−Removed: The potential for changes in policy and regulation is heightened by the change in the U.S.
+Added: presidential election year upon us in 2024, the potential for changes in policy and regulation is heightened by a potential change in the U.S.
administration.
New legislative, regulatory or policy changes could significantly impact our business and the markets in which we operate.
−Removed: In addition, disagreements over the federal budget and federal debt limits have led to the shutdown of the U.S.
−Removed: Government for periods of time in the recent past and may recur in the future.
+Added: In addition, disagreements over the federal budget and federal debt limits have increasingly led to the actual or near shutdown of the U.S.
To the extent changes in the political environment have a negative impact on our business or the financial and mortgage markets, our business, results of operations, financial condition and ability to make distributions to our stockholders could be materially and adversely impacted.
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Government budget deficit.
+Added: More recently, Fitch Ratings downgraded the U.S.'s long-term credit rating in August 2023 from “AAA” to “AA+” due primarily to expected fiscal deterioration and the erosion of governance that has led to repeated debt limit standoffs.
The impact of any further downgrades to the U.S.
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In addition, any market uncertainty that arises from any such proposed changes, or the perception that such changes will come to fruition, could have a similar impact on us and the values of the MBS and other assets that we own.
−Removed: The planned discontinuation of LIBOR and the transition from LIBOR to an alternative reference rate may adversely impact our borrowings and assets.
+Added: The discontinuation of LIBOR and the transition from LIBOR to an alternative reference rate, such as SOFR, may adversely impact our borrowings, operations, cash flows and assets and the value of investments in our Series D Preferred Stock and Series E Preferred Stock.
Our repurchase agreements, subordinated debt, mortgage debt related to our consolidated multi-family properties, Series D Preferred Stock, Series E Preferred Stock and certain of our floating rate assets, particularly residential loans, are linked to LIBOR, which has been the subject of recent reform.
−Removed: Financial Conduct Authority, the regulator of LIBOR, stopped publishing USD LIBOR for the one week and two month USD LIBOR tenors on December 31, 2021 and intends to stop publishing the remainder of USD LIBOR tenors on June 30, 2023.
−Removed: The Alternative Reference Rates Committee (the “ARRC”), a steering committee comprised of large U.S.
−Removed: financial institutions convened by the U.S.
−Removed: Federal Reserve, has recommended the Secured Overnight Financing Rate (“SOFR”) as a more robust reference rate alternative to USD LIBOR.
−Removed: SOFR is calculated based on overnight transactions under repurchase agreements, backed by Treasury securities, and is observed and backward looking, whereas USD LIBOR is an estimated forward-looking rate that relies, to some degree, on the expert judgment of submitting panel members.
−Removed: Given that SOFR is a secured rate backed by government securities, it is a rate that does not take into account bank credit risk (as is the case with LIBOR).
−Removed: SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions.
−Removed: It is uncertain at this time if the remaining tenors of USD LIBOR will cease to exist prior to June 30, 2023, or whether additional reforms to LIBOR may be enacted, or whether alternative reference rates such as SOFR will gain market acceptance as a replacement for LIBOR.
−Removed: Further, we may need to amend the debt and loan agreements that utilize LIBOR as a factor in determining the interest rate based on a new standard that is established, if any.
−Removed: However, these efforts may not be successful in mitigating the legal and financial risk from changing the reference rate in our legacy agreements.
+Added: Financial Conduct Authority, the regulator of LIBOR, stopped publishing USD LIBOR for the one week and two month USD LIBOR tenors on December 31, 2021 and stopped publishing the remainder of USD LIBOR tenors on June 30, 2023.
+Added: The Alternative Reference Rates Committee, which was convened by the Federal Reserve Board and the Federal Reserve Bank of New York to help ensure a successful transition from LIBOR, proposed that the SOFR would replace LIBOR.
+Added: SOFR is based on overnight Treasury General Collateral repo rates.
+Added: We continue to integrate SOFR into our operations, as it has become in many cases, and will likely become in other cases, the new reference rate for hedges and a range of interest rate investments and financing arrangements.
+Added: In light of the cessation of the publication of LIBOR, our material contracts that were indexed to LIBOR have been amended to transition to an alternative reference rate and any of our other unmodified agreements that incorporate LIBOR as the referenced rate have provisions in place that provide for identification of an alternative reference rate or specify an alternative reference rate, or by operation of law specify an alternative reference rate, to LIBOR upon its phase-out.
+Added: However, the full impact of the transition remains unpredictable and these efforts may not be successful in mitigating the legal and financial risk from transitioning to an alternative reference rate in our legacy agreements.
In addition, any resulting differences in interest rate standards among our assets and our financing arrangements may result in interest rate mismatches between our assets and the borrowings used to fund such assets.
Furthermore, the transition away from LIBOR may adversely impact our ability to manage and hedge exposures to fluctuations in interest rates using derivative instruments.
−Removed: There is no guarantee that a transition from LIBOR to an alternative rate will not result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could have an adverse effect on our business, results of operations, financial condition, and the market price of our common stock.
+Added: In addition, we cannot predict potential other unforeseen impacts of the transition away from LIBOR.
+Added: Given that SOFR is a secured rate backed by government securities, it is a rate that does not take into account bank credit risk (as was the case with LIBOR).
+Added: SOFR is therefore likely to be lower than LIBOR was and is less likely to correlate with the funding costs of financial institutions.
+Added: Moreover, SOFR has a limited history, having been first published in April 2018, and has been more volatile than other benchmark or market rates, including LIBOR, during certain periods.
+Added: The future performance of SOFR, and SOFR-based reference rates, cannot be predicted based on SOFR’s history or otherwise.
+Added: Future levels of SOFR may bear little or no relation to historical levels of SOFR, LIBOR or other rates.
+Added: SOFR-based rates will differ from LIBOR, and the differences may be material.
+Added: While we will continue to use SOFR, certain factors may impact SOFR, including factors causing SOFR to cease to exist, the establishment of new methods of calculating SOFR, or the use of alternative reference rates.
+Added: As such, the effect of the transition to SOFR may adversely impact our cost of capital, which could ultimately adversely impact our results of operations, cash flows and the market value and liquidity of our investments.
+Added: In addition, holders of our Series D Preferred Stock and Series E Preferred Stock should be aware that, with the discontinuance of LIBOR, the dividend rate on our Series D Preferred Stock and Series E Preferred Stock will be determined for the relevant period by the fallback provisions applicable to such preferred stock.
+Added: From and including October 15, 2027 for our Series D Preferred Stock (“Series D Preferred Stock Floating Rate Period”) and from and including January 15, 2025 for our Series E Preferred Stock (the “Series E Preferred Stock Floating Rate Period,” and together with the Series D Preferred Stock Floating Rate Period, the “Floating Rate Period”), and because Three-Month LIBOR Rate (as defined in the Articles Supplementary of the Series D Preferred Stock and Series E Preferred Stock) will have ceased publication, under the terms of the Series D Preferred Stock and Series E Preferred Stock, we will appoint a calculation agent to determine whether there is an industry accepted substitute or successor base rate to Three-Month LIBOR Rate.
+Added: If, after such consultation, the calculation agent determines that there is an industry accepted substitute or successor base rate, the calculation agent shall use such substitute or successor base rate.
+Added: In such case, the calculation agent in its sole discretion may also implement other technical changes to the Series D Preferred Stock and Series E Preferred Stock in a manner that is consistent with industry accepted practices for such substitute or successor base rate.
+Added: We currently anticipate that the successor rate to be chosen by the calculation agent during the Floating Rate Period will be three-month CME Term SOFR plus the applicable tenor spread adjustment of 0.26161% per annum.
+Added: The selection of a successor rate, and any decisions, determinations or elections made by us or the calculation agent in connection with implementing a successor rate with respect to the Series D Preferred Stock and Series E Preferred Stock in accordance with their terms during the Floating Rate Period, could result in adverse consequences to the applicable dividend rate on the Series D Preferred Stock or Series E Preferred Stock, which could adversely affect the return on, value of and market for the Series D Preferred Stock or Series E Preferred Stock.
+Added: Further, there is no assurance that the characteristics of any successor rate will be similar to LIBOR, or that any successor rate will produce the economic equivalent of LIBOR.
Risks Related To Our Organization, Our Structure and Other Risks
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If the SEC acts to narrow the availability of, or if we otherwise fail to qualify for, our exclusion, we could, among other things, be required either (a) to change the manner in which we conduct our operations to avoid being required to register as an investment company or (b) to register as an investment company, either of which could have a material adverse effect on our operations and the market price of our common stock.
+Added: The accrual of dividends on certain of our series of preferred stock at a floating rate in the future could adversely affect our ability to make cash distributions at our intended levels, or at all, or otherwise materially adversely affect our earnings, cash flows or financial condition.
+Added: Dividends on our Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock accrue cumulatively at a fixed rate for a specified period of time (the “Fixed Rate Period”).
+Added: At the conclusion of the Fixed Rate Period, dividends on our Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, accrue cumulatively at a floating rate equal to a benchmark rate plus a spread, as set forth in the Articles Supplementary classifying and designating such series of preferred stock.
+Added: The Fixed Rate Period for the Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock conclude on October 14, 2027, January 14, 2025 and October 14, 2026, respectively.
+Added: As the rate at which dividends accrue on our Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock converts from a fixed rate to floating rate, the dividend rate could fluctuate in an unpredictable manner and materially exceed the fixed rate in effect during the Fixed Rate Period.
+Added: The floating rates on the Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock subject us to interest rate risk and could significantly increase the cost of dividends on such preferred stock.
+Added: Such increased dividend costs could affect our ability to make cash distributions to our stockholders at our intended levels, or at all, or otherwise materially adversely affect our earnings, cash flows and financial condition.
+Added: Additionally, following the Fixed Rate Period for each of our Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, we may redeem such series of preferred stock at our option, in whole or in part, at any time.
+Added: Should we choose to redeem a series of our preferred stock at the conclusion of its Fixed Rate Period to avoid additional or unpredictable dividend expenses or for other strategic reasons, we may be forced to raise additional funds or sell assets at unfavorable times or on unfavorable terms to us.
Mortgage loan modification programs and future legislative action may adversely affect the value of, and the returns on, our targeted assets.
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stockholders.
−Removed: Without further legislative action, the 20% deduction applicable to ordinary REIT dividends will expire on January 1, 2026.
However, to qualify for this deduction, the stockholder receiving such dividends must hold the dividend-paying REIT stock for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the stock becomes ex-dividend, and cannot be under an obligation to make related payments with respect to a position in substantially similar or related property.
+Added: Without further legislative action, the 20% deduction applicable to ordinary REIT dividends will expire on January 1, 2026.
The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.
Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments.
−Removed: To maintain our qualification as a REIT, we must continually satisfy various tests regarding the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our common stock.
+Added: To maintain our qualification as a REIT, we must continually satisfy various tests regarding the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock.
In order to meet these tests, we may be required to forego investments we might otherwise make.
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Complying with REIT requirements may limit our ability to hedge effectively.
−Removed: The REIT provisions of the Internal Revenue Code substantially limit our ability to hedge the RMBS in our investment portfolio.
−Removed: Any income that we generate from transactions intended to hedge our interest rate or currency risks will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if (i) the instrument hedges risk of interest rate or currency fluctuations on indebtedness incurred or to be incurred to carry or acquire real estate assets, (ii) the instrument hedges risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the REIT 75% or 95% gross income tests, or (iii) the instrument was entered into to “offset” certain instruments described in clauses (i) or (ii) and certain other requirements are satisfied (including proper identification of such instrument under applicable Treasury Regulations).
+Added: The REIT provisions of the Internal Revenue Code substantially limit our ability to hedge our assets and liabilities.
+Added: Any income that we generate from transactions intended to hedge our interest rate or currency risks will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if (i) the instrument hedges risk of interest rate or currency fluctuations with respect to indebtedness incurred or to be incurred to carry or acquire real estate assets, (ii) the instrument hedges risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the REIT 75% or 95% gross income tests, or (iii) the instrument was entered into to “offset” certain instruments described in clauses (i) or (ii) and certain other requirements are satisfied (including proper identification of such instrument under applicable Treasury Regulations).
Income from hedging transactions that do not meet these requirements is likely to constitute nonqualifying income for purposes of both the REIT 75% and 95% gross income tests.
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In general, prohibited transactions are sales or other dispositions of assets held primarily for sale to customers in the ordinary course of business.
−Removed: There is a risk that property held by our joint ventures or partnerships or limited liability companies in which we have a preferred equity interest, certain loans that we are treating as owned for U.S.
−Removed: federal income tax purposes and property received upon foreclosure of these loans will be treated as held primarily for sale to customers in the ordinary course of business.
−Removed: Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, we cannot assure you that we can comply with the safe harbor in the future or that we will be able to avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business.
−Removed: Consequently, we may choose not to engage in certain sales of our properties or may contribute those assets to one of our TRSs and conduct the marketing and sale of those assets through that TRS.
+Added: There is a risk that property held by our joint ventures or partnerships or limited liability companies in which we have a preferred equity or joint venture interest, property received upon foreclosure of a mortgage by us and/or certain MBS could be treated as held by us primarily for sale to customers in the ordinary course of business.
+Added: Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, we cannot assure you that we can comply with the safe harbor or that we will be able to avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business.
+Added: Consequently, we may choose not to engage in certain sales of property or may contribute those assets to one of our TRSs and conduct the marketing and sale of those assets through that TRS.
No assurance can be given that the IRS will respect the transaction by which those assets are contributed to our TRS.
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In this event, we would fail to qualify as a REIT unless we or such subsidiary REIT could avail ourselves or itself of certain relief provisions.
+Added: The failure of excess MSRs held by us to qualify as real estate assets, or the failure of the income from excess MSRs to qualify as interest from mortgages, could adversely affect our ability to qualify as a REIT.
+Added: We may hold excess MSRs.
+Added: In certain private letter rulings, the IRS ruled that excess MSRs meeting certain requirements would be treated as an interest in mortgages on real property and thus a real estate asset for purposes of the 75% REIT asset test, and interest received by a REIT from such excess MSRs will be considered interest on obligations secured by mortgages on real property for purposes of the 75% gross income test.
+Added: A private letter ruling may be relied upon only by the taxpayer to whom it is issued, and the IRS may revoke a private letter ruling.
+Added: Consistent with the analysis adopted by the IRS in such private letter rulings and based on advice of counsel, we intend to treat any excess MSRs that we acquire that meet the requirements provided in the private letter rulings as qualifying assets for purposes of the 75% gross asset test, and we intend to treat income from such excess MSRs as qualifying income for purposes of the 75% and 95% gross income tests.
+Added: Notwithstanding the IRS’s determination in the private letter rulings described above, it is possible that the IRS could successfully assert that any excess MSRs that we acquire do not qualify for purposes of the 75% REIT asset test and income from such MSRs does not qualify for purposes of the 75% and/or 95% gross income tests, which could cause us to be subject to a penalty tax and could adversely impact our ability to qualify as a REIT.
We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock.
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Over time, these conditions could result in decreased property values which in turn could negatively affect the value of the assets we hold.
−Removed: Relatedly, geographical concentrations in our portfolio, to include mortgages, mortgage securities, and investments in real properties, may present certain vulnerabilities to the impacts of localized weather conditions resulting from climate change, such as increased coastal flooding or prolonged droughts in arid regions.
+Added: Relatedly, geographical concentrations in our portfolio, to include mortgages, mortgage securities, and investments in real properties, may present certain vulnerabilities to the impacts of localized weather conditions resulting from climate change, such as increased coastal flooding or prolonged droughts, which can contribute to, among other things, heightened wildfire risk.
There can be no assurance that climate change and severe weather will not have a material adverse effect on our operations, the properties that we invest in or underlie our assets, the residential homes we acquire through foreclosure, or our business.
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As a result, interest rate fluctuations and capital market conditions can affect the market price of our securities independent of the effects such conditions may have on our portfolio.
−Removed: UNRESOLVED STAFF COMMENTS
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.