What changed in this filing

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Item 1A. Risk Factors

2023-02-21 compared with 2022-02-17 · 178 added, 180 removed, 693 unchanged (34% of the section changed)

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• our ability to maintain our exception from the definition of “investment company” under the 1940 Act;

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• the availability of investment opportunities in mortgage-related, real estate-related and other securities;

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• market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy.

Risks Related to the COVID-19 Pandemic

The COVID-19 pandemic has adversely affected, and will likely continue to adversely affect, the U.S.

and global economies, the mortgage REIT industry and our business.

The COVID-19 pandemic and the related preventative measures continue to cause significant disruptions to the U.S.

and global economies and have contributed to volatility in financial markets.

While economic activity has recovered sharply since the significant disruption experienced at the onset of the COVID-19 pandemic;

the pace, timing and strength of the economic recovery going forward is still unknown and difficult to predict as the COVID-19 pandemic continues.

During the first and second quarters of 2020, we experienced significant declines in the value of our target assets as well as adverse developments with respect to the cost and terms of financing available to us, and received margin calls, default notices and deficiency letters from certain of our financing counterparties well in excess of historical norms.

Related sales of the securities and other assets that secured our repurchase and other financing arrangements may have been on terms less favorable to us than might otherwise be available in a regularly functioning market.

We expect over the near and long term that the economic impacts of the COVID-19 pandemic may impact the financial condition of the mortgage loans and mortgage loan borrowers underlying the residential and commercial securities and loans that we own and, as a result, the number of borrowers who become delinquent or default on their loans may increase.

Elevated levels of delinquency or default could have an adverse impact on the value of our mortgage-related assets.

In addition to residential mortgage-related assets, the adverse economic conditions could negatively impact tenants on our commercial property assets, resulting in potential delinquencies, defaults or declines in asset values.

The continued effects of the COVID-19 pandemic could also negatively impact the availability of our Manager's key personnel necessary to conduct our business.

In response to the conditions created by the COVID-19 pandemic, the U.S.

government has implemented unprecedented financial support and relief measures to reinforce the economy and the continued functioning of the financial markets.

However, the success of such measures cannot be predicted, and we can offer no assurance that these programs will be effective, sufficient or otherwise have a positive impact on our business.

Moreover, certain actions taken by U.S.

or other governmental authorities, including the Federal Reserve, that are intended to ameliorate the macroeconomic effects of the COVID-19 pandemic may harm our business.

Our inability to access funding or the terms on which funding is available could have a material adverse effect on our results of operations and financial condition, particularly because of potential market dislocations resulting from the COVID-19 pandemic.

Our ability to fund our operations, meet financial obligations and finance asset acquisitions may be impacted by an inability to secure and maintain our repurchase agreements with counterparties.

Because repurchase agreements are short-term commitments of capital, repurchase agreement counterparties may respond to market conditions in a manner that makes it more difficult for us to renew or replace, on a continuous basis, maturing short-term financings, and have and may continue to impose less favorable conditions when rolling such financings.

If we are not able to renew or roll our repurchase agreements or arrange for new financing on terms acceptable to us, or if we default on our financial covenants, are otherwise unable to access funds under our financing arrangements, or if we are required to post more collateral or face larger haircuts on our financings, we may have to dispose of assets at significantly lower prices and at inopportune times, which could cause significant losses, and may also force us to limit our asset acquisition activities.

Issues related to financing are heightened in times of significant volatility in the financial markets, such as those experienced in connection with the COVID-19 pandemic.

It is possible that our financing counterparties will become unwilling

or unable to provide us with financing, and we could be forced to sell our assets at a time when prices are depressed or markets are illiquid, which could cause significant losses.

In addition, if the regulatory capital requirements imposed on our financing counterparties change, they may be required to significantly increase the cost of the financing that they provide to us, or to increase the amounts of collateral they require as a condition to providing us with financing.

Our financing counterparties also have revised, and may continue to revise, their eligibility requirements for the types of assets that they are willing to finance based on, among other factors, the regulatory environment and their management of actual and perceived risk.

Moreover, the amount of financing that we receive under our repurchase agreements will be directly related to our counterparties’ valuation of our assets that collateralize the outstanding repurchase agreement financing.

Typically, repurchase agreements grant the repurchase agreement counterparty the absolute right to reevaluate, at any time, the fair market value of the assets that cover the amount financed under the repurchase agreement.

If a repurchase agreement counterparty determines in its sole discretion that the value of the assets subject to the repurchase agreement financing has decreased, it has the right to initiate a margin call.

These valuations may be different than the values that we ascribe to these assets and may be influenced by recent asset sales at distressed levels by forced sellers.

A margin call requires us to transfer additional assets to a repurchase agreement counterparty without any advance of funds from the counterparty for such transfer or to repay a portion of the outstanding repurchase agreement financing.

We would also be required to post additional collateral if haircuts increase under a repurchase agreement.

In these situations, we could be forced to sell assets at significantly depressed prices to meet such margin calls or increased haircuts and to maintain adequate liquidity, which could cause significant losses.

As a result of the COVID-19 pandemic, during the year ended December 31, 2020, we observed a mark-down of a portion of our mortgage assets by the counterparties to our financing arrangements, resulting in us having to post cash or securities to satisfy higher than historical levels of margin calls.

Significant margin calls had and could have in the future a material adverse effect on our results of operations, financial condition, business, liquidity and ability to make distributions to our stockholders, and caused and could cause in the future the value of our common stock to decline.

We have been and may be in the future required to sell assets at significantly depressed prices to meet such margin calls and to maintain adequate liquidity.

If these conditions occur, it will continue to have a negative adverse impact on our liquidity.

Our ability to make distributions to our stockholders has been and may continue to be adversely affected by the COVID-19 pandemic.

The declaration, amount and payment of any future dividends on shares of common stock will be at the sole discretion of our board of directors.

The payment of dividends may be more uncertain during severe market disruption in the mortgage, real estate or related sectors, such as those experienced as a result of the COVID-19 pandemic.

We have experienced, and may continue to experience, significant changes in our portfolio during times of severe market disruption in the mortgage, real estate or related sectors, such as those experienced as a result of the COVID-19 pandemic.

Consistent with market conditions related to the COVID-19 pandemic, we have taken and may continue to take steps to manage our portfolio through unprecedented market volatility and preserve long-term stockholder value, including completing various transactions to reposition our portfolio.

Stockholders may not agree with, nor are required to consent to, significant changes to our portfolio.

The COVID-19 pandemic has created an uncertain and volatile interest rate environment, which could adversely affect our business.

The COVID-19 pandemic has created an uncertain and volatile interest rate environment and general fixed income patterns have deviated widely from historical trends, which have and may continue to adversely affect our business.

We have experienced historically larger spreads to benchmark rates in the repurchase markets for certain target assets and, in some cases, availability of repurchase financing has been limited or not available.

Further, in response to the COVID-19 pandemic, significant government programs, stimulus plans, as well as government purchase and finance programs, have had and will continue to have an impact on interest rates and fair values of fixed income assets.

It is unclear what the impact of these actions will be and how long they will continue to drive the interest rate environment.

Given the combination of government programs, volatile interest rates, and other disruptions related to the COVID-19 pandemic, it has become more difficult to predict prepayment levels for the securities in our portfolio.

Actual prepayment results may be materially different than the assumptions we use.

We use interest rate swaps to manage our exposure to interest rate movements on our liabilities;

however, it is unlikely that these interest rate swaps will cover all risk, which may have an adverse effect on our financial condition and business.

Market disruptions caused by the COVID-19 pandemic have made it more difficult for us to determine the fair value of our investments and may cause a decline in such fair value.

As discussed in Note 2 and Note 10 to the consolidated financial statements included in this Annual Report on Form 10-K, market-based inputs are generally the preferred source of values for measuring the fair value of many of our assets under

In the absence of market inputs, U.S.

GAAP permits the use of management assumptions to measure fair value.

However, market volatility and disruption caused by the COVID-19 pandemic and uncertainty regarding its ultimate impact and duration could make it more difficult for our management to formulate assumptions to measure the fair value of certain of our assets.

The fair value of certain of our investments may fluctuate over short periods of time, and our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed.

The value of our common stock and preferred stock, results of operations, our financial condition and business could be adversely affected if our determinations regarding the fair value of these investments were materially higher than the values that we ultimately realize upon their disposal.

During the year ended December 31, 2020 , we experienced a significant amount of realized and unrealized losses on our assets.

A future decline in the fair value of our investments as a result of the COVID-19 pandemic may require us to recognize an impairment under U.S.

GAAP if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to their original acquisition cost.

If such a determination were to be made, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired.

Such impairment charges reflect non-cash losses at the time of recognition.

The subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale.

If we experience a decline in the fair value of our investments, it could materially and adversely affect our business, results of operations, financial condition, stock price and ability to make distributions to our stockholders.

Measures intended to prevent the spread of COVID-19 could disrupt our operations.

In response to the outbreak of COVID-19 and the federal and state mandates implemented to control its spread, the majority of our Manager’s employees are working remotely.

If our Manager’s employees are unable to work effectively as a result of the COVID-19 pandemic , including because of illness, quarantines, office closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted.

Further, remote work arrangements may increase the risk of cyber-security incidents and cyber-attacks, which could have a material adverse effect on our business and results of operations, due to, among other things, the loss of investor or proprietary data, interruptions or delays in the operation of our business and damage to our reputation.

We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, extreme weather events or other natural disasters.

The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as COVID-19, or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks or natural disasters, could create economic and financial disruptions, and could lead to material adverse declines in the market values of our assets, illiquidity in our investment and financing markets and negative impacts on our ability to effectively conduct our business.

Risks Related to Our Business

The effects of health endemics, including the COVID-19 pandemic, on economic conditions is uncertain and may adversely affect our business.

Our business has been and could in the future be adversely affected by health epidemics, such as the COVID-19 pandemic.

The COVID-19 pandemic has caused and may continue to cause significant disruptions to the U.S.

and global economies, may further contribute to volatility and instability in financial markets, and may have material and adverse effects on our business , results of operations and financial performance .

Our business may be adversely affected by unfavorable or changing economic, market, and political conditions.

A return to a recessionary period, elevated inflation, adverse trends in employment levels, geopolitical instability or conflicts (including the hostilities between Russia and Ukraine), trade or supply chain disruptions, economic or other sanctions, uncertainty regarding the breach of the U.S.

debt ceiling or a sustained capital market correction could have an adverse effect on our business, including on the value of our investments and collateral securing our financing, which can impact our liquidity.

Any deterioration of the real estate market as a result of these conditions may cause us to experience losses related to our assets and to sell assets at a loss.

Risks Related to Our Investments

Difficult conditions in the mortgage, residential and commercial real estate markets may cause us to experience market losses related to our investments.

Our results of operations are materially affected by conditions in the mortgage market, the residential and commercial real estate markets, the financial markets and the economy generally.

Concerns about the mortgage market and real estate market, as well as rises in inflation, energy costs, geopolitical events and the availability and cost of credit, contribute to market volatility.

Any deterioration of the real estate market may cause us to experience losses related to our assets and to sell assets at a loss.

Declines in the market values of our investments may adversely affect our results of operations and credit availability, which may reduce earnings and, in turn, cash available for distribution to our stockholders.

In addition, a decline in market values of our investments will reduce our book value per common share and have an adverse impact on our stock price.

Federal Reserve’s participation in the Agency RMBS market could have an adverse effect on our Agency RMBS investments.

While the U.S.

Federal Reserve, the U.S.

government and other governments have implemented unprecedented financial support or relief measures in response to concerns surrounding the economic effects of the COVID-19 pandemic, the ongoing results of such measures or the results of such measures ending, cannot be predicted and we cannot assure you that these programs will be effective or sufficient at addressing the adverse impacts of the pandemic or otherwise have a positive impact on our business.

Some of these measures have negatively impacted our business in the past and may do so in the future.

Federal Reserve’s participation in the Agency RMBS market can materially impact the available supply, price and returns on Agency RMBS.

In response to market disruptions resulting from the COVID-19 pandemic, the U.S.

Federal Reserve significantly increased its acquisition of Agency RMBS.

Beginning in 2022, in response to inflation running well above its long-run target, the U.S.

Federal Reserve then began a passive contraction of its balance sheet by ceasing reinvestments of proceeds from maturing Agency RMBS portfolio repayments.

Given the U.S.

Federal Reserve’s historic participation and the current scale of its balance sheet holdings, the effects of a shift in monetary policy may be material and are difficult to predict, and we may be unable to mitigate potentially adverse effects on our portfolio and financial condition.

Furthermore, despite its stated preference for a passive balance sheet reduction, there is no guarantee the U.S.

Federal Reserve will not conduct outright sales of Agency RMBS in the secondary market, which could significantly increase the pace of their balance sheet reduction and result in lower Agency RMBS valuations due to a widening of credit spreads.

We cannot predict or control the impact future actions by the U.S.

Federal Reserve will have on our business.

Accordingly, future actions by the U.S.

Federal Reserve could have a material and adverse effect on our business, financial condition and results of operations.

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Because assets we acquire may experience periods of illiquidity, we may lose profits or be prevented from earning capital gains if we cannot sell mortgage-related assets at an opportune time.

We bear the risk of being unable to dispose of our assets at advantageous times or in a timely manner because mortgage-related assets generally experience periods of illiquidity.

We bear the risk of being unable to dispose of our assets at advantageous times or in a timely manner because mortgage-related assets generally experience periods of illiquidity, particularly during times of market disruption.

As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which may cause us to incur losses.

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To the extent that our portfolio is concentrated in any one region or type of security, downturns relating generally to such region or type of security may result in defaults on a number of our investments within a short time period, which may reduce our net income and the value of our capital stock and accordingly reduce our ability to pay dividends to our stockholders, which could have an adverse impact on our results of operations, financial condition and business.

We acquire certain target assets that are subject to defaults, foreclosure timeline extension, fraud, residential and commercial price depreciation, and unfavorable modification of loan principal amount, interest rate and amortization of principal, which could result in losses to us.

Mortgage-backed securities are secured by mortgage loans (primarily pools of single-family residential property loans for RMBS and single commercial mortgage loans or pools of commercial mortgage loans for CMBS).

Our MBS investments are subject to all the risks of the respective underlying mortgage loans, including risks of defaults, foreclosure timeline extension, fraud, price depreciation and unfavorable modification of loan principal amount, interest rate and amortization of principal.

A number of factors over which we have no control may impair a borrower’s ability to repay a mortgage loan secured by a residential property, including the income and assets of the borrower.

Commercial mortgage loans are secured by multifamily or commercial property and are subject to risks of delinquency and foreclosure, and risks of loss that may be greater than similar risks associated with loans made on the security of single-family residential property.

The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property, which can be affected by a number of factors over which we have no control, rather than upon the existence of independent income or assets of the borrower.

If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired.

In the event of any default under a mortgage loan held directly by us, we bear a risk of loss of principal 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.

In the event of defaults on the mortgage loans that underlie our investments and the exhaustion of any underlying or any additional credit support, we may not realize our anticipated return on our investments and we may incur a loss on these investments causing an adverse impact on our results of operations, financial condition and business.

Our investments may include from time-to-time non-Agency RMBS collateralized by Alt-A and subprime mortgage loans, which are subject to increased risks.

Our investments include non-Agency RMBS backed by collateral pools of mortgage loans known as “Alt-A mortgage loans,” or “subprime mortgage loans.” These loans have been originated using underwriting standards that are less restrictive than those used in underwriting “prime mortgage loans.” These include mortgage loans made to borrowers having imperfect or impaired credit histories, mortgage loans where the amount of the loan at origination is 80% or more of the value of the mortgaged property, mortgage loans made to borrowers who have other debt that represents a large portion of their income and mortgage loans made to borrowers whose income is not required to be disclosed or verified.

Due to economic conditions, a decline in home prices, and aggressive lending practices, many Alt-A and subprime mortgage loans originated before the 2008 financial crisis experienced rates of delinquency, foreclosure, bankruptcy and loss that were higher than those experienced by mortgage loans underwritten in a more traditional manner.

Thus, because of the higher delinquency rates and losses associated with many Alt-A and subprime mortgage loans, the performance of non-Agency RMBS backed by Alt-A and subprime mortgage loans in which we invest could be correspondingly adversely affected, which could adversely impact our results of operations, financial condition and business.

Our subordinated MBS assets may be in the “first loss” position, subjecting us to greater risks of loss.

We may invest in certain tranches of MBS that are only entitled to a portion of the principal and interest payments made on mortgage loans underlying the securities issued by the trust.

In general, losses on a mortgage loan included in a RMBS trust will be borne first by the equity holder of the issuing trust if any, and then by the “first loss” subordinated security holder and then by the “second loss” subordinate holder and so on.

For non-Agency CMBS assets, losses on a mortgaged property securing a mortgage loan included in a securitization will typically be borne first by the equity holder of the property, then by a cash reserve fund or letter of credit, if any, then by the holder of a mezzanine loan or B-Note, if any, then by the “first loss” subordinated security holder (generally, the “B-Piece” buyer) and then by the holder of a more senior security.

We may acquire securities at every level of such a trust, from the equity position to the most senior tranche.

In the event of default and the exhaustion of any classes of securities junior to those which we acquire, our securities will suffer losses as well.

In addition, if we overvalue the underlying mortgage portfolio, or if the values subsequently decline and, as a result, less collateral is available to satisfy interest and principal payments due on the related MBS, the securities which we acquire may effectively become the “first loss” position ahead of the more senior securities, which may result in significant losses.

The prices of lower credit quality securities are generally less sensitive to interest rate changes than more highly rated securities, but more sensitive to adverse economic downturns or individual issuer developments.

A projection of, or an actual, economic downturn could cause a decline in the value of lower credit quality securities because the ability of obligors of mortgages underlying MBS to make principal and interest payments may be impaired.

In such an event, existing credit support in the securitization structure may be insufficient to protect us against loss of our principal on these securities.

Fluctuations in interest rates could adversely affect the value of our investments and cause our interest expense to increase, which could result in reduced earnings, decreased profitability and dividends, and diminished cash available for distribution to our stockholders.

Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

As part of its effort to curb inflation, the Federal Reserve Open Markets Committee (FOMC) increased the target range for the federal funds rate 425 basis points in 2022, resulting in its highest level in 15 years.

Interest rate fluctuations present a variety of risks including the risk of a narrowing of the difference between asset yields and borrowing rates, a decline in the yield on adjustable-rate investments, and a detrimental impact on prepayment rates and may adversely affect our income and the value of our assets and capital stock.

We invest in RMBS, CMBS, mortgage loans and other financing arrangements that are subject to risks related to interest rate fluctuations.

We may invest in RMBS, CMBS, mortgage loans and other financing arrangements that are subject to risks related to interest rate fluctuations.

Fluctuations in short- or long-term interest rates could have adverse effects on our operations and financial condition, which may negatively affect cash available for distribution to our stockholders.

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We anticipate that, in most cases, the income from such assets will respond more slowly to interest rate fluctuations than the cost of our borrowings.

Consequently, changes in interest rates, particularly short-term interest rates, may significantly influence our net income.

Consequently, changes in interest rates, particularly short-term

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interest rates, may significantly influence our net income.

Increases in these rates will tend to decrease our net income and the market value of our assets and may negatively affect cash available for distribution to our stockholders.

While we attempt to manage risk from changes in market interest rates, our hedging activities may not fully mitigate our interest rate risk, and a rapid increase or decrease in interest rates may have material and adverse effects on our business , results of operations and financial performance.

During the latter half of 2022, the market began to experience a yield curve inversion.

There can be no guarantee that our interest rate risk management will fully mitigate the yield curve inversion risks described above.

In addition, market values of our investments may decline without any general increase in interest rates for a number of reasons, such as increases or expected increases in defaults, or increases or expected increases in voluntary prepayments for those investments that are subject to prepayment risk or widening of credit spreads, which may negatively affect cash available for distribution to our stockholders.

An increase in interest rates may cause a decrease in the availability of certain of our target assets which could adversely affect our ability to acquire target assets that satisfy our investment objectives and to generate income and pay dividends.

Rising interest rates generally reduce the demand for mortgage loans due to the higher cost of borrowing.

Rising interest rates, such as we have experienced in 2022, generally reduce the demand for mortgage loans due to the higher cost of borrowing.

A reduction in the volume of mortgage loans originated may affect the volume of target assets available to us, which could adversely affect our ability to acquire assets that satisfy our investment objectives.

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If rising interest rates cause us to be unable to acquire a sufficient volume of our target assets with a yield that is above our borrowing cost, our ability to satisfy our investment objectives and to generate income and pay dividends may be materially and adversely affected.

Spread risk is inherent to our business as a levered investor in Agency RMBS.

When the spread between the market yield on our mortgage assets and benchmark interest rates widens, our tangible net book value will typically decline.

We refer to this as "spread risk".

As a levered investor primarily in fixed-rate Agency RMBS, spread risk is an inherent component of our investment strategy.

Although we use hedging instruments to attempt to protect against moves in interest rates, our hedges will typically not protect us against spread risk.

Spreads may widen due to numerous factors, including changes in mortgage and fixed income markets due to actual or expected monetary policy actions by U.S.

and foreign central banks, market liquidity or changes in investor return requirements and sentiment.

Wider spreads can also occur independent of moves in interest rates.

For example, actions by the Federal Reserve to taper its purchases of Agency RMBS and to reduce its balance sheet resulted in a widening of credit spreads and lower Agency RMBS valuations, impacting our tangible net book value.

A portion of our RMBS portfolio consists of premium securities.

Premium securities may be subject to more risk than par value securities.

Premium securities have market values that exceed their unpaid principal balance.

We may purchase RMBS at a premium, which represent prices that we believe appropriately reflect the risks involved.

Declining interest rates increase the premium level of our RMBS and generate unrealized holding gains.

Because we carry our RMBS at fair value, unrealized holding gains are reflected in total stockholders’ equity.

RMBS premium is not guaranteed by the Agencies and rising interest rates tend to reduce premium values.

Premium value will also erode over time as principal payments are made.

Prepayment rates may adversely affect the value of our investment portfolio.

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Faster than expected prepayments could adversely affect our profitability, including in the following ways:

• We may purchase RMBS that have a higher interest rate than the market interest rate at the time.

In exchange for this higher interest rate, we may pay a premium over the par value to acquire the security.

• As described above, we may pay a premium over the par value to acquire a RMBS security.

In accordance with U.S.

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If an adjustable-rate RMBS is prepaid before or soon after the time of adjustment to a fully indexed rate, we will have held that RMBS while it was least profitable and lost the opportunity to receive interest at the fully indexed rate over the remainder of its expected life.

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• If we are unable to acquire new RMBS at similar yields to the prepaid RMBS, our financial condition, results of operations and cash flow would suffer.

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If dislocations in the mortgage market or other developments change the way that prepayment trends respond to interest rate changes, our ability to (1) assess the market value of our investment portfolio, (2) implement our hedging strategies, and (3) utilize techniques to reduce our prepayment rate volatility would be significantly affected, which could materially adversely affect our financial position and results of operations.

Changes in the LIBOR calculation or the discontinuance of LIBOR may adversely affect the amount of interest receivable on our commercial loan investment as well as our dividends on our Series B preferred stock and Series C preferred stock.

These changes may also impact the market liquidity and market value of our commercial loan investment and our Series B and Series C preferred stock.

The discontinuance of LIBOR may adversely affect our dividends on our Series B preferred stock and Series C preferred stock.

These changes may also impact the market liquidity and market value of our Series B and Series C preferred stock.

Financial Conduct Authority (“FCA”), which regulates LIBOR announced on March 5, 2021 that it will cease to publish the overnight, one-month, three-month, six-month and 12-month U.S.

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working group tasked with assisting in the industry wide transition away from LIBOR, has supported the FCA’s announcement of USD LIBOR cessation and has recommended the market adopt SOFR.

To accelerate the transition away from LIBOR, the Federal Reserve Board, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued joint supervisory guidance to cease entering into new contracts referencing USD LIBOR after December 31, 2021 (note there are limited exceptions related to derivative product

We, similar to the broader industry, are transitioning away from LIBOR to alternative risk-free rates, such as SOFR.

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There is no assurance that the calculated spread will be fair and accurate or that all financial instruments will use the same spread.

We have an investment in a commercial loan indexed to LIBOR that is scheduled to mature in 2022.

In addition, our 7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock and our 7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock each begin to pay a USD LIBOR-based rate at the time the stock becomes callable.

Our Series B and Series C Preferred Stock are governed by New York state law that provides for USD LIBOR-linked contracts to transition to an alternative reference rate.

We do not currently intend to amend our 7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock or our 7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock to change the existing USD LIBOR cessation fallback language.

Our 7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock and our 7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock each begin to pay a USD LIBOR-based rate at the time the stock becomes callable.

On December 16, 2022, the Board of Governors of the Federal Reserve published a final rule to implement the Adjustable Interest Rate (LIBOR) Act.

The final rule will become effective o n February 27, 2023.

The final rule establishes benchmark replacements for contracts governed by U.S.

law that reference certain tenors of U.S.

dollar LIBOR (the overnight and one-, three-, six- and 12- month tenors) and that do not have terms that provide for the use of a clearly defined and practicable replacement benchmark rate following the first London banking day after June 20, 2023.

Under the final rule, the USD LIBOR-based rate currently contemplated to be paid when our 7.75% Fixed-to-Floating Series B Cumulative Redeemable Preferred Stock and our 7.50% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock become callable, will instead pay a SOFR-based rate in accordance with the LIBOR Act.

This change in rate may adversely affect the amount of dividends payable on our preferred stock.

The Federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between these agencies and the U.S.

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Government, GSEs could default on their guarantee obligations which would materially and adversely affect the value of our Agency MBS.

Accordingly, if these government actions are inadequate in the future and the GSEs were to suffer losses, be significantly reformed, or cease to exist, our business, operations and financial condition could be materially and adversely affected.

Accordingly, if these government actions are inadequate in the future and the GSEs were to

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suffer losses, be significantly reformed, or cease to exist, our business, operations and financial condition could be materially and adversely affected.

The future roles of the GSEs may be reduced (perhaps significantly) and the nature of their guarantee obligations could be limited relative to historical measurements.

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If Fannie Mae or Freddie Mac were eliminated or their structures were to change, limiting or removing the guarantee obligation, we could be unable to acquire additional Agency MBS and our existing Agency MBS could be materially and adversely impacted.

All of the foregoing could negatively affect the availability, credit spreads, and value of Agency MBS;

All of the foregoing could negatively affect the availability and value of Agency MBS;

our ability to obtain financing on our Agency MBS;

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Also, as a result of this competition, desirable investments in our target assets may be limited in the future, and we may not be able to take advantage of attractive investment opportunities from time to time.

We may not control the special servicing of the mortgage loans included in the CMBS in which we invest, and, in such cases, the special servicer may take actions that could adversely affect our interests.

With respect to each series of CMBS in which we invest, overall control over the special servicing of the related underlying mortgage loans is held by a “directing certificate holder” or a “controlling class representative,” which is appointed by the holders of the most subordinate class of CMBS in such series.

We may acquire certain target assets that are subject to defaults, foreclosure timeline extension, fraud, residential and commercial price depreciation, and unfavorable modification of loan principal amount, interest rate and amortization of principal, which could result in losses to us.

A number of factors over which we have no control may impair a borrower’s ability to repay a mortgage loan secured by a residential property, including the income and assets of the borrower.

As of December 31, 2022, we do not hold any mortgage loans secured by residential property.

If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired.

As of December 31, 2022, we do not hold any commercial mortgage loans.

In the event of defaults on the mortgage loans that underlie our investments and the exhaustion of any underlying or any additional credit support, we may not realize our anticipated return on our investments, and we may incur a loss on these investments causing an adverse impact on our results of operations, financial condition and business.

Our investments have and may include from time-to-time non-Agency RMBS collateralized by Alt-A and subprime mortgage loans, which are subject to increased risks.

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impaired credit histories, mortgage loans where the amount of the loan at origination is 80% or more of the value of the mortgaged property, mortgage loans made to borrowers who have other debt that represents a large portion of their income and mortgage loans made to borrowers whose income is not required to be disclosed or verified.

Our subordinated MBS assets may be in the “first loss” position, subjecting us to greater risks of loss.

We may invest in certain tranches of MBS that are only entitled to a portion of the principal and interest payments made on mortgage loans underlying the securities issued by the trust.

We may acquire securities at every level of such a trust, from the equity position to the most senior tranche.

In the event of default and the exhaustion of any classes of securities junior to those which we acquire, our securities will suffer losses as well.

The prices of lower credit quality securities are generally more sensitive to adverse economic downturns or individual issuer developments than more highly-rated securities.

In such an event, existing credit support in the securitization structure may be insufficient to protect us against loss of our principal on these securities.

We may not control the special servicing of the mortgage loans included in CMBS in which we invest, and, in such cases, the special servicer may take actions that could adversely affect our interests.

With respect to each series of CMBS in which we may invest, overall control over the special servicing of the related underlying mortgage loans is held by a “directing certificate holder” or a “controlling class representative,” which is appointed by the holders of the most subordinate class of CMBS in such series.

Depending on the class of CMBS in which we invest, we may not have the right to appoint the directing certificate holder.

In connection with the servicing of the specially serviced

mortgage loans, the related special servicer may, at the direction of the directing certificate holder, take actions with respect to the specially serviced mortgage loans that could adversely affect our interests and have a negative impact on our results of operations, financial condition and business.

In connection with the servicing of the specially serviced mortgage loans, the related special servicer may, at the direction of the directing certificate holder, take actions with respect to the specially serviced mortgage loans that could adversely affect our interests and have a negative impact on our results of operations, financial condition and business.

Due diligence of potential assets may not reveal all of the liabilities associated with such assets and may not reveal other weaknesses in such assets, which could lead to losses.

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Any failure by servicers to service these mortgages and/or to competently manage and dispose of properties could negatively impact the value of these investments and our financial performance.

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Further, the foreclosure process, especially in judicial foreclosure states such as New York, Florida and New Jersey, can be lengthy and expensive, and the delays and costs involved in completing a foreclosure and liquidating such property through sale may materially increase any related loss.

Our commercial loans held-for-investment include investments that involve greater risks of loss than senior loan assets secured by income-producing properties.

Commercial loans held-for-investment may include investments that involve greater risks of loss than senior loan assets secured by income-producing properties.

We have acquired in the past and may acquire in the future mezzanine loans, which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or the entity that owns the interest in the entity owning the property.

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Significant losses related to our commercial loans held for investment would result in operating losses for us and may limit our ability to pay dividends to our stockholders.

As of December 31, 2022, we do not hold any commercial loans held-for-investment.

A decline in the market value of our mortgage-backed securities may adversely affect our results of operations and financial condition.

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Changes in the market values of these assets impact our stockholders’ equity, and declines in market value adversely affect our book value per common share.

Moreover, if the decline in value of an available-for-sale security requires an increase in our provision for credit losses, such decline will reduce our earnings.

For a discussion of how we determine our provision for credit losses, see Note 2 - “Summary of Significant Accounting Policies” of our consolidated financial statements in Part IV of this Report.

Certain mortgage-backed securities are recorded at estimated fair value and, as a result, there is uncertainty as to the value of these investments.

Some of our mortgage-backed securities are in the form of securities that are not publicly or actively traded.

The fair value of such securities may not be readily determinable.

We value these investments quarterly at fair value, which may include unobservable inputs.

Because such valuations are subjective, the fair value of certain of our assets may fluctuate over short periods of time and our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed.

The value of our stockholders' equity could be adversely affected if our determinations regarding the fair value of these investments were materially higher than the values that we ultimately realize upon their disposal.

During the year ended December 31, 2020, we experienced a significant decline in the fair value of our investments as a result of market conditions resulting from the COVID-19 pandemic.

If we experience a decline in the fair value of our investments as a result of future uncertain market conditions, it could materially and adversely affect our business, results of operations, financial condition, stock price and ability to make distributions to our stockholders.

If our Manager underestimates the collateral loss on our investments, we may experience losses.

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If our Manager underestimates losses relative to the price we pay for a particular investment, we may experience losses or a lower yield than expected.

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If we foreclose on an asset, we may come to own and operate the property securing the loan, which would expose us to the risks inherent in that activity.

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We may not be able to meet our financing obligations, and, to the extent that we cannot, we risk the loss of some or all of our assets to liquidation or sale to satisfy the obligations.

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We depend on repurchase agreement financing to acquire our target assets, and our inability to access this funding on acceptable terms could have a material adverse effect on our results of operations, financial condition and business.

We use repurchase agreement financing as a strategy to increase the return on our assets.

As a result of market disruptions from the COVID-19 pandemic , investors and financial institutions that lend in the securities repurchase market tightened lending standards in response to the difficulties and changed economic conditions that materially adversely affected the RMBS market.

These market disruptions were most pronounced in the non-Agency RMBS and non-Agency CMBS markets, but the impact also extended to Agency RMBS, which has made the value of these assets unstable and relatively illiquid compared to prior periods.

These market disruptions could potentially increase our financing costs and reduce our liquidity.

Our ability to fund our target assets may be impacted by our ability to secure repurchase agreement financing on acceptable terms.

We can provide no assurance that lenders will be willing or able to provide us with sufficient financing.

In addition, because repurchase agreements are short-term commitments of capital, lenders may respond to market conditions, making it more difficult for us to secure continued financing.

During certain periods of the credit cycle, lenders may curtail their willingness to provide financing.

In addition, because repurchase agreements are short-term commitments of capital, lenders may respond to market conditions in a manner that makes it more difficult for us to renew or replace, on a continuous basis, maturing short-term financings, and have and may continue to impose less favorable conditions when rolling such financings.

During market disruptions, such as during the COVID-19 pandemic, lenders have and may curtail their willingness to provide financing.

This may require us to liquidate collateral to satisfy funding requirements.

In addition, if major market participants were to exit the repurchase agreement financing business, the value of our portfolio could be negatively impacted, thus reducing our stockholders' equity, or book value per common share.

Furthermore, if many of our current or potential lenders are unwilling or unable to provide us with repurchase agreement financing, we could be forced to sell our assets at an inopportune time when prices are depressed.

In addition, if the regulatory capital requirements imposed on our lenders change, they may be required to significantly increase the cost of the financing that they provide to us.

Our lenders also may revise their eligibility requirements for the types of assets they are willing to finance or the terms of such financings, based on, among other factors, the regulatory environment and their management of perceived risk, particularly with respect to assignee liability.

The inherent uncertainty of repurchase transactions may cause us to incur a loss on our repurchase transactions.

The inherent uncertainty of repurchase transactions, including counterparty credit risk, may cause us to incur a loss on our repurchase transactions.

When we engage in repurchase transactions, we generally sell securities to lenders (repurchase agreement counterparties) and receive cash from these lenders.

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We may incur a loss on a repurchase transaction if the value of the underlying securities has declined as of the end of the transaction term, as we would have to repurchase the securities for their initial value but would receive securities worth less than that amount.

Further, if we default on

one of our obligations under a repurchase transaction, the lender can terminate the transaction and refrain from entering into any other repurchase transactions with us.

Further, if we default on one of our obligations under a repurchase transaction, the lender can terminate the transaction and refrain from entering into any other repurchase transactions with us.

Some of our repurchase agreements contain cross-default provisions, so that if a default occurs under any one agreement, the lenders under our other agreements could also declare a default.

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Moreover, to the extent we are forced to sell assets at such time, given market conditions, we may be selling at the same time as others facing similar pressures, which could exacerbate a difficult market environment, and which could result in our incurring significantly greater losses on our sale of such assets.

In an extreme case of market duress, a market may not even be present for certain of our assets at any price.

In an extreme case of market duress, a market may not even

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be present for certain of our assets at any price.

Such a situation would likely result in a rapid deterioration of our financial condition and possibly necessitate a filing for bankruptcy protection.

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The amount due would be equal to the unrealized loss of the open positions with the respective counterparty and could also include other fees and charges.

Such economic losses would be reflected in our results of operations, and our ability

to fund these obligations would depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could adversely impact our financial condition.

Such economic losses would be reflected in our results of operations, and our ability to fund these obligations would depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could adversely impact our financial condition.

Hedging may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders.

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• the hedging counterparty owing money in the hedging transaction may default on its obligation to pay.

In addition, the enforceability of agreements underlying hedging transactions may depend on compliance with applicable statutory and commodity and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements.

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international requirements.

Any actions taken by regulators could constrain our investment strategy and could increase our costs, either of which could materially and adversely impact our results of operations.

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A TBA contract is an agreement to purchase or sell, for future delivery, an Agency MBS with a specified issuer, term and coupon.

A TBA dollar roll is a transaction where two TBA contracts with the same terms but different settlement dates are simultaneously

bought and sold.

A TBA dollar roll is a transaction where two TBA contracts with the same terms but different settlement dates are simultaneously bought and sold.

The price difference between those two contracts is commonly referred to as the “drop” and is a reflection of the expected net interest income from an investment in similar Agency mortgage-backed securities, net of an implied financing cost, which would be foregone as a result of settling the contract in the later month rather than in the earlier month.

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Margin calls on TBA positions, or failure to roll TBA positions, could have the effects described in the liquidity risks described above.

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Risks Related to Our Company

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In addition, if it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties or injunctive relief imposed by the SEC.

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We are highly dependent on information systems and systems failures or cyber-attacks could significantly disrupt our business, which may, in turn, negatively affect the market price of our capital stock and our ability to pay dividends.

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Any insurance we maintain against the risk of this type of loss may not be sufficient to cover all actual losses or may not apply to circumstances relating to any particular breach or other cyber event.

We may repurchase shares of our common stock or other securities from time to time.

Our Manager utilizes quantitative models to support investment decisions and investment processes, including those related to our portfolio management and risk analysis, which may contain errors.

Our Manager utilizes quantitative models to support investment decisions and investment processes, including those related to our portfolio management and risk analysis.

Any errors in the underlying models or model assumptions could have unanticipated and adverse consequences on our business and reputation.

We may repurchase shares of our common stock and preferred stock from time to time.

Share repurchases may negatively impact our compliance with covenants in our financing agreements and regulatory requirements (including maintaining exclusions from the requirements of the 1940 Act and qualification as a REIT).

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As of December 31, 2022, 1,816,398 shares of common stock were available under our Board-authorized share repurchase program.

We may engage in share repurchases from time-to-time through open market purchases, including block purchases or privately negotiated transactions, or under any trading plan that may be adopted in accordance with Rules 10b5-1

and 10b-18 of the Exchange Act.

In May 2022, our board of directors approved a share repurchase program for our Series B and Series C Preferred Stock.

During the year ended December 31, 2022, we repurchased and retired 1,662,366 shares of our Series B Preferred Stock and 3,683,530 shares of our Series C Preferred Stock.

As of December 31, 2022, we had authority to purchase 1,337,634 additional shares of our Series B Preferred Stock and 1,316,470 additional shares of our Series C Preferred Stock under the current share repurchase program.

Certain of our financing agreements have financial covenants, including covenants related to maintaining a certain level of stockholders' equity, that may be impacted by our share repurchases.

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In addition, our decision to repurchase shares of our common stock or other securities and reduce our stockholders' equity could adversely affect our competitive position and could negatively impact our ability in the future to invest in assets that have a greater potential return than the repurchase of our common stock.

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Risks Related to Accounting

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The initial term of our management agreement with our Manager expired on July 1, 2011.

The agreement

automatically renews for successive one-year terms, and the management agreement is currently in a renewal term.

The agreement automatically renews for successive one-year terms, and the management agreement is currently in a renewal term.

If the management agreement is terminated and no suitable replacement is found to manage us, we may not be able to execute our business plan.

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Our Manager and our executive officers may have conflicts between their duties to us and their duties to, and interests in, Invesco.

We compete for investment opportunities directly with other client accounts and funds managed by our Manager or Invesco and its subsidiaries.

We compete for investment opportunities directly with other client accounts and funds managed by our Manager or Invesco and its

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subsidiaries.

A substantial number of client accounts and funds managed by our Manager have exposure to our target assets.

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If the management agreement is terminated and no suitable replacement is found to manage us, we may not be able to execute our business plan.

Pursuant to the management agreement, our Manager does not assume any responsibility other than to render the services called for thereunder and is not responsible for any action of our board of directors in following or declining to follow its advice or recommendations.

Under the management agreement, our Manager does not assume any responsibility other than to render the services called for thereunder and is not responsible for any action of our board of directors in following or declining to follow its advice or recommendations.

Our Manager maintains a contractual, as opposed to a fiduciary, relationship with us.

liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary’s stockholders or partners for acts or omissions performed in accordance with and pursuant to the management agreement, except because of acts constituting bad faith, willful misconduct, gross negligence, or reckless disregard of their duties under the management agreement, as determined by a final non-appealable order of a court of competent jurisdiction.

Under the terms of the management agreement, our Manager, its officers, stockholders, members, managers, partners, directors and personnel, any person controlling or controlled by our Manager and any person providing sub-advisory services to our Manager will not be liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary’s stockholders or partners for acts or omissions performed in accordance with and pursuant to the management agreement, except because of acts constituting bad faith, willful misconduct, gross negligence, or reckless disregard of their duties under the management agreement, as determined by a final non-appealable order of a court of competent jurisdiction.

We have agreed to indemnify our Manager, its officers, stockholders, members, managers, directors and personnel, any person controlling or controlled by our Manager and any person providing sub-advisory services to our Manager with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts of our Manager not constituting bad faith, willful misconduct, gross negligence, or reckless disregard of duties, performed in good faith in accordance with and pursuant to the management agreement.

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Our board of directors approved very broad investment guidelines for our Manager and does not approve each investment and financing decision made by our Manager.

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Thus, holders of our common stock will bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their stock holdings in us.

market prices for the Series B Preferred Stock, Series C Preferred Stock and our common stock to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us.

In addition, future issuances and sales of preferred stock on parity to our Series B Preferred Stock or the Series C Preferred Stock, or the perception that such issuances and sales could occur, may also cause prevailing market prices for the Series B Preferred Stock, Series C Preferred Stock and our common stock to decline and may adversely affect our ability to raise additional capital in the financial markets at times and prices favorable to us.

Risks Related to Our Organization and Structure

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Certain provisions of the Maryland General Corporation Law (the “MGCL”) may have the effect of deterring a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price of our common stock.

Under the MGCL, certain “business combinations” between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of our then-outstanding voting capital stock) or an affiliate thereof are prohibited for five years after the most recent date on which the stockholder becomes an interested stockholder.

Under the MGCL, certain “business combinations” between us and an “interested stockholder” (defined

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generally as any person who beneficially owns 10% or more of our then-outstanding voting capital stock) or an affiliate thereof are prohibited for five years after the most recent date on which the stockholder becomes an interested stockholder.

Under the statute, our board of directors has, by resolution, exempted business combinations between us and any other person, provided that such business combination is first approved by our board of directors (including a majority of our directors who are not affiliates or associates of such person).

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The change of control conversion feature of our Series B Preferred Stock and Series C Preferred Stock may make it more difficult for a party to acquire us or discourage a party from acquiring us.

Preferred Stock and Series C Preferred Stock with the opportunity to realize a premium over the then-current market price of such stock or that stockholders may otherwise believe is in their best interests.

The change of control conversion feature of our Series B Preferred Stock and Series C Preferred Stock may have the effect of discouraging a third party from making an acquisition proposal for us or of delaying, deferring or preventing certain change of control transactions under circumstances that otherwise could provide the holders of our common stock, Series B Preferred Stock and Series C Preferred Stock with the opportunity to realize a premium over the then-current market price of such stock or that stockholders may otherwise believe is in their best interests.

We are the sole general partner of our Operating Partnership and could become liable for the debts and other obligations of our Operating Partnership.

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Therefore, if our Operating Partnership is unable to pay its debts and other obligations, we will be liable for such debts and other obligations.

These obligations could include unforeseen contingent liabilities and could materially adversely affect our financial condition, operating results and ability to pay dividends to our stockholders.

These obligations could include unforeseen contingent

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liabilities and could materially adversely affect our financial condition, operating results and ability to pay dividends to our stockholders.

Investment in our capital stock has various U.S.

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federal tax risks addressed below.

Additional risks or issues may exist that are not addressed in this Report and that could affect the U.S.

Additional risks or issues may exist that are not addressed in this Report and could affect the U.S.

federal income tax treatment of us or our stockholders.

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The remainder of our investments in securities (other than government securities, securities of our TRSs and qualifying real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer.

In addition, no more than 5% of the value of our assets can consist of the securities of any one issuer (other than government securities, securities of our TRSs and qualifying real estate assets), no more than 20% of the value of our total securities can be represented by securities of one or more TRSs, and no more than 25% of the value of our assets may consist of “nonqualified publicly offered REIT debt instruments.” If we fail to comply with these requirements at the end of any quarter, we must correct the failure within 30 days after the end of such calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.

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more TRSs, and no more than 25% of the value of our assets may consist of “nonqualified publicly offered REIT debt instruments.” If we fail to comply with these requirements at the end of any quarter, we must correct the failure within 30 days after the end of such calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.

As a result, we may be required to dispose of otherwise attractive investments.

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Differences in timing between the recognition of taxable income and the actual receipt of cash may occur.

For example, we may invest in debt instruments requiring us to accrue original issue discount (“OID”) or recognize market discount income that generate taxable income in excess of economic income or in advance of the corresponding cash flow.

For example, we may invest in debt instruments that require us to accrue original issue discount (“OID”) or recognize market discount income that generate taxable income in excess of economic income or in advance of the corresponding cash flow.

We may also acquire distressed debt investments that are subsequently modified by agreement with the borrower.

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Under the Tax Cuts and Jobs Act, we may be required to take certain amounts in income no later than the time such amounts are reflected on certain financial statements.

Finally, we may be required under the terms of the indebtedness that we incur, to use cash received from interest payments to make principal payment on that indebtedness, with the effect that we will recognize income but will not have a corresponding amount of cash available for distribution to our stockholders.

Finally, we may be required under the terms of the indebtedness that we incur, to use cash received from interest payments to make principal payments on that indebtedness, all with the effect that we will recognize income but will not have a corresponding amount of cash available for distribution to our stockholders.

As a result of the foregoing, we may find it difficult or impossible to meet the REIT distribution requirements in certain circumstances.

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Under IRS Revenue Procedure 2017-45, as a publicly offered REIT, we may give stockholders a choice, subject to various limits and requirements, of receiving a dividend in cash or in common stock of the REIT.

As long as at least 20% (modified to 10% under certain subsequent revenue procedures with respect to distributions declared on or after April 1, 2020, and on or before December 31, 2020, or on or after November 1, 2021, and on or before June 30, 2022) of the total dividend is available in cash and certain other requirements are satisfied, the IRS will treat the stock distribution as a dividend (to the extent applicable rules treat such distribution as being made out of the REIT’s earnings and profits).

As long as at least 20% of the total dividend is available in cash and certain other requirements are satisfied, the IRS will treat the stock distribution as a dividend (to the extent applicable rules treat such distribution as being made out of the REIT’s earnings and profits).

Taxable stockholders receiving stock will be required to include in income, as a dividend, the full value of such stock to the extent of our current and accumulated earnings and profits for federal income tax purposes.

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stockholder may be required to pay income taxes with respect to such dividends in excess of the cash dividends received.

stockholder sells the stock it receives as a dividend to pay this tax, the sales proceeds may be less than the amount included in income with respect to the

dividend, depending on the market price of our stock at the time of the sale.

stockholder sells the stock it receives as a dividend to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale.

Furthermore, with respect to non-U.S.

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Overall, no more than 20% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs at the end of any calendar quarter.

In addition, the TRS rules impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s length basis.

In addition, the TRS rules impose a 100% excise tax on certain transactions between a TRS and its

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parent REIT that are not conducted on an arm’s length basis.

There can be no assurance that we will be able to comply with the TRS limitations or to avoid application of the 100% excise tax discussed above.

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It is possible, however, that the IRS could successfully assert that we did not own these assets during the term of the repurchase agreements, in which case we could fail to qualify as a REIT.

In addition, we currently own and may continue to acquire mezzanine loans that are secured by an equity interest in a partnership or an entity disregarded as separate from its owner that directly owns real property.

In addition, we have owned in the past and may in the future acquire mezzanine loans that are secured by an equity interest in a partnership or an entity disregarded as separate from its owner that directly owns real property.

In Revenue Procedure 2003-65, the IRS provided a safe harbor under which a mezzanine loan, if it meets each of the requirements contained in the Revenue Procedure, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying mortgage interest for purposes of the 75% gross income test.

Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law.

We may acquire or originate mezzanine loans that do not meet all of the requirements for reliance on this safe harbor.

We may acquire or originate mezzanine loans that do not meet all of the requirements of this safe harbor.

The IRS could challenge treatment of such loans as real estate assets for purposes of the REIT asset and gross income tests, and if such a challenge were sustained, we could fail to qualify as a REIT.

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Whether our loan holdings are treated as real estate assets and interest income thereon is treated as qualifying income for purposes of the 75% gross income test depends on whether the loans are adequately secured by real property.

If a mortgage loan is secured by both real property and personal property, the value of the personal property exceeds 15% of the value of all property securing such loan, and the value of the real property at the time the REIT commits to make or acquire the loan is less than the highest principal amount (i.e., the face amount) of the loan during the year, interest on the loan will be treated as qualifying income only in proportion to the ratio of the value of the real property at the time the REIT commits to make or acquire the loan to the highest principal amount of the loan during the year.

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than the highest principal amount (i.e., the face amount) of the loan during the year, interest earned on the loan will be treated as qualifying income only in proportion to the ratio of the value of the real property at the time the REIT commits to make or acquires the loan to the highest principal amount of the loan during the year.

Our qualification as a REIT could be jeopardized as a result of our interests in joint ventures or investment funds.

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The more favorable rates applicable to qualified dividends could cause potential investors who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay qualified dividends, which could adversely affect the value of the stock of REITs, including our capital stock.

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Dividends paid by REITs may be subject to Medicare tax on net investment income.

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This difficulty may be exacerbated by the illiquid nature of certain assets that we may own.

We may have to make investment decisions that we otherwise would not make absent the REIT and Investment Company Act considerations.

We may have to make investment decisions that we otherwise would not make absent the REIT qualification requirements and Investment Company Act considerations.

Furthermore, we may make investments in which the proper application of the REIT gross income and assets tests may not be clear.

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If the IRS were to successfully challenge the opinion of counsel, we could be subject to a penalty tax or we could fail to remain qualified as a REIT if a sufficient portion of our assets consists of TBAs or a sufficient portion of our income consists of income or gains from the disposition of TBAs.

There may be tax consequences to any modifications to our hedging transactions and other contracts to replace references to LIBOR.

On January 4, 2022 the U.S.

Internal Revenue Service and Department of Treasury published the final regulations (“Final Regulations”) providing guidance on the tax consequences of the discontinuation of LIBOR and certain other interbank offered rates (“IBORs”).

Final Regulations, which will be effective March 7, 2022, and Revenue Procedure 2020-44 will treat certain modifications to be deemed non-taxable events.

This announcement provides clarity to the market and the Company.

We are parties to financial instruments indexed to USD LIBOR.

We may have to renegotiate such LIBOR-based instruments to replace references to LIBOR.

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General Risk Factors

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In addition, because the programs are designed, in part, to improve the markets for certain of our target assets, the establishment of these programs may result in increased competition for attractive opportunities in our target assets or, in the case of government-backed refinancing and modification programs, may have the effect of reducing the revenues associated with certain of our target assets.

We cannot predict whether or when additional actions or initiatives to

stabilize and stimulate the economy and the financial markets may occur, and such actions could have an adverse effect on our business, results of operations and financial condition.

We cannot predict whether or when additional actions or initiatives to stabilize and stimulate the economy and the financial markets may occur, and such actions could have an adverse effect on our business, results of operations and financial condition.

We may change any of our strategies, policies or procedures without stockholder consent and make investment decisions with which our stockholders may not agree and/or fail to meet our investment criteria.

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• incur amortization expenses related to intangibles.

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Any such actions by us could harm our business, financial condition, results of operations, or prospects and could adversely affect the market price of our common stock.

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One of the factors that investors may consider in deciding whether to buy or sell shares of our capital stock is our distribution rate as a percentage of our share price relative to market interest rates.

If the market price of our capital stock is based primarily on the earnings and return that we derive from our investments and income with respect to our investments and

our related distributions to stockholders, and not from the market value of the investments themselves, then interest rate fluctuations and capital market conditions are likely to adversely affect the market price of our capital stock.

If the market price of our capital stock is based primarily on the earnings and return that we derive from our investments and income with respect to our investments and our related distributions to stockholders, and not from the market value of the investments themselves, then interest rate fluctuations and capital market conditions are likely to adversely affect the market price of our capital stock.

For instance, if market rates rise without an increase in our distribution rate, the market price of our capital stock could decrease as potential investors may require a higher distribution yield or seek other securities paying higher distributions or interest.

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As of December 31, 2022, we were not involved in any such legal proceedings.

Mine and Safety Disclosures.

Mine Safety Disclosures.

Not applicable.

Table of Conten t s

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-K

Item 1A. Risk Factors