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Item 1A. Risk Factors

2025-08-14 compared with 2025-05-14 · 42 added, 7 removed, 6 unchanged (89% of the section changed)

There have been no material changes to the risk factors disclosed in Item 1A - “Risk Factors” in the Company’s Annual Report for the fiscal year ended December 31, 2024, excepted as noted below:

Changes to U.S.

tariff regulations may have an adverse effect on our business, financial condition and results of operations.

The United States recently announced a list of tariffs on specific countries and commodities which have contributed to heightened trade policy uncertainty and market volatility in the debt and equity capital markets.

These market and economic disruptions, have affected, and may in the future continue to affect the U.S.

imports and capital markets, which could adversely affect our borrowers, financial condition or results of operations.

Specifically, the imposition of tariffs on certain foreign goods used in construction in the commercial real estate market could adversely affect us, our borrowers and the value of the real estate assets related to our investments.

There have been no material changes to the risk factors disclosed in Item 1A - “Risk Factors” in the Company’s Annual Report for the fiscal year ended December 31, 2024 and as disclosed in Item 1A.

“Risk Factors” in the Company’s Quarterly Report for the quarter ended March 31, 2025, except as disclosed below:

The commercial mortgages and other commercial real estate-related loans and the commercial mortgage loans underlying the mortgage-backed securities in which we may invest are subject to the ability of the commercial property to generate net income (and not the independent income or assets of the borrower in the case of mortgage loans).

The volatility of real property could have a material adverse effect on our business, financial position and results of operations.

The commercial mortgage loans and other commercial real estate-related loans and the commercial mortgage loans underlying the securities in which we may invest are subject to the ability of the commercial property to generate net income (and not the independent income or assets of the borrower in the case of mortgage loans).

Any reductions in net operating income (“NOI”) increase the risks of delinquency, foreclosure and default, which could result in losses to us.

NOI of an income-producing property can be affected by many factors, including, but not limited to:

• the ongoing need for capital improvements, particularly in older structures;

• changes in operating expenses;

• changes in general or local market conditions;

• changes in tenant mix and performance, the occupancy or rental rates of the property or, for a property that requires new leasing activity, a failure to lease the property in accordance with the projected leasing schedule;

• competition from comparable property types or properties;

• unskilled or inexperienced property management;

• limited availability of mortgage funds or fluctuations in interest rates which may render the sale and refinancing of a property difficult;

• development projects that experience cost overruns or otherwise fail to perform as projected including, without limitation, failure to complete planned renovations, repairs, or construction;

• unanticipated increases in real estate taxes and other operating expenses;

• challenges to the borrower’s claim of title to the real property;

• environmental considerations, including liability for testing, monitoring and remediation;

• changes in zoning laws, rent control laws and other similar legal restrictions on property ownership and operation;

• other governmental rules and policies;

• community health issues, including, without limitation, epidemics and pandemics;

• unanticipated structural defects or costliness of maintaining the property;

• uninsured losses, such as possible acts of theft, terrorism, social unrest or civil disturbances;

• a decline in the operational performance of a facility on the real property (such facilities may include multifamily rental facilities, office properties, retail facilities, hospitality facilities, healthcare-related facilities, industrial facilities, warehouse facilities, restaurants, mobile home facilities, recreational or resort facilities, arenas or stadiums, religious facilities, parking lot facilities or other facilities);

• large-scale fire, earthquake or severe weather-related damage to, or the effect of climate change on, the property and/or its operations.

In addition, as the number of tenants with respect to a commercial property decreases or as tenant spaces on a property must be relet, the nonperformance risk of the loan related to such commercial property may increase.

A substantial portion of our portfolio may be committed to the origination or purchasing of commercial loans to small and medium-sized, privately owned businesses.

Compared to larger, publicly owned firms, such companies generally have limited access to capital and higher funding costs, may be in a weaker financial position and may need more capital to expand or compete.

The above financial challenges may make it difficult for such borrowers to make scheduled payments of interest or principal on their loans.

Accordingly, advances made to such types of borrowers entail higher risks than advances made to companies who are able to access traditional credit sources.

The owners of, borrowers on, and tenants occupying, the properties which secure our investments may seek the protection afforded by bankruptcy, insolvency and other debtor relief laws, which may create potential for risk of loss to us.

Although commercial real estate lenders typically seek to reduce the risk of borrower bankruptcy through such items as non-recourse carveouts for bankruptcy and special purpose entity/separateness covenants and/or non-consolidation opinions for borrowing entities, the owners of, borrowers on, and tenants occupying, the properties which secure our investments may still seek the protection afforded by bankruptcy, insolvency and other debtor relief laws.

One of the protections offered in such proceedings to each of these parties is a stay of legal proceedings, and a stay of enforcement proceedings against collateral for such loans or underlying such securities (including the properties and cash collateral).

A stay of foreclosure proceedings could adversely affect our ability to realize on our loan collateral, and could adversely affect the value of those assets.

Other protections in such proceedings to borrowers, owners and tenants include the restructuring or forgiveness of debt, the ability to create super priority liens in favor of certain creditors of the debtor, the potential loss of cash collateral held by the lender if the lender is over-collateralized, and certain well defined claims procedures.

Additionally, the numerous risks inherent in the bankruptcy process create a potential risk of loss of our entire investment in any particular investment.

The vast majority of the mortgage loans that we originate or purchase, and those underlying the mortgage-backed securities in which we may invest, are non-recourse loans and the assets securing the loans may not be sufficient to protect us from a partial or complete loss if the borrower defaults on the loan.

Except for customary non-recourse carve-outs for certain actions and environmental liability, most commercial mortgage loans, including those underlying the mortgage-backed securities in which we may invest, are effectively non-recourse obligations of the sponsor and borrower, meaning that there is no recourse against the assets of the borrower other than the underlying collateral.

In the event of any default under a mortgage loan held directly by us, we will bear a risk of loss to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our cash flow from operations.

Even if a mortgage loan is recourse to the borrower (or if a non-recourse carve-out to the borrower applies), in many cases, the borrower’s assets are limited primarily to its interest in the related mortgaged property.

Further, although a mortgage loan may provide for limited recourse to a principal or affiliate of the related borrower, there is no assurance of any recovery from such principal or affiliate will be made or that such principal’s or affiliate’s assets would be sufficient to pay any otherwise recoverable claim.

In the event of the bankruptcy of a borrower, the loan to such borrower is deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.

Unregistered Sales of Equity Securities and Use of Proceeds

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors