ADAMAS TRUST, INC. 10-K

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We are an internally-managed 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. Our objective is to deliver long-term stable distributions to our stockholders over changing economic conditions through a combination of net interest spread and capital gains from a diversified investment portfolio. Our investment portfolio includes credit sensitive single-family and multi-family assets, as well as more traditional types of fixed-income investments that provide coupon income, such as Agency RMBS. Reverse Stock Split On February 22, 2023, we announced that our Board of Directors had unanimously approved a reverse stock split of our common stock at a ratio of one-for-four (the “Reverse Stock Split”). The Reverse Stock Split was effected as of 12:01 a.m., New York City time, on March 9, 2023 (the “Effective Time”) . Accordingly, at the Effective Time, every four issued and outstanding shares of our common stock were converted into one share of our common stock. No fractional shares were issued in connection with the Reverse Stock Split. Instead, each stockholder that would have held fractional shares as a result of the Reverse Stock Split received cash in lieu of such fractional shares. The par value per share of our common stock remained unchanged at $0.01 per share after the Reverse Stock Split. All references made to common share or per common share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the Reverse Stock Split. Executive Summary Since the significant market disruption that occurred in March 2020, we have sought to build out a low-levered, higher-yielding portfolio of credit sensitive single-family and multi-family assets through our proprietary sourcing channels. Building scale in the portfolio and momentum in investment activity was challenging in the months following the March 2020 market disruption, in large part due to the market's increasing demand for credit assets coupled with our portfolio's elevated prepayment and redemption activity. We managed to capitalize on more opportunities in our areas of investment focus from the fourth quarter of 2021 through May of 2022, allowing us to expand our total investment portfolio to approximately $4.6 billion as of June 30, 2022, up from $3.6 billion as of December 31, 2021. However, the improved investment environment was short-lived, as the markets entered into a period of heightened interest rate volatility and credit spread widening due to the Federal Reserve's actions to attempt to subdue inflation. The Federal Reserve ultimately increased the federal funds target rate by a combined 525 bps during 2022 through July of 2023, which was the fastest pace of increases in history. In response, we chose to significantly curtail our investment activity and pipeline late in the second quarter of 2022 shortly after the Federal Reserve's first rate hike of this cycle, allowing a significant portion of our portfolio to run-off through the first quarter of 2023. By adopting this approach, we endeavored to conserve capital, preserve liquidity and limit what we believed was material credit risk from investments underwritten to peak real estate valuations in 2022. Beginning in the second quarter of 2023, we began stabilizing our investment portfolio holdings through greater investment activity, particularly in assets with less price sensitivity to credit deterioration, like Agency RMBS. We believe that Agency RMBS is a compelling asset class to invest in over the near term, as the sector is trading at historically wide spread levels resulting from volatility in interest rates and reduced demand from regional banks and the Federal Reserve. Recognizing that a recession call was premature, but still concerned about market liquidity due to, among other things, growing commercial real estate risks, we also remained selective in adding credit-related assets during the year. Over the course of the past three quarters, we have experienced solid momentum in our portfolio acquisition activities. On a net basis, our investment portfolio increased by approximately $1.3 billion during the year, with repayments received from our short-duration business purpose loans, opportunistic sales of residential loans and investment securities and impairments offsetting some of our investment activity. 56 Table of Contents In September 2022, we announced that our Board of Directors approved a strategic repositioning of our business through the opportunistic disposition over time of our joint venture equity investments in multi-family properties and reallocation of the returned capital from such investments to our targeted assets. In 2023, joint venture entities in which we held a common equity interest sold five multi-family properties, representing total net equity investments of $43.2 million and recognizing a net gain attributable to the Company totaling $1.7 million. Throughout most of 2023, certain of the multi-family properties held by our joint venture equity investments experienced declines in estimated fair value primarily due to widening cap rates and lower net operating income driven, in large part, by higher interest and operating expenses at the properties. As these joint venture equity investments were included in disposal group held for sale during the year ended December 31, 2023, the declines in estimated fair value of multi-family properties held by certain of our joint venture equity investments resulted in recognition of approximately $89.5 million of losses for the year ended December 31, 2023. In December 2023, we suspended the marketing of nine joint venture equity investments that were held for sale primarily due to unfavorable market conditions and a lack of transactional activity in the multi-family market. As of December 31, 2023, we continue to market for sale our joint venture equity investments in five multi-family properties. We can provide no assurance of the timing or success of our ultimate exit from our joint venture equity investments in multi-family properties or that the value of our interests in joint ventures will not decline further. We intend to focus on our core portfolio strengths of single-family and multi-family residential assets, which we believe will deliver better risk-adjusted returns over time. Our targeted investments include (i) residential loans, including business purpose loans, (ii) structured multi-family property investments such as preferred equity in, and mezzanine loans to, owners of multi-family properties, (iii) Agency RMBS, (iv) non-Agency RMBS, (v) CMBS and (vi) certain other mortgage-, residential housing- and credit-related assets and strategic investments in companies from which we purchase, or may in the future purchase, our targeted assets. Subject to maintaining our qualification as a REIT and the maintenance of our exclusion from registration as an investment company under the Investment Company Act, we also may opportunistically acquire and manage various other types of mortgage-, residential housing- and other credit-related or alternative investments that we believe will compensate us appropriately for the risks associated with them, including, without limitation, collateralized mortgage obligations, mortgage servicing rights, excess mortgage servicing spreads, securities issued by newly originated securitizations, including credit sensitive securities from these securitizations, ABS and debt or equity investments in alternative assets or businesses. As of December 31, 2023, the Company’s Recourse Leverage Ratio and Portfolio Recourse Leverage Ratio (as defined in footnotes 4 and 5 to the table under "— Capital Allocation") increased to 1.6x and 1.5x, respectively, from 0.3x and 0.3x, respectively, as of December 31, 2022. While our financing leverage remains low relative to historical levels, the increase is primarily due to the financing of newly-acquired, highly liquid Agency RMBS. As of December 31, 2023, only 58% of our debt, excluding mortgages payable on real estate and Consolidated SLST CDOs, is subject to mark-to-market margin calls, with 45% collateralized by Agency RMBS and 13% collateralized by residential credit assets. The remaining 42% has no exposure to collateral repricing by our counterparties. Although we expect our leverage to move higher as we expand our holdings of Agency RMBS, we intend to continue to focus on procuring longer-term and non-mark-to-market financing arrangements for certain parts of our credit portfolio. We believe that this will allow us to better manage our liquidity risk and better insulate our business from extreme market dislocations. We expect to continue to opportunistically dispose of assets from our portfolio, including our joint venture equity investments, and generate higher portfolio turnover in order to pursue investments across the residential housing sector with a focus on acquiring assets capable of rebuilding our interest income that have less price sensitivity to credit deterioration, such as Agency RMBS. We expect to remain selective in acquiring single-family and multi-family residential credit assets in anticipation of near-term market dislocation that may lead to superior total return opportunities and remain committed to prudently managing our liabilities. We believe these actions, combined with our strong balance sheet and cash position will better position us to deploy capital in the market cycles ahead. 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. 57 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, 2023, 2022, 2021, 2020 and 2019 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, 2023 2022 2021 2020 2019 Interest income $ 258,660 $ 258,388 $ 206,866 $ 350,161 $ 694,614 Interest expense 192,134 129,419 79,284 223,068 566,750 Net interest income 66,526 128,969 127,582 127,093 127,864 Net loss from real estate (31,302) (113,579) (17,583) (344) (267) Other (loss) income (39,431) (262,169) 156,511 (360,211) 94,233 General, administrative and operating expenses 73,517 93,328 75,576 53,800 49,353 Net (loss) income attributable to Company's common stockholders (90,035) (340,577) 144,176 (329,696) 144,835 Basic (loss) earnings per common share $ (0.99) $ (3.61) $ 1.52 $ (3.55) $ 2.62 Diluted (loss) earnings per common share $ (0.99) $ (3.61) $ 1.51 $ (3.55) $ 2.56 Dividends declared per common share $ 1.20 $ 1.60 $ 1.60 $ 0.92 $ 3.20 Weighted average shares outstanding-basic 91,042 94,322 94,808 92,751 55,345 Weighted average shares outstanding-diluted 91,042 94,322 95,242 92,751 60,649 Selected Balance Sheet Data: As of December 31, 2023 2022 2021 2020 2019 Residential loans $ 3,084,303 $ 3,525,080 $ 3,575,601 $ 3,049,166 $ 2,961,396 Investment securities available for sale 2,013,817 99,559 200,844 724,726 2,006,140 Multi-family loans 95,792 87,534 120,021 163,593 17,996,791 Equity investments 147,116 179,746 239,631 259,095 189,965 Real estate, net 1,131,819 692,968 1,017,583 50,532 — Assets of disposal group held for sale 426,017 1,151,784 — — — Total assets (1) 7,401,328 6,240,745 5,658,301 4,655,587 23,843,369 Repurchase agreements 2,471,113 737,023 554,259 405,531 3,105,416 Collateralized debt obligations 1,870,517 2,102,717 1,522,221 1,623,658 17,817,709 Senior unsecured notes 98,111 97,384 96,704 — — Subordinated debentures 45,000 45,000 45,000 45,000 45,000 Convertible notes — — 137,898 135,327 132,955 Mortgages and notes payable on real estate, net 784,421 394,707 709,356 36,752 — Liabilities of disposal group held for sale 386,024 883,812 — — — Total liabilities (1) 5,773,202 4,376,634 3,226,519 2,348,014 21,278,340 Redeemable non-controlling interest in Consolidated VIEs 28,061 63,803 66,392 — — Company's stockholders' equity 1,579,612 1,767,216 2,341,031 2,301,202 2,205,733 Total equity 1,600,065 1,800,308 2,365,390 2,307,573 2,205,029 58 Table of Contents (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): As of December 31, 2023 2022 2021 2020 2019 Consolidated VIEs Assets $ 3,816,777 $ 4,261,097 $ 2,940,513 $ 2,150,984 $ 19,270,384 Liabilities $ 3,076,818 $ 3,403,257 $ 2,235,665 $ 1,667,306 $ 17,878,314 59 Table of Contents Portfolio Update During the year ended December 31, 2023, we purchased Agency RMBS and selectively pursued new single-family residential loan and multi-family investments. Our investment activity was partially offset primarily by prepayments, redemptions and distributions in addition to opportunistic sales of certain investment securities. The following table presents the activity for our investment portfolio for the year ended December 31, 2023 (dollar amounts in thousands): December 31, 2022 Acquisitions (1) Repayments (2) Sales Transfers from Disposal Group Held for Sale (3) Fair Value Changes and Other (4) December 31, 2023 Residential loans $ 2,697,498 $ 620,277 $ (1,000,956) $ (25,144) $ — $ 37,768 $ 2,329,443 Investment securities Agency RMBS — 2,014,385 (52,476) — — 27,415 1,989,324 CMBS 30,133 — (226) (30,419) — 512 — Non-Agency RMBS 68,570 — (3,757) (33,676) — (6,644) 24,493 ABS 856 — — (595) — (261) — Total investment securities available for sale 99,559 2,014,385 (56,459) (64,690) — 21,022 2,013,817 Consolidated SLST (5) 191,533 — (17,913) — — (16,466) 157,154 Total investment securities 291,092 2,014,385 (74,372) (64,690) — 4,556 2,170,971 Preferred equity investments, mezzanine loans and equity investments 267,280 55,882 (82,735) — 5,720 (3,239) 242,908 Equity investments in consolidated multi-family properties (6) 144,735 1,515 (7,785) — 51,033 21,716 211,214 Equity investments in disposal group held for sale (3) 244,039 9,013 (43,062) — (56,753) (116,422) 36,815 Single-family rental properties 149,230 2,396 — — — 259 151,885 Total investment portfolio $ 3,793,874 $ 2,703,468 $ (1,208,910) $ (89,834) $ — $ (55,362) $ 5,143,236 (1) Includes draws funded for business purpose bridge loans and existing joint venture equity investments and capitalized costs for single-family rental properties. (2) Includes principal repayments and return of invested capital. (3) In September 2022, the Company announced a repositioning of its business through the opportunistic disposition over time of the Company's joint venture equity investments in multi-family properties and reallocation of its capital away from such assets to its targeted assets. As of December 31, 2023, the assets and liabilities related to certain joint venture equity investments in multi-family properties are included in assets and liabilities of disposal group held for sale on the accompanying consolidated balance sheets. In December 2023, the Company determined that certain joint venture equity investments that were previously reported in assets and liabilities of disposal group held for sale no longer met the criteria to be classified as held for sale and transferred either the assets and liabilities of the respective Consolidated VIEs or its equity investment in the joint venture entity to equity investments in consolidated multi-family properties or equity investments, at fair value, respectively. See "Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated balance sheets. (4) 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 or redemptions), net amortization/accretion/depreciation, transfers within investment categories and net loss from real estate attributable to the Company. 60 Table of Contents (5) Consolidated SLST is primarily 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, 2023 and 2022, respectively, follows (dollar amounts in thousands): December 31, 2023 December 31, 2022 Residential loans, at fair value $ 754,860 $ 827,582 Deferred interest (a) (3,969) (1,554) Less: Collateralized debt obligations, at fair value (593,737) (634,495) Consolidated SLST investment securities owned by NYMT $ 157,154 $ 191,533 (a) Included in other liabilities on our consolidated balance sheets as of December 31, 2023 and 2022. (6) See "Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated balance sheets. 61 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 changes in interest rates and the supply and demand for mortgage, housing and credit assets in the marketplace, our ability to identify and acquire assets on favorable terms, our ability to dispose of assets from time to time on favorable terms, the ability of our operating partners, tenants and 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 markets experienced notable improvement in performance during the fourth quarter of 2023. After rallying in the first half of 2023 and then moderating in the third quarter, U.S. stocks surged to post strong gains in the fourth quarter. The Dow Jones Industrial Average grew 12.5% in the fourth quarter of 2023 and 13.7% for the full year 2023 to finish near a record high. The Nasdaq Composite Index grew 13.6% in the fourth quarter of 2023 and 43.4% for the full year 2023, it’s best full year performance since 2020. Interest rate and monetary policy uncertainty, inflation and geopolitical instability cautioned some economic outlooks. We anticipate that due to uncertainty related to persistent inflation, interest rates, monetary policy, ongoing recession concerns and the upcoming U.S. presidential election in November 2024, markets, and the pricing for many of our assets, will continue to experience volatility in 2024. The market conditions discussed below significantly influence our investment strategy and results: Select U.S. Financial and Economic Data . The U.S. economy grew modestly in 2023 with real gross domestic product (“GDP”) increasing by 2.5% (advanced estimate) for full year 2023, up from the GDP growth of 1.9% recorded for full year 2022. GDP grew at a 3.3% (advanced estimate) annualized rate in the fourth quarter of 2023, as compared to the annualized 4.9% GDP growth in the third quarter of 2023, annualized 2.1% GDP growth in the second quarter of 2023 and annualized 2.2% GDP growth in the first quarter of 2023. The fourth quarter 2023 GDP increase marks six straight quarters of GDP growth, and the full year 2023 GDP growth marks three straight years of GDP growth since contracting in 2020. Such GDP growth in the fourth quarter and full year 2023 exceeded the expectations of many economists and market commentators. Throughout 2023 and the fourth quarter of 2023, inflation retreated but remained above the Federal Reserve’s target of two percent. Uncertainty created by such persistent inflationary pressures and how the Federal Reserve may adjust its monetary policy in response may limit or undermine business activity and the potential for future GDP growth, which could negatively impact the value of credit investments. However, according to the projection materials of the Federal Reserve’s December 2023 meeting, Federal Reserve policymakers expect GDP to grow modestly for full year 2024. The U.S. labor market remained tight and fluctuated little throughout the fourth quarter of 2023. According to the U.S. Department of Labor, the U.S. unemployment rate was 3.7% at the end of December 2023, finishing slightly below the unemployment rate of 3.8% as of the end of September 2023 and up 20 basis points from the unemployment rate of 3.5% as of the end of December 2022. The number of unemployed persons increased by 0.6 million year-over-year to 6.3 million as of December 2023. There continues to be a wide disparity between the number of available job openings, 9.0 million as of the end of December 2023, and the number of unemployed persons, resulting in a competitive labor market and rising wages. As of December 2023, average hourly earnings for all employees on non-farm payrolls rose 4.1% year-over-year. From March 2022 through July 27, 2023, the Federal Reserve raised the target range for the federal funds rate a total of 5.25%, including 100 basis points of increases in 2023. These rate increases brought the target range for the federal funds rate to 5.25% to 5.50% — the highest level in over 22 years and where it stands as of February 2, 2024. The Federal Reserve had raised interest rates in an effort to rein in inflation as the Consumer Price Index (the “CPI”) maintained multi-decade highs above 6% throughout 2022 and into February of 2023. A trend of decelerating inflation emerged at the end of 2022, and a 3.0% rise in the CPI from June 2022 to June 2023 marked the smallest increase in inflation since March 2021. But, since June 2023, the deceleration in inflation appears to have stalled with the CPI rising 3.4% for the twelve months ended December 2023. The Federal Reserve remains highly attentive to inflation risks and reaffirmed in January 2024 that its monetary policy seeks to achieve inflation that averages two percent over time. However, the Federal Reserve has not raised the target range for the federal funds rate at any of its four meetings since July 2023, and the “dot plot” included in the projection materials from the Federal Reserve’s December 2023 meeting implies that most Federal Reserve officials believe that modest decreases to the federal funds rate before the end of 2024 will be appropriate. But, with inflation persistently elevated above the Federal Reserve’s two percent long run target, some market commentators have suggested that the Federal Reserve will hold the target range for the federal funds rate higher for longer. Higher interest rates may put pressure on our investments, mortgage borrowers, tenants, our operating partners and economic growth generally. 62 Table of Contents Fears of an economic recession in the U.S. have receded somewhat in connection with the consistent U.S. GDP growth seen in 2023, but some economists and market commentators have continued to express caution with respect to the U.S. economic outlook. The National Bureau of Economic Research defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” A January 2024 survey of economists by the Wall Street Journal indicated that the respondents believed that the probability of a recession in the next twelve months is at 39%, a figure that is down 22% from the recession probability indicated by the survey taken in January 2023. The economists surveyed by the Wall Street Journal attribute the diminished likelihood of a recession in the next twelve months to decreases in the prices of certain consumer goods and incomes growing faster than inflation. However, certain economists surveyed by the Wall Street Journal indicated that, while they believed a recession was less likely in the coming year, they expect economic growth to stagnate. An economic recession or stagnating economic growth may put pressure on the ability of our operating partners, joint ventures, tenants and borrowers to meet their obligations, including to us, and would likely adversely impact the value of our assets, among other things, any of which could materially adversely affect our results of operations and financial condition. Single-Family Homes and Residential Mortgage Market. Over the course of the fourth quarter and full year 2023, the residential real estate market remained competitive for home buyers. Data released by the S&P Dow Jones Indices for their S&P CoreLogic Case-Shiller National Home Price NSA Indices for November 2023 showed that, on average, home prices increased 5.4% for the 20-City Composite over November 2022. Additionally, according to the National Association of Realtors (“NAR”), existing home sales in December 2023 were down 1.0% month-over-month and 6.2% year-over-year. NAR also reported that the median existing-home sales price for all housing types in December 2023 was $382,600, up 4.4% from $366,500 in December 2022. According to data provided by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, privately-owned housing starts for single-family homes averaged a seasonally adjusted annual rate of 1,041,667 and 943,083 for the three and twelve months ended December 31, 2023, respectively, as compared to 1,004,417 for the year ended December 31, 2022. Overall, existing home inventory for sale at the end of December 2023 amounted to 3.2 months of supply, up from 2.9 months of supply in December 2022, according to the NAR. According to Freddie Mac, the average 30-year fixed-rate mortgage was up 0.54% year-over-year to 6.63% as of February 1, 2024. As interest rates remain at relatively elevated levels for the most recent decade, we expect this to put downward pressure on home prices and borrowers. Declining single-family housing fundamentals may adversely impact the overall credit profile and value of our existing portfolio of single-family residential credit investments and the value of our single-family rental properties, as well as the availability of certain of our targeted assets. Rental Housing. According to data provided by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, starts on multi-family homes containing five or more units averaged a seasonally adjusted annual rate of 396,333 and 458,583 for the three and twelve months ended December 31, 2023, respectively, as compared to 530,500 for the year ended December 31, 2022. According to RealPage Analytics (“RealPage”), rents fell 1.3% nationally in the fourth quarter of 2023 but achieved a slight 0.2% growth for the full year 2023. RealPage noted that, while apartment demand remains high, asking rents were likely dampened by the increased supply from the completion of nearly 440,000 apartment units in 2023 that caused apartment supply to jump to a 36-year high. RealPage further noted that even more apartment units are expected to be completed in 2024 than in 2023. Weakening multi-family housing fundamentals, including, among other things, increasing supply of apartments and declining rents in the markets or submarkets in which we invest, increasing interest rates, widening capitalization rates and reduced liquidity for owners of multi-family properties, may cause our operating partners to fail to meet their obligations to us and/or contribute to reduced cash flows from and/or valuation declines for multi-family properties, and in turn, many of the multi-family investments that we own. Additionally, multi-family investments face growing regulatory and political headwinds. In January 2023, the White House Domestic Policy Council and National Economic Council released a white paper entitled the “Blueprint for a Renters Bill of Rights” (the “Blueprint”). The Blueprint discusses potential tenant protections regarding leasing and management of rental properties, tenant organizing, evictions and rent increases, among other potential protections. Although the Blueprint is non-binding, several federal agencies, including Fannie Mae and Freddie Mac, have announced actions that seek to further some of the principles set forth in the Blueprint. In July 2023, President Biden announced an initiative to promote disclosure and reduction of rental housing fees such as application fees, payment fees, and other mandatory fees. Further, in August 2023, the White House announced a series of initiatives to build on the Blueprint such as providing funding to support tenant organizing efforts. Policies, regulations or laws implemented to further the principles discussed in the Blueprint or reduce or limit fees could lead to increased costs and reduced operational flexibility for multi-family and single-family rental properties, which could contribute to reduced cash flows from and/or valuation declines for multi-family and single-family rental properties, and in turn, many of the multi-family investments and single-family rentals that we own. 63 Table of Contents Credit Spreads. Investment grade and high-yield credit spreads both tightened over the course of the fourth quarter of 2023 with investment grade spreads finishing 34 basis points lower than the start of 2023 and high-yield spreads finishing 142 basis points lower than the start of 2023. 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. Financing Markets. Driven in part by the Federal Reserve’s increases to the federal funds rate and speculation about the Federal Reserve’s strategy with regard to future rate hikes, the Treasury curve inverted in July 2022 and has remained inverted ever since. On December 29, 2023, the spread between the 2-Year U.S. Treasury yield and the 10-Year U.S. Treasury yield closed at negative 35 basis points, as compared to a negative 53 basis point spread on December 30, 2022. Inversions of this spread are generally considered to be indicators of a recession in the near term. 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 and may place downward pressure on some of our strategies. Monetary Policy and Recent Regulatory Developments. The Federal Reserve took a number of actions to stabilize markets during the COVID-19 pandemic. From March 2020 until March 2022, the Federal Reserve implemented an asset purchase program aimed at providing liquidity to the U.S. Treasury and Agency RMBS markets. Under the Federal Reserve’s asset purchase program, the Federal Reserve’s balance sheet grew from about $4.2 trillion in assets at the start of March 2020 to about $8.9 trillion in assets at the end of the program in March 2022. On June 1, 2022, the Federal Reserve shifted course and began shrinking its balance sheet by reducing its holdings of U.S. Treasuries and Agency RMBS by $47.5 billion per month. In September 2022, the Federal Reserve increased its efforts to reduce its balance sheet by doubling the amount of U.S. Treasuries and Agency RMBS it rolls off its balance sheet to $95 billion each month. As of January 31, 2024, the Federal Reserve held about $7.6 trillion in assets. Sales or reductions in the pace of purchasing of Agency RMBS by the Federal Reserve could create headwinds in the market for Agency RMBS where increased supply could drive prices lower and interest rates higher. From March 2020 to March 2022, the Federal Reserve maintained a target range for the federal funds rate of 0% to 0.25% in view of the COVID-19 pandemic and to foster maximum employment and price stability. Then, from March 2022 through July 2023, the Federal Reserve increased the federal funds rate eleven times to bring the target range for the federal funds rate to 5.25% to 5.50% where it remained as of February 2, 2024. However, even though inflation remained elevated above the Federal Reserve’s target of two percent through December 2023, some Federal Reserve officials have signaled that the current interest rate levels have been sufficient to bring down inflation and that cuts to the federal funds rate may be likely in 2024. As reflected on the “dot plot” included in the projection materials from the Federal Reserve’s December 2023 meeting, most Federal Reserve officials expect the target range for the federal funds rate to be lowered below its current level by the end of 2024, with many of the officials expecting the target range to reach a level between 4.50% and 4.75% by the end of 2024. However, this plotting of the Federal Reserve officials’ expected target range for the federal funds rate as of December 2023 indicates divided thoughts among Federal Reserve officials as to how many, if any, decreases to the target range are appropriate. In 2017, policymakers announced that LIBOR would be replaced by 2021. The directive was spurred by the fact that banks were 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 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 SOFR replace LIBOR. SOFR is 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 all USD LIBOR tenors on June 30, 2023. The market’s adoption of SOFR appears to have been strong and generally without disruption. Additionally, the federal government enacted the Adjustable Interest Rate (LIBOR) Act in March 2022 with the intention of assisting in the transition away from LIBOR, particularly with respect to certain legacy contracts that are difficult to transition off of LIBOR and expire after June 2023. We continue to carefully integrate this new rate into our operations, as it has become in many cases, and will likely become in other cases, the new benchmark for hedges and a range of interest rate investments and financing arrangements. 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 ongoing geopolitical instability and uncertainty surrounding inflation, interest rates and the outlook for the U.S. and global economies, 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. 64 Table of Contents Full Year 2023 Summary Earnings and Return Metrics The following table presents key earnings and return metrics for the year ended December 31, 2023 (dollar amounts in thousands, except per share data): Year Ended December 31, 2023 Net loss attributable to Company's common stockholders $ (90,035) Net loss attributable to Company's common stockholders per share (basic) $ (0.99) Undepreciated loss (1) $ (81,321) Undepreciated loss per common share (1) $ (0.89) Comprehensive loss attributable to Company's common stockholders $ (88,069) Comprehensive loss attributable to Company's common stockholders per share (basic) $ (0.97) Yield on average interest earning assets (1) (2) 6.14 % Interest income $ 258,660 Interest expense $ 192,134 Net interest income $ 66,526 Net interest spread (1) (3) 0.74 % Book value per common share at the end of the period $ 11.31 Adjusted book value per common share at the end of the period (1) $ 12.66 Economic return on book value (4) (5.73) % Economic return on adjusted book value (5) (12.78) % Dividends per common share $ 1.20 (1) Represents a non-GAAP financial measure. A reconciliation of the Company's non-GAAP financial measures to their most directly comparable GAAP measure is included in "Non-GAAP Financial Measures" elsewhere in this section. (2) Calculated as the quotient of our adjusted interest income and our average interest earning assets and excludes all Consolidated SLST assets other than those securities owned by the Company. (3) Our calculation of net interest spread may not be comparable to similarly-titled measures of other companies who may use a different calculation. (4) 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. (5) Economic return on adjusted book value is based on the periodic change in adjusted book value per common share, a non-GAAP financial measure, plus dividends declared per common share, if any, during the period. Key Developments During Full Year 2023 Investing Activities • Purchased approximately $2.0 billion of Agency RMBS and approximately $620.3 million in residential loans. • Sold investment securities for approximately $64.7 million in proceeds and residential loans for approximately $25.1 million in proceeds. • Funded approximately $55.9 million of Mezzanine Lending investments. Received approximately $94.6 million in proceeds from redemptions of Mezzanine Lending investments. • Sold five multi-family properties held by joint venture equity investments representing total net equity investments of $43.2 million. • Repurchased $59.9 million par value of our residential loan securitization CDOs for approximately $58.4 million. 65 Table of Contents • Suspended the marketing of nine multi-family properties held by joint venture equity investments that were in disposal group held for sale primarily due to unfavorable market conditions and a lack of transactional activity in the multi-family market which resulted in a loss upon reclassification of these investments from disposal group held for sale to held and used of approximately $16.2 million. • Recognized $89.5 million of impairment losses due to declines in estimated fair value of multi-family properties held by joint venture equity investments in disposal group held for sale driven by wider cap rates and lower net operating income at the properties. Financing Activities • Obtained approximately $84.9 million of financing for residential loans through a repurchase agreement with a new counterparty. • Obtained approximately $74.3 million of financing for single-family rental properties through a repurchase agreement with an existing counterparty. • Effected a one-for-four reverse stock split of our issued, outstanding and authorized shares of common stock. • Announced upsize of common stock repurchase program to $246.0 million and authorized preferred stock repurchase program under which the Company may repurchase up to $100.0 million of the Company’s preferred stock. • Repurchased 937,850 shares of common stock pursuant to common stock repurchase program for approximately $8.6 million at an average repurchase price of $9.19 per common share and 120,580 shares of preferred stock pursuant to preferred stock repurchase program for approximately $2.4 million at an average repurchase price of $20.29 per preferred share. Subsequent Developments • Completed a securitization of business purpose loans, resulting in approximately $223.2 million in net proceeds to us after deducting estimated expenses associated with the transaction. We utilized the net proceeds to repay approximately $136.6 million on outstanding repurchase agreements related to residential loans. • On February 21, 2024, we announced that our Board of Directors approved extensions of our common stock repurchase program, under which $193.2 million of the approved amount remained available for repurchase, and our preferred stock repurchase program, under which $97.6 million of the approved amount remained available for repurchase. The expiration dates of both stock repurchase programs were extended from March 31, 2024 to March 31, 2025. 66 Table of Contents Capital Allocation The following provides an overview of the allocation of our total equity as of December 31, 2023 and 2022, 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, senior unsecured notes and subordinated debentures, short-term and longer-term repurchase agreements and CDOs. 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, 2023 and 2022, respectively (dollar amounts in thousands). At December 31, 2023: Single-Family Multi-Family Corporate/Other Total Residential loans $ 3,084,303 $ — $ — $ 3,084,303 Consolidated SLST CDOs (593,737) — — (593,737) Investment securities available for sale 2,013,817 — — 2,013,817 Multi-family loans — 95,792 — 95,792 Equity investments — 109,962 37,154 147,116 Equity investments in consolidated multi-family properties (1) — 211,214 — 211,214 Equity investments in disposal group held for sale (2) — 36,815 — 36,815 Single-family rental properties 151,885 — — 151,885 Total investment portfolio carrying value 4,656,268 453,783 37,154 5,147,205 Liabilities: Repurchase agreements (2,471,113) — — (2,471,113) Residential loan securitization CDOs (1,276,780) — — (1,276,780) Senior unsecured notes — — (98,111) (98,111) Subordinated debentures — — (45,000) (45,000) Cash, cash equivalents and restricted cash (3) 139,562 — 175,468 315,030 Cumulative adjustment of redeemable non-controlling interest to estimated redemption value — (30,062) — (30,062) Other 74,716 (1,352) (34,921) 38,443 Net Company capital allocated $ 1,122,653 $ 422,369 $ 34,590 $ 1,579,612 Company Recourse Leverage Ratio (4) 1.6x Portfolio Recourse Leverage Ratio (5) 1.5x (1) Represents the Company's equity investments in consolidated multi-family properties that are not in disposal group held for sale. See "Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated financial statements. (2) Represents the Company's equity investments in consolidated multi-family properties that are held for sale in disposal group. See "Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated financial statements. (3) Excludes cash in the amount of $21.3 million held in the Company's equity investments in consolidated multi-family properties and equity investments in consolidated multi-family properties in disposal group held for sale. Restricted cash of $143.5 million is included in the Company's accompanying consolidated balance sheets in other assets. 67 Table of Contents (4) Represents the Company's total outstanding recourse repurchase agreement financing, subordinated debentures and senior unsecured notes divided by the Company’s total stockholders’ equity. Does not include non-recourse repurchase agreement financing amounting to $149.7 million, Consolidated SLST CDOs amounting to $593.7 million, residential loan securitization CDOs amounting to $1.3 billion and mortgages payable on real estate , including mortgages payable on real estate of disposal group held for sale, totaling $1.2 billion as they are non-recourse debt. (5) Represents the Company's outstanding recourse repurchase agreement financing divided by the Company’s total stockholders’ equity. At December 31, 2022: Single-Family Multi-Family Corporate/Other Total Residential loans $ 3,525,080 $ — $ — $ 3,525,080 Consolidated SLST CDOs (634,495) — — (634,495) Investment securities available for sale 68,570 30,133 856 99,559 Multi-family loans — 87,534 — 87,534 Equity investments — 152,246 27,500 179,746 Equity investments in consolidated multi-family properties (1) — 144,735 — 144,735 Equity investments in disposal group held for sale (2) — 244,039 — 244,039 Single-family rental properties 149,230 — — 149,230 Total investment portfolio carrying value 3,108,385 658,687 28,356 3,795,428 Liabilities: Repurchase agreements (737,023) — — (737,023) Residential loan securitization CDOs (1,468,222) — — (1,468,222) Senior unsecured notes — — (97,384) (97,384) Subordinated debentures — — (45,000) (45,000) Cash, cash equivalents and restricted cash (3) 135,401 — 224,403 359,804 Cumulative adjustment of redeemable non-controlling interest to estimated redemption value — (44,237) — (44,237) Other 61,063 (2,554) (54,659) 3,850 Net Company capital allocated $ 1,099,604 $ 611,896 $ 55,716 $ 1,767,216 Company Recourse Leverage Ratio (4) 0.3x Portfolio Recourse Leverage Ratio (5) 0.3x (1) Represents the Company's equity investments in consolidated multi-family properties that are not in disposal group held for sale. See "Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated financial statements. (2) Includes both unconsolidated and consolidated equity investments in multi-family properties that are held for sale in disposal group. See "Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated financial statements. (3) Excludes cash in the amount of $35.1 million held in the Company's equity investments in consolidated multi-family properties and consolidated equity investments in disposal group held for sale. Restricted cash of $136.2 million is included in the Company's accompanying consolidated balance sheets in other assets. (4) Represents the Company's total outstanding recourse repurchase agreement financing, subordinated debentures and senior unsecured notes divided by the Company’s total stockholders’ equity. Does not include non-recourse repurchase agreement financing amounting to $291.2 million, Consolidated SLST CDOs amounting to $634.5 million, residential loan securitization CDOs amounting to $1.5 billion and mortgages payable on real estate , including mortgages payable on real estate of disposal group held for sale, totaling $1.3 billion as they are non-recourse debt. (5) Represents the Company's outstanding recourse repurchase agreement financing divided by the Company’s total stockholders’ equity. 68 Table of Contents Results of Operations The following discussion provides information regarding our results of operations for the years ended December 31, 2023 and 2022, 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, 2023 are greater or less than the results from the year ended December 31, 2022. Unless otherwise specified, references in this section to increases or decreases in 2023 refer to the change in results for the year ended December 31, 2023 when compared to the year ended December 31, 2022. For a discussion related to our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, 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, 2022, which was filed with the SEC on February 24, 2023 and is available on the SEC’s website at www.sec.gov. The following table presents the main components of our net loss for the years ended December 31, 2023 and 2022, respectively (dollar amounts in thousands, except per share data): For the Years Ended December 31, 2023 2022 $ Change Interest income $ 258,660 $ 258,388 $ 272 Interest expense 192,134 129,419 62,715 Net interest income 66,526 128,969 (62,443) Net loss from real estate (31,302) (113,579) 82,277 Total other loss (39,431) (262,169) 222,738 General and administrative expenses 49,565 52,440 (2,875) Portfolio operating expenses 23,952 40,888 (16,936) Loss from operations before income taxes (77,724) (340,107) 262,383 Income tax expense 75 542 (467) Net loss attributable to non-controlling interests 29,134 42,044 (12,910) Net loss attributable to Company (48,665) (298,605) 249,940 Preferred stock dividends (41,837) (41,972) 135 Gain on repurchase of preferred stock 467 — 467 Net loss attributable to Company's common stockholders (90,035) (340,577) 250,542 Basic loss per common share $ (0.99) $ (3.61) $ 2.62 Diluted loss per common share $ (0.99) $ (3.61) $ 2.62 Interest Income and Interest Expense Although our average interest earning assets increased in 2023, our interest income remained relatively flat due to a change in composition of interest earning assets resulting from increased investment in lower-yielding Agency RMBS and continued repayments of higher-yielding business purpose loans and multi-family loans. The decline in net interest income was primarily driven by an increase in interest expense due to increased securitization financings, repurchase agreement financing of our Agency RMBS, residential loan and single-family rental portfolios and an increase in cost of financing due to increases in interest rates. 69 Table of Contents Net Loss from Real Estate The following table presents the components of net loss from real estate for the years ended December 31, 2023 and 2022, respectively (dollar amounts in thousands): For the Years Ended December 31, 2023 2022 $ Change Income from real estate $ 171,774 $ 141,656 $ 30,118 Expenses related to real estate: Interest expense, mortgages payable on real estate (90,221) (56,011) (34,210) Depreciation expense on operating real estate (24,620) (47,179) 22,559 Amortization of lease intangibles related to operating real estate — (79,645) 79,645 Other real estate expenses (88,235) (72,400) (15,835) Total expenses related to real estate (203,076) (255,235) 52,159 Net loss from real estate $ (31,302) $ (113,579) $ 82,277 The decrease in net loss from real estate in 2023 was primarily due to the full year income and expense impact of joint venture equity investments consolidated in 2022 (net of income and expense decreases resulting from sales of multi-family real estate assets by consolidated joint venture equity investments in disposal group held for sale in 2023), a decrease in amortization expense as a result of lease intangibles being fully amortized during the year ended 2022 and a reduction in depreciation expense due to the application of held for sale accounting to real estate in disposal group held for sale beginning in September 2022. Interest expense on mortgages payable increased in the period despite a reduction in mortgages payable resulting from sales of multi-family real estate assets by consolidated joint venture equity investments in disposal group held for sale in 2023, primarily due to increases in interest rates. Other (Loss) Income Realized (Losses) Gains, Net The following table presents the components of realized (losses) gains, net recognized for the years ended December 31, 2023 and 2022, respectively (dollar amounts in thousands ): For the Years Ended December 31, 2023 2022 $ Change Residential loans $ (12,738) $ 8,281 $ (21,019) Investment securities (14,321) 18,344 (32,665) Total realized (losses) gains, net $ (27,059) $ 26,625 $ (53,684) During the year ended December 31, 2023, we recognized net realized losses of $12.7 million related to our residential loan portfolio, a decrease from 2022, primarily as a result of losses recognized on the sale of certain non-performing loans, fewer loan prepayments and losses incurred on foreclosed properties in 2023. We also recognized net realized losses of $14.3 million primarily attributable to the sales of ABS, CMBS and non-Agency RMBS in 2023. During the year ended December 31, 2022, we recognized net realized gains of $8.3 million related to our residential loan portfolio, primarily as a result of loan prepayments. We also recognized net realized gains of $18.3 million on the sale of ABS and non-Agency RMBS as part of our strategy to selectively and opportunistically dispose of certain of our investment securities. 70 Table of Contents Unrealized Gains (Losses), Net The following table presents the components of unrealized gains (losses), net recognized for the years ended December 31, 2023 and 2022, respectively (dollar amounts in thousands): For the Years Ended December 31, 2023 2022 $ Change Residential loans $ 69,790 $ (289,670) $ 359,460 Consolidated SLST (10,016) (32,403) 22,387 Preferred equity and mezzanine loan investments 1,079 (2,673) 3,752 Investment securities 36,343 (22,617) 58,960 Total unrealized gains (losses), net $ 97,196 $ (347,363) $ 444,559 We recognized $97.2 million in net unrealized gains for the year ended December 31, 2023, primarily due to credit spread tightening that impacted the pricing of our residential loans. Net unrealized gains on our investment securities for the year ended December 31, 2023 included unrealized gains recognized on Agency RMBS purchased in 2023. For the year ended December 31, 2022, we recognized $347.4 million in net unrealized losses, primarily due to credit spread widening and increases in interest rates that impacted the pricing of our credit assets, particularly our residential loans and investment in Consolidated SLST. Net unrealized losses on our investment securities for the year ended December 31, 2022 included a reversal of previously recognized unrealized gains amounting to $15.9 million o n ABS that were sold during the year as well as additional unrealized losses on non-Agency RMBS and CMBS due to credit spread widening. Unrealized losses on investment securities for the year ended December 31, 2022 were partially offset by unrealized gains recognized on certain non-Agency IOs during the period as a result of an increase in interest rates. (Losses) Gains on Derivative Instruments, Net The following table presents the components of (losses) gains on derivative investments, net for the years ended December 31, 2023 and 2022, respectively (dollar amounts in thousands): For the Years Ended December 31, 2023 2022 $ Change Unrealized (losses) gains on derivative instruments $ (29,373) $ 26,282 $ (55,655) Realized gains on derivative instruments 2,995 924 2,071 Total (losses) gains on derivative instruments, net $ (26,378) $ 27,206 $ (53,584) We recognized $26.4 million in net losses on derivative instruments for the year ended December 31, 2023, primarily due to decreases in fair value of swaps entered into during the year and lower valuations of interest rate caps. This was offset by gains realized upon termination of interest rate cap contracts in connection with sales of multi-family properties and repayment of related mortgages payable in our joint venture equity investments in disposal group held for sale. For the year ended December 31, 2022, we recognized $27.2 million in net gains on derivative instruments primarily due to higher valuations of interest rate caps as a result of increases in interest rates. Total gains on derivative investments in 2022 included realized gains of $0.9 million upon termination of an interest rate cap contract resulting from the sale of a multi-family property and repayment of related mortgage payable in a joint venture equity investment . 71 Table of Contents Income from Equity Investments The following table presents the components of income from equity investments for the years ended December 31, 2023 and 2022, respectively (dollar amounts in thousands): For the Years Ended December 31, 2023 2022 $ Change Preferred return on preferred equity investments accounted for as equity $ 19,308 $ 22,276 $ (2,968) Unrealized gains (losses), net on preferred equity investments accounted for as equity 1,154 (3,606) 4,760 Loss from unconsolidated joint venture equity investments in multi-family properties (3,291) (1,430) (1,861) Income (loss) from entities that invest in or originate residential properties and loans 614 (2,166) 2,780 Total income from equity investments $ 17,785 $ 15,074 $ 2,711 Income from equity investments increased during the year ended December 31, 2023, due to net unrealized gains recognized on preferred equity investments accounted for as equity and an equity investment in an entity that originates residential loans. The increase in income from equity investments was offset by a $3.0 million decrease in preferred return on preferred equity investments as a result of investment redemptions in 2023. Impairment of Real Estate The following table presents impairment of real estate for the years ended December 31, 2023 and 2022, respectively (dollar amounts in thousands): For the Years Ended December 31, 2023 2022 $ Change Impairment of real estate $ (89,548) $ (2,449) $ (87,099) During the year ended December 31, 2023 , we recognized impairment losses on certain multi-family real estate assets in disposal group held for sale due to a decrease in the estimated fair value less costs to sell of the real estate assets held by entities in which we have a joint venture equity investment primarily due to widening cap rates and lower net operating income driven, in large part, by higher interest and operating expenses at the properties. Loss on Reclassification of Disposal Group The following table presents loss on reclassification of disposal group for the years ended December 31, 2023 and 2022, respectively (dollar amounts in thousands): For the Years Ended December 31, 2023 2022 $ Change Loss on reclassification of disposal group $ (16,163) $ — $ (16,163) In December 2023, we suspended the marketing of nine joint venture equity investments that were held for sale primarily due to unfavorable market conditions and a lack of transactional activity in the multi-family market. As a result, we determined that these joint venture equity investments no longer met the criteria to be classified as held for sale and transferred either the assets and liabilities of the respective Consolidated VIEs or its equity investment in the joint venture entity to their respective categories or equity investments, at fair value, respectively, as of December 31, 2023. Accordingly, we adjusted the carrying value of the long-lived assets in Consolidated VIEs to the lower of the carrying amount before the assets were classified as held for sale adjusted for depreciation and amortization expense that would have been recognized had the assets been continuously classified as held and used and the fair value of the assets at the date of the transfer and recognized a loss on reclassification of disposal group. 72 Table of Contents Other Income The following table presents the components of other income for the years ended December 31, 2023 and 2022, respectively (dollar amounts in thousands): For the Years Ended December 31, 2023 2022 $ Change Preferred equity and mezzanine loan premiums resulting from early redemption (1) $ 390 $ 3,950 $ (3,560) Gain on sale of real estate held for sale 4,763 17,132 (12,369) (Loss) gain on extinguishment of collateralized debt obligations and mortgages payable on real estate (796) 2,214 (3,010) Miscellaneous income (loss) 379 (4,558) 4,937 Total other income $ 4,736 $ 18,738 $ (14,002) (1) Includes premiums resulting from early redemptions of preferred equity and mezzanine loan investments accounted for as loans. The net decrease in other income in 2023 is primarily due to a greater amount of gains recognized on the sales of certain multi-family properties during 2022, reduced premiums from early redemptions of preferred equity and mezzanine loan investments in 2023 and losses incurred on extinguishment of mortgages payable by joint venture equity investments in disposal group held for sale partially offset by net gains on repurchased CDOs. Expenses The following tables present the components of general, administrative and portfolio operating expenses for the years ended December 31, 2023 and 2022, respectively (dollar amounts in thousands): For the Years Ended December 31, 2023 2022 $ Change General and Administrative Expenses Salaries, benefits and directors’ compensation $ 36,609 $ 39,689 $ (3,080) Professional fees 4,748 4,771 (23) Other 8,208 7,980 228 Total general and administrative expenses $ 49,565 $ 52,440 $ (2,875) The decrease in general and administrative expenses in 2023 is primarily related to a net reduction in compensation expense, specifically decreased stock based compensation due to forfeitures and a decrease in incentive bonus compensation. For the Years Ended December 31, 2023 2022 $ Change Portfolio operating expenses $ 23,952 $ 40,888 $ (16,936) The decrease in portfolio operating expenses in 2023 can be attributed primarily to decreased residential loan purchase activity and decreased net servicing fees due to residential loan portfolio runoff. 73 Table of Contents Comprehensive Loss The main components of comprehensive loss for the years ended December 31, 2023 and 2022, respectively, are detailed in the following table (dollar amounts in thousands): For the Years Ended December 31, 2023 2022 $ Change NET LOSS ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS $ (90,035) $ (340,577) $ 250,542 OTHER COMPREHENSIVE INCOME (LOSS) Increase (decrease) in fair value of available for sale securities Non-Agency RMBS 144 (3,748) 3,892 Total 144 (3,748) 3,892 Reclassification adjustment for net loss included in net loss 1,822 — 1,822 TOTAL OTHER COMPREHENSIVE INCOME (LOSS) 1,966 (3,748) 5,714 COMPREHENSIVE LOSS ATTRIBUTABLE TO COMPANY'S COMMON STOCKHOLDERS $ (88,069) $ (344,325) $ 256,256 The changes in other comprehensive income (loss) ("OCI") in 2023 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 credit spread tightening in 2023. Additionally, previously recognized net unrealized losses reported in OCI were reclassified to net realized losses in relation to the sale of certain investment securities during the year ended December 31, 2023. 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, 2023 , the majority of the Company's investment securities are accounted for using the fair value option. 74 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, 2023 (amounts in thousands, except per share): Year Ended December 31, 2023 Amount Shares Per Share (1) Beginning Balance $ 1,210,091 91,194 $ 13.27 Common stock issuance, net (2) 8,825 419 Common stock repurchases (8,615) (938) Preferred stock repurchases 109 — Balance after share activity 1,210,410 90,675 13.35 Adjustment of redeemable non-controlling interest to estimated redemption value 14,175 0.16 Dividends and dividend equivalents declared (111,014) (1.23) Net change in accumulated other comprehensive loss: Investment securities available for sale (3) 1,966 0.02 Net loss attributable to Company's common stockholders (90,035) (0.99) Ending Balance $ 1,025,502 90,675 $ 11.31 (1) Outstanding shares used to calculate book value per common share for the year ended December 31, 2023 are 90,675,403. (2) Includes amortization of stock based compensation. (3) The net increase relates to the reclassification of unrealized losses to net loss in relation to the sale of investment securities and unrealized gains on our investment securities resulting from changes in pricing. The following table analyzes the changes in GAAP book value of our common stock for the year ended December 31, 2022 (amounts in thousands, except per share): Year Ended December 31, 2022 Amount Shares Per Share (1) Beginning Balance $ 1,783,906 94,851 $ 18.81 Common stock issuance, net (2) 11,895 500 Preferred stock issuance, net 130 — Common stock repurchases (44,399) (4,157) Balance after share activity 1,751,532 91,194 19.21 Adjustment of redeemable non-controlling interest to estimated redemption value (44,237) (0.49) Costs associated with non-controlling interest contributions (26) — Dividends and dividend equivalents declared (152,853) (1.68) Net change in accumulated other comprehensive income (loss): Investment securities available for sale (3) (3,748) (0.04) Net loss attributable to Company's common stockholders (340,577) (3.73) Ending Balance $ 1,210,091 91,194 $ 13.27 (1) Outstanding shares used to calculate book value per common share for the year ended December 31, 2022 are 91,193,688. (2) Includes amortization of stock based compensation. (3) The net decrease relates to unrealized losses on our investment securities resulting from a reduction in pricing. 75 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 adjusted interest income, adjusted interest expense, adjusted net interest income, yield on average interest earning assets, average financing cost, net interest spread, undepreciated (loss) earnings and adjusted 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 and trends using the metrics that management uses to operate our 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. Adjusted Net Interest Income and Net Interest Spread Financial results for the Company during a given period include 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”). Adjusted net interest income and net interest spread (both supplemental non-GAAP financial measures) are impacted by factors such as our cost of financing, including our hedging costs, and the interest rate that our investments bear. Furthermore, the amount of premium or discount paid on purchased investments and the prepayment rates on investments will impact adjusted net interest income as such factors will be amortized over the expected term of such investments. We provide the following non-GAAP financial measures, in total and by investment category, for the respective periods: • adjusted interest income – calculated as our GAAP interest income reduced by the interest expense recognized on Consolidated SLST CDOs, • adjusted interest expense – calculated as our GAAP interest expense reduced by the interest expense recognized on Consolidated SLST CDOs and adjusted to include the net interest component of interest rate swaps, • adjusted net interest income – calculated by subtracting adjusted interest expense from adjusted interest income, • yield on average interest earning assets – calculated as the quotient of our adjusted interest income and our average interest earning assets and excludes all Consolidated SLST assets other than those securities owned by the Company, • average financing cost – calculated as the quotient of our adjusted interest expense and the average outstanding balance of our interest bearing liabilities, excluding Consolidated SLST CDOs and mortgages payable on real estate, and • net interest spread – calculated as the difference between our yield on average interest earning assets and our average financing cost. These measures remove the impact of Consolidated SLST that we consolidate in accordance with GAAP and include the net interest component of interest rate swaps utilized to hedge the variable cash flows associated with our variable-rate borrowings, which is included in gains (losses) on derivative instruments, net in the Company's consolidated statements of operations. With respect to Consolidated SLST, we only include the interest income earned by the Consolidated SLST securities that are actually owned by the Company as the Company only receives income or absorbs losses related to the Consolidated SLST securities actually owned by the Company. We include the net interest component of interest rate swaps in these measures to more fully represent the cost of our financing strategy. We provide the non-GAAP financial measures listed above because we believe these non-GAAP financial measures provide investors and management with additional detail and enhance their understanding of our interest earning asset yields, in total and by investment category, relative to the cost of our financing and the underlying trends within our portfolio of interest earning assets. In addition to the foregoing, our management team uses these measures to assess, among other things, the performance of our interest earning assets in total and by asset, possible cash flows from our interest earning assets in total and by asset, our ability to finance or borrow against the asset and the terms of such financing and the composition of our portfolio of interest earning assets, including acquisition and disposition determi nations. 76 Table of Contents Prior to the quarter ended December 31, 2022, we also reduced GAAP interest expense by the interest expense on mortgages payable on real estate. Commencing with the quarter ended December 31, 2022, we reclassified the interest expense on mortgages payable on real estate to expenses related to real estate on our consolidated statements of operations and, as such, it is no longer included in GAAP interest expense. Prior period disclosures have been conformed to the current period presentation. The following tables set forth certain information about our interest earning assets by category and their related adjusted interest income, adjusted interest expense, adjusted net interest income, yield on average interest earning assets, average financing cost and net interest spread for the years ended December 31, 2023, 2022 and 2021 , respectively (dollar amounts in thousands): Year Ended December 31, 2023 Single-Family (8) Multi- Family Corporate/Other Total Adjusted Interest Income (1) (2) $ 220,385 $ 13,707 $ 62 $ 234,154 Adjusted Interest Expense (1) (142,742) — (12,799) (155,541) Adjusted Net Interest Income (1) $ 77,643 $ 13,707 $ (12,737) $ 78,613 Average Interest Earning Assets (3) $ 3,692,131 $ 120,687 $ 1,264 $ 3,814,082 Average Interest Bearing Liabilities (4) $ 2,684,304 $ — $ 197,986 $ 2,882,290 Yield on Average Interest Earning Assets (1) (5) 5.97 % 11.36 % 4.91 % 6.14 % Average Financing Cost (1) (6) (5.32) % — (6.46) % (5.40) % Net Interest Spread (1) (7) 0.65 % 11.36 % (1.55) % 0.74 % Year Ended December 31, 2022 Single-Family (8) Multi- Family Corporate/Other Total Adjusted Interest Income (1) (2) $ 213,770 $ 13,499 $ 5,974 $ 233,243 Adjusted Interest Expense (1) (94,664) (152) (9,458) (104,274) Adjusted Net Interest Income (1) $ 119,106 $ 13,347 $ (3,484) $ 128,969 Average Interest Earning Assets (3) $ 3,354,923 $ 135,769 $ 13,820 $ 3,504,512 Average Interest Bearing Liabilities (4) $ 2,333,020 $ 5,520 $ 150,194 $ 2,488,734 Yield on Average Interest Earning Assets (1) (5) 6.37 % 9.94 % 43.23 % 6.66 % Average Financing Cost (1) (6) (4.06) % (2.75) % (6.30) % (4.19) % Net Interest Spread (1) (7) 2.31 % 7.19 % 36.93 % 2.47 % 77 Table of Contents Year Ended December 31, 2021 Single-Family (8) Multi- Family Corporate/Other Total Adjusted Interest Income (1) (2) $ 151,931 $ 19,900 $ 6,900 $ 178,731 Adjusted Interest Expense (1) (33,787) — (17,362) (51,149) Adjusted Net Interest Income (1) $ 118,144 $ 19,900 $ (10,462) $ 127,582 Average Interest Earning Assets (3) $ 2,559,713 $ 238,273 $ 28,025 $ 2,826,011 Average Interest Bearing Liabilities (4) $ 1,039,145 $ — $ 250,778 $ 1,289,923 Yield on Average Interest Earning Assets (1) (5) 5.94 % 8.35 % 24.62 % 6.32 % Average Financing Cost (1) (6) (3.25) % — (6.92) % (3.97) % Net Interest Spread (1) (7) 2.69 % 8.35 % 17.70 % 2.35 % (1) Represents a non-GAAP financial measure. (2) Includes interest income earned on cash accounts held by the Company. (3) Average Interest Earning Assets for the respective periods include residential loans, multi-family loans and investment securities and exclude all Consolidated SLST assets other than those securities owned by the Company. Average Interest Earning Assets is calculated based on the daily average amortized cost for the respective periods. (4) Average Interest Bearing Liabilities for the respective periods include repurchase agreements, residential loan securitization CDOs, Convertible Notes, senior unsecured notes and subordinated debentures and exclude Consolidated SLST CDOs and mortgages payable on real estate as the Company does not directly incur interest expense on these liabilities that are consolidated for GAAP purposes. Average Interest Bearing Liabilities is calculated based on the daily average outstanding balance for the respective periods. (5) Yield on Average Interest Earning Assets is calculated by dividing our adjusted interest income relating to our portfolio of interest earning assets by our Average Interest Earning Assets for the respective periods. (6) Average Financing Cost is calculated by dividing our adjusted interest expense by our Average Interest Bearing Liabilities. (7) Net Interest Spread is the difference between our Yield on Average Interest Earning Assets and our Average Financing Cost. (8) The Company has determined it is the primary beneficiary of Consolidated SLST and has consolidated Consolidated SLST into the Company's consolidated financial statements. Our GAAP interest income includes interest income recognized on the underlying seasoned re-performing and non-performing residential loans held in Consolidated SLST. Our GAAP interest expense includes interest expense recognized on the Consolidated SLST CDOs that permanently finance the residential loans in Consolidated SLST and are not owned by the Company. We calculate adjusted interest income by reducing our GAAP interest income by the interest expense recognized on the Consolidated SLST CDOs and adjusted interest expense by excluding, among other things, the interest expense recognized on the Consolidated SLST CDOs, thus only including the interest income earned by the SLST securities that are actually owned by the Company in adjusted net interest income. 78 Table of Contents Our adjusted net interest income decreased in 2023 as compared to the prior year. While adjusted interest income remained relatively flat, our adjusted interest expense increased in 2023, primarily due to additional repurchase agreement and securitization financings and an increase in the cost of financing due to base interest rate movements partially offset by the benefit of our interest rate swaps. Net interest spread decreased in 2023 due to a combination of a decrease in yield on average interest earning assets and an increase in our cost of financing. The decrease in our yield on average interest earning assets was primarily due to 1) portfolio run-off of higher yielding business purpose loans, 2) an increase in business purpose loans held in non-accrual status, 3) the sale of certain higher yielding ABS in the second half of 2022 and 4) investment in lower yielding Agency RMBS in 2023. The previously described increase in cost of financing combined with the decrease in yield to reduce net interest spread in 2023. Our adjusted net interest income remained relatively flat in 2022 as compared to the prior year. Adjusted interest expense increased as a result of increased borrowings pursuant to repurchase agreements and securitization financings and an increase in the cost of financing due to base interest rate movements. Our average interest earning assets also increased in 2022, primarily due to additional investment in higher-yielding business purpose loans, which partially offset the increases in repurchase agreement financing obtained on residential loans and investment securities, securitization financings related to residential loans and the associated increased financing costs. Multi-family adjusted net interest income decreased by approximately $6.6 million in 2022 primarily as a result of multi-family loan redemptions that moved multi-family average interest earning assets lower, while a reduction in corporate/other adjusted interest expense resulting from redemption of our Convertible Notes (defined below) in the first quarter of 2022 caused corporate/other adjusted net interest income to increase by approximately $7.0 million. Net interest spread increased during 2022, primarily due to an increase in yield on average interest earning assets resulting from our continued investment in higher-yielding business purpose loans. The increase was partially offset by an increase in the cost of financing due to base interest rate movements in 2022. 79 Table of Contents A reconciliation of GAAP interest income to adjusted interest income, GAAP interest expense to adjusted interest expense and GAAP total net interest income to adjusted net interest income for the years ended December 31, 2023, 2022 and 2021, respectively, is presented below (dollar amounts in thousands): Years Ended December 31, 2023 2022 2021 Single-Family Multi-Family Corporate/Other Total Single-Family Multi-Family Corporate/Other Total Single-Family Multi-Family Corporate/Other Total GAAP interest income $ 244,891 $ 13,707 $ 62 $ 258,660 $ 238,915 $ 13,499 $ 5,974 $ 258,388 $ 180,066 $ 19,900 $ 6,900 $ 206,866 GAAP interest expense (176,890) — (15,244) (192,134) (119,809) (152) (9,458) (129,419) (61,922) — (17,362) (79,284) GAAP total net interest income $ 68,001 $ 13,707 $ (15,182) $ 66,526 $ 119,106 $ 13,347 $ (3,484) $ 128,969 $ 118,144 $ 19,900 $ (10,462) $ 127,582 GAAP interest income $ 244,891 $ 13,707 $ 62 $ 258,660 $ 238,915 $ 13,499 $ 5,974 $ 258,388 $ 180,066 $ 19,900 $ 6,900 $ 206,866 Adjusted for: Consolidated SLST CDO interest expense (24,506) — — (24,506) (25,145) — — (25,145) (28,135) — — (28,135) Adjusted interest income $ 220,385 $ 13,707 $ 62 $ 234,154 $ 213,770 $ 13,499 $ 5,974 $ 233,243 $ 151,931 $ 19,900 $ 6,900 $ 178,731 GAAP interest expense $ (176,890) $ — $ (15,244) $ (192,134) $ (119,809) $ (152) $ (9,458) $ (129,419) $ (61,922) $ — $ (17,362) $ (79,284) Adjusted for: Consolidated SLST CDO interest expense 24,506 — — 24,506 25,145 — — 25,145 28,135 — — 28,135 Net interest benefit of interest rate swaps 9,642 — 2,445 12,087 — — — — — — — — Adjusted interest expense $ (142,742) $ — $ (12,799) $ (155,541) $ (94,664) $ (152) $ (9,458) $ (104,274) $ (33,787) $ — $ (17,362) $ (51,149) Adjusted net interest income (1) $ 77,643 $ 13,707 $ (12,737) $ 78,613 $ 119,106 $ 13,347 $ (3,484) $ 128,969 $ 118,144 $ 19,900 $ (10,462) $ 127,582 (1) Adjusted net interest income is calculated by subtracting adjusted interest expense from adjusted interest income. Undepreciated (Loss) Earnings Undepreciated (loss) earnings is a supplemental non-GAAP financial measure defined as GAAP net (loss) income 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 (loss) earnings 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 (loss) earnings enables our investors to measure, evaluate, and compare our operating performance to that of our peers. 80 Table of Contents A reconciliation of net (loss) income attributable to Company's common stockholders to undepreciated (loss) earnings for the years ended December 31, 2023, 2022 and 2021, respectively, is presented below (amounts in thousands, except per share data). For the Years Ended December 31, 2023 2022 2021 Net (loss) income attributable to Company's common stockholders $ (90,035) $ (340,577) $ 144,176 Add: Depreciation expense on operating real estate 8,714 28,916 4,381 Amortization of lease intangibles related to operating real estate — 50,083 11,324 Undepreciated (loss) earnings $ (81,321) $ (261,578) $ 159,881 Weighted average shares outstanding - basic 91,042 94,322 94,808 Undepreciated (loss) earnings per common share $ (0.89) $ (2.77) $ 1.69 Adjusted Book Value Per Common Share Previously, we presented undepreciated book value per common share as a non-GAAP financial measure. Commencing with the quarter ended December 31, 2022, we discontinued disclosure of undepreciated book value per common share and instead present adjusted book value per common share, also a non-GAAP financial measure. When presented in prior periods, undepreciated book value was calculated by excluding from GAAP book value the Company's share of cumulative depreciation and lease intangible amortization expenses related to real estate held at the end of the period. Since we began disclosing undepreciated book value, we identified additional items as materially affecting our book value and believe they should also be incorporated in order to provide a more useful non-GAAP measure for investors to evaluate our current performance and trends and facilitate the comparison of our financial performance and adjusted book value per common share to that of our peers. Accordingly, we calculate adjusted book value per common share by making the following adjustments to GAAP book value: (i) exclude the Company's share of cumulative depreciation and lease intangible amortization expenses related to real estate held at the end of the period for which an impairment has not been recognized, (ii) exclude the cumulative adjustment of redeemable non-controlling interests to estimated redemption value and (iii) adjust our liabilities that finance our investment portfolio to fair value. Our rental property portfolio includes fee simple interests in single-family rental homes and joint venture equity interests in multi-family properties owned by Consolidated Real Estate VIEs. By excluding our share of cumulative non-cash depreciation and amortization expenses related to real estate held at the end of the period for which an impairment has not been recognized, adjusted book value reflects the value, at their undepreciated basis, of our single-family rental properties and joint venture equity investments that the Company has determined to be recoverable at the end of the period. Additionally, in connection with third party ownership of certain of the non-controlling interests in certain of the Consolidated Real Estate VIEs, we record redeemable non-controlling interests as mezzanine equity on our consolidated balance sheets. The holders of the redeemable non-controlling interests may elect to sell their ownership interests to us at fair value once a year, subject to annual minimum and maximum amount limitations, resulting in an adjustment of the redeemable non-controlling interests to fair value that is accounted for by us as an equity transaction in accordance with GAAP. A key component of the estimation of fair value of the redeemable non-controlling interests is the estimated fair value of the multi-family apartment properties held by the applicable Consolidated Real Estate VIEs. However, because the corresponding real estate assets are not reported at fair value and thus not adjusted to reflect unrealized gains or losses in our consolidated financial statements, the cumulative adjustment of the redeemable non-controlling interests to fair value directly affects our GAAP book value. By excluding the cumulative adjustment of redeemable non-controlling interests to estimated redemption value, adjusted book value more closely aligns the accounting treatment applied to these real estate assets and reflects our joint venture equity investment at its undepreciated basis. 81 Table of Contents The substantial majority of our remaining assets are financial or similar instruments that are carried at fair value in accordance with the fair value option in our consolidated financial statements. However, unlike our use of the fair value option for the assets in our investment portfolio, the CDOs issued by our residential loan securitizations, senior unsecured notes and subordinated debentures that finance our investment portfolio assets are carried at amortized cost in our consolidated financial statements. By adjusting these financing instruments to fair value, adjusted book value reflects the Company's net equity in investments on a comparable fair value basis. We believe that the presentation of adjusted book value per common share provides a more useful measure for investors and us than undepreciated book value as it provides a more consistent measure of our value, allows management to effectively consider our financial position and facilitates the comparison of our financial performance to that of our peers. A reconciliation of GAAP book value to adjusted book value and calculation of adjusted book value per common share as of December 31, 2023 and 2022, respectively, is presented below (amounts in thousands, except per share data). December 31, 2023 December 31, 2022 Company's stockholders' equity $ 1,579,612 $ 1,767,216 Preferred stock liquidation preference (554,110) (557,125) GAAP book value 1,025,502 1,210,091 Add: Cumulative depreciation expense on real estate (1) 21,801 31,433 Cumulative amortization of lease intangibles related to real estate (1) 14,897 59,844 Cumulative adjustment of redeemable non-controlling interest to estimated redemption value 30,062 44,237 Adjustment of amortized cost liabilities to fair value 55,271 103,066 Adjusted book value $ 1,147,533 $ 1,448,671 Common shares outstanding 90,675 91,194 GAAP book value per common share (2) $ 11.31 $ 13.27 Adjusted book value per common share (3) $ 12.66 $ 15.89 (1) Represents cumulative adjustments for the Company's share of depreciation expense and amortization of lease intangibles related to real estate held as of the end of the period presented for which an impairment has not been recognized. (2) GAAP book value per common share is calculated using the GAAP book value and the common shares outstanding for the periods indicated. (3) Adjusted book value per common share is calculated using the adjusted book value and the common shares outstanding for the periods indicated. 82 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, 2023 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 (loss) at the date of the consolidated financial statements and the reported amounts of income, expenses and other comprehensive income (loss) during the periods presented. Changes in the estimates and assumptions could have a material effect on these consolidated 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 investment 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 16 – 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. 83 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, 2023 and 2022, 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 the first loss subordinated securities and certain IOs. 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 equity 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. 84 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. Real estate held for sale (including real estate in disposal group held for sale) is recorded at the lower of the net carrying amount of the assets or the estimated net fair value. The Company assesses the net fair value of real estate held for sale in each reporting period that the assets remain classified as held for sale. The Company utilizes market assumptions and a discounted cash flow analysis using property financial information and assumptions regarding market rent, revenue and expense growth, capitalization rates and return rates to estimate fair value of real estate assets. The third-party owners of certain of the non-controlling interests in Consolidated VIEs have the ability to sell their ownership interests to the Company, at their election. The Company has classified these third-party ownership interests as redeemable non-controlling interest and determines the fair value of the redeemable non-controlling interest utilizing market assumptions and discounted cash flows. The Company applies a discount rate to the estimated future cash flows from the multi-family apartment properties held by the applicable Consolidated VIEs that are allocatable to the redeemable non-controlling interest. The estimation of cash flows used in pricing models for real estate held for sale and redeemable non-controlling interest is inherently subjective and imprecise. The estimation of fair value requires significant judgment based on the available sources and may affect any impairment recognized on real estate in the Company's statements of operations or, with respect to redeemable non-controlling interest, the Company's book value. 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. 85 Table of Contents Balance Sheet Analysis As of December 31, 2023, we had approximately $7.4 billion of total assets. Included in this amount is approximately $757.8 million of assets held in Consolidated SLST and $1.5 billion of assets related to Consolidated Real Estate VIEs, both of which we consolidate in accordance with GAAP. As of December 31, 2022, we had approximately $6.2 billion of total assets. Included in this amount is approximately $830.8 million of assets held in Consolidated SLST and $1.7 billion of assets related to Consolidated Real Estate VIEs, both of which we consolidate in accordance with GAAP. For a reconciliation of our actual interests in Consolidated SLST, see “Portfolio Update” above. For a reconciliation of our investments in Consolidated Real Estate VIEs, see “Equity Investments in Multi-Family Entities” below. 86 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, 2023 and 2022, respectively (dollar amounts in thousands): December 31, 2023 December 31, 2022 Acquired residential loans $ 2,329,443 $ 2,697,498 Consolidated SLST 754,860 827,582 Total $ 3,084,303 $ 3,525,080 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, 2023 and 2022, respectively (dollar amounts in thousands): December 31, 2023 Number of Loans Unpaid Principal Fair Value Weighted Average FICO Weighted Average LTV (1) Weighted Average Coupon Re-performing residential loan strategy 4,687 $ 626,316 $ 601,239 630 60% 5.1% Performing residential loan strategy 2,803 642,320 548,736 717 62% 4.0% Business purpose bridge loan strategy 1,720 919,990 896,988 735 65% 9.6% Business purpose rental loan strategy 1,111 311,663 282,480 749 68% 5.1% Total 10,321 $ 2,500,289 $ 2,329,443 December 31, 2022 Number of Loans Unpaid Principal Fair Value Weighted Average FICO Weighted Average LTV (1) Weighted Average Coupon Re-performing residential loan strategy 5,001 $ 677,229 $ 610,595 631 62% 4.9% Performing residential loan strategy 2,937 682,449 557,665 719 64% 3.9% Business purpose bridge loan strategy 1,964 1,253,704 1,236,303 732 65% 8.5% Business purpose rental loan strategy 1,163 329,299 292,935 748 69% 5.1% Total 11,065 $ 2,942,681 $ 2,697,498 (1) For second mortgages (included in performing residential loan strategy), the Company calculates the combined loan-to-value ("LTV"). For business purpose bridge loans, the Company calculates LTV 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. 87 Table of Contents Characteristics of Our Acquired Residential Loans: Loan to Value at Purchase (1) December 31, 2023 December 31, 2022 50% or less 13.6 % 14.6 % >50% - 60% 10.9 % 12.3 % >60% - 70% 22.4 % 24.4 % >70% - 80% 29.5 % 27.9 % >80% - 90% 11.8 % 10.0 % >90% - 100% 6.0 % 5.5 % > 100% 5.8 % 5.3 % Total 100.0 % 100.0 % (1) For second mortgages, the Company calculates the combined LTV. For business purpose bridge loans, the Company calculates LTV 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, 2023 December 31, 2022 550 or less 9.1 % 8.4 % 551 to 600 7.9 % 7.3 % 601 to 650 8.3 % 8.1 % 651 to 700 15.6 % 16.5 % 701 to 750 24.0 % 25.6 % 751 to 800 28.0 % 27.3 % 801 and over 7.1 % 6.8 % Total 100.0 % 100.0 % Current Coupon December 31, 2023 December 31, 2022 3.00% or less 7.6 % 7.4 % 3.01% - 4.00% 16.5 % 15.8 % 4.01% - 5.00% 20.9 % 19.8 % 5.01% - 6.00% 9.3 % 7.9 % 6.01% - 7.00% 7.2 % 7.7 % 7.01% - 8.00% 8.1 % 16.4 % 8.01% and over 30.4 % 25.0 % Total 100.0 % 100.0 % Delinquency Status December 31, 2023 December 31, 2022 Current 88.0 % 90.6 % 31 – 60 days 2.2 % 2.2 % 61 – 90 days 1.0 % 1.8 % 90+ days 8.8 % 5.4 % Total 100.0 % 100.0 % 88 Table of Contents Origination Year December 31, 2023 December 31, 2022 2007 or earlier 22.4 % 20.6 % 2008 - 2016 4.4 % 4.1 % 2017 - 2019 7.9 % 7.8 % 2020 7.8 % 8.0 % 2021 19.3 % 26.1 % 2022 21.4 % 33.4 % 2023 16.8 % — Total 100.0 % 100.0 % The Company exercised its option to purchase 50% of the issued and outstanding interests of an entity that originates residential loans during the year ended December 31, 2023. The Company purchased $80.8 million and $260.6 million of residential loans from the entity during the years ended December 31, 2023 and 2022, respectively. 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. Our investment in Consolidated SLST as of December 31, 2023 and 2022 was limited to the RMBS comprised of first loss subordinated securities and IOs issued by the securitization with an aggregate net carrying value of $157.2 million and $191.5 million, respectively. For more information on investment securities held by the Company within Consolidated SLST, refer to "Investment Securities" section below. 89 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, 2023 and 2022, respectively (dollar amounts in thousands, except current average loan size): December 31, 2023 December 31, 2022 Current fair value $ 754,860 $ 827,582 Current unpaid principal balance $ 892,546 $ 955,579 Number of loans 5,813 6,160 Current average loan size $ 153,543 $ 155,126 Weighted average original loan term (in months) at purchase 352 351 Weighted average LTV at purchase 68 % 68 % Weighted average credit score at purchase 701 703 Current Coupon: 3.00% or less 2.5 % 3.0 % 3.01% – 4.00% 38.5 % 38.0 % 4.01% – 5.00% 39.5 % 39.3 % 5.01% – 6.00% 11.8 % 11.9 % 6.01% and over 7.7 % 7.8 % Delinquency Status: Current 72.6 % 69.5 % 31 - 60 12.9 % 11.1 % 61 - 90 5.0 % 4.4 % 90+ 9.5 % 15.0 % Origination Year: 2005 or earlier 31.1 % 31.1 % 2006 15.7 % 15.6 % 2007 21.5 % 21.4 % 2008 or later 31.7 % 31.9 % Geographic state concentration (greater than 5.0%): California 10.7 % 10.6 % Florida 10.3 % 10.3 % New York 10.0 % 9.8 % New Jersey 7.6 % 7.4 % Illinois 7.2 % 7.2 % 90 Table of Contents Residential Loans and Single-Family Rental Property Financing Repurchase Agreements As of December 31, 2023, the Company had repurchase agreements with five third-party financial institutions to fund the purchase of residential loans and single-family rental properties. As of December 31, 2023, the Company's only repurchase agreement exposure where the amount of residential loans and single-family rental properties at risk was in excess of 5% of the Company's stockholders’ equity was to Atlas SP at 7.93%. The amount at risk is defined as the fair value of assets pledged as collateral to the financing arrangement in excess of the financing arrangement liability. The following table presents detailed information about these repurchase agreements and associated assets pledged as collateral at December 31, 2023 and 2022, respectively (dollar amounts in thousands): Maximum Aggregate Uncommitted Principal Amount Outstanding Repurchase Agreements (1) Net Deferred Finance Costs (2) Carrying Value of Repurchase Agreements Carrying Value of Assets Pledged (3) Weighted Average Rate Weighted Average Months to Maturity (4) December 31, 2023 $ 2,225,000 $ 611,055 $ (2,005) $ 609,050 $ 805,082 7.87 % 13.89 December 31, 2022 $ 2,030,879 $ 688,487 $ (1,541) $ 686,946 $ 867,033 6.65 % 16.69 (1) Includes non-mark-to-market repurchase agreements with an aggregate outstanding balance of $179.1 million, a weighted average rate of 8.19%, and weighted average months to maturity of 14 months as of December 31, 2023. Includes non-mark-to-market repurchase agreements with an aggregate outstanding balance of $446.8 million, a weighted average rate of 6.77%, and weighted average months to maturity of 24 months as of December 31, 2022. (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) Includes residential loans with an aggregate fair value of $658.3 million and single-family rental properties with a net carrying value of $146.7 million as of December 31, 2023. Includes residential loans with an aggregate fair value of $867.0 million as of December 31, 2022. (4) 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. 91 Table of Contents The following table details the quarterly average balance, ending balance and maximum balance at any month-end during each quarter in 2023, 2022 and 2021 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, 2023 $ 559,118 $ 611,055 $ 611,055 September 30, 2023 469,393 505,477 505,477 June 30, 2023 524,264 481,947 579,475 March 31, 2023 579,271 562,371 609,885 December 31, 2022 833,517 688,487 1,076,747 September 30, 2022 1,324,819 1,163,408 1,554,993 June 30, 2022 1,386,714 1,566,926 1,566,926 March 31, 2022 682,867 783,168 783,168 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 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 $158.4 million and $315.2 million, respectively, as of December 31, 2023. The following table summarizes Consolidated SLST CDOs and CDOs issued by the Company's residential loan securitizations as of December 31, 2023 (dollar amounts in thousands): Outstanding Face Amount Carrying Value Weighted Average Interest Rate (1) Stated Maturity (2) Consolidated SLST (3) $ 652,933 $ 593,737 2.75 % 2059 Residential loan securitizations $ 1,292,015 $ 1,276,780 4.00 % 2026 - 2062 (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. As of December 31, 2023, $399.3 million of the Company's CDOs contained an initial interest rate step-up feature whereby the interest rate increases by 3.00% if the outstanding notes are not redeemed by expected redemption dates, as defined in the respective governing documents, ranging from August 2024 to July 2025. Also, as of December 31, 2023, $548.6 million of the Company CDOs contained potential additional interest rate step-ups of 1.00% if the outstanding notes are not redeemed by expected redemption dates ranging from October 2024 to July 2026. As of December 31, 2023, $523.2 million of the Company's CDOs contained a contractual interest rate step-up feature whereby the interest rate increases by either 1.00% or 2.00% at step-up dates, as defined in the respective governing documents, ranging from May 2024 to December 2026. 92 Table of Contents Investment Securities At December 31, 2023, our investment securities portfolio included Agency RMBS and non-Agency RMBS, 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, 2023, 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 increase in the carrying value of our investment securities as of December 31, 2023 as compared to December 31, 2022 is primarily due to purchases of Agency RMBS during the period partially offset by sales of non-Agency RMBS, CMBS and ABS during the period and a decrease in the fair value of our first loss subordinated securities that we own in Consolidated SLST. The following tables summarize our investment securities portfolio as of December 31, 2023 and 2022, respectively (dollar amounts in thousands): December 31, 2023 Unrealized Weighted Average Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value Coupon (1) Yield (2) Outstanding Repurchase Agreements Available for Sale (“AFS”) Agency RMBS Fixed rate $ 1,756,343 $ 1,761,138 $ 21,581 $ (1,829) $ 1,780,890 5.74 % 5.64 % $ 1,602,695 Adjustable rate 149,052 147,460 1,741 — 149,201 5.48 % 5.35 % 137,084 Interest-only 1,139,828 52,623 6,813 (203) 59,233 0.76 % 14.81 % 31,657 Total Agency RMBS 3,045,223 1,961,221 30,135 (2,032) 1,989,324 4.34 % 5.79 % 1,771,436 Non-Agency RMBS Senior 35 35 — (4) 31 3.65 % 3.60 % — Subordinated 8,164 7,526 — (4,281) 3,245 4.61 % 7.39 % — IO 375,563 14,571 6,646 — 21,217 1.63 % 27.42 % — Total Non-Agency RMBS 383,762 22,132 6,646 (4,285) 24,493 1.70 % 20.27 % — Total - AFS $ 3,428,985 $ 1,983,353 $ 36,781 $ (6,317) $ 2,013,817 3.64 % 6.20 % $ 1,771,436 Consolidated SLST Non-Agency RMBS Subordinated $ 238,017 $ 189,962 $ — $ (49,684) $ 140,278 4.44 % 4.01 % $ 55,881 IO 139,914 17,937 — (1,061) 16,876 3.50 % 7.43 % — Total Non-Agency RMBS 377,931 207,899 — (50,745) 157,154 4.09 % 4.32 % 55,881 Total - Consolidated SLST $ 377,931 $ 207,899 $ — $ (50,745) $ 157,154 4.09 % 4.32 % $ 55,881 Total Investment Securities $ 3,806,916 $ 2,191,252 $ 36,781 $ (57,062) $ 2,170,971 3.74 % 5.80 % $ 1,827,317 93 Table of Contents December 31, 2022 Unrealized Weighted Average Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value Coupon (1) Yield (2) Outstanding Repurchase Agreements Available for Sale (“AFS”) Non-Agency RMBS Senior $ 41 $ 41 $ — $ (5) $ 36 2.74 % 2.89 % $ — Mezzanine 30,250 29,325 — (2,153) 27,172 4.77 % 5.58 % — Subordinated 39,104 28,108 — (13,282) 14,826 9.38 % 8.37 % — IO 524,726 17,100 9,436 — 26,536 1.44 % 20.79 % — Total Non-Agency RMBS 594,121 74,574 9,436 (15,440) 68,570 2.09 % 10.38 % — CMBS Mezzanine 26,033 26,033 — (1,662) 24,371 5.43 % 5.42 % — Subordinated 6,000 6,000 — (238) 5,762 9.29 % 9.29 % — Total CMBS 32,033 32,033 — (1,900) 30,133 6.14 % 6.13 % — ABS Residuals 4 797 59 — 856 — 30.19 % — Total ABS 4 797 59 — 856 — 30.19 % — Total - AFS $ 626,158 $ 107,404 $ 9,495 $ (17,340) $ 99,559 2.45 % 9.33 % $ — Consolidated SLST Non-Agency RMBS Subordinated $ 256,155 $ 210,733 $ — $ (40,182) $ 170,551 4.47 % 4.92 % $ 50,077 IO 149,873 21,528 — (546) 20,982 3.50 % 3.01 % — Total Non-Agency RMBS 406,028 232,261 — (40,728) 191,533 4.10 % 4.73 % 50,077 Total - Consolidated SLST $ 406,028 $ 232,261 $ — $ (40,728) $ 191,533 4.10 % 4.73 % $ 50,077 Total Investment Securities $ 1,032,186 $ 339,665 $ 9,495 $ (58,068) $ 291,092 3.09 % 6.19 % $ 50,077 (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. 94 Table of Contents Investment Securities Financing Repurchase Agreements As of December 31, 2023, the Company had $1.9 billion outstanding under repurchase agreements with third-party financial institutions to fund a portion of its investment securities available for sale, securities owned in Consolidated SLST and CDOs repurchased from our residential loan securitizations. These repurchase agreements are short-term financings that bear interest rates typically based on a spread to SOFR 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 Company expects to roll outstanding amounts under its repurchase agreements into new repurchase agreements or other financings, or to repay outstanding amounts, prior to or at maturity. As of December 31, 2023, the Company's only repurchase agreement exposure where the amount of investment securities at risk was in excess of 5% of the Company's stockholders’ equity was to Bank of America at 5.34%. The following table details the quarterly average balance, ending balance and maximum balance at any month-end during each quarter in 2023, 2022 and 2021 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, 2023 $ 1,851,577 $ 1,862,063 $ 1,870,941 September 30, 2023 1,184,714 1,490,996 1,490,996 June 30, 2023 492,473 664,459 664,459 March 31, 2023 131,174 226,778 226,778 December 31, 2022 50,077 50,077 50,077 September 30, 2022 53,159 53,159 53,159 June 30, 2022 132,712 129,331 138,301 March 31, 2022 116,766 144,852 144,852 December 31, 2021 — — — September 30, 2021 — — — June 30, 2021 — — — March 31, 2021 — — — 95 Table of Contents Mezzanine Lending The Company's Mezzanine Lending strategy may include preferred equity in, and mezzanine loans to, entities that have multi-family real estate assets. 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 Mezzanine Lending investments for accounting treatment as loans versus equity investments. Mezzanine Lending investments 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. Mezzanine Lending investments 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. The Company records its equity in earnings or losses from these Mezzanine Lending investments under the hypothetical liquidation of book value method of accounting due to the structures and the preferences it receives on the distributions from these entities pursuant to the respective agreements. Under this method, the Company recognizes income or loss in each period based on the change in liquidation proceeds it would receive from a hypothetical liquidation of its investment. During the year ended December 31, 2023, the Company reconsidered its evaluation of its variable interest in a VIE that owned a multi-family apartment community and in which the Company holds a preferred equity investment. The Company determined that it gained the power to direct the activities, and became primary beneficiary, of the VIE and consolidated the VIE into its consolidated financial statements. As of December 31, 2023, one preferred equity investment was greater than 90 days delinquent. This investment represents 2.2% of the total fair value of our Mezzanine Lending portfolio. 96 Table of Contents The following tables summarize our Mezzanine Lending portfolio as of December 31, 2023 and 2022, respectively (dollar amounts in thousands): December 31, 2023 Count Fair Value (1) (2) Investment Amount (2) Weighted Average Preferred Return Rate (3) Weighted Average Remaining Life (Years) Preferred equity investments 21 $ 200,034 $ 200,690 12.40 % 4.2 Preferred equity investment in Consolidated VIE (4) 1 11,706 11,732 10.50 % 8.0 Total 22 $ 211,740 $ 212,422 12.24 % 4.4 December 31, 2022 Count Fair Value (1) (2) Investment Amount (2) Weighted Average Preferred Return Rate (3) Weighted Average Remaining Life (Years) Preferred equity investments 23 $ 239,780 $ 242,970 11.98 % 3.4 (1) Preferred equity investments in the amounts of $95.8 million and $87.5 million are included in multi-family loans on the accompanying consolidated balance sheets as of December 31, 2023 and 2022, respectively. Preferred equity investments in the amounts of $104.2 million and $152.2 million are included in equity investments on the accompanying consolidated balance sheets as of December 31, 2023 and 2022, respectively. (2) The difference between the fair value and investment amount consists of any unrealized gain or loss. (3) Based upon investment amount and contractual preferred return rate. (4) Represents the Company's preferred equity investment in a Consolidated VIE that owns a multi-family apartment community. A reconciliation of our preferred equity investment in the Consolidated VIE to our consolidated financial statements as of December 31, 2023 is shown below (dollar amounts in thousands): Cash and cash equivalents $ 1,300 Real estate, net 54,439 Lease intangible, net (a) 2,378 Other assets 4,722 Total assets 62,839 Mortgage payable on real estate, net 45,142 Other liabilities 2,403 Total liabilities 47,545 Non-controlling interest in Consolidated VIE 3,588 Preferred equity investment in Consolidated VIE $ 11,706 (a) Included in other assets in the accompanying consolidated balance sheets. 97 Table of Contents Mezzanine Lending Characteristics The following tables present characteristics of our Mezzanine Lending portfolio summarized by geographic concentrations of credit risk exceeding 5% of our total investment amount as of December 31, 2023 and 2022, respectively (dollar amounts in thousands): December 31, 2023 State Count Investment Amount % Total Weighted Average Coupon Weighted Average LTV (1) Weighted Average DSCR (2) Florida 4 $ 55,753 26.3 % 13.0 % 77 % 1.27x Texas 6 42,854 20.2 % 10.8 % 92 % 1.21x Utah 1 21,970 10.3 % 12.0 % 68 % N/A (3) Arizona 1 17,811 8.4 % 14.0 % 85 % 0.45x (4) Tennessee 1 14,525 6.8 % 11.0 % 90 % 1.27x Other 9 59,509 28.0 % 12.5 % 83 % 1.36x Total 22 $ 212,422 100.0 % 12.2 % 83 % 1.24x December 31, 2022 State Count Investment Amount % Total Weighted Average Coupon Weighted Average LTV (1) Weighted Average DSCR (2) Florida 5 $ 82,072 33.8 % 12.6 % 72 % 1.35x Texas 5 43,118 17.7 % 11.2 % 82 % 1.27x Alabama 2 33,827 13.9 % 12.3 % 67 % 2.23x Utah 1 20,568 8.5 % 12.0 % 67 % N/A (3) Tennessee 1 13,731 5.7 % 11.0 % 89 % 1.30x Other 9 49,654 20.4 % 11.7 % 83 % 1.72x Total 23 $ 242,970 100.0 % 12.0 % 77 % 1.50x (1) Represents the weighted average LTV utilizing combined senior and mezzanine loans and combined origination appraisal and capital expenditure budget. (2) Represents the weighted average debt service coverage ratio ("DSCR") of the underlying properties and excludes properties that are subject to a senior construction loan agreement. (3) Not applicable as the underlying property is subject to a senior construction loan agreement. (4) DSCR for this property affected by low occupancy. 98 Table of Contents Equity Investments in Multi-Family Entities The Company owns joint venture equity investments in entities that own multi-family properties. The Company determined that these joint venture entities are VIEs and that the Company is the primary beneficiary of all but two of these VIEs, resulting in consolidation of the VIEs where we are the primary beneficiary, including their assets, liabilities, income and expenses, in our consolidated financial statements in accordance with GAAP. We receive a preferred return and/or pro rata variable distributions from these investments and, in certain cases, management fees based upon property performance. We also will participate in allocation of excess cash upon sale of the multi-family real estate assets. In September 2022, the Company announced a repositioning of its business through the opportunistic disposition over time of the Company's joint venture equity investments in multi-family properties and reallocation of the returned capital from such investments to its targeted assets. Accordingly, the Company determined that certain joint venture equity investments met the criteria to be classified as held for sale and transferred the assets and liabilities of the respective Consolidated VIEs and its unconsolidated multi-family joint venture equity investments to assets and liabilities of disposal group held for sale. In December 2023, certain of the joint venture equity investments in multi-family properties were determined to no longer meet held for sale criteria and either the assets and liabilities of the respective Consolidated VIEs or its equity investment in the joint venture entity were transferred to their respective categories or equity investments, at fair value, respectively, on the accompanying consolidated balance sheets. See Note 9 for additional information. The Company's net equity in consolidated joint venture equity investments ("Consolidated JVs") and disposal group held for sale totaled $236.3 million and $388.8 million as of December 31, 2023 and 2022, respectively. 99 Table of Contents A reconciliation of our net equity investments in consolidated JVs and disposal group held for sale, including one preferred equity investment in a Consolidated VIE, to our consolidated financial statements as of December 31, 2023 and 2022, respectively, is shown below (dollar amounts in thousands): December 31, 2023 December 31, 2022 Cash and cash equivalents $ 15,612 $ 21,129 Real estate, net 979,934 543,739 Lease intangible, net (1) 2,378 — Assets of disposal group held for sale (2) 426,017 1,151,784 Other assets 34,657 13,686 Total assets $ 1,458,598 $ 1,730,338 Mortgages payable on real estate, net (3) $ 784,421 $ 394,707 Liabilities of disposal group held for sale (2) 386,024 883,812 Other liabilities 21,797 10,511 Total liabilities $ 1,192,242 $ 1,289,030 Redeemable non-controlling interest in Consolidated VIEs $ 28,061 $ 63,803 Less: Cumulative adjustment of redeemable non-controlling interest to estimated redemption value (30,062) (44,237) Non-controlling interest in Consolidated VIEs 17,150 9,040 Non-controlling interest in disposal group held for sale 3,178 23,928 Net equity investment (4) 248,029 388,774 Less: Net equity in preferred equity investment in Consolidated VIE (5) (11,706) — Net equity investment in Consolidated JVs and disposal group held for sale $ 236,323 $ 388,774 (1) Included in other assets in the accompanying consolidated balance sheets. (2) See Note 9 in the Notes to Consolidated Financial Statements for further information regarding our assets and liabilities of disposal group held for sale. (3) See Note 14 in the Notes to Consolidated Financial Statements for further information regarding our mortgages payable on real estate. (4) The Company's net equity investment as of December 31, 2023 consists of $211.2 million of net equity investments in consolidated multi-family properties (including its preferred equity investment in a Consolidated VIE) and $36.8 million of net equity investments in disposal group held for sale. The Company's net equity investment as of December 31, 2022 consists of $144.7 million of net equity investments in consolidated multi-family properties and $244.0 million of net equity investments in disposal group held for sale. (5) See "Mezzanine Lending" above for description of preferred equity investment in Consolidated VIE. 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 Company's investment in the amount of $9.0 million was included in assets of disposal group held for sale as of December 31, 2022. The following table summarizes our unconsolidated multi-family joint venture equity investments as of December 31, 2023 (dollar amounts in thousands): State Property Count Ownership Interest Fair Value Texas 2 70% $ 5,720 100 Table of Contents Joint Venture Equity Investments in Consolidated Multi-Family Properties not in Disposal Group Held for Sale As of December 31, 2023, the Company's net joint venture equity investments in consolidated multi-family properties not in disposal group held for sale of $199.5 million consists of nine joint venture equity investments in multi-family properties and a combined preferred equity and common equity investment in one joint venture entity that do not meet the criteria to be classified as held for sale. One of the joint venture entities has third-party investors that 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, subject to certain conditions, such interests for cash, representing redeemable non-controlling interests of approximately $28.1 million. The geographic concentrations in joint venture equity investments in consolidated multi-family properties exceeding 5% of our joint venture equity investments in consolidated multi-family properties not in disposal group held for sale as of December 31, 2023 and 2022, respectively, are shown below (dollar amounts in thousands): December 31, 2023 State Property Count Total Equity Ownership Interest Net Equity Investment (1) Percentage of Total Net Equity Investment Florida 5 50% - 95% $ 56,607 33.4 % Texas 5 70% $ 49,727 29.4 % Tennessee 2 65% - 70% $ 18,131 10.7 % South Carolina 2 67% - 70% $ 13,561 8.0 % Alabama 2 70% - 80% $ 11,737 6.9 % Kentucky 1 70% $ 10,979 6.5 % December 31, 2022 State Property Count Total Equity Ownership Interest Net Equity Investment (1) Percentage of Total Net Equity Investment Texas 5 69% $ 40,825 40.7 % Tennessee 2 65% - 69% $ 15,959 15.9 % Florida 1 49% $ 14,075 14.0 % South Carolina 2 67% - 69% $ 11,935 11.9 % Kentucky 1 69% $ 9,257 9.2 % Alabama 1 69% $ 5,812 5.8 % (1) Represents our joint venture equity investment in consolidated multi-family properties net of redeemable non-controlling interest at its estimated redemption value. 101 Table of Contents Property Data for Joint Venture Equity Investments in Multi-Family Properties not in Disposal Group Held for Sale The following table provides summary information regarding our joint venture equity investments in multi-family properties that are not in disposal group held for sale as of December 31, 2023. Market Property Count Occupancy % Units Rent per Unit (1) LTV (2) Apopka, FL 1 88.8 % 240 $ 1,718 77.5 % Beaufort, SC 1 92.7 % 248 1,538 71.5 % Birmingham, AL 1 95.1 % 429 1,329 75.9 % Brandon, FL 1 84.2 % 285 1,624 77.8 % Collierville, TN 1 85.8 % 324 1,555 86.7 % Columbia, SC 1 96.4 % 276 1,172 83.1 % Dallas, TX 2 92.8 % 401 1,884 83.1 % Houston, TX 2 93.9 % 392 1,184 77.4 % Little Rock, AR 1 97.5 % 202 1,317 87.4 % Louisville, KY 1 93.0 % 300 1,394 82.5 % Memphis, TN (3) 1 59.9 % (3) 242 1,106 80.0 % Montgomery, AL 1 88.5 % 252 990 76.8 % Oklahoma City, OK 2 89.1 % 957 775 76.0 % Orlando, FL 1 87.7 % 220 1,588 76.4 % San Antonio, TX 2 92.1 % 684 1,286 85.2 % St. Petersburg, FL 1 96.6 % 326 2,454 71.2 % Tampa, FL 1 83.5 % 400 1,740 77.6 % Webster, TX 1 91.0 % 366 973 78.2 % Total Count/Average 22 89.8 % 6,544 $ 1,364 78.8 % (1) Represents average monthly rent per unit. (2) Represents the weighted average LTV of the underlying properties utilizing combined senior loan and preferred equity balances and the most recent appraisal. (3) Property incurred a loss due to fire, affecting occupancy until units are returned to service. Property Data for Joint Venture Equity Investments in Multi-Family Properties in Disposal Group Held for Sale The following table provides summary information regarding the multi-family properties in the disposal group held for sale as of December 31, 2023. Market Property Count Occupancy % Units Rent per Unit (1) LTV (2) Birmingham, AL 1 92.0 % 264 $ 1,694 66.7 % Brandon, FL 1 78.7 % 982 1,497 79.6 % Fort Myers, FL 1 86.7 % 338 1,529 78.1 % Kissimmee, FL 1 94.1 % 320 1,730 77.7 % Pensacola, FL 1 93.3 % 240 1,421 76.2 % Total Count/Average 5 85.5 % 2,144 $ 1,557 77.5 % (1) Represents average monthly rent per unit. (2) Represents the weighted average LTV of the underlying properties utilizing maximum senior committed mortgage amount and combined origination appraisal and capital expenditure budget. 102 Table of Contents Equity Investments in Entities that Originate Residential Loans As of December 31, 2023, the Company had an investment in an entity that originates residential loans. The following table summarizes our ownership interest in the entity that originates residential loans as of December 31, 2023 and 2022, respectively (dollar amounts in thousands): December 31, 2023 December 31, 2022 Strategy Ownership Interest Fair Value Ownership Interest Fair Value Constructive Loans, LLC (1) Residential Loans 50% $ 37,154 — $ 27,500 Total $ 37,154 $ 27,500 (1) As of December 31, 2022, the Company had the option to purchase 50% of the issued and outstanding interests of this entity. In February 2023, the Company exercised its option in full related to this investment. In the year ended December 31, 2023, we contributed approximately $9.0 million to this entity. The Company accounts for this investment using the equity method and has elected the fair value option. 103 Table of Contents Derivative Assets and Liabilities The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company enters into derivative financial instruments in connection with its risk management activities. These derivative instruments may include interest rate swaps, interest rate caps, futures and options contracts such as options on credit default swap indices, equity index options, swaptions and options on futures. The Company may also pursue forward-settling purchases or sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced,” or TBAs, purchase options on U.S. Treasury futures or invest in other types of mortgage derivative securities. The Company elected not to apply hedge accounting for its derivative instruments. The Company and the entities that own multi-family properties in which the Company owns joint venture equity investments are required by lenders on certain repurchase agreement financing and variable-rate mortgages payable on real estate to enter into interest rate cap contracts. These interest rate cap contracts are with a counterparty that involve the receipt of variable-rate amounts from the counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During the period these contracts are open, changes in the value of the contract are recognized as gains or losses on derivative instruments. The Company uses interest rate swaps to hedge the variable cash flows associated with our variable-rate borrowings. Interest rate swaps generally involve the receipt of variable-rate amounts from a counterparty, based on SOFR, in exchange for the Company making fixed-rate payments over the life of the interest rate swap without exchange of the underlying notional amount. Notwithstanding the foregoing, in order to manage its position with regard to its liabilities, the Company may also enter into interest rate swaps which involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments, based on SOFR, over the life of the interest rate swap without exchange of the underlying notional amount. The variable rate we pay or receive under our swap agreements has the effect of offsetting the repricing characteristics and cash flows of the Company's financing arrangements. The Company may purchase equity index put options that gives the Company the right to sell or buy the underlying index at a specified strike price, as well as credit default swap index options that allow the Company to enter into a fixed rate payor position in the underlying credit default swap index at the agreed strike level. 104 Table of Contents Debt The Company’s debt as of December 31, 2023 included senior unsecured notes and subordinated debentures. Senior Unsecured Notes As of December 31, 2023, 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, 2023, certain of our wholly-owned subsidiaries had trust preferred securities outstanding of $45.0 million with a weighted average interest rate of 9.46% 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. 105 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, 2023 and 2022, respectively (dollar amounts in thousands): December 31, 2023 December 31, 2022 8.000% Series D Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock $ 147,745 $ 148,134 7.875% Series E Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock 177,697 179,349 6.875% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock 138,418 138,650 7.000% Series G Cumulative Redeemable Preferred Stock 71,585 72,218 Common stock 907 912 Additional paid-in capital 2,297,081 2,282,691 Accumulated other comprehensive loss (4) (1,970) Accumulated deficit (1,253,817) (1,052,768) Company's stockholders' equity $ 1,579,612 $ 1,767,216 106 Table of Contents Liquidity and Capital Resources General Liquidity is a measure of our ability to meet potential cash requirements. Our short-term (the 12 months ending December 31, 2024) and long-term (beyond December 31, 2024) liquidity requirements include 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 short-term and long-term liquidity needs are met by our existing cash balances and our investments and assets which 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 satisfy our short-term and/or long-term liquidity needs through the sale of assets from our investment portfolio, securities offerings or the securitization or collateralized financing of our assets. Since late March 2020, we have focused on strengthening our balance sheet and long-term capital preservation primarily 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. During the year ended December 31, 2023, we began expanding our holdings of Agency RMBS, which is more liquid than many if not all of the investments in our portfolio of credit investments, and have utilized mark-to-market repurchase agreement financing to fund that expansion. As of December 31, 2023, the Company’s portfolio recourse leverage ratio of 1.5x, remains low relative to historical levels. As of December 31, 2023, only 58% of our debt, excluding mortgages payable on real estate and Consolidated SLST CDOs, is subject to mark-to-market margin calls, with 45% collateralized by Agency RMBS and 13% collateralized by residential credit assets. The remaining 42% has no exposure to collateral repricing by our counterparties. We expect to continue to opportunistically dispose of assets from our portfolio, including our joint venture equity investments, and generate higher portfolio turnover in order to pursue investments across the residential housing sector with a focus on acquiring assets with less price sensitivity to credit deterioration, like Agency RMBS. We also intend to maintain a solid position in unrestricted cash and remain committed to prudently managing our liabilities. At December 31, 2023, we had $171.5 million of available cash and cash equivalents (excluding cash and cash equivalents held by consolidated multi-family properties not in disposal group held for sale), $170.6 million of unencumbered investment securities (including the securities we own in Consolidated SLST and CDOs repurchased from our residential loan securitizations) and $169.2 million of unencumbered residential loans. 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. With respect to the multi-family properties in which we hold joint venture equity investments, the properties are encumbered by a senior mortgage loan. The type and terms of the ultimate financing used by us depends on the asset being financed and the financing available at the time of the financing. As a result of the severe market dislocations related to the COVID-19 pandemic and, more specifically, the unprecedented illiquidity in our short-term repurchase agreement financing and MBS markets during that time, we have placed a greater emphasis on procuring longer-termed and/or more committed financing arrangements for our credit investments, 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. Although we expect our leverage to move higher as we expand our holding of Agency RMBS with the aid of short-term mark-to-market repurchase agreement financing, we intend to continue to focus on procuring longer-term and non-mark-to-market financing arrangements for certain parts of our credit portfolio. Based on current market conditions, our current investment portfolio, new investment initiatives, expectations to dispose of assets from time to time on terms favorable to us, 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 will continue 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. 107 Table of Contents Cash Flows and Liquidity for the Year Ended December 31, 2023 During the year ended December 31, 2023, net cash, cash equivalents and restricted cash decreased by $50.3 million. Cash Flows from Operating Activities We generated net cash flows from operating activities of $30.0 million during the year ended December 31, 2023. 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 (including impairment of real estate and loss on reclassification of disposal group). Cash Flows from Investing Activities During the year ended December 31, 2023, our net cash flows used in investing activities were $1.2 billion, primarily as a result of purchases of investment securities and residential loans, the funding of multi-family preferred equity investments, capital expenditures on real estate and net variation margin paid for derivative instruments. This was partially offset by principal repayments received on residential loans, investment securities and multi-family loans, net proceeds from the sale of real estate held in Consolidated VIEs, return of capital from equity investments, proceeds from the sale of investment securities and residential loans and net payments received from derivative instruments. 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, 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). Additionally, a significant portion of cash flows from the sale of real estate held in Consolidated VIEs were used to repay outstanding mortgages payable on real estate held in Consolidated VIEs. Cash Flows from Financing Activities During the year ended December 31, 2023, our net cash flows provided by financing activities were $1.1 billion. The main sources of cash flows from financing activities were proceeds from repurchase agreements related to our investment securities, residential loans and single-family rental properties. This was partially offset by paydowns on CDOs, payments made on mortgages payable on real estate, dividend payments on both common and preferred stock and repurchases of shares of common and preferred stock. 108 Table of Contents Liquidity – Financing Arrangements As of December 31, 2023, we have outstanding short-term repurchase agreement financing on our investment securities, a form of collateralized short-term financing, with multiple financial institutions. The repurchase agreements we use to finance our investment securities are secured by certain of our investment securities and bear interest rates that move in close relationship to SOFR. 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, these 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 a repurchase agreement counterparty 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, 2023, we had longer-term repurchase agreements with terms of up to two years with multiple third-party financial institutions that are secured by certain of our residential loans and single-family rental properties. The outstanding financing under three of these repurchase agreements is subject to margin calls to the extent the market value of the collateral falls below specified levels. We have entered into or amended repurchase agreements with three 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. S ee "Management's Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Analysis—Residential Loans and Single-Family Rental Property 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. Repurchase of the residential loans and single-family rental properties financed by the repurchase agreements may be accelerated upon an event of default. The repurchase agreements secured by residential loans and single-family rental properties contain various covenants, including among other things, the maintenance of certain amounts of liquidity and stockholders' equity (as defined in the respective agreements). As of December 31, 2023, we had an aggregate amount at risk under our residential loan and single-family rental property repurchase agreements of approximately $194.0 million, which represents the difference between the carrying value of the collateral 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. As of December 31, 2023, we had assets available to be posted as margin which included liquid assets, such as unrestricted cash and cash equivalents, and unencumbered investment securities that could be monetized to pay down or collateralize a liability immediately. As of December 31, 2023, we had $171.5 million included in cash and cash equivalents and $170.6 million in unencumbered investment securities available to meet additional haircuts or market valuation requirements. The unencumbered investment securities that we believe may be posted as margin as of December 31, 2023 included $75.3 million of non-Agency RMBS (including an IO security we own in Consolidated SLST and CDOs repurchased from our residential loan securitizations) and $95.3 million of Agency RMBS. 109 Table of Contents At December 31, 2023, 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. The Company's Senior Unsecured Notes also 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. At December 31, 2023, we also had other longer-term debt which includes Company-sponsored residential loan securitization CDOs with a carrying value of $1.3 billion. We had ten Company-sponsored securitizations with CDOs outstanding as of December 31, 2023. See Note 13 to our consolidated financial statements included in this report for further discussion. The real estate assets held by our multi-family joint venture equity 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 guaranty related to commitment of bad acts and our equity investment may be lost or reduced to the extent a lender forecloses on the property. As of December 31, 2023, one of the joint venture equity investments is one month delinquent on its senior mortgage loan in the amount of $195.6 million as a result of increasing interest rates. The Company is not exposed to risk of loss outside of its common equity investment in the joint venture as the senior mortgage loan is non-recourse. As of December 31, 2023, our Company recourse leverage ratio, which represents our total outstanding recourse repurchase agreement financing, subordinated debentures and Senior Unsecured Notes divided by our total stockholders' equity, was approximately 1.6 to 1. Our Company recourse leverage ratio does not include outstanding non-recourse repurchase agreement financing, debt associated with CDOs or mortgages payable on real estate. As of December 31, 2023, our portfolio recourse leverage ratio, which represents our outstanding recourse repurchase agreement financing divided by our total stockholders’ equity, was approximately 1.5 to 1. We monitor all at risk or shorter-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, interest rate caps, futures and options contracts such as options on credit default swap indices, equity index options, swaptions and options on futures. We may also use TBAs or other futures contracts to hedge interest rate and market value risk associated with our investment portfolio. The Company and the entities that own multi-family properties in which the Company owns joint venture equity investments are required by lenders on certain repurchase agreement financing and variable-rate mortgages payable on real estate to enter into interest rate cap contracts. These interest rate cap contracts are with a counterparty that involve the receipt of variable-rate amounts from the counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During the period these contracts are open, changes in the value of the contract are recognized as gains or losses on derivative instruments. The joint venture entities that own the multi-family properties will be required to enter into new interest rate cap contracts upon their expiration and may require the Company to contribute additional capital to the respective joint venture. 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. 110 Table of Contents 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 securities offerings during the year ended December 31, 2023. Preferred Stock and Common Stock Repurchase Programs In March 2023, the Board of Directors approved a $100.0 million preferred stock repurchase program. The program, which is currently set to expire on March 31, 2025, allows the Company to make repurchases of shares of preferred stock, from time to time, in open market transactions, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws and the rules and regulations of Nasdaq. During the year ended December 31, 2023, the Company repurchased 16,177 shares of Series D Preferred Stock, 68,348 shares of Series E Preferred Stock, 9,791 shares of Series F Preferred Stock and 26,264 shares of Series G Preferred Stock pursuant to the preferred stock repurchase program for a total cost of approximately $2.4 million, including fees and commissions paid to the broker, representing an average repurchase price of $20.29 per preferred share. The difference between the consideration transferred and the carrying value of the preferred stock resulted in a gain attributable to common stockholders of approximately $0.5 million during the year ended December 31, 2023. As of December 31, 2023, $97.6 million of the approved amount remained available for the repurchase of shares of preferred stock under the preferred stock repurchase program. In February 2022, the Board of Directors approved a $200.0 million common stock repurchase program. The program allows the Company to make repurchases of shares of common stock, from time to time, in open market transactions, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws and the rules and regulations of Nasdaq. In March 2023, the Board of Directors approved an upsize of the common stock repurchase program to $246.0 million. During the year ended December 31, 2023, the Company repurchased 937,850 shares of its common stock pursuant to the common stock repurchase program for a total cost of approximately $8.6 million, including fees and commissions paid to the broker, representing an average repurchase price of $9.19 per common share. As of December 31, 2023, $193.2 million of the approved amount remained available for the repurchase of shares of the Company's common stock under the common stock repurchase program. The common stock repurchase program is currently set to expire on March 31, 2025. 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 17 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. 111 Table of Contents Redeemable Non-Controlling Interest Pursuant to the operating agreement for one of our joint venture equity investments, third party investors in this joint venture 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, subject to certain conditions, such interests for cash. See Note 7 to our consolidated financial statements included in this report for further discussion of redeemable non-controlling interest. Summary of Material Contractual Obligations The Company had the following material contractual obligations at December 31, 2023 (dollar amounts in thousands): Less than 1 year 1 to 3 years 4 to 5 years More than 5 years Total Repurchase agreements (1) $ 2,299,226 $ 243,331 $ — $ — $ 2,542,557 Subordinated debentures (1) 4,314 8,606 8,617 73,024 94,561 Senior unsecured notes (1) 5,750 108,625 — — 114,375 Interest rate swaps (1) 906 1,811 1,688 3,258 7,663 Total contractual obligations (2) $ 2,310,196 $ 362,373 $ 10,305 $ 76,282 $ 2,759,156 (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, 2023. (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 13 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 14 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 equity 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. 112 Table of Contents