What changed in this filing

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Item 1. Business

2025-02-20 compared with 2024-02-22 · 58 added, 64 removed, 177 unchanged (41% of the section changed)

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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.

• 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”).

Treasury securities;

• a real estate-related financing arrangement.

Substantially all of our investments as of December 31, 2024 were in Agency MBS.

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

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• a commercial mortgage loan;

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

Treasury securities.

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

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For additional information, refer to Item 13 — “Certain Relationships and Related Transactions, and Director Independence”.

Our Manager's long-term success depends on its ability to retain, develop, engage and attract top talent.

Our Manager's long-term success depends on its ability to engage, attract, develop and retain top talent.

Our Manager invests significantly in talent development, health and welfare programs, technology and other resources that support its employees in developing their full potential both personally and professionally.

Our Manager believes that diversity and inclusion are good for business.

Our Manager is committed to further strengthening diversity at all levels and in all functions across its global business.

Increasing representation of women and diverse employees remains a focus for our Manager, as does building a more inclusive work environment.

All employees are required to take periodic unconscious bias training.

Employees are also encouraged to participate in any of our Manager’s various employee resource groups where employees with diverse backgrounds, experiences and perspectives can connect.

Manager’s various employee resource groups are sponsored by its senior leaders and are designed by employees, for employees .

Our Competitive Advantages

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Our senior management and the structured investments team of our Manager have a long track record and broad experience in managing residential and commercial mortgage-related assets through a variety of credit and interest rate environments and have demonstrated the ability to generate attractive risk-adjusted returns under different market conditions and cycles.

In addition, we benefit from the insight and capabilities of Invesco’s real estate team, through which we have access to broad and deep teams of experienced investment professionals in real estate and distressed investing.

Through these teams, we have real time access to research and data on the mortgage and real estate industries.

We have real time access to research and data on the mortgage and real estate industries.

We believe having in-house access to these resources and expertise provides us with a competitive advantage over other companies investing in our target assets who have less internal resources and expertise.

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We believe this strategy and our commitment to capital preservation provide us with a competitive advantage when operating in a variety of market conditions.

Investment Guidelines

Our Board of Directors has adopted the following investment guidelines:

• no investment shall be made that would cause us to fail to qualify as a REIT for federal income tax purposes;

• no investment shall be made that would cause us to be regulated as an investment company under the 1940 Act;

• our assets will be invested within our target assets;

• until appropriate investments can be identified, our Manager may pay off short-term debt, or invest the proceeds of any offering in interest-bearing, short-term investments, including funds that are consistent with maintaining our REIT qualification.

These investment guidelines may be changed from time to time by our Board of Directors without the approval of our stockholders.

Investment Committee

Our investment committee is comprised of certain of our officers and certain of our Manager’s investment professionals.

The investment committee periodically reviews our investment portfolio for risk characteristics, investment performance, liquidity, portfolio composition, leverage and other applicable items.

It also reviews its compliance with our investment policies and procedures, including our investment guidelines, and our Manager discusses investment performance with our Board of Directors at the end of each quarter in conjunction with its review of our quarterly results.

Investment Process

Our Manager’s investment team has a strong focus on asset selection and on the relative value of various sectors within the mortgage market.

Our Manager utilizes this expertise to build a diversified portfolio.

Our Manager incorporates its views on the economic environment and the outlook for the mortgage market, including relative valuation, supply and demand trends, the level of interest rates, the shape of the yield curve, prepayment rates, financing and liquidity, housing prices, delinquencies, default rates and loss severity rates of various collateral types.

Our investment process includes sourcing and screening investment opportunities, assessing investment suitability, conducting interest rate and prepayment analysis, evaluating cash flow and collateral performance, reviewing legal structure and servicer and originator information and investment structuring, as appropriate, to ensure an attractive return commensurate with the risk we are bearing.

Upon identification of an investment opportunity, the investment will be screened and monitored by our Manager to determine its impact on maintaining our REIT qualification and our exemption from registration under the 1940 Act.

We make investments in sectors where our Manager has strong core competencies and where we believe market risk and expected performance can be reasonably quantified.

Our Manager evaluates each of our investment opportunities based on its expected risk-adjusted return relative to the returns available from other, comparable investments.

In addition, we evaluate new opportunities based on their relative expected returns compared to assets held in our portfolio.

The terms of any leverage available to us for use in funding an investment purchase are also taken into consideration, as are any risks posed by illiquidity or correlations with other assets in the portfolio.

Our Manager also develops a macro outlook with respect to each target asset class by examining factors in the broader economy such as gross domestic product, interest rates, unemployment rates and availability of credit, among other factors.

These macro decisions guide our Manager’s assumptions regarding model inputs and portfolio allocations among target assets.

Our Manager analyzes fundamental trends in the relevant target asset class sector to adjust or maintain its outlook for that particular target asset class.

Additionally, our Manager conducts extensive diligence with respect to each target asset class by, among other things, examining and monitoring the capabilities and financial wherewithal of the parties responsible for the origination, administration and servicing of relevant target assets.

Investment Strategy

We have invested in a diversified pool of mortgage assets that generate attractive risk-adjusted returns.

Our current investment portfolio includes Agency RMBS, non-Agency RMBS and non-Agency CMBS.

Our investment portfolio has also historically included, and may in the future include Agency CMBS, credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises (“GSE CRT”), residential mortgage loans, commercial mortgage loans, TBAs and other real estate-related investments.

Our current investment portfolio includes Agency RMBS, Agency CMBS, non-Agency CMBS and non-Agency RMBS.

Our investment portfolio has also historically included, and may in the future include TBAs, credit risk transfer securities that are unsecured obligations issued by government-sponsored enterprises, residential mortgage loans, commercial mortgage loans and other real estate-related investments.

We refer to all of these investment types collectively as our target assets.

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Treasury securities and, in addition to direct purchases of our target assets, invested in ventures managed by an affiliate of our Manager, which, in turn, invested in our target assets.

We accept varying levels of interest rate risk by managing our hedge portfolio and accept certain levels of credit and spread risk to earn income.

We accept credit and spread risk to earn income and manage our interest rate risk exposure through our hedge portfolio.

Agency RMBS are residential mortgage-backed securities issued by a U.S.

government agency such as Ginnie Mae, or a federally chartered corporation such as Fannie Mae or Freddie Mac (Government Sponsored Enterprises or “GSEs”) that are

secured by a collection of mortgages.

government agency such as Ginnie Mae, or a federally chartered corporation such as Fannie Mae or Freddie Mac (Government Sponsored Enterprises or “GSEs”) that are secured by a collection of mortgages.

Payments of principal and interest on Agency RMBS, not the market value of the securities themselves, are guaranteed by the issuer.

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In effect, these payments are a “pass-through” of scheduled and unscheduled principal payments and the monthly interest payments made by the individual borrowers on the mortgage loans, net of any fees paid to the servicers, guarantors or other related parties of the securities.

The principal may be prepaid at any time due to prepayments or defaults on the underlying mortgage loans.

The principal may be repaid at any time due to prepayments or defaults on the underlying mortgage loans.

These differences can result in significantly greater price and yield volatility than is the case with other fixed-income securities.

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In addition, when interest rates are declining, the value of Agency RMBS with prepayment options may not increase as much as other fixed income securities.

The rate of prepayments on underlying mortgages will affect the price and volatility of Agency RMBS and may have the effect of shortening or extending the duration of the security beyond what was anticipated at the time of purchase.

The rate of prepayments on underlying mortgages will affect the price and volatility of

Agency RMBS and may have the effect of shortening or extending the duration of the security beyond what was anticipated at the time of purchase.

When interest rates rise, our holdings of Agency RMBS may experience reduced returns if the owners of the underlying mortgages pay off their mortgages slower than previously anticipated.

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Substantially all of our current investments in Agency RMBS are FRMs.

Agency CMBS are structured pass-through certificates representing interests in pools of commercial loans that are secured by commercial property and issued by a U.S.

government agency or federally chartered corporation.

Types of Agency CMBS include Fannie Mae DUS (Delegated Underwriting and Servicing), Freddie Mac Multifamily Mortgage Participation Certificates, Ginnie Mae project loan pools and CMOs structured from such collateral.

government agency or federally chartered corporation sources these loans from a network of approved multifamily sellers/servicers and guarantees the timely payment of interest and principal on these investments.

Unlike single family residential mortgages in which the borrower, generally, can prepay at any time, commercial mortgages frequently limit the ability of the borrower to prepay, thereby providing a certain level of prepayment protection.

Common restrictions include yield maintenance (a prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled interest payments up until the maturity date) and prepayment penalties.

Non-Agency CMBS

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The mortgage loan collateral for non-Agency RMBS generally consists of residential mortgage loans that do not conform to U.S.

government agency or federally chartered corporation underwriting guidelines due

to certain factors including mortgage balance in excess of such guidelines, borrower characteristics, loan characteristics and level of documentation.

government agency or federally chartered corporation underwriting guidelines due to certain factors including mortgage balance in excess of such guidelines, borrower characteristics, loan characteristics and level of documentation.

Like non-Agency CMBS, the credit quality of non-Agency RMBS depends on the securitization structure and the characteristics of the underlying mortgage loans.

Unconsolidated Ventures

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Under the equity method of accounting, the initial investment is increased each period for additional capital contributions and a proportionate share of the entity’s earnings and decreased for cash distributions and a proportionate share of the entity’s losses.

As of December 31, 2023, our one remaining unconsolidated venture is in liquidation and plans to sell or settle its remaining investments as expeditiously as possible.

TBAs are forward contracts to purchase or sell Agency RMBS.

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They generally permit prepayments before final maturity but may require the payment to the lender of yield maintenance or prepayment penalties.

First lien loans represent the senior lien on a property while second lien loans or second mortgages represent a subordinate or second lien on a property.

Mezzanine Loans

Mezzanine loans are generally structured to represent a senior position in the borrower’s equity in a property, and are subordinate to a first mortgage loan.

These loans are generally secured by pledges of ownership interests, in whole or in part, in entities that directly or indirectly own the real property.

At times, mezzanine loans may be secured by additional collateral, including letters of credit, personal guarantees, or collateral unrelated to the property.

Mezzanine loans may be structured to carry either fixed or floating interest rates as well as carry a right to participate in a percentage of gross revenues and a percentage of the increase in the fair market value of the property securing the loan.

Mezzanine loans may also contain prepayment lockouts, penalties, minimum profit hurdles and other mechanisms to protect and enhance returns to the lender.

Mezzanine loans usually have maturities that match the maturity of the related mortgage loan but may have shorter or longer terms.

Financing Strategy

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Assets that are less liquid or exhibit higher price volatility tend to be held unlevered or with lower leverage applied.

We include a table that shows the allocation of our stockholders' equity to our target assets, our debt-to-equity ratio, and our economic debt-to-equity ratio (a non-GAAP financial measure of leverage) in Part II.

We include a table that shows our debt-to-equity ratio and our economic debt-to-equity ratio (a non-GAAP financial measure of leverage) in Part II.

“Management's Discussion and Analysis of Financial Conditions and Results of Operations” of this Report.

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To minimize the risks to our portfolio, we actively employ portfolio-wide and security-specific risk measurement and management processes in our daily operations.

Our Manager’s risk management tools include software and services licensed or purchased from third parties, in addition to proprietary software and analytical methods developed by Invesco.

Our Manager’s risk management tools include software and services licensed or purchased from third parties, in addition to proprietary analytical methods developed by Invesco.

Interest Rate Risk

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Specifically, we seek to hedge our exposure to potential interest rate mismatches between the interest we earn on our investments and our borrowing costs caused by fluctuations in short-term interest rates.

We may utilize various derivative financial instruments including puts and calls on securities or indices of securities, futures, interest rate swaps and swaptions, interest rate caps, interest rate floors, exchange-traded derivatives, U.S.

We may utilize various derivative financial instruments including puts and calls on securities or indices of securities, futures contracts, interest rate swaps, interest rate caps, interest rate floors, exchange-traded derivatives, U.S.

Treasury securities and options on U.S.

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Changes in spreads impact our book value per common share and our liquidity and could cause us to sell assets and to change our investment strategy to maintain liquidity and preserve book value per common share.

Elevated inflation, monetary policy tightening by the Federal Open Market Committee (“FOMC”) and concerns around the health of the regional banking system have impacted and may continue to impact credit spreads.

Inflation, financial conditions, monetary policy initiatives, interest rates and interest rate volatility may have an impact on spreads.

We believe that our investment strategy will generally keep our credit losses and financing costs low.

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This analysis allows us to quantify our opinions of credit quality and fundamental value, which are key drivers of portfolio management decisions.

Given deteriorating fundamentals and tightening lending conditions, borrowers may experience difficulties meeting their obligations and refinancing loans upon scheduled maturities.

Deteriorating fundamentals and tightening lending conditions may cause borrowers to experience difficulties meeting their obligations and refinancing loans upon scheduled maturities.

Loans may experience increasing delinquency levels and eventual defaults, which could impact the performance of our mortgage-backed securities.

We also expect credit rating agencies to continue to reassess transactions negatively impacted by these adverse changes, which may result in our investments being downgraded.

Rating agencies periodically reassess transactions negatively impacted by these adverse changes, which may result in our investments being downgraded.

Liquidity Risk

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We perform statistical analysis to measure and quantify our required liquidity needs under multiple scenarios and time horizons.

Liquidity in the form of cash, unencumbered assets and future cash inflows is consistently monitored and evaluated versus internal targets.

One such measure that we use to monitor our liquidity is unrestricted cash and unencumbered investments, which consists of cash and cash equivalents as reported in our consolidated balances sheets and investments that have not been pledged as collateral for repurchase agreement borrowings.

Liquidity in the form of cash, unencumbered assets and future cash flows is consistently monitored and evaluated versus internal targets.

One such measure that we use to monitor our liquidity is unrestricted cash and unencumbered

investments, which consists of cash and cash equivalents as reported in our consolidated balance sheets and investments that have not been pledged as collateral for repurchase agreement borrowings.

Foreign Exchange Rate Risk

We had an investment in an unconsolidated joint venture whose net assets and results of operations were exposed to foreign currency translation risk when translated in U.S.

During the periods presented in this Report, we had an investment in an unconsolidated joint venture whose net assets and results of operations were exposed to foreign currency translation risk when translated in U.S.

dollars upon consolidation.

We historically sought to hedge our foreign currency exposures by purchasing currency forward contracts.

Investment Guidelines

Our board of directors has adopted the following investment guidelines:

• no investment shall be made that would cause us to fail to qualify as a REIT for federal income tax purposes;

• no investment shall be made that would cause us to be regulated as an investment company under the 1940 Act;

• our assets will be invested within our target assets;

These investment guidelines may be changed from time to time by our board of directors without the approval of our stockholders.

Investment Committee

Our investment committee is comprised of certain of our officers and certain of our Manager’s investment professionals.

The investment committee periodically reviews our investment portfolio for risk characteristics, investment performance, liquidity, portfolio composition, leverage and other applicable items.

It also reviews its compliance with our investment policies and procedures, including our investment guidelines, and our Manager provides our board of directors an investment performance report at the end of each quarter in conjunction with its review of our quarterly results.

Investment Process

Our Manager’s investment team has a strong focus on asset selection and on the relative value of various sectors within the mortgage market.

Our Manager utilizes this expertise to build a diversified portfolio.

We make investments in sectors where our Manager has strong core competencies and where we believe market risk and expected performance can be reasonably quantified.

Our Manager evaluates each of our investment opportunities based on its expected risk-adjusted return relative to the returns available from other, comparable investments.

In addition, we evaluate new opportunities based on their relative expected returns compared to assets held in our portfolio.

Our Manager analyzes fundamental trends in the relevant target asset class sector to adjust or maintain its outlook for that particular target asset class.

These macro decisions guide our Manager’s assumptions regarding model inputs and portfolio allocations among target assets.

Our net income depends, in large part, on our ability to acquire assets at favorable spreads over our borrowing costs.

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

What changed 10-K

Item 1. Business