What changed in this filing

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Item 1. Business

2026-02-23 compared with 2025-02-20 · 33 added, 45 removed, 190 unchanged (29% of the section changed)

4 unchanged sentences

• 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”);

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”);

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

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

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

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

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:

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

• a commercial mortgage loan;

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

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(our “Manager”), an indirect wholly-owned subsidiary of Invesco Ltd.

We have elected to be taxed as a real estate investment trust (“REIT”) for U.S.

We elected to be taxed as a real estate investment trust (“REIT”) for U.S.

federal income tax purposes under the provisions of the Internal Revenue Code of 1986.

To maintain our REIT qualification, we are generally required to distribute at least 90% of our REIT taxable income to our stockholders annually.

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

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

Our Manager provides us with our management team, including our officers and appropriate support personnel.

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Our executive officers may also serve as officers of our Manager.

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 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.

For additional information, refer to Item 13.

“Certain Relationships and Related Transactions, and Director Independence” in Part III of this Report.

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

Our Manager invests significantly in talent development, employee benefit programs, technology and other resources that support its employees in developing their full potential.

Invesco believes that an employee community that is diverse and inclusive, engaged in their communities and invested in employee well-being will drive positive outcomes for its clients and shareholders.

Our Competitive Advantages

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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.

It also reviews its compliance with our investment policies and procedures, including our investment guidelines.

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

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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.

Our investment process includes sourcing and screening investment opportunities, considering investment suitability, conducting interest rate and prepayment analysis, evaluating cash flow and collateral performance, reviewing legal structure, analyzing servicer and originator information and assessing 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.

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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.

This outlook guides 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.

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

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.

Our current investment portfolio includes Agency RMBS and Agency CMBS.

Our investment portfolio has also historically included, and may in the future include, non-Agency CMBS, non-Agency RMBS, TBAs, credit risk transfer securities that are unsecured obligations issued by government sponsored enterprises (“GSEs”), 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.

We have also purchased U.S.

We have also historically purchased U.S.

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.

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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 (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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This is generally referred to as extension risk.

Mortgage pass-through certificates, collateralized mortgage obligations (“CMOs”), Freddie Mac Gold Certificates, Fannie Mae Certificates and Ginnie Mae Certificates are types of Agency RMBS that are collateralized by either fixed-rate mortgage loans (“FRMs”), adjustable-rate mortgage loans (“ARMs”), or hybrid ARMs.

Mortgage pass-through certificates and collateralized mortgage obligations (“CMOs”) that are guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae are types of Agency RMBS that are collateralized by either fixed-rate mortgage loans (“FRMs”), adjustable-rate mortgage loans (“ARMs”), or hybrid ARMs.

FRMs have an interest rate that is fixed for the term of the loan and do not adjust.

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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

During the periods presented in this Report, we have invested in unconsolidated ventures.

In circumstances where we have a non-controlling interest but we are deemed to be able to exert significant influence over the affairs of the enterprise, we utilize the equity method of accounting.

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.

TBAs are forward contracts to purchase or sell Agency RMBS.

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We generally do not intend to physically settle TBAs that are used for investment purposes.

Commercial Mortgage Loans

Commercial mortgage loans are mortgage loans secured by first or second liens on commercial properties such as regional malls, retail space, office buildings, industrial or warehouse properties, hotels, apartments, nursing homes and senior living facilities.

These loans, which tend to range in term from two to ten years, can carry either fixed or floating interest rates.

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

Financing Strategy

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The difference between the sale price and repurchase price is the cost, or interest expense, of financing under a repurchase agreement.

Under repurchase agreement financing arrangements, certain buyers require us to provide additional cash collateral in the event the market value of the asset declines to maintain the ratio of value of the collateral to the amount of borrowing.

Under repurchase agreement financing arrangements, certain buyers require us to provide additional collateral in the event the market value of the asset declines to maintain the ratio of value of the collateral to the amount of borrowing.

We use leverage on our assets to achieve our return objectives, which are adjusted as our investment and financing opportunities change.

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Market Risk Management

Risk management is an integral component of our strategy to deliver returns to our stockholders.

Risk management is an integral component of our strategy.

Because we invest in MBS, investment losses from prepayment, interest rate volatility or other risks can meaningfully impact our earnings and our dividends to stockholders.

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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 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 our Manager.

Interest Rate Risk

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We refer to the difference between interest rates on our investments and interest rates on risk free instruments as spreads.

We employ a variety of spread risk management techniques that seek to mitigate the influences of spread changes on our book value per common share and our liquidity to help us achieve our investment objectives.

We employ a variety of spread risk management techniques that seek to mitigate the influences of spread changes on our book value and our liquidity to help us achieve our investment objectives.

The yield on our investments changes over time due to the level of risk free interest rates, the creditworthiness of the security, and the price of the perceived risk.

The change in the market yield of our interest rate hedges also changes primarily with the level of risk free interest rates.

We manage spread risk through careful asset selection, sector allocation, regulating our portfolio value-at-risk, and maintaining adequate liquidity.

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.

We manage spread risk through careful asset selection, sector allocation, regulating our portfolio value-at-risk, and seeking to maintain adequate liquidity.

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

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.

However, we retain the risk of potential credit losses on all of our residential and commercial mortgage investments.

We seek to manage this risk in part through our pre-acquisition due diligence process.

In addition, we re-evaluate the credit risk inherent in our investments on a regular basis pursuant to fundamental considerations such as gross domestic product, unemployment, interest rates, retail sales, store closings/openings, corporate earnings, housing inventory, affordability and regional home price trends.

We have previously invested in non-Agency RMBS, non-Agency CMBS and residential and commercial mortgage loans and may invest in these types of assets again in the future.

We retain the risk of potential credit losses on all of our commercial and residential mortgage investments.

We seek to manage this risk through our pre-acquisition due diligence process.

In addition, we re-evaluate the credit risk inherent in our investments on a regular basis pursuant to fundamental considerations such as GDP, unemployment, interest rates, retail sales, store closings/openings, corporate earnings, housing inventory, affordability and regional home price trends.

We also review key loan credit metrics including, but not limited to, payment status, current loan-to-value ratios, current borrower credit scores and debt yields.

These characteristics assist us in determining the likelihood and severity of loan loss as well as prepayment and extension expectations.

These characteristics assist in determining the likelihood and severity of loan loss as well as prepayment and extension expectations.

We then perform structural analysis under multiple scenarios to establish likely cash flow profiles and credit enhancement levels relative to collateral performance projections.

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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.

Loans may experience increasing delinquency levels and eventual defaults, which could impact the performance of the investments.

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

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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

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.

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.

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

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For additional information concerning these competitive risks, refer to Item 1A.

“Risk Factors — Risks Related to Our Investments”.

“Risk Factors — Risks Related to Our Investment and Portfolio Management Activities”.

We operate in a highly competitive market for investment opportunities.

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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