What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-06 · 261 added, 316 removed, 444 unchanged (57% of the section changed)

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Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control.

These forward-looking statements include information about possible or assumed future results of our business, investment strategies, financial condition, liquidity, results of operations, plans, objectives and our views on domestic and global market conditions (including the Agency RMBS and residential and commercial real estate market).

These forward-looking statements include information about possible or assumed future results of our business, investment strategies, financial condition, liquidity, results of operations, plans, objectives and our views on domestic and global market conditions (including the mortgage-backed securities, residential and commercial real estate markets).

When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “project,” “forecast” or similar expressions and future or conditional verbs such as “will,” “may,” “could,” “should,” and “would,” and any other statement that necessarily depends on future events, we intend to identify forward-looking statements, although not all forward-looking statements may contain such words.

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Our objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends and secondarily through capital appreciation.

As of September 30, 2023, we were invested in:

As of March 31, 2024, we were invested in:

• residential mortgage-backed securities (“RMBS”) that are guaranteed by a U.S.

government agency such as the Government National Mortgage Association (“Ginnie Mae”), or a federally chartered corporation such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively “Agency RMBS”);

• commercial mortgage-backed securities (“CMBS”) that are not guaranteed by a U.S.

government agency such as the Government National Mortgage Association (“Ginnie Mae”), or a federally chartered corporation such as the Federal National Mortgage Association (“Fannie Mae” or “FNMA”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac” or “FHLMC”) (collectively “Agency RMBS”);

• commercial mortgage-backed securities ("CMBS") that are guaranteed by a U.S.

government agency such as Ginnie Mae or a federally chartered corporation such as Freddie Mac or Fannie Mae (collectively “Agency CMBS”);

• CMBS that are not guaranteed by a U.S.

government agency or a federally chartered corporation (“non-Agency CMBS”);

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government agency or a federally chartered corporation (“non-Agency RMBS”).

• other real estate-related financing arrangements.

During the periods presented in this Quarterly Report, we also invested in:

• a commercial mortgage loan;

• to-be-announced securities forward contracts (“TBAs”) to purchase Agency RMBS;

Treasury securities;

• other real estate-related financing arrangements in the form of unconsolidated ventures.

We continuously evaluate new investment opportunities to complement our current investment portfolio by expanding our target assets and portfolio diversification.

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We operate our business in a manner that permits our exclusion from the definition of “Investment Company” under the 1940 Act.

Market Conditions

Macroeconomic factors that affect our business include interest rates, spread premiums, governmental policy initiatives, residential and commercial real estate prices, credit availability, consumer personal income and spending, corporate earnings, employment conditions, financial conditions and inflation.

Of these macroeconomic factors, government policy initiatives, inflation, interest rates and interest rate volatility had the most direct impacts on our performance and financial condition during the third quarter of 2023.

Market Conditions and Impacts

Macroeconomic factors that affect our business include interest rates, interest rate volatility, spread premiums, fiscal and monetary policy, residential and commercial real estate prices, credit availability, the health of the banking system, consumer personal income and spending, corporate earnings, employment conditions, financial conditions and inflation.

Contributing factors included:

• Financial conditions became more restrictive during the third quarter, reversing the trend from the prior quarter.

Credit spreads widened, equity market valuations declined, and both interest rates and interest rate volatility spiked higher as financial markets adjusted to shifting expectations for fiscal and monetary policy.

The latest inflation readings were mixed during the quarter, as sharply higher energy costs drove an increase in the headline consumer price index (“CPI”) from 3.0% to 3.7%, while CPI (ex.

food and energy) fell from 4.8% to 4.1%.

Despite the mixed readings, investors continue to expect a further decline in inflation, as Treasury inflation-protected securities breakeven rates were relatively steady, with the two-year breakeven ending the quarter at 2.05% and the five-year breakeven ending at 2.25%.

• Interest rates increased during the quarter as the FOMC raised the Federal Funds target rate in July and delivered a "hawkish pause" in September, indicating that its benchmark rate may need to remain at elevated levels for longer than the market was anticipating.

Meanwhile, economic growth and employment data remained relatively strong.

• Financial conditions remained accommodative during the first quarter as credit spreads tightened, equity market valuations increased, and interest rate volatility eased as financial markets reacted favorably despite the higher interest rate environment brought on by shifting expectations for economic growth and monetary policy.

Inflation readings were generally flat during the quarter, remaining stubbornly above the Federal Reserve’s 2% inflation target.

The headline consumer price index (“CPI”) ended the quarter at 3.5%, up from December’s 3.4%, while CPI (ex.

food and energy) fell slightly from 3.9% to 3.8%.

Given these relatively high readings, investors' expectations for future inflation have adjusted upward, as Treasury inflation-protected securities breakeven rates increased.

The two-year breakeven ended the quarter at 2.72% (up from 2.02% at year-end) and the five-year breakeven ended at 2.44% (up from 2.15%)

• Stronger than expected inflation readings, along with continued evidence of robust economic activity, led to sharply higher interest rates across the maturity spectrum during the quarter.

The yield on the two-year Treasury increased by 37 basis points to 4.62%, the yield on the five-year Treasury increased 37 basis points to 4.20% and the yield on the ten-year Treasury finished at 4.19%, up 33 basis points on the quarter.

• Agency RMBS sharply underperformed similar duration Treasuries during the third quarter as elevated interest rate volatility and higher interest rates weighed on the sector.

Although underperformance was pervasive across the coupon stack, higher coupon mortgages performed modestly better than lower coupon mortgages given the notable steepening of the yield curve.

The technical picture for the sector was mixed, as supply remains constrained by higher mortgage rates while increased interest rate volatility kept most buyers on the sidelines.

The following market conditions were also notable for the company in the third quarter of 2023:

• The labor market remained strong as gains in non-farm payrolls averaged 266,000 per month, up from a monthly average of 201,00 last quarter.

The unemployment rate was slightly higher, ending the quarter up 0.2 at 3.8%.

• Risk assets broadly underperformed during the quarter.

The S&P 500 lost 3.65%, while the NASDAQ was down 4.12%.

Likewise, credit spreads across investment grade credit, high yield and emerging market debt all finished the quarter wider.

• CMBS performance was mixed on the quarter.

Credit spreads for senior bonds declined while subordinate risk premiums increased during the quarter.

Increasing property vacancy rates, declining real estate values, elevated borrowing costs and tighter mortgage lending standards remain challenges for the sector.

Meanwhile, reevaluation of tenant needs and a corresponding increase in the amount of available sublease space has created unique headwinds for the office sector.

The number of CMBS loans residing with special servicers increased.

• Non-Agency RMBS credit spread performance varied across subsectors during the quarter, as profiles with superior liquidity and favorable technicals outperformed those with greater interest rate sensitivity and persistent supply.

The resilience of home prices in the face of higher mortgage rates and historically low affordability has supported investor risk appetite.

Despite the potential for a slowing economy, borrower defaults are likely to remain contained given strong loan underwriting and high levels of borrower equity .

Moving into the fourth quarter of 2023, investors continue to price in the possibility of further increases in the Federal Funds target rate.

The uncertain path of monetary policy continues to result in elevated interest rate volatility in the front end of the yield curve, while the persistent strength in recent economic and employment data resulted in a sharp increase in longer-dated volatility as well.

In addition, the increase in geopolitical risk brought on by the ongoing war in Ukraine and the Middle East conflict have contributed to the recent elevated levels of interest rate and broader market volatility.

Although the immediate path of monetary policy remains uncertain, the potential decline in interest rate volatility in conjunction with the end of the tightening cycle should be supportive for Agency RMBS valuations.

Agency RMBS supply and demand dynamics are expected to improve in the coming quarters, as loan originations decline in the face of higher interest rates and seasonal factors.

Commercial banks should also soon receive greater clarity on their regulatory requirements, which could encourage further deployment of capital away from loans and into lower risk-weighted assets such as Agency RMBS.

Finally, valuations in production coupon Agency RMBS remain historically attractive, and funding capacity is robust.

While we remain cautious in the near-term due to increased volatility, we believe over time the decline in interest rate volatility and a supportive technical environment, combined with compelling valuations and favorable funding conditions, should create attractive Agency RMBS investment opportunities.

The stronger than expected economic growth and inflation data also led to a dramatic re-pricing of the market’s expectations of future monetary policy.

These expectations, as seen the through the Federal Funds futures market, adjusted from projecting over six cuts in the

Federal Open Market Committee’s (“FOMC”) benchmark rate during the balance of 2024 to less than three cuts.

Further, the market’s expectation for the beginning of the easing cycle shifted from March to July.

• Higher coupon Agency RMBS outperformed Treasuries while coupons lower in the stack underperformed, given a notable decline in interest rate volatility and improvement in supply and demand dynamics in the first quarter of 2024.

Despite the sharp increase in interest rates, interest rate volatility fell as market expectations for monetary policy converged with official projections by the FOMC, benefiting valuations in higher coupons.

In addition, organic supply remained at very low levels while demand from money managers, commercial banks, and overseas investors broadly outpaced expectations.

• Quantitative tightening continued in the first quarter of 2024, as the Federal Reserve passively reduced the size of their balance sheet through maturities of U.S.

Treasuries and paydowns of Agency RMBS.

Paydowns of Agency RMBS from the balance sheet added approximately $14.5 billion of net supply to the market each month, well below the Federal Reserve's monthly cap of $35 billion.

Although quantitative tightening is anticipated to conclude in the second half of 2024, runoff of the Agency RMBS portion of the balance sheet is expected to continue, with proceeds redeployed into Treasuries.

• Prepayment speeds remained at very low levels given limited housing activity and elevated mortgage rates.

• Premiums on higher coupon specified pool collateral increased modestly given improvement in supply and demand technicals.

• Implied financing via the dollar roll market for TBA investments remained relatively unattractive, as reduced demand from the Federal Reserve and commercial banks negatively impacted fundamentals, while the increase in loan balances worsened the prepayment profile.

• Agency CMBS risk premiums declined over the quarter as new issuance volumes remained relatively low and higher yields helped drive investor demand for fixed-rate bonds.

March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 One Quarter Change One Year

Interest Rates

Effective Federal Funds Rate 5.33 % 5.33 % 5.33 % 5.08 % 4.83 % — % 0.50 %

One-month SOFR 5.33 % 5.35 % 5.32 % 5.14 % 4.81 % (0.02) % 0.52 %

2 Year Treasury 4.62 % 4.25 % 5.04 % 4.87 % 4.06 % 0.37 % 0.56 %

5 Year Treasury 4.20 % 3.83 % 4.60 % 4.13 % 3.61 % 0.37 % 0.59 %

10 Year Treasury 4.19 % 3.86 % 4.57 % 3.82 % 3.49 % 0.33 % 0.70 %

30 Year Treasury 4.34 % 4.02 % 4.71 % 3.85 % 3.69 % 0.32 % 0.65 %

(in basis points) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 One Quarter Change One Year

Swap Spreads (1)

2 Year (8) (18) (7) (8) 3 10 (11)

5 Year (23) (32) (23) (22) (23) 9 —

10 Year (37) (40) (30) (25) (29) 3 (8)

30 Year (73) (71) (69) (66) (73) (2) —

30 Year Mortgage Spreads vs.

5/10 Year Treasury Blend (2)

FNMA 2.0% 62 55 63 39 65 7 (3)

FNMA 2.5% 68 65 71 50 73 3 (5)

FNMA 3.0% 75 73 77 61 80 2 (5)

FNMA 3.5% 80 81 85 72 90 (1) (10)

FNMA 4.0% 89 95 96 89 107 (6) (18)

FNMA 4.5% 102 110 107 108 125 (8) (23)

FNMA 5.0% 118 131 125 133 150 (13) (32)

FNMA 5.5% 138 154 144 161 174 (16) (36)

FNMA 6.0% 153 165 164 184 174 (12) (21)

10 Year Agency CMBS Spreads vs.

Treasuries (3)

FHLMC K 54 60 74 68 82 (6) (28)

FNMA DUS 58 67 78 75 77 (9) (19)

(1) Swap spreads represent the difference between the fixed rate coupon of an interest rate swap and the yield on a U.S.

Treasury security with a similar maturity.

(2) Mortgage spreads represent the difference between the yield on the Agency TBA and the blended average yield of five year and ten year U.S.

Treasury securities.

(3) Agency CMBS spreads represent the difference between the yields on new issue Freddie Mac K Certificates and Fannie Mae Delegated Underwriting and Servicing MBS (“DUS”) and a U.S.

Treasury security with a similar maturity.

Given the increase in market volatility in April, we remain cautious on the near-term outlook for the Agency RMBS sector as the market adjusts to shifting expectations around the timing of monetary policy adjustments.

Our recent allocation to fixed rate Agency CMBS reduces our exposure to near-term interest rate volatility while providing attractive returns with favorable funding.

Over the longer term, however, the potential normalization of monetary policy and a steeper yield curve should be supportive of Agency RMBS.

We believe Agency RMBS investors stand to benefit from attractive valuations, favorable funding and robust liquidity as the macro environment evolves.

Investment Activities

The table below shows the composition of our investment portfolio as of September 30, 2023, December 31, 2022 and September 30, 2022.

$ in thousands September 30, 2023 December 31, 2022 September 30, 2022

30 year fixed-rate, at fair value 5,331,969 4,661,737 4,252,742

The table below shows the composition of our investment portfolio as of March 31, 2024, December 31, 2023 and March 31, 2023.

$ in thousands March 31, 2024 December 31, 2023 March 31, 2023

30 year fixed-rate pass-through, at fair value 4,649,052 4,952,474 5,320,942

Agency CMO, at fair value 74,701 74,758 81,258

Agency CMBS, at fair value 265,512 — —

Non-Agency CMBS, at fair value 10,188 9,935 36,624

Non-Agency RMBS, at fair value 7,651 8,139 8,319

Commercial loan, at fair value — — 23,649

Treasury securities, at fair value — 11,214 —

Investments in unconsolidated ventures — 500 504

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TBAs, at implied cost basis (1)

— 1,437 142,842

Total investment portfolio, including TBAs 5,007,104 5,057,020 5,448,576

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We value TBAs on our condensed consolidated balance sheets at net carrying value, which represents the difference between the fair market value and the implied cost basis of the TBAs.

For further details of our U.S GAAP accounting for TBAs, refer to Note 8 “Derivatives and Hedging Activities” in Part I.

Item 1 of this report on Form 10-Q.

Our TBA dollar roll transactions are a form of off-balance sheet financing.

For further information on how management evaluates our at-risk leverage, see Non-GAAP Financial Measures below.

We sold $3.3 billion and purchased $4.5 billion of Agency RMBS during the nine months ended September 30, 2023.

As of September 30, 2023, our holdings of 30 year fixed-rate Agency RMBS represented approximately 98% of our total investment portfolio, including TBAs, versus 97% as of December 31, 2022 and 94% as of September 30, 2022.

Our 30 year fixed-rate Agency RMBS holdings as of September 30, 2023, December 31, 2022 and September 30, 2022 consisted of specified pools with coupon distributions as shown in the table below.

September 30, 2023 December 31, 2022 September 30, 2022

As of March 31, 2024, our holdings of 30 year fixed-rate Agency RMBS represented approximately 93% of our total investment portfolio, including TBAs, versus 98% as of December 31, 2023 and March 31, 2023.

Our 30 year fixed-rate Agency RMBS holdings as of March 31, 2024, December 31, 2023 and March 31, 2023 consisted of specified pools with coupon distributions as shown in the table below.

March 31, 2024 December 31, 2023 March 31, 2023

$ in thousands Fair Value Percentage Period-end Weighted Average Yield Fair Value Percentage Period-end Weighted Average Yield Fair Value Percentage Period-end Weighted Average Yield

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We seek to capitalize on the impact of prepayments on our investment portfolio by purchasing specified pools with characteristics that optimize borrower incentive to prepay for both our premium and discount priced investments.

The table below shows the specified pool characteristics of our 30 year fixed-rate Agency RMBS holdings as of September 30, 2023, December 31, 2022 and September 30, 2022.

September 30, 2023 December 31, 2022 September 30, 2022

The table below shows the specified pool characteristics of our 30 year fixed-rate Agency RMBS holdings as of March 31, 2024, December 31, 2023 and March 31, 2023.

March 31, 2024 December 31, 2023 March 31, 2023

$ in thousands Fair Value Percentage Fair Value Percentage Fair Value Percentage

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Loan balance 2,130,283 45.8 % 2,193,876 44.3 % 1,338,150 25.1 %

Generic — — % 158,230 3.4 % 44,278 1.0 %

High loan-to-value (“LTV”) ratio

High loan-to-value ratio

470,621 10.1 % 574,246 11.6 % 956,556 18.0 %

Low credit score 1,079,459 23.2 % 1,105,042 22.3 % 1,459,707 27.4 %

Investment property — — % — — % 68,008 1.6 %

Total 30 year fixed-rate Agency RMBS 4,649,052 100.0 % 4,952,474 100.0 % 5,320,942 100.0 %

We have invested in TBAs as an alternative means of investing in and financing Agency RMBS.

As of September 30, 2023 and December 31, 2022, we had no investments or immaterial investments in TBAs, versus 3% of our investment portfolio as of September 30, 2022.

We decreased the allocation to TBAs as implied financing rates in the Agency RMBS TBA dollar roll market increased more than those available in the repurchase market for most coupons.

As of September 30, 2023, December 31, 2022 and September 30, 2022, our holdings of non-Agency CMBS and non-Agency RMBS represented approximately 1% of our total investment portfolio, including TBAs.

Approximately 83% of our non-Agency securities were rated double-A (or equivalent) or higher by a nationally recognized statistical rating organization as of September 30, 2023.

As of December 31, 2022 and September 30, 2022, we held investments in two unconsolidated ventures that were managed by an affiliate of our Manager.

Our joint venture whose net assets were denominated in euros was dissolved during the first quarter of 2023.

Our remaining unconsolidated venture is in liquidation and plans to sell or settle its remaining investments as expeditiously as possible.

Until the venture completes its liquidation, we are committed to fund $2.9 million in additional capital to cover future expenses should they occur.

As of March 31, 2024, our holdings of Agency CMBS represented approximately 5% of our total investment portfolio versus 0% as of December 31, 2023 and March 31, 2023.

As of March 31, 2024, our Agency CMBS holdings were comprised of fixed-rate securities with Fannie Mae DUS representing 74% our holdings and Freddie Mac Multifamily Participation Certificates representing 24% of our holdings.

We invested in Agency CMBS in the first quarter of 2024 because these securities benefit from prepayment protection characteristics and have an attractive return profile.

Further, the hedging costs related to these holdings are economical as they are less sensitive to interest rate risk given prepayment protection and scheduled balloon maturity payments.

As of March 31, 2024, December 31, 2023 and March 31, 2023, our holdings of non-Agency CMBS and non-Agency RMBS represented less than 1% of our total investment portfolio, including TBAs.

Approximately 70% of our non-Agency securities were rated double-A (or equivalent) or higher by a nationally recognized statistical rating organization as of March 31, 2024.

In the first quarter of 2024, we received a final distribution from our sole remaining unconsolidated venture.

Following this distribution, we no longer have any investments in unconsolidated ventures.

Financing and Other Liabilities

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Maximum balance (2)

September 30, 2022 3,887,291 3,907,505 4,165,996

December 31, 2022 4,234,823 3,825,218 4,234,823

March 31, 2023 4,814,700 4,734,819 4,814,700

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September 30, 2023 4,987,006 4,902,400 4,987,006

December 31, 2023 4,458,695 3,736,432 4,458,695

March 31, 2024 4,393,908 4,419,757 4,531,261

(1) Average quarterly balance for each period is based on month-end balances.

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Under these swap agreements, we generally pay fixed interest rates and receive floating interest rates indexed to SOFR.

To a lesser extent, we also enter into interest rate swap agreements whereby we make floating interest rate payments indexed to SOFR and receive fixed interest rate payments as part of our overall risk management strategy.

To a lesser extent, we have also used interest rate swap agreements whereby we make floating interest rate payments indexed to SOFR and receive fixed interest rate payments as part of our overall risk management strategy.

We actively manage our interest rate swap portfolio as the size and composition of our investment portfolio changes.

During the nine months ended September 30, 2023, we entered into interest rate swaps with a notional amount of $2.7 billion and terminated existing interest rate swaps with a notional amount of $4.0 billion.

Forward starting swaps are excluded from the additions and terminations above until they begin to bear interest.

We did not have any forward starting swaps as of September 30, 2023.

Daily variation margin payment for interest rate swaps is characterized as settlement of the derivative itself rather than collateral and is recorded as a realized gain or loss in our condensed consolidated statement of operati ons.

We recorded net gains of $151.7 million and $203.9 million on interest rate swaps for the three and nine months ended September 30, 2023, respectively, primarily due to changes in forward interest rate expectations.

We have historically entered into currency forward contracts to help mitigate the potential impact of changes in foreign currency exchange rates on investments denominated in foreign currencies.

We did not have any currency forward contracts outstanding as of September 30, 2023 or December 31, 2022.

During the three months ended March 31, 2024, we entered into interest rate swaps with a notional amount of $1.3 billion and terminated existing interest rate swaps with a notional amount of $1.1 billion.

Daily variation margin payment for interest rate

swaps is characterized as settlement of the derivative itself rather than collateral and is recorded as a realized gain or loss in our condensed consolidated statement of operations.

Capital Activities

As of September 30, 2023, we may sell up to 6,300,529 shares of our common stock from time to time in at-the-market or privately negotiated transactions under our equity distribution agreement with placement agents.

During the three months ended September 30, 2023, we sold 3,880,763 shares of common stock under our equity distribution agreement for proceeds of $42.3 million, net of approximately $575,000 in commissions and fees.

During the nine months ended September 30, 2023, we sold 9,699,471 shares of common stock under our equity distribution agreement for proceeds of $109.1 million, net of approximately $1.5 million in commissions and fees.

During the three and nine months ended September 30, 2022, we sold 2,327,805 shares of common stock under an equity distribution agreement for proceeds of $38.6 million, net of approximately $603,000 in commissions and fees.

For information on dividends declared during the nine months ended September 30, 2023 and 2022, see Note 12 - "Stockholders' Equity" of our condensed consolidated financial statements in Part I.

As of March 31, 2024, we may sell up to 5,934,691 shares of our common stock from time to time in at-the-market or privately negotiated transactions under our equity distribution agreement with placement agents.

During the three months ended March 31, 2024, we sold 365,838 shares of common stock under our equity distribution agreement for proceeds of $3.3 million, net of approximately $43,000 in commissions and fees.

During the three months ended March 31, 2023, we sold 2,930,069 shares of common stock under an equity distribution agreement for proceeds of $35.8 million, net of approximately $482,000 in commissions and fees.

For information on dividends declared during the three months ended March 31, 2024 and 2023, see Note 12 - "Stockholders' Equity" of our condensed consolidated financial statements in Part I.

Item 1 of this report on Form 10-Q.

During the nine months ended September 30, 2023, we did not repurchase any shares of our common stock.

During the three months ended March 31, 2024, we did not repurchase any shares of our common stock.

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

During the three and nine months ended September 30, 2023, we repurchased and retired 34,432 and 72,220 shares of Series B Preferred Stock, respectively.

During the three and nine months ended September 30, 2023, we repurchased and retired 92,563 and 135,259 shares of Series C Preferred Stock, respectively.

During the three and nine months ended September 30, 2022, we repurchased and retired 1,618,546 and 1,662,366 shares of Series B Preferred Stock, respectively.

During the three and nine months ended September 30, 2022 we repurchased and retired 3,063,389 and 3,683,530 shares of Series C Preferred Stock, respectively.

As of September 30, 2023, we had authority to repurchase 1,265,414 additional shares of our Series B Preferred Stock and 1,181,211 additional shares of our Series C Preferred Stock under the current share repurchase program.

During the three months ended March 31, 2024, we repurchased and retired 93,347 shares of Series B Preferred Stock and 95,917 shares of Series C Preferred Stock.

During the three months ended March 31, 2023, we did not repurchase any shares of preferred stock.

As of March 31, 2024, we had authority to repurchase 1,092,650 additional shares of our Series B Preferred Stock and 949,522 additional shares of our Series C Preferred Stock under the current share repurchase program.

Book Value per Common Share

We calculate book value per common share as follows.

In thousands except per share amounts September 30, 2023 December 31, 2022

In thousands except per share amounts March 31, 2024 December 31, 2023

Numerator (adjusted equity):

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Book value per common share 10.08 10.00

Our book value per common share decreased 22% as of September 30, 2023 compared to December 31, 2022 primarily due to sharp underperformance of Agency RMBS relative to similar duration Treasuries during the third quarter as elevated interest rate volatility and higher interest rates weighed on the sector.

Our book value per common share increased 0.8% as of March 31, 2024 compared to December 31, 2023 as our higher coupon Agency RMBS performed well relative to interest rate swap hedges, despite a notable increase in interest rates during the quarter.

Strong performance in higher coupons was driven by a meaningful decline in interest rate volatility given market expectations for monetary policy easing in the first half of 2024.

Refer to Item 3.

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Results of Operations

The table below presents information from our condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended September 30, Nine Months Ended September 30,

The table below presents information from our condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

$ in thousands, except share data 2024 2023

Interest income 68,583 69,287

Mortgage-backed and other securities 75,132 49,058 215,847 134,689

Commercial loan — 670 — 1,768

Total interest income 75,132 49,728 215,847 136,457

Interest expense 61,580 49,726

Repurchase agreements 65,701 18,008 174,449 19,359

Total interest expense 65,701 18,008 174,449 19,359

Net interest income 7,003 19,561

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Interest Income and Average Earning Asset Yields

The table below presents information related to our average earning assets and earning asset yields for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended September 30, Nine Months Ended September 30,

The table below presents information related to our average earning assets and earning asset yields for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

$ in thousands 2024 2023

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All yields are annualized.

Our primary source of income is interest earned on our investment portfolio.

We had average earning assets of $5.5 billion for the three months ended September 30, 2023 (September 30, 2022:

$4.6 billion) and $5.3 billion for the nine months ended September 30, 2023 (September 30, 2022:

$5.4 billion).

Average earnings assets were higher for the three months ended September 30, 2023 relative to the same period in 2022 primarily due to higher leverage.

Average earning assets were relatively unchanged for the nine months ended September 30, 2023 compared to 2022 as we focused on our objective to maintain appropriate levels of leverage following declines in stockholders' equity.

Average earning asset yields increased for the three and nine months ended September 30, 2023 compared to 2022 primarily due to our rotation into higher yielding Agency RMBS.

We earned total interest income of $75.1 million and $215.8 million for the three and nine months ended September 30, 2023, respectively (September 30, 2022:

$49.7 million and $136.5 million).

Our interest income includes coupon interest and net (premium amortization) discount accretion on mortgage-backed and other securities as well as interest income on our commercial loan as shown in the table below.

Three Months Ended September 30, Nine Months Ended September 30,

Total average earning assets decreased $273.0 million for the three months ended March 31, 2024 compared to 2023.

We maintained similar amounts of leverage during both periods, but modest declines in stockholders' equity resulted in lower average earnings assets for the three months ended March 31, 2024 compared to 2023.

Average earning asset yields increased for the three months ended March 31, 2024 compared to 2023 due to our rotation into higher yielding Agency RMBS.

We earned total interest income of $68.6 million for the three months ended March 31, 2024 (March 31, 2023:

$69.3 million).

Our interest income includes coupon interest and net (premium amortization) discount accretion as shown in the table below.

Three Months Ended March 31,

$ in thousands 2024 2023

Interest Income

Mortgage-backed and other securities - coupon interest 72,200 49,224 211,435 140,673

Mortgage-backed and other securities - net (premium amortization) discount accretion 2,932 (166) 4,412 (5,984)

Mortgage-backed and other securities - interest income 75,132 49,058 215,847 134,689

Commercial loan — 670 — 1,768

Coupon interest 67,442 69,116

Net (premium amortization) discount accretion 1,141 171

Total interest income 68,583 69,287

Mortgage-backed and other securities interest income increased $26.1 million and $81.2 million for the three and nine months ended September 30, 2023, respectively, compared to 2022 primarily due to a 112 and 202 basis point increase in average earning asset yields, respectively.

Our commercial loan investment was fully repaid in October 2022.

Interest income was relatively unchanged for the three months ended March 31, 2024 compared to 2023 as a decrease in average earning assets was largely offset by an increase in average earning asset yields.

Prepayment Speeds

Our RMBS portfolio is subject to inherent prepayment risk primarily driven by changes in interest rates, which impacts the amount of premium and discount on the purchase of these securities that is recognized into interest income.

Expected future prepayment speeds are estimated on a quarterly basis.

Generally, in an environment of falling interest rates, prepayment speeds will increase as homeowners are more likely to prepay their existing mortgage and refinance into a lower borrowing rate.

In an environment of rising interest rates, prepayment speeds will generally decrease as homeowners are not as incentivized to refinance.

For Agency RMBS where we do not estimate prepayments, premium amortization and discount accretion are not impacted by prepayments until actual prepayments occur.

For those securities on which we do estimate prepayments, expected future prepayment speeds are estimated on a quarterly basis.

If the actual prepayment speed during the period is faster than estimated, the amortization on securities purchased at a premium to par value will be accelerated, resulting in lower interest income recognized.

Conversely, for securities purchased at a discount to par value, interest income will be reduced in periods where prepayment speeds were slower than expected.

The following table presents net (premium amortization) discount accretion recognized on our mortgage-backed and other securities portfolio for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended September 30, Nine Months Ended September 30,

The following table presents net (premium amortization) discount accretion recognized for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

$ in thousands 2024 2023

Agency RMBS 1,136 14

Agency CMBS 5 —

Non-Agency CMBS 127 291

2 unchanged sentences

Net (premium amortization) discount accretion 1,141 171

Net discount accretion was $2.9 million for the three months ended September 30, 2023 compared to net premium amortization of $166,000 for the same period in 2022.

Net discount accretion was $4.4 million for the nine months ended September 30, 2023 compared to net premium amortization of $6.0 million for the same period in 2022.

The change in net (premium amortization) discount accretion for the three and nine months ended September 30, 2023 compared to 2022 was primarily the result of repositioning our Agency RMBS portfolio into securities with lower book prices.

Net discount accretion was $1.1 million for the three months ended March 31, 2024 compared to $171,000 in 2023.

The increase in net discount accretion for the three months ended March 31, 2024 compared to 2023 was the result of repositioning our Agency RMBS portfolio into securities with lower book prices and slightly faster prepayment rates.

Our interest income is subject to interest rate risk.

2 unchanged sentences

Interest Expense and Cost of Funds

The table below presents information related to our borrowings and cost of funds for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended September 30, Nine Months Ended September 30,

The table below presents information related to our borrowings and cost of funds for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

$ in thousands 2024 2023

8 unchanged sentences

(3) Average cost of funds is calculated by dividing annualized interest expense including amortization of net deferred gain (loss) on de-designated interest rate swaps by our average borrowings.

Total average borrowings increased $994.7 million and $90.7 million for the three and nine months ended September 30, 2023 compared to the same period in 2022, respectively, primarily due to higher leverage.

Our average cost of funds increased 352 and 428 basis points for the three and nine months ended September 30, 2023, respectively, compared to 2022 as the FOMC has raised the Federal Funds target rate from a range of 0.0% to 0.25% as of January 1, 2022 to a range of 5.25% to 5.50% as of September 30, 2023.

The table below presents the components of interest expense for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended September 30, Nine Months Ended September 30,

Total average borrowings decreased $317.7 million for the three months ended March 31, 2024 compared to 2023.

We maintained similar amounts of leverage during both periods, but modest declines in stockholders' equity resulted in lower average borrowings for the three months ended March 31, 2024 compared to 2023.

Our average cost of funds increased 137 basis points for the three months ended March 31, 2024 compared to 2023 as the FOMC has raised the Federal Funds target rate from a range of 4.25% to 4.50% as of January 1, 2023 to a range of 5.25% to 5.50% as of March 31, 2024.

The table below presents the components of interest expense for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

$ in thousands 2024 2023

2 unchanged sentences

Amortization of net deferred (gain) loss on de-designated interest rate swaps — (4,494)

Repurchase agreements interest expense 65,701 18,008 174,449 19,359

Total interest expense 61,580 49,726

Our repurchase agreements interest expense, which equals our total interest expense, increased $47.7 million and $155.1 million for the three and nine months ended September 30, 2023, respectively, compared to 2022 primarily due to a higher cost of funds.

Our repurchase agreements interest expense as reported in our condensed consolidated statement of operations includes amortization of net deferred gains and losses on de-designated interest rate swaps as summarized in the table above.

Amortization of net deferred gains on de-designated interest rate swaps decreased our total interest expense by $1.8 million and $9.5 million during the three and nine months ended September 30, 2023 respectively, and $4.9 million and $14.9 million during the three and nine months ended September 30, 2022, respectively.

Amounts recorded in accumulated other comprehensive income before we discontinued cash flow hedge accounting for our interest rate swaps are reclassified to interest expense on repurchase agreements on the condensed consolidated statements of operations as interest is accrued and paid on the related repurchase agreements over the remaining life of the interest rate swap agreements.

We expect that the remaining $900,000 of net deferred gains on de-designated interest rate swaps will be reclassified from accumulated other comprehensive income and recorded as a decrease to interest expense in the fourth quarter of 2023.

Our interest expense increased $11.9 million for the three months ended March 31, 2024 compared to 2023 as increases in our cost of funds more than offset decreases in our average borrowings.

Our interest expense as reported in our condensed consolidated statement of operations includes amortization of net deferred gains and losses on de-designated interest rate swaps as summarized in the table above.

Amortization of net deferred gains on de-designated interest rate swaps decreased our total interest expense by $4.5 million during the three months ended March 31, 2023.

Amounts recorded in accumulated other comprehensive income before we discontinued cash flow hedge accounting for our interest rate swaps were reclassified to interest expense on the condensed consolidated statements of operations as interest was accrued and paid on the related repurchase agreements over the remaining life of the interest rate swap agreements.

As of March 31, 2024 and December 31, 2023, there were no net deferred gains or losses on discontinued cash flow hedges remaining in accumulated other comprehensive income.

Net Interest Income

The table below presents the components of net interest income for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended September 30, Nine Months Ended September 30,

The table below presents the components of net interest income for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

$ in thousands 2024 2023

Interest income 68,583 69,287

Mortgage-backed and other securities 75,132 49,058 215,847 134,689

Commercial loan — 670 — 1,768

Total interest income 75,132 49,728 215,847 136,457

Interest Expense:

1 unchanged sentence

Amortization of net deferred (gain) loss on de-designated interest rate swaps — (4,494)

Repurchase agreements interest expense 65,701 18,008 174,449 19,359

Total interest expense 61,580 49,726

1 unchanged sentence

Net interest rate margin (0.05) % 1.08 %

Our net interest income, which equals interest income less interest expense, totaled $9.4 million and $41.4 million for the three and nine months ended September 30, 2023, respectively (September 30, 2022:

$31.7 million and $117.1 million).

Our net interest rate margin, which equals the yield on our average assets for the period less the average cost of funds for the period, was 0.11% and 0.56% for the three and nine months ended September 30, 2023, respectively (September 30, 2022:

2.51% and 2.82%).

The decrease in net interest income for the three and nine months ended September 30, 2023 compared to 2022 was primarily due to a higher cost of funds related to increases in the Federal Funds target rate, which was partially offset by higher interest income.

The decrease in net interest rate margin for the three and nine months ended September 30, 2023 compared to 2022 was primarily due to a higher cost of funds, which was partially offset by our rotation into higher yielding Agency RMBS.

Our short-term borrowings are generally more sensitive to changes in interest rates than our investment portfolio, which is largely comprised of 30 year fixed-rate Agency RMBS.

Our net interest income, which equals total interest income less total interest expense, totaled $7.0 million for the three months ended March 31, 2024 (March 31, 2023:

$19.6 million).

The decrease in net interest income and net interest rate margin, which equals the yield on our average assets for the period less the average cost of funds, for three months ended March 31, 2024 compared to 2023 was due to higher interest expense related to increases in the Federal Funds target rate.

Our cost of funds is generally more sensitive to changes in interest rates than the yield on our investment portfolio, which is largely comprised of 30 year fixed-rate Agency RMBS.

Gain (Loss) on Investments, net

The table below summarizes the components of gain (loss) on investments, net for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended September 30, Nine Months Ended September 30,

The table below summarizes the components of gain (loss) on investments, net for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

$ in thousands 2024 2023

1 unchanged sentence

Net unrealized gains (losses) on MBS accounted for under the fair value option (62,473) 65,721

Net unrealized gains (losses) on commercial loan — 171 — 134

Net unrealized gains (losses) on U.S.

Treasury securities (372) —

Net realized gains (losses) on U.S.

1 unchanged sentence

Total gain (loss) on investments, net (66,153) 51,956

During the three and nine months ended September 30, 2023, we sold MBS and realized net losses of $33.2 million and $57.4 million, respectively (September 30, 2022:

net losses of $120.4 million and $974.4 million, respectively).

Net realized losses during the three and nine months ended September 30, 2023 and 2022 primarily reflect the repositioning of Agency RMBS coupon allocations and sales of lower yielding Agency RMBS to purchase higher yielding Agency RMBS in an effort to improve the earnings power of the portfolio.

During the three months ended March 31, 2024, we sold MBS and realized net losses of $3.2 million (March 31, 2023:

net losses of $13.8 million).

Net realized losses during the three months ended March 31, 2024 reflect sales of lower coupon Agency RMBS with a portion of the proceeds being used to purchase Agency CMBS.

Net realized losses during the three months ended March 31, 2023 primarily reflect the repositioning of Agency RMBS coupon allocations and sales of lower yielding Agency RMBS to purchase higher yielding Agency RMBS in an effort to improve the earnings power of the portfolio.

We have elected the fair value option for all of our MBS purchased on or after September 1, 2016.

Before September 1, 2016, we had also elected the fair value option for our non-Agency RMBS interest-only securities.

Under the fair value option, changes in fair value are recognized in income in the condensed consolidated statements of operations and are reported as a component of gain (loss) on investments, net.

As of September 30, 2023, $5.4 billion (December 31, 2022:

$4.7 billion) or 99% (December 31, 2022:

99%) of our MBS are accounted for under the fair value option.

We recorded net unrealized losses on our MBS portfolio accounted for under the fair value option of $191.8 million and $215.2 million in the three and nine months ended September 30, 2023, respectively, compared to net unrealized losses of $140.6 million and $81.6 million in the three and nine months ended September 30, 2022, respectively.

Net unrealized losses in the three and nine months ended September 30, 2023 were primarily due to lower valuations on our Agency RMBS given higher interest rates and wider interest rate spreads on our holdings.

Net unrealized losses in the three and nine months ended September 30, 2022 primarily reflect wider interest rate spreads on our Agency assets.

We recorded unrealized gains of $171,000 and $134,000 on our commercial loan investment in the three and nine months ended September 30, 2022, respectively.

We valued our commercial loan based upon a valuation from an independent pricing service.

We recorded net realized losses of $34.2 million on U.S.

Treasury securities during the nine months ended September 30, 2022, due to rising interest rates.

Under the fair value option, changes in fair value are recognized in income in the condensed consolidated statements of operations.

As of March 31, 2024 and December 31, 2023, $5.0 billion or 99.7% of our MBS were accounted for under the fair value option.

We recorded net unrealized losses on our MBS portfolio accounted for under the fair value option of $62.5 million in the three months ended March 31, 2024 compared to net unrealized gains of $65.7 million in the three months ended March 31, 2023.

Net unrealized losses in the three months ended March 31, 2024 resulted from higher interest rates during the quarter, as valuations on fixed-rate securities declined as interest rates rose.

Net unrealized gains in the three months ended March 31, 2023 were primarily due to improved Agency RMBS valuations as yields on Treasuries decreased.

We recorded net realized and unrealized losses of $458,000 on U.S.

Treasury securities in the three months ended March 31, 2024.

We did not hold any U.S.

Treasury securities during the three months ended March 31, 2023.

(Increase) Decrease in Provision for Credit Losses

As of September 30, 2023, $31.5 million of our MBS are classified as available-for-sale and subject to evaluation for credit losses (December 31, 2022:

As of March 31, 2024, $15.5 million of our MBS are classified as available-for-sale and subject to evaluation for credit losses (December 31, 2023:

$15.7 million).

During the three and nine months ended September 30, 2023, we recorded a $43,000 and a $212,000 provision for credit losses, respectively, on a single non-Agency CMBS based on a comparison of the security's amortized cost basis to discounted expected cash flows.

We did not record any provisions for credit losses during the three and nine months ended September 30, 2022.

During the three months ended March 31, 2024, we recorded a $39,000 provision

for credit losses on a single non-Agency CMBS based on a comparison of the security's amortized cost basis to discounted expected cash flows.

We did not record any provisions for credit losses during the three months ended March 31, 2023.

Equity in Earnings (Losses) of Unconsolidated Ventures

For the three and nine months ended September 30, 2023 we recorded equity in earnings of unconsolidated ventures of $2,000 and $4,000, respectively.

(September 30, 2022:

equity in losses of $6,000 and $287,000, respectively).

Earnings and losses of unconsolidated ventures were driven primarily by the underlying portfolio investments.

For the three months ended March 31, 2024 we recorded equity in losses of unconsolidated ventures of $193,000 (March 31, 2023:

equity in earnings of $2,000).

We received a final distribution from our sole remaining unconsolidated venture during the first quarter of 2024, and the venture was dissolved in April 2024.

Gain (Loss) on Derivative Instruments, net

4 unchanged sentences

$ in thousands

Three months ended September 30, 2023

not designated as

hedging instrument Realized gain (loss) on derivative instruments, net Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net

Interest Rate Swaps 84,565 72,126 (5,002) 151,689

Total 84,565 72,126 (5,002) 151,689

$ in thousands

Three months ended September 30, 2022

not designated as

hedging instrument Realized gain (loss) on derivative instruments, net Contractual net interest income (expense) Unrealized gain (loss), net Gain (loss) on derivative instruments, net

Interest Rate Swaps 71,862 30,145 36,930 138,937

Currency Forward Contracts 187 — 14 201

TBAs (9,172) — 3,583 (5,589)

Total 62,877 30,145 40,527 133,549

$ in thousands

Nine months ended September 30, 2023

Three months ended March 31, 2024

not designated as

1 unchanged sentence

Interest Rate Swaps 48,682 45,287 (808) 93,161

Currency Forward Contracts (18) — — (18)

TBAs (1,880) — 1,438 (442)

Total 48,682 45,287 (808) 93,161

$ in thousands

Nine months ended September 30, 2022

Three months ended March 31, 2023

not designated as

1 unchanged sentence

Interest Rate Swaps (90,949) 54,464 (7,968) (44,453)

Currency Forward Contracts 866 — (204) 662

TBAs (951) — 509 (442)

Total (91,900) 54,464 (7,459) (44,895)

Forward starting swaps are excluded from the additions and terminations above until they begin to bear interest.

We did not have any forward starting swaps as of September 30, 2023.

We recorded net gains of $151.7 million and $203.9 million on interest rate swaps for the three and nine months ended September 30, 2023, respectively, (September 30, 2022:

$138.9 million and $692.6 million, respectively) primarily due to changes in forward interest rate expectations.

As of September 30, 2023, we had $5.0 billion of repurchase agreement borrowings with a weighted average remaining maturity of 24 days.

We recorded net gains of $93.2 million on interest rate swaps for the three months ended March 31, 2024 (March 31, 2023:

net losses of $44.5 million) primarily due to changes in forward interest rate expectations.

As of March 31, 2024, we had $4.4 billion of repurchase agreement borrowings with a weighted average remaining maturity of 20 days.

We typically refinance each repurchase agreement at market interest rates upon maturity.

We use interest rate swaps to manage our exposure to changing interest rates and add stability to interest rate expense.

As of September 30, 2023 and December 31, 2022, we held the following interest rate swaps whereby we pay fixed rate interest and receive floating rate interest based upon SOFR.

$ in thousands As of September 30, 2023 As of December 31, 2022

As of March 31, 2024 and December 31, 2023, we held the following interest rate swaps whereby we pay fixed rate interest and receive floating rate interest based upon SOFR.

$ in thousands As of March 31, 2024 As of December 31, 2023

Derivative instrument Notional Amount Weighted Average Fixed Pay Rate Weighted Average Floating Receive Rate Weighted Average Years to Maturity Notional Amount Weighted Average Fixed Pay Rate Weighted Average Floating Receive Rate Weighted Average Years to Maturity

Interest Rate Swaps 4,265,000 1.17 % 5.34 % 7.2 4,065,000 1.10 % 5.38 % 6.6

5,900,000 0.79 % 5.31 % 7.7 5,800,000 0.45 % 4.30 % 6.3

(1) As of December 31, 2022, we held $975.0 million notional amount of SOFR-based pay fixed and receive floating interest rate swaps with forward start dates that had a weighted average maturity of 16.5 years and a weighted average fixed pay rate of 0.89% that are excluded from the table above.

As of September 30, 2023 and December 31, 2022, we held the following interest rate swaps whereby we pay floating rate interest based upon SOFR and receive fixed rate interest.

$ in thousands As of September 30, 2023 As of December 31, 2022

Derivative instrument Notional Amount Weighted Average Floating Pay Rate Weighted Average Fixed Receive Rate Weighted Average Years to Maturity Notional Amount Weighted Average Floating Pay Rate Weighted Average Fixed Receive Rate Weighted Average Years to Maturity

Interest Rate Swaps (1)

950,000 5.31 % 5.30 % 0.7 2,350,000 4.30 % 2.78 % 9.3

(1) As of December 31, 2022, we held $275.0 million notional amount of SOFR-based pay floating and receive fixed interest rate swaps with forward start dates that had a weighted average maturity of 16.0 years and a weighted average fixed receive rate of 2.63% that are excluded from that table above.

We historically used currency forward contracts to help mitigate the potential impact of changes in foreign currency exchange rates.

As of September 30, 2023 and December 31, 2022, we did not have any currency forward contracts outstanding.

During the three and nine months ended September 30, 2022, we settled currency forward contracts of €5.8 million and €29.9 million, respectively, or $6.2 million and $34.0 million, respectively, in notional amount related to our investment in an unconsolidated venture and realized net gains of $187,000 and $866,000, respectively.

We primarily use TBAs that we do not intend to physically settle on the contractual settlement date as an alternative means of investing in and financing Agency RMBS.

As of September 30, 2023 and December 31, 2022, we had no investments or immaterial investments in TBAs.

We recorded $442,000 of net realized and unrealized losses on TBAs during the nine months ended September 30, 2023.

We recorded $5.6 million and $139.2 million of net realized and unrealized losses on TBAs during the three and nine months ended September 30, 2022, respectively.

Net realized and unrealized losses on TBAs for the three and nine months ended September 30, 2022 primarily reflect rising interest rates, in addition to wider interest rate spreads on Agency RMBS.

As of March 31, 2024 and December 31, 2023, we had no investments in TBAs.

We recorded $442,000 of net realized and unrealized losses on TBAs during the three months ended March 31, 2023.

Other Investment Income (Loss), net

Our other investment income (loss), net during the three and nine months ended September 30, 2023 and 2022 consisted of foreign currency transaction gains and losses.

Other investment income (loss) for the nine months ended September 30, 2023 also includes the reclassification of our foreign currency translation adjustment that was previously recorded in accumulated other comprehensive income related to an unconsolidated venture that was liquidated during the first quarter of 2023.

We incurred management fees of $3.1 million and $9.2 million for the three and nine months ended September 30, 2023, respectively (September 30, 2022:

$3.8 million and $13.7 million, respectively).

Management fees decreased for the three and nine months ended September 30, 2023 compared to the same periods in 2022 due to a lower stockholders' equity management fee base.

Our other investment income (loss), net during the three months ended March 31, 2023 consisted of foreign currency transaction gains and losses and the reclassification of our foreign currency translation adjustment that was previously recorded in accumulated other comprehensive income related to an unconsolidated venture that was liquidated during the first quarter of 2023.

We incurred management fees of $2.9 million for the three months ended March 31, 2024 (March 31, 2023:

$3.0 million).

Management fees decreased for the three months ended March 31, 2024 compared to the same period in 2023 due to a lower stockholders' equity management fee base.

Refer to Note 11 – "Related Party Transactions" of our condensed consolidated financial statements for a discussion of our relationship with our Manager and a description of how our fees are calculated.

Our general and administrative expenses not covered under our management agreement amounted to $1.7 million and $5.7 million for the three and nine months ended September 30, 2023, respectively (September 30, 2022:

$2.0 million and $6.6 million, respectively).

Our general and administrative expenses not covered under our management agreement amounted to $1.8 million for the three months ended March 31, 2024 (March 31, 2023:

$2.1 million).

General and administrative expenses not covered under our management agreement primarily consist of directors and officers insurance, legal costs, accounting, auditing and tax services, filing fees and miscellaneous general and administrative costs.

1 unchanged sentence

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

During the three and nine months ended September 30, 2023, we repurchased and retired 34,432 and 72,220 shares of Series B Preferred Stock, respectively.

During the three and nine months ended September 30, 2023, we repurchased and retired 92,563 and 135,259 shares of Series C Preferred Stock, respectively.

During the three and nine months ended September 30, 2022, we repurchased and retired 1,618,546 and 1,662,366 shares of Series B Preferred Stock, respectively.

During the three and nine months ended September 30, 2022 we repurchased and retired 3,063,389 and 3,683,530 shares of Series C Preferred Stock, respectively.

During the three months ended March 31, 2024, we repurchased and retired 93,347 shares of Series B Preferred Stock and 95,917 shares of Series C Preferred Stock.

During the three months ended March 31, 2023, we did not repurchase any shares of preferred stock.

Gains on repurchases and retirements of preferred stock represent the difference between the consideration transferred and the carrying value of the preferred stock.

Net Income (Loss) attributable to Common Stockholders

For the three months ended September 30, 2023, our net loss attributable to common stockholders was $74.0 million (September 30, 2022:

$94.6 million) or $1.62 basic and diluted net loss per average share available to common stockholders (September 30, 2022:

The change in net loss attributable to common stockholders was primarily due to (i) net losses on investments of $224.9 million in the 2023 period compared to $260.8 million in the 2022 period;

(ii) net gains on derivative instruments of $151.7 million in the 2023 period compared to $133.5 million in the 2022 period;

and (iii) a $22.3 million decrease in net interest income.

For the nine months ended September 30, 2023, our net loss attributable to common stockholders was $59.8 million (September 30, 2022:

$447.6 million) or $1.40 basic and diluted net loss per average share available to common stockholders (September 30, 2022:

The change in net income (loss) attributable to common stockholders was primarily due to (i) net losses on investments of $272.6 million in the 2023 period compared to $1.1 billion in the 2022 period;

(ii) net gains on derivative instruments of $203.4 million in the 2023 period compared to $554.2 million in the 2022 period;

For the three months ended March 31, 2024, our net income attributable to common stockholders was $23.7 million (March 31, 2023:

$15.6 million) or $0.49 basic and diluted net income per average share available to common stockholders (March 31, 2023:

The change in net income attributable to common stockholders was primarily due to (i) net gains on derivative instruments of $93.2 million in the 2024 period compared to net losses on derivative instruments of $44.9 million in the 2023 period;

(ii) net losses on investments of $66.2 million in the 2024 period compared to net gains on investments of $52.0 million in the 2023 period;

and (iii) a $12.6 million decrease in net interest income.

For further information on the changes in net gain (loss) on investments, net gain (loss) on derivative instruments, and changes in net interest income, see preceding discussion under “Gain (Loss) on Investments, net”, “Gain (Loss) on Derivative Instruments, net” and “Net Interest Income”.

For further information on the changes in net gain (loss) on derivative instruments, net gain (loss) on investments and changes in net interest income, see preceding discussion under “Gain (Loss) on Derivative Instruments, net”, “Gain (Loss) on Investments, net” and “Net Interest Income”.

Non-GAAP Financial Measures

19 unchanged sentences

TBA dollar roll income;

gain on repurchase and retirement of preferred stock, foreign currency gains (losses), net and amortization of net deferred (gain) loss on de-designated interest rate swaps.

gain on repurchase and retirement of preferred stock;

foreign currency (gains) losses, net and amortization of net deferred (gain) loss on de-designated interest rate swaps.

By excluding the gains and losses discussed above, we believe the presentation of earnings available for distribution provides a consistent measure of operating performance that investors can use to evaluate our results over multiple reporting periods and, to a certain extent, compare to our peer companies.

18 unchanged sentences

GAAP net income (loss) attributable to common stockholders to earnings available for distribution for the following periods.

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

$ in thousands, except per share data 2024 2023

4 unchanged sentences

Unrealized (gain) loss on derivative instruments, net (1)

5,002 (40,527) 6,220 (21,618)

TBA dollar roll income (2)

— 2,159 697 27,415

Gain on repurchase and retirement of preferred stock (193) —

1 unchanged sentence

Amortization of net deferred (gain) loss on de-designated interest rate swaps (4)

(1,810) (4,855) (9,505) (14,853)

Subtotal 18,086 43,699

2 unchanged sentences

Earnings available for distribution per common share (5)

1.51 1.39 4.46 3.95

GAAP gain (loss) on derivative instruments, net on the condensed consolidated statements of operations includes the following components.

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

$ in thousands 2024 2023

9 unchanged sentences

(3) Foreign currency gains (losses), net includes foreign currency transaction gains and losses and the reclassification of currency translation adjustments that were previously recorded in accumulated other comprehensive income and is included in other investment income (loss), net on the condensed consolidated statements of operations.

GAAP repurchase agreements interest expense on the condensed consolidated statements of operations includes the following components.

Three Months Ended September 30, Nine Months Ended September 30,

GAAP interest expense on the condensed consolidated statements of operations includes the following components.

Three Months Ended March 31,

$ in thousands 2024 2023

1 unchanged sentence

Amortization of net deferred (gain) loss on de-designated interest rate swaps — (4,494)

Repurchase agreements interest expense 65,701 18,008 174,449 19,359

Total interest expense 61,580 49,726

(5) Earnings available for distribution per common share is equal to earnings available for distribution divided by the basic weighted average number of common shares outstanding.

The table below shows the components of earnings available for distribution for the following periods.

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

$ in thousands 2024 2023

9 unchanged sentences

(1) See below for a reconciliation of net interest income to effective net interest income, a non-GAAP measure.

Earnings available for distribution increased during the three and nine months ended September 30, 2023 compared to the same periods in 2022 primarily due to an increase in effective net interest income, which was partially offset by a reduction in our TBA notional amount and related TBA dollar roll activity.

Earnings available for distribution decreased during the three months ended March 31, 2024 compared to the same period in 2023 due to lower effective net interest income.

See below for details on the change in effective net interest income.

Effective Interest Expense / Effective Cost of Funds / Effective Net Interest Income / Effective Interest Rate Margin

We calculate effective interest expense (and by calculation, effective cost of funds) as U.S.

GAAP total interest expense adjusted for contractual net interest income (expense) on our interest rate swaps that is recorded as gain (loss) on derivative instruments, net and the amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as repurchase agreements interest expense.

We view our interest rate swaps as an economic hedge against increases in future market interest rates on our borrowings.

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We calculate effective net interest income (and by calculation, effective interest rate margin) as U.S.

GAAP net interest income adjusted for contractual net interest income (expense) on our interest rate swaps that is recorded as gain (loss) on derivative instruments, net and amortization of net deferred gains (losses) on de-designated interest rate swaps that is recorded as repurchase agreements interest expense.

We believe the presentation of effective interest expense, effective cost of funds, effective net interest income and effective interest rate margin measures, when considered together with U.S.

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The following table reconciles total interest expense to effective interest expense and cost of funds to effective cost of funds for the following periods.

Three Months Ended September 30,

$ in thousands Reconciliation Cost of Funds / Effective Cost of Funds Reconciliation Cost of Funds / Effective Cost of Funds

Total interest expense 65,701 5.36 % 18,008 1.84 %

Amortization of net deferred gain (loss) on de-designated interest rate swaps 1,810 0.15 % 4,855 0.50 %

Contractual net interest expense (income) on interest rate swaps recorded as gain (loss) on derivative instruments, net (72,126) (5.88) % (30,145) (3.09) %

Effective interest expense (4,615) (0.37) % (7,282) (0.75) %

Nine Months Ended September 30,

Three Months Ended March 31,

$ in thousands Reconciliation Cost of Funds / Effective Cost of Funds Reconciliation Cost of Funds / Effective Cost of Funds

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Effective interest expense 16,293 1.47 % (244) (0.02) %

Our effective interest expense and effective cost of funds increased modestly in the three and nine months ended September 30, 2023 compared to the same periods in 2022 as significant increases in U.S.

GAAP interest expense, which were driven by increases in the Federal Funds target rate, were largely offset by increases in contractual net interest income on interest rate swaps.

Our effective interest expense and effective cost of funds increased in the three months ended March 31, 2024 compared to the same period in 2023 due to higher U.S.

GAAP interest expense driven by increases in the Federal Funds target rate and decreases in contractual net interest income on interest rate swaps.

In addition to changes caused by the underlying floating rate index, the amount of contractual net interest income or expense on interest swaps that we recognize may change materially from period to period based on changes in the size and

composition of our interest rate swap portfolio, which are generally broadly aligned with changes in our repurchase agreement borrowings.

See preceding discussion under “Gain (Loss) on Derivative Instruments, net” for details of our interest rate swap portfolio as of March 31, 2024 and December 31, 2023.

The following table reconciles net interest income to effective net interest income and net interest rate margin to effective interest rate margin for the following periods.

Three Months Ended September 30,

$ in thousands Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin

Net interest income 9,431 0.11 % 31,720 2.51 %

Amortization of net deferred (gain) loss on de-designated interest rate swaps (1,810) (0.15) % (4,855) (0.50) %

Contractual net interest income (expense) on interest rate swaps recorded as gain (loss) on derivative instruments, net 72,126 5.88 % 30,145 3.09 %

Effective net interest income 79,747 5.84 % 57,010 5.10 %

Nine Months Ended September 30,

Three Months Ended March 31,

$ in thousands Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin Reconciliation Net Interest Rate Margin / Effective Interest Rate Margin

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Effective net interest income 52,290 4.05 % 69,531 5.30 %

Our effective net interest income and effective interest rate margin increased in the three and nine months ended September 30, 2023 compared to the same periods in 2022 primarily due to higher interest income resulting from our rotation into higher yielding Agency RMBS.

Effective interest expense and effective cost of funds had a less significant impact on effective net interest income and effective interest rate margin as higher U.S.

GAAP interest expense was largely offset by an increase in contractual net interest income on interest rate swaps.

Our effective net interest income and effective interest rate margin decreased in the three months ended March 31, 2024 compared to the same period in 2023 due to higher U.S.

GAAP interest expense driven by increases in the Federal Funds target rate and decreases in contractual net interest income on interest rate swaps.

Economic Debt-to-Equity Ratio

The tables below show the allocation of our stockholders' equity to our target assets, our debt-to-equity ratio, and our economic debt-to-equity ratio as of September 30, 2023 and December 31, 2022.

The tables below show the allocation of our stockholders' equity to our target assets, our debt-to-equity ratio, and our economic debt-to-equity ratio as of March 31, 2024 and December 31, 2023.

Our debt-to-equity ratio is calculated in accordance with U.S.

GAAP and is the ratio of total debt to total stockholders' equity.

As of September 30, 2023, approximately 96% of our equity is allocated to Agency RMBS.

As of March 31, 2024, approximately 88% of our equity is allocated to Agency RMBS.

We present an economic debt-to-equity ratio, a non-GAAP financial measure of leverage that considers the impact of the off-balance sheet financing of our investments in TBAs that are accounted for as derivative instruments under U.S.

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GAAP financial measure of debt-to-equity ratio, provides information that is useful to investors in understanding how management evaluates our at-risk leverage and gives investors a comparable statistic to those of other mortgage REITs who also invest in TBAs and present a similar non-GAAP measure of leverage.

As of September 30, 2023

As of March 31, 2024

$ in thousands Agency

RMBS Credit Portfolio (1)

CMBS Credit Portfolio (1)

Mortgage-backed securities 4,723,751 265,512 17,841 5,007,104

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125,860 14,755 — 140,615

Derivative assets, at fair value (3)

Other assets 22,569 1,033 131 23,733

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Repurchase agreements 4,189,856 204,052 — 4,393,908

Derivative liabilities, at fair value (3)

7,637 — 7,637

Other liabilities 48,061 3,245 687 51,993

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Debt-to-equity ratio (4)

6.1 2.6 — 5.6

Economic debt-to-equity ratio (5)

(1) Investments in non-Agency CMBS, non-Agency RMBS and an unconsolidated joint venture are included in credit portfolio.

6.1 2.6 — 5.6

(1) Investments in non-Agency CMBS and non-Agency RMBS are included in credit portfolio.

(2) Cash and cash equivalents is allocated based on our financing strategy for each asset class.

(3) Restricted cash and derivative assets and liabilities are allocated based on our hedging strategy for each asset class.

(3) Restricted cash and derivative assets are allocated based on our hedging strategy for each asset class.

(4) Debt-to-equity ratio is calculated as the ratio of total repurchase agreements to total stockholders' equity.

(5) Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis to total stockholders' equity.

We did not have any TBAs outstanding as of September 30, 2023.

We did not have any TBAs outstanding as of March 31, 2024.

As of December 31, 2023

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Mortgage-backed securities 5,027,232 18,074 5,045,306

Treasury securities 11,214 — 11,214

Cash and cash equivalents (2)

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Repurchase agreements 4,458,695 — 4,458,695

Derivative liabilities, at fair value (3)

2,079 — 2,079

Other liabilities 42,117 732 42,849

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Economic debt-to-equity ratio (5)

(1) Investments in non-Agency CMBS, non-Agency RMBS and unconsolidated joint ventures are included in credit portfolio.

(1) Investments in non-Agency CMBS, non-Agency RMBS and an unconsolidated joint venture are included in credit portfolio.

(2) Cash and cash equivalents is allocated based on our financing strategy for each asset class.

(3) Restricted cash and derivative assets and liabilities are allocated based on our hedging strategy for each asset class.

(3) Restricted cash and derivative assets are allocated based on our hedging strategy for each asset class.

(4) Debt-to-equity ratio is calculated as the ratio of total repurchase agreements to total stockholders' equity.

(5) Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis ($1.4 million as of December 31, 2022) to total stockholders' equity.

(5) Economic debt-to-equity ratio is calculated as the ratio of total repurchase agreements and TBAs at implied cost basis to total stockholders' equity.

We did not have any TBAs outstanding as of December 31, 2023.

Liquidity and Capital Resources

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We generally maintain liquidity to pay down borrowings under repurchase arrangements to reduce borrowing costs and otherwise efficiently manage our long-term investment capital.

Because the level of these borrowings can be adjusted on a daily basis, the level of cash and cash equivalents carried on our consolidated balance sheets is significantly less important than our potential liquidity available under borrowing arrangements or through the sale of liquid investments.

Because the level of these borrowings can be adjusted on a daily basis, the level of cash and cash equivalents carried on our condensed consolidated balance sheets is significantly less important than our potential liquidity available under borrowing arrangements or through the sale of liquid investments.

However, there can be no assurance that we will maintain sufficient levels of liquidity to meet any margin calls.

We held cash, cash equivalents and restricted cash of $359.7 million as of September 30, 2023 (September 30, 2022:

We held cash, cash equivalents and restricted cash of $200.5 million as of March 31, 2024 (March 31, 2023:

$228.9 million).

Our cash, cash equivalents and restricted cash change due to normal fluctuations in cash balances related to the timing of principal and interest payments, repayments of debt, and asset purchases and sales.

Our operating activities provided net cash of $206.1 million for the nine months ended September 30, 2023 (September 30, 2022:

$126.8 million).

Our investing activities used net cash of $899.8 million in the nine months ended September 30, 2023 compared to net cash provided by investing activities of $2.8 billion in the nine months ended September 30, 2022.

We used cash of $4.5 billion to purchase MBS and $48.7 million to purchase U.S.

Treasury securities during the nine months ended September 30, 2023 (September 30, 2022:

$20.7 billion to purchase MBS and $502.3 million to purchase U.S.

Treasury securities).

Our primary source of cash from investing activities for the nine months ended September 30, 2023 was proceeds from sales of MBS of $3.3 billion and proceeds from sales of U.S.

Treasury securities of $49.0 million (September 30, 2022:

$22.8 billion from the sales of MBS and $468.1 million from the sales of U.S.

Treasury securities).

We also generated $260.9 million from principal payments of MBS during the nine months ended September 30, 2023 (September 30, 2022:

$330.6 million).

We received cash of $19.6 million to settle derivative contracts in the nine months ended September 30, 2023 (September 30, 2022:

Our operating activities provided net cash of approximately $57.5 million for the three months ended March 31, 2024 (March 31, 2023:

$67.2 million).

Our financing activities provided net cash of $774.6 million for the nine months ended September 30, 2023 compared to net cash used by financing activities of $3.3 billion in the nine months ended September 30, 2022.

During the nine months ended September 30, 2023, we received cash for net proceeds on our repurchase agreements of $752.2 million (September 30, 2022:

net cash used of $3.1 billion).

We also used cash of $77.1 million for the nine months ended September 30, 2023 to pay dividends (September 30, 2022:

Our investing activities provided net cash of $37.1 million in the three months ended March 31, 2024 compared to net cash used by investing activities of $696.9 million in the three months ended March 31, 2023.

Our primary source of cash from investing activities for the three months ended March 31, 2024 was proceeds from sales of MBS of $296.5 million and proceeds from sales of U.S.

Treasury securities of $10.8 million (March 31, 2023:

$783.9 million from the sales of MBS).

We also generated $71.2 million from principal payments of MBS during the three months ended March 31, 2024 (March 31, 2023:

$61.1 million) and received cash of $48.7 million to settle derivative contracts in the three months ended March 31, 2024 (March 31, 2023:

net cash used of $91.9 million).

We used cash of $390.4 million to purchase MBS during the three months ended March 31, 2024 (March 31, 2023:

$1.4 billion to purchase MBS).

Our financing activities used net cash of $92.7 million for the three months ended March 31, 2024 compared to net cash provided by financing activities of $579.8 million in the three months ended March 31, 2023.

During the three months ended March 31, 2024, we used cash for net repayments on our repurchase agreements of $64.4 million (March 31, 2023:

provided of $579.9 million).

We also used cash of $25.0 million for the three months ended March 31, 2024 to pay dividends (March 31, 2023:

$31.0 million).

Proceeds from issuance of common stock provided $109.1 million for the nine months ended September 30, 2023 (September 30, 2022:

Proceeds from issuance of common stock provided $3.3 million for the three months ended March 31, 2024 (March 31, 2023:

$35.8 million).

As of September 30, 2023, the average margin requirement (weighted by borrowing amount), or the haircut, under our repurchase agreements was 4.6% for Agency RMBS.

The haircuts ranged from a low of 3% to a high of 5% for Agency RMBS.

As of March 31, 2024, the average margin requirement (weighted by borrowing amount), or the haircut, under our repurchase agreements was 4.6% for Agency RMBS and 5.0% for Agency CMBS.

The haircuts ranged from a low of 3% to a high of 5% for Agency RMBS and a low of 4% to a high of 6% for Agency CMBS.

Declines in the value of our securities portfolio can trigger margin calls by our lenders under our repurchase agreements.

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Forward-Looking Statements Regarding Liquidity

As of September 30, 2023, we held $5.2 billion of Agency securities that are financed by repurchase agreements.

We also had approximately $218.3 million of unencumbered investments and unrestricted cash of $173.9 million as of September 30, 2023.

As of September 30, 2023, our known contractual obligations primarily consisted of $5.0 billion of repurchase agreement borrowings with a weighted average remaining maturity of 24 days.

As of March 31, 2024, we held $4.6 billion of Agency securities that are financed by repurchase agreements.

We also had approximately $390.7 million of unencumbered investments and unrestricted cash of $59.9 million as of March 31, 2024.

As of March 31, 2024, our known contractual obligations primarily consisted of $4.4 billion of repurchase agreement borrowings with a weighted average remaining maturity of 20 days.

We generally intend to refinance the majority of our repurchase agreement borrowings at market rates upon maturity.

Repurchase agreement borrowings that are not refinanced upon maturity are typically repaid through the use of cash on hand or proceeds from sales of securities.

We are also committed to fund $2.9 million in additional capital to our unconsolidated joint venture to cover future expenses should they occur.

Based upon our current portfolio and existing borrowing arrangements, we believe that cash flow from operations and available borrowing capacity will be sufficient to enable us to meet anticipated short-term (one year or less) liquidity requirements to fund our investment activities, pay fees under our management agreement, fund our required distributions to stockholders and fund other general corporate expenses.

Our ability to meet our long-term (greater than one year) liquidity and capital resource requirements will be subject to obtaining additional debt financing.

We may increase our capital resources by obtaining long-term credit facilities or through

public or private offerings of equity or debt securities, possibly including classes of preferred stock, common stock, senior or subordinated notes and convertible notes.

Such financing will depend on market conditions for capital raises and our ability to invest such offering proceeds.

We may increase our capital resources by obtaining long-term credit facilities or through public or private offerings of equity or debt securities, possibly including classes of preferred stock, common stock, senior or subordinated notes and convertible notes.

Such financing will depend on market conditions for capital raises and our ability to

invest such offering proceeds.

If we are unable to renew, replace or expand our sources of financing on substantially similar terms, it may have an adverse effect on our business and results of operations.

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If a counterparty were to default on its obligations, we would be exposed to potential losses to the extent the fair value of collateral pledged by us to the counterparty including any accrued interest receivable on such collateral exceeded the amount loaned to us by the counterparty plus interest due to the counterparty.

As of September 30, 2023, no counterparties held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $39.3 million, or 5% of our stockholders' equity.

The following table summarizes our exposure to counterparties by geographic concentration as of September 30, 2023.

As of March 31, 2024, no counterparty held collateral that exceeded the amounts borrowed under the related repurchase agreements by more than $39.3 million, or 5% of our stockholders' equity.

The following table summarizes our exposure to counterparties by geographic concentration as of March 31, 2024.

The information is based on the geographic headquarters of the counterparty or counterparty's parent company.

However, our repurchase agreements are generally denominated in U.S.

However, our repurchase agreements are denominated in U.S.

$ in thousands Number of Counterparties Repurchase Agreement Financing Exposure

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Other Matters

We believe that we satisfied each of the asset tests in Section 856(c)(4) of the Internal Revenue Code of 1986, as amended (the "Code") for the period ended September 30, 2023, and that our proposed method of operation will permit us to satisfy the asset tests, gross income tests, and distribution and stock ownership requirements for our taxable year that will end on December 31, 2023.

We believe that we satisfied each of the asset tests in Section 856(c)(4) of the Internal Revenue Code of 1986, as amended (the "Code") for the period ended March 31, 2024, and that our proposed method of operation will permit us to satisfy the asset tests, gross income tests, and distribution and stock ownership requirements for our taxable year that will end on December 31, 2024.

At all times, we intend to conduct our business so that neither we nor our Operating Partnership nor the subsidiaries of our Operating Partnership are required to register as an investment company under the 1940 Act.

If we were required to register as an investment company, then our use of leverage would be substantially reduced.

Because we are a holding company that conducts our business through our Operating Partnership and the Operating Partnership’s wholly-owned or majority-owned subsidiaries, the securities issued by these subsidiaries that are excepted from the definition of "investment company" under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, together with any other investment securities the Operating Partnership may own, may not have a combined value in excess of 40% of the value of the Operating Partnership’s total assets (exclusive of U.S.

Because we are a holding company that conducts our business through our Operating Partnership and the Operating Partnership’s wholly-owned or majority-owned

subsidiaries, the securities issued by these subsidiaries that are excepted from the definition of "investment company" under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, together with any other investment securities the Operating Partnership may own, may not have a combined value in excess of 40% of the value of the Operating Partnership’s total assets (exclusive of U.S.

government securities and cash items) on an unconsolidated basis, which we refer to as the 40% test.

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IAS Asset I LLC and certain of the Operating Partnership’s other subsidiaries that we may form in the future rely upon the exclusion from the definition of "investment company" under the 1940 Act provided by Section 3(c)(5)(C) of the 1940 Act, which is available for entities "primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate." This exclusion generally requires that at least 55% of each subsidiary’s portfolio be comprised of qualifying assets and at least 80% be comprised of qualifying assets and real estate-related assets (and no more than 20% comprised of miscellaneous assets).

We calculate that as of September 30, 2023, we conducted our business so as not to be regulated as an investment company under the 1940 Act.

We calculate that as of March 31, 2024, we conducted our business so as not to be regulated as an investment company under the 1940 Act.

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 2. Management’s Discussion and Analysis