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What changed in ADAMAS TRUST, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ADAMAS TRUST, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+624 added−579 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-24)

Top changes in ADAMAS TRUST, INC.'s 2023 10-K

624 paragraphs added · 579 removed · 446 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

75 edited+13 added−30 removed56 unchanged
Biggest changeBUSINESS Certain Defined Terms In this Annual Report on Form 10-K we refer to New York Mortgage Trust, Inc., together with its consolidated subsidiaries, as “we,” “us,” “Company,” or “our,” unless we specifically state otherwise or the context indicates otherwise, and we refer to our wholly-owned taxable REIT subsidiaries as “TRSs” and our wholly-owned qualified REIT subsidiaries as “QRSs.” In addition, the following defines certain of the commonly used terms in this report: • “ABS” refers to debt and/or equity tranches of securitizations backed by various asset classes including, but not limited to, automobiles, aircraft, credit cards, equipment, franchises, recreational vehicles and student loans; • “Agency ARMs” refers to Agency RMBS comprised of adjustable-rate and hybrid adjustable-rate RMBS; • “Agency CMBS” refers to CMBS representing interests or obligations backed by pools of mortgage loans guaranteed by a government sponsored enterprise (“GSE”), such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”); • “Agency fixed-rate RMBS” refers to Agency RMBS comprised of fixed-rate RMBS; • “Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of residential loans guaranteed by Fannie Mae or Freddie Mac, or an agency of the U.S. government, such as the Government National Mortgage Association ("Ginnie Mae"); • “Agency securities” refers to Agency RMBS and/or Agency CMBS; • “ARMs” refers to adjustable-rate residential loans; • “business purpose loans” refers to (i) short-term loans that are collateralized by residential properties and are made to investors who intend to rehabilitate and sell the residential property for a profit or (ii) loans that finance (or refinance) non-owner occupied residential properties that are rented to one or more tenants; • “CDO” refers to collateralized debt obligation and includes debt that permanently finances the residential loans held in Consolidated SLST, multi-family loans held in the Consolidated K-Series, the Company's residential loans held in securitization trusts and a non-Agency RMBS re-securitization that we consolidate, or consolidated, in our financial statements in accordance with GAAP; • “CMBS” refers to commercial mortgage-backed securities comprised of commercial mortgage pass-through securities issued by a GSE, as well as PO, IO, or mezzanine securities that represent the right to a specific component of the cash flow from a pool of commercial mortgage loans; • “Consolidated K-Series” refers to Freddie Mac-sponsored multi-family loan K-Series securitizations, of which we, or one of our “special purpose entities,” or “SPEs,” owned the first loss POs and certain IOs and certain senior or mezzanine securities that we consolidated in our financial statements in accordance with GAAP prior to disposition; • “Consolidated SLST” refers to a Freddie Mac-sponsored residential loan securitization, comprised of seasoned re-performing and non-performing residential loans, of which we own or owned the first loss subordinated securities and certain IOs and senior securities that we consolidate in our financial statements in accordance with GAAP; • “Consolidated Real Estate VIEs” refers to Consolidated VIEs that own multi-family properties; • “Consolidated VIEs” refers to VIEs where the Company is the primary beneficiary, as it has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE and that we consolidate in our financial statements in accordance with GAAP; 4 Table of Contents • “excess mortgage servicing spread” refers to the difference between the contractual servicing fee with Fannie Mae, Freddie Mac or Ginnie Mae and the base servicing fee that is retained as compensation for servicing or subservicing the related mortgage loans pursuant to the applicable servicing contract; • “GAAP” refers to generally accepted accounting principles within the United States; • “IOs” refers collectively to interest only and inverse interest only mortgage-backed securities that represent the right to the interest component of the cash flow from a pool of mortgage loans; • “Mezzanine Lending” refers, collectively, to preferred equity and mezzanine loan investments; • “MBS” refers to mortgage-backed securities; • “multi-family CMBS” refers to CMBS backed by commercial mortgage loans on multi-family properties; • “non-Agency RMBS” refers to RMBS that are not guaranteed by any agency of the U.S.
Biggest changeBUSINESS Certain Defined Terms In this Annual Report on Form 10-K we refer to New York Mortgage Trust, Inc., together with its consolidated subsidiaries, as “we,” “us,” “Company,” or “our,” unless we specifically state otherwise or the context indicates otherwise, and we refer to our wholly-owned taxable real estate investment trust (“REIT”) subsidiaries as “TRSs” and our wholly-owned qualified REIT subsidiaries as “QRSs.” In addition, the following defines certain of the commonly used terms in this report: • “ABS” refers to debt and/or equity tranches of securitizations backed by various asset classes including, but not limited to, automobiles, aircraft, credit cards, equipment, franchises, recreational vehicles and student loans; • “Agency ARMs” refers to Agency RMBS comprised of adjustable-rate and hybrid adjustable-rate RMBS; • “Agency fixed-rate RMBS” refers to Agency RMBS comprised of fixed-rate RMBS; • “Agency RMBS” refers to RMBS representing interests in or obligations backed by pools of residential loans guaranteed by the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or an agency of the U.S. government, such as the Government National Mortgage Association ("Ginnie Mae"); • “ARMs” refers to adjustable-rate residential loans; • “business purpose loans” refers to (i) short-term loans that are collateralized by residential properties and are made to investors who intend to rehabilitate and sell the residential property for a profit or (ii) loans that finance (or refinance) non-owner occupied residential properties that are rented to one or more tenants; • “CDO” refers to collateralized debt obligation and includes debt that permanently finances the residential loans held in Consolidated SLST, the Company's residential loans held in securitization trusts and a non-Agency RMBS re-securitization that we consolidate, or consolidated, in our financial statements in accordance with GAAP; • “CMBS” refers to commercial mortgage-backed securities comprised of commercial mortgage pass-through securities issued by a government sponsored enterprise (“GSE”), as well as PO, IO, or mezzanine securities that represent the right to a specific component of the cash flow from a pool of commercial mortgage loans; • “Consolidated SLST” refers to a Freddie Mac-sponsored residential loan securitization, comprised of seasoned re-performing and non-performing residential loans, of which we own the first loss subordinated securities and certain IOs that we consolidate in our financial statements in accordance with GAAP; • “Consolidated Real Estate VIEs” refers to Consolidated VIEs that own multi-family properties; • “Consolidated VIEs” refers to VIEs where the Company is the primary beneficiary, as it has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE and that we consolidate in our financial statements in accordance with GAAP; • “excess mortgage servicing spread” or “excess MSR” refers to the difference between the contractual servicing fee with Fannie Mae, Freddie Mac or Ginnie Mae and the base servicing fee that is retained as compensation for servicing or subservicing the related mortgage loans pursuant to the applicable servicing contract; • “GAAP” refers to generally accepted accounting principles within the United States; • “IOs” refers collectively to interest only and inverse interest only mortgage-backed securities that represent the right to the interest component of the cash flow from a pool of mortgage loans; • “MBS” refers to mortgage-backed securities; 4 Table of Contents • “Mezzanine Lending” refers, collectively, to preferred equity and mezzanine loan investments; • “multi-family CMBS” refers to CMBS backed by commercial mortgage loans on multi-family properties; • “non-Agency RMBS” refers to RMBS that are not guaranteed by any agency of the U.S.
Although we do not directly originate or service residential loans, we must comply with various federal and state laws, rules and regulations as a result of owning MBS and residential loans, including, among others, rules promulgated under The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), and the Gramm-Leach-Bliley Financial Modernization Act of 1999.
Although we do not directly originate or service residential loans, we must comply with various federal and state laws, rules and regulations as a result of owning MBS and residential loans, including, among others, rules promulgated under The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), and the Gramm-Leach-Bliley Financial Modernization Act of 1999.
With respect to our preferred equity and mezzanine loan investments (collectively, "Mezzanine Lending") and joint venture equity investments where we participate as a capital partner, we have generally pursued multi-family properties with unique or compelling attributes that provide an opportunity for value creation and increased returns through the combination of better management or capital improvements that will lead to net cash flow growth and capital gains and which may benefit from the expertise of our asset management team.
With respect to our preferred equity and mezzanine loan investments (collectively, "Mezzanine Lending") and joint venture equity investments where we participate as a capital partner, we have generally pursued multi-family properties with unique or compelling attributes that provide an opportunity for value creation and increased returns through the combination of better management or capital improvements that we believe will lead to net cash flow growth and capital gains and which may benefit from the expertise of our asset management team.
In particular, we seek investment opportunities in markets where we believe we have a competitive advantage due to operational barriers to entry. We define credit assets as (i) residential loans, including business purpose loans, (ii) non-Agency RMBS, (iii) structured multi-family investments and (iv) other mortgage-, residential housing- and credit-related assets that contain credit risk.
In particular, we seek investment opportunities in markets where we believe we have a competitive advantage due to operational barriers to entry. We define credit assets as (i) residential loans, including business purpose loans, (ii) non-Agency RMBS, (iii) structured multi-family property investments and (iv) other mortgage-, residential housing- and credit-related assets that contain credit risk.
Consistent with our strategy to produce returns through a combination of net interest spread and capital gains, we will seek, from time to time, to sell certain assets within our portfolio when we believe the combination of realized gains on an asset and reinvestment potential for the related sale proceeds are consistent with our long-term return objectives.
Consistent with our strategy to produce returns through a combination of net interest spread and capital gains, we will seek, from time to time, to sell certain assets within our portfolio when we believe the combination of realized gains on an asset and/or reinvestment potential for the related sale proceeds are consistent with our long-term return objectives.
In connection with our acquisitions of residential loans, we or a third-party due diligence firm perform an independent review of the mortgage file to assess the state of mortgage loan files, the servicing of the mortgage loan, compliance with existing guidelines, as well as our ability to enforce the contractual rights in the mortgage.
In connection with our acquisitions of residential loans, we or a third-party due diligence firm perform an independent review of the mortgage file to assess the state of mortgage loan files, the servicing of the mortgage loan and compliance with existing guidelines, as well as our ability to enforce the contractual rights in the mortgage.
Currently, we target maximum leverage ratios for each eligible investment, 8:1 in the case of more liquid Agency securities and between 4:1 and 6:1 in the case of our more illiquid assets, such as our non-Agency RMBS and mezzanine CMBS and 8:1 in the case of our residential loans.
Currently, we target maximum leverage ratios for each eligible investment, 10:1 in the case of more liquid Agency securities and between 4:1 and 6:1 in the case of our more illiquid assets, such as our non-Agency RMBS and mezzanine CMBS and 8:1 in the case of our residential loans.
Information on our website is neither part of, nor incorporated into, this Annual Report on Form 10-K. 16 Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS When used in this Annual Report on Form 10-K, in future filings with the SEC or in press releases or other written or oral communications issued or made by us, statements which are not historical in nature, including those containing words such as “will,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “could,” “would,” “should,” “may,” or similar expressions, are intended to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, as such, may involve known and unknown risks, uncertainties and assumptions.
Information on our website is neither part of, nor incorporated into, this Annual Report on Form 10-K. 14 Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS When used in this Annual Report on Form 10-K, in future filings with the SEC or in press releases or other written or oral communications issued or made by us, statements which are not historical in nature, including those containing words such as “will,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “could,” “would,” “should,” “may,” or similar expressions, are intended to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act, and, as such, may involve known and unknown risks, uncertainties and assumptions.
Our repurchase agreements may require us to deposit additional collateral pursuant to a margin call if the market value of our pledged collateral declines as a result of market conditions or due to principal repayments. Interest rates and haircuts will depend on the underlying collateral pledged.
Many of our repurchase agreements require us to deposit additional collateral pursuant to a margin call if the market value of our pledged collateral declines as a result of market conditions or due to principal repayments. Interest rates and haircuts will depend on the underlying collateral pledged.
Our targeted investments include (i) residential loans, including business purpose loans, (ii) structured multi-family property investments such as preferred equity in, and mezzanine loans to, owners of multi-family properties, (iii) non-Agency RMBS, (iv) Agency RMBS, (v) CMBS, (vi) single-family rental properties and (vii) certain other mortgage-, residential housing- and credit-related assets and s trategic investments in companies from which we purchase, or may in the future purchase, our targeted assets .
Our targeted investments include (i) residential loans, including business purpose loans, (ii) structured multi-family property investments such as preferred equity in, and mezzanine loans to, owners of multi-family properties, (iii) Agency RMBS, (iv) non-Agency RMBS, (v) CMBS, and (vi) certain other mortgage-, residential housing- and credit-related assets and s trategic investments in companies from which we purchase, or may in the future purchase, our targeted assets .
In connection with investments in loan originators, we currently have and may in the future enter into flow agreements that allow or will allow us to purchase new loans from the loan originators in which we invest in accordance with the parameters set forth in the applicable flow agreement.
In connection with investments in loan originators, we have entered into and may in the future enter into flow agreements that allow or will allow us to purchase new loans from the loan originators in which we invest in accordance with the parameters set forth in the applicable flow agreement.
Our mezzanine loans may also have prepayment lockouts, prepayment penalties, minimum profit hurdles or other mechanisms to protect and enhance returns in the event of premature repayment. We expect these investments will typically have terms from three to ten years. Mezzanine loans typically have loan-to-value ratios between 70% and 90% when combined with the first-mortgage loan amount. Joint Venture Equity.
Our mezzanine loans may also have prepayment lockouts, prepayment penalties, minimum profit hurdles or other mechanisms to protect and enhance returns in the event of premature repayment. We expect these investments will typically have terms from three to ten years. Mezzanine loans typically have loan-to-value ratios between 70% and 90% when combined with the first-mortgage loan amount.
Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 18 Table of Contents
Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 16 Table of Contents
We do not directly service the mortgage loans we acquire, and instead contract with fully licensed third-party subservicers to handle substantially all servicing functions. Set forth below is a description of the investments that substantially comprise our single-family investment portfolio. 7 Table of Contents Residential Loans .
We do not directly service the mortgage loans we acquire, and instead contract with fully licensed third-party subservicers to handle substantially all servicing functions. Set forth below is a description of the investments that substantially comprise our single-family investment portfolio. Residential Loans .
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers from any provision of either of these Code of Ethics applicable to our principal executive officer, principal financial officer, principal accounting officer and other persons performing similar functions by posting such information on our website at www.nymtrust.com, “Corporate Governance”.
We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers from any provision of either of these Code of Ethics applicable to our principal executive officer, principal financial officer, principal accounting officer and other persons performing similar functions by posting such information on our website at www.nymtrust.com, under “Governance Documents”.
In addition, we may require other collateral to secure mezzanine loans, including letters of credit, personal guarantees or collateral unrelated to the property. 9 Table of Contents We may structure our mezzanine loans so that we receive a fixed or variable interest rate on the loan.
In addition, we may require other collateral to secure mezzanine loans, including letters of credit, personal guarantees or collateral unrelated to the property. We may structure our mezzanine loans so that we receive a fixed or variable interest rate on the loan.
We target PHAs with programs that help families with children move into high-opportunity neighborhoods with low poverty, high-performing schools, low crime and strong community resources in the following markets: Chicago, IL, Baltimore, MD, Houston, TX and Pittsburgh, PA. The goal of the program is to promote better health and life satisfaction for these families.
We target PHAs with programs that help families with children move into high-opportunity neighborhoods with low poverty, high-performing schools, low crime and strong community resources in various markets, including Chicago, IL, Baltimore, MD and Houston, TX. The goal of the program is to promote better health and life satisfaction for these families.
We currently do not hold TBAs. In connection with our hedging strategy, we utilize model-based risk analysis to assist in projecting individual asset price and cash flow sensitivities over a variety of different interest rates and market scenarios, such as shifts in interest rates, changes in prepayments and other factors impacting the valuations of our assets and liabilities.
In connection with our hedging strategy, we utilize model-based risk analysis to assist in projecting individual asset price and cash flow sensitivities over a variety of different interest rates and market scenarios, such as shifts in interest rates, changes in prepayments and other factors impacting the valuations of our assets and liabilities.
In most cases under repurchase agreements, the financial institution that serves as a counterparty will generally agree to provide us with financing based on the market value of the residential loans and investment securities that we pledge as collateral, less a “haircut.” The market value of the collateral represents the price of such collateral obtained from generally recognized sources or most recent closing bid quotation from such source plus accrued income.
In most cases under repurchase agreements, the financial institution that serves as a counterparty will generally agree to provide us with financing based on the market value of the assets that we pledge as collateral, less a “haircut.” The market value of the collateral represents the price of such collateral obtained from generally recognized sources or the most recent closing bid quotation from such source plus accrued income.
Our multi-family property investments are not limited to any particular geographic area in the United States, although our preferred and equity and mezzanine loan investments tend to be concentrated primarily in the southern and southeastern United States, as these regions currently tend to benefit from growing demand and an acute shortage in housing.
Our multi-family property investments are not limited to any particular geographic area in the United States, although our preferred and joint venture equity and mezzanine loan investments tend to be concentrated primarily in the southern and southeastern United States, as these regions currently tend to benefit from growing demand and a shortage in housing.
For more information regarding our outstanding financing instruments at December 31, 2022, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. Our Hedging Strategy The Company enters into derivative instruments in connection with its risk management activities.
For more information regarding our outstanding financing instruments at December 31, 2023, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. 10 Table of Contents Our Hedging Strategy The Company enters into derivative instruments in connection with its risk management activities.
Even if we maintain our qualification as a REIT, we expect to be subject to some federal, state and local taxes on our income generated in our TRSs. Our Investment Strategy Our strategy is to construct a portfolio of primarily mortgage-related single-family and multi-family residential assets that include elements of credit risk and/or interest rate risk.
Even if we maintain our qualification as a REIT, we expect to be subject to some federal, state and local taxes on our income generated in our TRSs. 5 Table of Contents Our Investment Strategy Our strategy is to own and manage a portfolio of primarily mortgage-related single-family and multi-family residential assets that include elements of credit risk and/or interest rate risk.
As of December 31, 2022, we owned 491 single-family rental properties, the majority of which are located in Illinois and Maryland. 8 Table of Contents Multi-Family Investments We first began investing in multi-family credit assets in 2011. We seek to position our multi-family credit investment platform in the marketplace as a real estate investor focused on debt and equity transactions.
As of December 31, 2023, we owned 524 single-family rental properties, the majority of which are located in Illinois and Maryland. 7 Table of Contents Multi-Family Investments We first began investing in multi-family credit assets in 2011. We seek to position our multi-family credit investment platform in the marketplace as a real estate investor focused on debt and equity transactions.
We employ leverage as part of our financing strategy. Our approach to leverage is based on the type of asset, underlying collateral and overall market conditions with the intent of obtaining more permanent, longer-term financing for our more illiquid assets.
Our approach to leverage is based on the type of asset, underlying collateral and overall market conditions with the intent of obtaining more permanent, longer-term financing for our more illiquid assets.
We have sought over the past years, and intend to continue, to focus on expanding our portfolio of “single-family and multi-family credit” assets, many of which we have originated or sourced through proprietary channels, which we believe will deliver more attractive risk-adjusted returns over time.
We have sought in past years, and intend to continue, subject to market conditions, to focus on constructing our portfolio of “single-family and multi-family credit” assets, many of which we have originated or sourced through proprietary channels, which we believe will deliver more attractive risk-adjusted returns over time.
Our Company recourse leverage ratio does not include debt associated with the CDOs or other non-recourse debt, such as mortgages payable on real estate and non-recourse repurchase agreement financing. Our portfolio recourse leverage ratio, which represents our outstanding recourse repurchase agreements divided by our total stockholders' equity, was approximately 0.3 to 1 as of December 31, 2022.
As of December 31, 2023, our Company recourse leverage ratio, which represents our total recourse debt divided by our total stockholders' equity, was approximately 1.6 to 1. Our Company recourse leverage ratio does not include debt associated with the CDOs or other non-recourse debt, such as mortgages payable on real estate and non-recourse repurchase agreement financing.
We also currently own and manage a portfolio of joint venture equity investments in 32 multi-family properties having an aggregate net equity carrying value of approximately $388.8 million.
We also currently own and manage a portfolio of joint venture equity investments in multi-family properties having an aggregate net equity carrying value of approximately $242.0 million.
The repurchase agreements we have historically used to fund the purchase of residential loans and investment securities typically have terms ranging from 30 days to 24 months and bear interest rates that are linked to the Secured Overnight Funding Rate (“SOFR”), a short-term market interest rate used to determine short term loan rates.
We rely on repurchase agreements to fund the purchase of investment securities, residential loans and single-family rental properties. These repurchase agreements typically have terms ranging from 30 days to 24 months and bear interest rates that are linked to the Secured Overnight Funding Rate (“SOFR”), a short-term market interest rate used to determine short term loan rates.
In these cases, we may agree to invest in these assets akin to a "general partner"-like capital contribution as part of the agreement to manage the assets. 6 Table of Contents Prior to deploying capital to any of the assets we target or determining to dispose of any of our investments, our management team will consider, among other things, the availability of suitable investments, the amount and nature of anticipated cash flows from the asset, our ability to finance or borrow against the asset and the terms of such financing, the related capital requirements, the credit risk, prepayment risk, hedging risk, interest rate risk, fair value risk and/or liquidity risk related to the asset or the underlying collateral, the composition of our investment portfolio, the background experience and track record of our partners (if applicable), REIT qualification, the maintenance of our exclusion from registration as an investment company under the Investment Company Act and other regulatory requirements and future general market conditions.
Prior to deploying capital to any of the assets we target or determining to dispose of any of our investments, our management team will consider, among other things, the availability of suitable investments, the amount and nature of anticipated cash flows from the asset, our ability to finance or borrow against the asset and the terms of such financing, the related capital requirements, the credit risk, prepayment risk, hedging risk, interest rate risk, fair value risk and/or liquidity risk related to the asset or the underlying collateral, the composition of our investment portfolio, the background experience and track record of our partners (if applicable), REIT qualification, the maintenance of our exclusion from registration as an investment company under the Investment Company Act and other regulatory requirements and future general market conditions.
As of December 31, 2022, we owned joint venture equity investments in entities that own multi-family properties. Joint venture equity is a direct common equity ownership interest in an entity that owns a property.
As of December 31, 2023, we did not own mezzanine loans. Joint Venture Equity. As of December 31, 2023, we owned joint venture equity investments in entities that own multi-family properties. Joint venture equity is a direct common equity ownership interest in an entity that owns a property.
These interest rate cap contracts are with a counterparty that involve the receipt of variable-rate amounts from the counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. 12 Table of Contents We may use interest rate swaps to hedge any variable cash flows associated with our borrowings.
These interest rate cap contracts are with a counterparty that involve the receipt of variable-rate amounts from the counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. The Company uses interest rate swaps to hedge the variable cash flows associated with our variable-rate borrowings.
Actual results and outcomes could differ materially from those projected in these forward-looking statements due to a variety of factors, including, without limitation: • changes in our business and investment strategy; • inflation and changes in interest rates and the fair market value of our assets, including negative changes resulting in margin calls relating to the financing of our assets; • changes in credit spreads; • changes in the long-term credit ratings of the U.S., Fannie Mae, Freddie Mac, and Ginnie Mae; • general volatility of the markets in which we invest; • changes in prepayment rates on the loans we own or that underlie our investment securities; • increased rates of default, delinquency or vacancy and/or decreased recovery rates on or at our assets; • our ability to identify and acquire our targeted assets, including assets in our investment pipeline; • our ability to dispose of assets from time to time on terms favorable to us, including the disposition over time of our joint venture equity investments; • changes in our relationships with our financing counterparties and our ability to borrow to finance our assets and the terms thereof; • changes in our relationships with and/or the performance of our operating partners; • our ability to predict and control costs; • changes in laws, regulations or policies affecting our business, including actions that may be taken to contain or address the impact of the novel coronavirus ("COVID-19") and variants; • our ability to make distributions to our stockholders in the future; • our ability to maintain our qualification as a REIT for federal tax purposes; • our ability to maintain our exemption from registration under the Investment Company Act; and • risks associated with investing in real estate assets, including changes in business conditions and the general economy, the availability of investment opportunities and the conditions in the market for Agency RMBS, non-Agency RMBS, ABS and CMBS securities, residential loans, structured multi-family investments and other mortgage-, residential housing- and credit-related assets. 17 Table of Contents These and other risks, uncertainties and factors, including the risk factors described herein, as updated by those risks described in our subsequent filings with the SEC under the Exchange Act, could cause our actual results to differ materially from those projected in any forward-looking statements we make.
Actual results and outcomes could differ materially from those projected in these forward-looking statements due to a variety of factors, including, without limitation: • changes in our business and investment strategy; • inflation and changes in interest rates and the fair market value of our assets, including negative changes resulting in margin calls relating to the financing of our assets; • changes in credit spreads; • changes in the long-term credit ratings of the U.S., Fannie Mae, Freddie Mac, and Ginnie Mae; • general volatility of the markets in which we invest; • changes in prepayment rates on the loans we own or that underlie our investment securities; • increased rates of default, delinquency or vacancy and/or decreased recovery rates on or at our assets; • our ability to identify and acquire our targeted assets, including assets in our investment pipeline; • our ability to dispose of assets from time to time on terms favorable to us, including the disposition over time of our joint venture equity investments; • changes in our relationships with our financing counterparties and our ability to borrow to finance our assets and the terms thereof; • changes in our relationships with and/or the performance of our operating partners; • our ability to predict and control costs; • changes in laws, regulations or policies affecting our business; • our ability to make distributions to our stockholders in the future; • our ability to maintain our qualification as a REIT for federal tax purposes; • our ability to maintain our exemption from registration under the Investment Company Act; • impairments in the value of the collateral underlying our investments; • our ability to manage or hedge credit risk, interest rate risk, and other financial and operational risks; • our exposure to liquidity risk, risks associated with the use of leverage, and market risks; and 15 Table of Contents • risks associated with investing in real estate assets, including changes in business conditions and the general economy, the availability of investment opportunities and the conditions in the market for Agency RMBS, non-Agency RMBS, ABS and CMBS securities, residential loans, structured multi-family investments and other mortgage-, residential housing- and credit-related assets.
Subject to maintaining our qualification as a REIT and the maintenance of our exclusion from registration as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”), we also may opportunistically acquire and/or manage various other types of mortgage-, residential housing- and other credit-related or alternative investments that we believe will compensate us appropriately for the risks associated with them, including, without limitation, Agency RMBS, collateralized mortgage obligations, mortgage servicing rights, excess mortgage servicing spreads, securities issued by newly originated securitizations, including credit sensitive securities from these securitizations, ABS and debt or equity investments in alternative assets or businesses. 5 Table of Contents In recent years, we have internalized and expanded our investment management platform through the addition of multiple teams of investment professionals with expertise in our targeted assets.
Subject to maintaining our qualification as a REIT and the maintenance of our exclusion from registration as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”), we also may opportunistically acquire and manage various other types of mortgage-, residential housing- and other credit-related or alternative investments that we believe will compensate us appropriately for the risks associated with them, including, without limitation, collateralized mortgage obligations, mortgage servicing rights, excess mortgage servicing spreads, securities issued by newly originated securitizations, including credit sensitive securities from these securitizations, ABS and debt or equity investments in alternative assets or businesses.
Additionally, our Compensation Committee will take into account our ESG performance when assessing the performance of our Chief Executive Officer under the qualitative component of our executive compensation program. 13 Table of Contents We strive to provide pay, benefits and services that help meet the varying needs of our employees.
Our executive leadership has over 20 years of experience. Additionally, our Compensation Committee will take into account our ESG performance when assessing the performance of our Chief Executive Officer under the qualitative component of our executive compensation program. We strive to provide pay, benefits and services that help meet the varying needs of our employees.
We also may invest, from time to time, based on market conditions, in other multi-family investments, structured investments in other property categories, equity and debt securities issued by entities that invest in residential and commercial real estate or in other mortgage-, real estate- and credit-related assets, and certain alternative investments not described here, subject to maintaining our qualification as a REIT and the maintenance of our exclusion from regulation as an investment company under the Investment Company Act or otherwise.
We also may invest, from time to time, based on market conditions, in other multi-family investments, structured investments in other property categories, equity and debt securities issued by entities that invest in residential and commercial real estate or in other mortgage-, real estate- and credit-related assets, and certain alternative investments not described here, subject to maintaining our qualification as a REIT and the maintenance of our exclusion from regulation as an investment company under the Investment Company Act or otherwise. 9 Table of Contents Our Financing Strategy We employ leverage as part of our financing strategy and strive to maintain and achieve a balanced and diverse funding mix to finance our assets and operations.
We are a co-manager of the joint venture and, as of December 31, 2022, owned an approximate 22% common equity interest in the joint venture. We also held approximately $137.7 million of preferred equity interests in this joint venture as of December 31, 2022.
We are a co-manager of the joint venture and, as of December 31, 2023, owned an approximate 24% common equity interest in the joint venture. We also held approximately $146.1 million of preferred equity interests in this joint venture as of December 31, 2023.
This involves, among other things, performing due diligence on the servicer prior to their engagement, assigning the appropriate servicer on each loan based on certain characteristics and monitoring each servicer's performance on an ongoing basis. Investments in Non-Agency RMBS. Our non-Agency RMBS are collateralized by residential credit assets.
This involves, among other things, performing due diligence on the servicer prior to their engagement, assigning the appropriate servicer on each loan based on certain characteristics and monitoring each servicer's performance on an ongoing basis. Agency RMBS.
As of December 31, 2022, we did not own any Agency CMBS. 10 Table of Contents Other Investments Although it represents a significantly smaller portion of our overall investment portfolio, we also own and have invested in ABS, an equity investment in an entity that originates residential loans and an equity investment in an entity that owns and manages single-family rental properties.
Other Investments Although it represents a significantly smaller portion of our overall investment portfolio, we also own and have invested in ABS, an equity investment in an entity that originates residential loans and an equity investment in an entity that owns and manages single-family rental properties.
As a result, we cannot predict the percentage of our capital that will be invested in any particular investment at any given time. For more information regarding our portfolio as of December 31, 2022, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.
As a result, we cannot predict the percentage of our capital that will be invested in any particular investment at any given time. For more information regarding our portfolio as of December 31, 2023, see Item 7.
Preferred equity typically has loan-to-value ratios of 60% to 97% when combined with the first-mortgage loan amount. We expect our preferred equity investments will have mandatory redemption dates that will generally be coterminous with the maturity date for the first-mortgage loan on the property, and we intend to hold these investments until the mandatory redemption date. Mezzanine Loans .
We expect our preferred equity investments will have mandatory redemption dates that will generally be coterminous with the maturity date for the first-mortgage loan on the property, and we intend to hold these investments until the mandatory redemption date. 8 Table of Contents Mezzanine Loans .
Investment Portfolio Our portfolio is substantially comprised of investments in two asset categories: single-family and multi-family residential investments. Single-Family Investments We have deep experience managing different whole loan strategies across the credit spectrum.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. 6 Table of Contents Investment Portfolio Our portfolio is substantially comprised of investments in two asset categories: single-family and multi-family residential investments. Single-Family Investments We have deep experience managing different whole loan strategies across the credit spectrum.
As of December 31, 2022, women comprised 24% of our total workforce, while 30% of our employees self-identify as being ethnically diverse. In addition, 50% of our named executive officers are diverse based on gender or ethnicity and 71% of our Board of Directors is diverse based on gender, race or ethnicity. We also recognize the importance of experienced leadership.
As of December 31, 2023, women comprised 30% of our total workforce, while 32% of our employees self-identify as being ethnically diverse. In addition, 100% of our named executive officers are diverse based on gender or ethnicity and 71% of our Board of Directors is diverse based on gender, race or ethnicity.
While we expect that additional new legislative and regulatory reforms in these areas will be adopted and existing legislation and regulations may change in the future, it is not possible at this time to forecast the exact nature of any future legislation, regulations, judicial decisions, orders or interpretations, nor their impact upon our future business, financial condition, or results of operations or prospects.
While we expect that additional new legislative and regulatory reforms in these areas will be adopted and existing legislation and regulations may change in the future, it is not possible at this time to forecast the exact nature of any future legislation, regulations, judicial decisions, orders or interpretations, nor their impact upon our future business, financial condition, or results of operations or prospects. 12 Table of Contents Operating and Regulatory Structure REIT Qualification We have elected to be treated as a REIT under Sections 856 through 859 of the Internal Revenue Code.
These derivative instruments may include interest rate caps, interest rate swaps, swaptions, futures, options on futures and mortgage derivatives such as forward-settling purchases and sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced,” or TBAs.
These derivative instruments may include interest rate swaps, interest rate caps, futures and options contracts such as options on credit default swap indices, equity index options, swaptions and options on futures. The Company may also pursue forward-settling purchases or sales of Agency RMBS where the underlying pools of mortgage loans are “To-Be-Announced,” or TBAs, purchase options on U.S.
However, we may agree to make common equity investments in multi-family properties akin to a "general partner"-like capital contribution in connection with one or more agreements to manage third party investments in multi-family properties. Multi-Family CMBS.
However, we may make additional protective capital contributions to our existing joint venture equity investments in accordance with agreements to which we are a party and we may agree to make common equity investments in multi-family properties akin to a "general partner"-like capital contribution in connection with one or more agreements to manage third party investments in multi-family properties.
We make available free of charge, through our internet website, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments thereto that we file or furnish pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. 15 Table of Contents We have adopted a Code of Business Conduct and Ethics that applies to our executive officers, including our principal executive officer, principal financial officer, principal accounting officer and to our other employees.
We make available free of charge, through our internet website, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments thereto that we file or furnish pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We monitor all at-risk or short-term borrowings to ensure that we have adequate liquidity to satisfy margin calls and liquidity covenant requirements. 11 Table of Contents With respect to our investments in credit assets that are not financed by short-term repurchase agreements, such as a portion of residential loans, we finance our investment in these assets through longer-term borrowings and working capital.
With respect to our investments in credit assets that are not financed by short-term repurchase agreements, such as a portion of our residential loans, we finance our investment in these assets through longer-term borrowings and working capital.
We have made, and may in the future make, investments in the debt and/or equity of other entities engaged in single-family loan-related businesses, such as loan originators.
We have made, and may in the future make, investments in the debt and/or equity of other entities engaged in single-family loan-related businesses, such as loan originators. As of December 31, 2023, we owned a 50% equity interest in an entity that originates residential loans.
Department of Housing and Urban Development Housing Choice Vouchers program administered by local public housing agencies (“PHAs”) in which we acquire and then rent single-family rental homes to families that are eligible.
As of December 31, 2023, we owned $181.6 million of non-Agency RMBS. Single-Family Rental. We also participate in the U.S. Department of Housing and Urban Development Housing Choice Vouchers program administered by local public housing agencies (“PHAs”) in which we acquire and then rent single-family rental homes to families that are eligible.
We also maintain offices in Charlotte, North Carolina and Woodland Hills, California. Access to Our Periodic SEC Reports and Other Corporate Information Our internet website address is www.nymtrust.com.
Our corporate headquarters are located at 90 Park Avenue, New York, New York, 10016 and our telephone number is (212) 792-0107. We also maintain offices in Charlotte, North Carolina and Woodland Hills, California. Access to Our Periodic SEC Reports and Other Corporate Information Our internet website address is www.nymtrust.com.
Our ability to make distributions to our stockholders depends, in part, upon the performance of our investment portfolio. As a REIT, we generally are not subject to U.S. federal income tax on our REIT taxable income that we distribute currently to our stockholders.
As a REIT, we generally are not subject to U.S. federal income tax on our REIT taxable income that we distribute currently to our stockholders.
In September 2022, we announced that our Board of Directors had approved a strategic repositioning of our business pursuant to which we will opportunistically dispose of these joint venture equity interests in multi-family properties over time and, following disposition, we will reallocate the capital associated with such assets to our targeted assets.
In September 2022, we announced that our Board of Directors approved a strategic repositioning of our business through the opportunistic disposition over time of our joint venture equity investments in multi-family properties and reallocation of the returned capital from such investments to our targeted assets.
As a result, we believe our residential mortgage loans that are fully and exclusively secured by real property meet the definition of qualifying real estate assets. Corporate Offices We were formed as a Maryland corporation in 2003. Our corporate headquarters are located at 90 Park Avenue, Floor 23, New York, New York, 10016 and our telephone number is (212) 792-0107.
As a result, we believe our residential mortgage loans that are fully and exclusively secured by real property meet the definition of qualifying real estate assets. 13 Table of Contents Corporate Offices We were formed as a Maryland corporation in 2003.
We intend to focus on our core portfolio strengths of single-family and multi-family residential credit assets, which we believe will deliver better risk adjusted returns over time.
Our investment portfolio includes credit sensitive single-family and multi-family assets, as well as more traditional types of fixed-income investments that provide coupon income, such as Agency RMBS. We intend to focus on our core portfolio strengths of single-family and multi-family residential assets, which we believe will deliver better risk-adjusted returns over time.
We have entered into three repurchase agreements with an aggregate outstanding balance of $446.8 million as of December 31, 2022 that are not subject to margin calls upon changes in market value of the pledged collateral. We may consolidate certain multi-family joint venture equity investments into our consolidated financial statements in accordance with GAAP.
We have entered into three repurchase agreements with an aggregate outstanding balance of $179.1 million as of December 31, 2023 that are not subject to margin calls upon changes in market value of the pledged collateral.
For variable-rate mortgages payable on real estate, the joint venture entities are required by the lender to enter into interest rate cap contracts.
For variable-rate mortgages payable on real estate, the joint venture entities are required by the lender to enter into interest rate cap contracts. In addition, with respect to one of the Company's financings under repurchase agreements, the Company is required by the lender to enter into an interest rate cap contract.
As part of our ongoing business, we evaluate and modify our internal processes to improve employee engagement, productivity and efficiency, which benefits our operations. Moreover, our employees are offered regular opportunities to participate in professional development programs and opportunities that may improve employee engagement, effectiveness and well-being.
Moreover, our employees are offered regular opportunities to participate in professional development programs and opportunities that may improve employee engagement, effectiveness and well-being.
We have also adopted a Code of Ethics for senior financial officers, including the principal financial officer.
We have adopted a Code of Business Conduct and Ethics that applies to our executive officers, including our principal executive officer, principal financial officer, principal accounting officer and to our other employees. We have also adopted a Code of Ethics for senior financial officers, including the principal financial officer.
Our Financing Strategy We strive to maintain and achieve a balanced and diverse funding mix to finance our assets and operations. In the past, we have relied primarily on a combination of short-term and longer-termed repurchase agreements and structured financings, including CDOs issued by securitizations, longer termed senior and subordinated debt, and convertible notes.
To achieve this, we rely primarily on a combination of short-term and longer-termed repurchase agreements and structured financings, including CDOs issued by securitizations, longer termed senior and subordinated debt, and convertible notes.
These types of financings provide less or no exposure to collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets.
We issue CDOs through securitizations for the primary purpose of obtaining longer-term non-recourse financing on these assets. These types of financings provide less or no exposure to collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets.
We believe that we are organized to comply with the requirements for qualification and taxation as a REIT under the Internal Revenue Code, and that our manner of operation enables us to meet the requirements for qualification and taxation as a REIT. 14 Table of Contents We generally need to distribute at least 90% of our ordinary taxable income each year (subject to certain adjustments) to our stockholders in order to qualify as a REIT under the Internal Revenue Code.
We believe that we are organized to comply with the requirements for qualification and taxation as a REIT under the Internal Revenue Code, and that our manner of operation enables us to meet the requirements for qualification and taxation as a REIT.
In 2022, we adopted a fully flexible workplace policy which presently allows all of our employees to determine whether to work from the office or remotely as frequently as the individual employee desires. We believe that by supporting, recognizing, developing and investing in our employees, we are able to attract and retain a highly qualified and talented workforce. COVID-19 Response.
We have a hybrid workplace policy which is a flexible model where employees work partly from the office and partly remotely. We believe that by supporting, recognizing, developing and investing in our employees, we are able to attract and retain a highly qualified and talented workforce.
The existence of these entities, as well as the possibility of additional entities forming in the future, may increase the competition for the acquisition of residential mortgage assets, resulting in higher prices and lower yields on such assets.
The existence of these entities, as well as the possibility of additional entities forming in the future, may increase the competition for the acquisition of residential mortgage assets, resulting in higher prices and lower yields on such assets. 11 Table of Contents Human Capital As of December 31, 2023, we had 79 full-time employees located in offices in New York, New York, Charlotte, North Carolina and Woodland Hills, California.
Our objective is to deliver long-term stable distributions to our stockholders over changing economic conditions through a combination of net interest spread and capital gains from a diversified investment portfolio. Our investment portfolio includes credit sensitive single-family and multi-family assets.
General We are an internally-managed REIT for U.S. federal income tax purposes, in the business of acquiring, investing in, financing and managing primarily mortgage-related single-family and multi-family residential assets. Our objective is to deliver long-term stable distributions to our stockholders over changing economic conditions through a combination of net interest spread and capital gains from a diversified investment portfolio.
Currently, our target total debt leverage ratio should not be greater than 3:1. This target may be adjusted depending on the composition of our overall portfolio and market conditions. As of December 31, 2022, our Company recourse leverage ratio, which represents our total recourse debt divided by our total stockholders' equity, was approximately 0.3 to 1.
Currently, our target total debt leverage ratio should not be greater than 4:1. This target may be adjusted from time to time by our Board of Directors depending on the composition of our overall portfolio, market conditions and such other factors deemed relevant by our Board of Directors.
Shorter duration assets generate higher portfolio turnover that will better enable us to reposition our portfolio in a volatile and changing interest rate environment. Assets with discount-to-par create a margin of safety on price to account for potential credit losses.
In light of current market and financing conditions, we are presently focused on acquiring assets with less price sensitivity to credit deterioration, such as Agency RMBS and shorter duration assets that generate higher portfolio turnover that will better enable us to reposition our portfolio in a volatile and changing interest rate environment.
The Company and the entities that own multi-family properties in which the Company owns joint venture equity investments are exposed to risks arising from business operations, economic conditions and financial markets. With respect to one of the Company's financings under repurchase agreements, the Company is required by the lender to enter into an interest rate cap contract.
Treasury futures or invest in other types of mortgage derivative securities. The Company and the entities that own multi-family properties in which the Company owns joint venture equity investments are exposed to risks arising from business operations, economic conditions and financial markets.
We may use TBAs, swaptions, futures and options on futures to hedge market value risk for certain of our strategies. We have utilized TBAs as part of our Agency securities investment strategy to enhance the overall yield of the portfolio.
We have utilized TBAs as part of our Agency RMBS strategy to enhance the overall yield of the portfolio.
Our employees include investment portfolio and finance professionals, asset management and servicing professionals, accountants, analysts, administrative staff and our corporate management team. We believe that our employees are our greatest asset and recognize that our achievements and growth as a business are made possible by the recruitment, hiring, training, development and retention of our dedicated employees.
We believe that our employees are our greatest asset and recognize that our achievements and growth as a business are made possible by the recruitment, hiring, training, development and retention of our dedicated employees. As part of our ongoing business, we evaluate and modify our internal processes to improve employee engagement, productivity and efficiency, which benefits our operations.
The Agency fixed-rate RMBS have been primarily backed by 15-year and 30-year residential fixed-rate mortgage loans, while the Agency ARMs have primarily included interest reset periods up to 120 months. In managing our portfolio of Agency RMBS, we historically employ leverage through the use of repurchase agreements to generate risk-adjusted returns. Single-Family Rental. We also participate in the U.S.
Our leveraged Agency RMBS portfolio is comprised of Agency fixed-rate RMBS and Agency ARMs, the principal and interest of which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. The Agency fixed-rate RMBS have been primarily backed by 15-year and 30-year residential fixed-rate mortgage loans, while the Agency ARMs have primarily included interest reset periods up to 120 months.
As a result, the real estate assets held by these entities, and the corresponding mortgages payable that finance the real estate assets, are included in our consolidated balance sheets. We have no obligation for repayment of the mortgages payable but, with respect to certain of the mortgages payable, we may execute a guaranty related to commitment of bad acts.
We have no obligation for repayment of the mortgages payable but, with respect to certain of the mortgages payable, we may execute a guaranty related to commitment of bad acts, and our equity investment may be lost or reduced to the extent a lender forecloses on the property.
We also, from time to time, have owned and managed, and may in the future own and/or manage, a leveraged portfolio of Agency securities primarily comprised of Agency fixed-rate RMBS, Agency ARMs, and Agency CMBS.
We also own and manage a leveraged portfolio of Agency securities primarily comprised of Agency fixed-rate RMBS and Agency ARMs, and we may pursue opportunistic acquisitions of other types of assets that meet our investment criteria.
Our portfolio of multi-family CMBS has been comprised of (i) first loss PO securities issued by certain multi-family loan K-series securitizations sponsored by Freddie Mac and (ii) certain IOs and/or mezzanine securities issued by these securitizations. Prior to March 2020, our investments in first loss POs were a significant contributor to our earnings.
Multi-Family CMBS. We have invested in, and may in the future invest in, multi-Family CMBS comprised of (i) first loss PO securities issued by multi-family loan securitizations and (ii) certain IOs and/or mezzanine securities issued by these securitizations.
Human Capital As of December 31, 2022, we had 74 full-time employees located in offices in New York, New York, Charlotte, North Carolina and Woodland Hills, California. We do not currently employ any temporary or seasonal employees and we do not expect such hiring to become a significant part of our workforce in the future.
We do not currently employ any temporary or seasonal employees and we do not expect such hiring to become a significant part of our workforce in the future. Our employees include investment portfolio and finance professionals, asset management and servicing professionals, accountants, analysts, administrative staff and our corporate management team.
The floating rate we receive under our swap agreements has the effect of offsetting the repricing characteristics and cash flows of our financing arrangements. In March 2020, in response to the turmoil in the financial markets, we terminated our interest rate swaps and currently do not have any interest rate swaps in place.
The variable rate we pay or receive under our swap agreements has the effect of offsetting the repricing characteristics and cash flows of the Company's financing arrangements. We may use TBAs, swaptions, futures and options on futures to hedge market value risk for certain of our strategies.
Removed
General We are a real estate investment trust (“REIT”) for U.S. federal income tax purposes, in the business of acquiring, investing in, financing and managing primarily mortgage-related single-family and multi-family residential assets.
Added
Due to current market conditions, we also intend to acquire and manage a portfolio of Agency RMBS.
Removed
This includes the acquisition in 2016 of the external manager for our structured multi-family property investments and the addition of investment professionals in 2018 and 2019, which expanded our capabilities in self managing, sourcing and creating single-family credit assets. We believe that these steps have strengthened our ability to identify and secure attractive investment opportunities.
Added
In 2023, joint venture entities in which we held a common equity interest sold five multi-family properties. In December 2023, we suspended the marketing of nine joint venture equity investments that were held for sale primarily due to unfavorable market conditions and a lack of transactional activity in the multi-family market.
Removed
Beginning in 2020, we saw an attractive opportunity within the multi-family property sector to utilize our sourcing network and add common equity exposure to properties through joint venture equity investments.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese risks may increase in the future as we continue to increase our reliance on the internet and use of web-based product offerings and on the use of cybersecurity. 32 Table of Contents Moreover, as a non-controlling equity investor in a residential loan originator, our investment in the loan originator, business and reputation could be negatively impacted if such originator fails to comply with such federal, state and local laws, rules and regulations or receives negative media or marketing attention related to its operations.
Biggest changeMoreover, as a non-controlling equity investor in a residential loan originator, our investment in the loan originator, business and reputation could be negatively impacted if such originator fails to comply with such federal, state and local laws, rules and regulations or receives negative media or marketing attention related to its operations. 31 Table of Contents We are highly dependent on information and communication systems and system failures and other operational disruptions could significantly disrupt our business, which may, in turn, materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
See “-Our investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property as well as the risks of delinquency, default and foreclosure” and “-Our business is subject to risks particular to the real property and real estate-related assets.” To the extent any of these factors materially adversely impact the multi-family property sector or the geographic regions in which we invest, the market values of our multi-family assets and our business, financial condition and results of operations may be materially adversely affected.
See “-Our investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property as well as the risks of delinquency, default and foreclosure” and “-Our business is subject to risks particular to real property and real estate-related assets.” To the extent any of these factors materially adversely impact the multi-family property sector or the geographic regions in which we invest, the market values of our multi-family assets and our business, financial condition and results of operations may be materially adversely affected.
Furthermore, any costs or delays involved in the completion of a foreclosure of the loan or a liquidation of the underlying property will further reduce the proceeds and thus increase the loss.
Furthermore, any costs or delays involved in the completion of a foreclosure of the loan or a liquidation of the underlying property will further reduce the proceeds and thus increase the loss.
Continued volatility or disruption in the credit or finance markets or a downturn in the global economy could materially adversely affect one or more of our lenders and could cause one or more of our lenders to be unwilling or unable to provide us with financing, to increase the costs of that financing or make the terms less attractive, or to become insolvent.
Continued volatility or disruption in the credit or finance markets or a downturn in the global economy could materially adversely affect one or more of our lenders and could cause lenders to be unwilling or unable to provide us with financing, to increase the costs of that financing or make the terms less attractive, or to become insolvent.
Government or the Federal Reserve will affect the efficiency, liquidity and stability of the financial and mortgage markets or whether they will be successful in reducing inflation to acceptable levels without creating an economic recession. There can be no assurance as to how, in the long term, these and other actions by the U.S.
There can be no assurance as to how, in the long term, these and other actions by the U.S. Government or the Federal Reserve will affect the efficiency, liquidity and stability of the financial and mortgage markets or whether they will be successful in reducing inflation to acceptable levels without creating an economic recession.
Real estate and real estate-related assets are subject to various risks, including: • acts of God, including earthquakes, wildfires, hurricanes, tornadoes, floods and other natural disasters, which may result in uninsured losses; • acts of domestic or international war or terrorism, social unrest and civil disturbances, including the consequences thereof, such as materially negative impacts on U.S. economic and market conditions; • adverse changes in global, national, regional and local economic and market conditions, including those relating to pandemics and health crises, ; • changes in federal, state or local governmental laws and regulations, fiscal policies, zoning ordinances and environmental legislation and the related costs of compliance with federal, state or local laws and regulations, fiscal policies and ordinances; and • adverse developments or conditions resulting from or associated with climate change.
Real estate and real estate-related assets are subject to various risks, including: • acts of God, including earthquakes, wildfires, hurricanes, tornadoes, floods and other natural disasters, which may result in uninsured losses; • acts of domestic or international war or terrorism, social unrest and civil disturbances, including the consequences thereof, such as materially negative impacts on U.S. economic and market conditions; • adverse changes in global, national, regional and local economic and market conditions, including those relating to pandemics and health crises, ; • changes in federal, state or local governmental laws and regulations, fiscal or tax policies, zoning ordinances and environmental legislation and the related costs of compliance with federal, state or local laws and regulations, fiscal policies and ordinances; and • adverse developments or conditions resulting from or associated with climate change.
Any income that we generate from transactions intended to hedge our interest rate or currency risks will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if (i) the instrument hedges risk of interest rate or currency fluctuations on indebtedness incurred or to be incurred to carry or acquire real estate assets, (ii) the instrument hedges risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the REIT 75% or 95% gross income tests, or (iii) the instrument was entered into to “offset” certain instruments described in clauses (i) or (ii) and certain other requirements are satisfied (including proper identification of such instrument under applicable Treasury Regulations).
Any income that we generate from transactions intended to hedge our interest rate or currency risks will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if (i) the instrument hedges risk of interest rate or currency fluctuations with respect to indebtedness incurred or to be incurred to carry or acquire real estate assets, (ii) the instrument hedges risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the REIT 75% or 95% gross income tests, or (iii) the instrument was entered into to “offset” certain instruments described in clauses (i) or (ii) and certain other requirements are satisfied (including proper identification of such instrument under applicable Treasury Regulations).
Risks Related to Debt Financing and Our Use of Hedging Strategies • Our access to financing sources may not be available on favorable terms or at all. • The repurchase agreements that we use to finance our investments may require us to provide additional collateral, which could reduce our liquidity and harm our financial condition. • We leverage our equity, which can exacerbate any losses we incur on our current and future investments and may reduce cash available for distribution to our stockholders. • If we are unable to leverage our equity to the extent we currently anticipate, the returns on certain of our assets could be diminished, which may limit or eliminate our ability to make distributions to our stockholders. 19 Table of Contents • We directly or indirectly utilize non-recourse securitizations and recourse structured financings and such structures expose us to risks that could result in losses to us. • If a counterparty to our repurchase transactions defaults on its obligation to resell the pledged assets back to us at the end of the transaction term or if we default on our obligations under the repurchase agreement, we may incur losses. • Our use of repurchase agreements to borrow funds may give our lenders greater rights in the event that either we or a lender files for bankruptcy. • Negative impacts on our business may cause us to default on certain financial covenants contained in our financing arrangements. • Hedging against interest rate and market value changes as well as other risks may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Risks Related to Debt Financing and Our Use of Hedging Strategies • Our access to financing sources may not be available on favorable terms or at all. • The repurchase agreements that we use to finance our investments may require us to provide additional collateral, which could reduce our liquidity and harm our financial condition. • We leverage our equity, which can exacerbate any losses we incur on our current and future investments and may reduce cash available for distribution to our stockholders. 17 Table of Contents • If we are unable to leverage our equity to the extent we currently anticipate, the returns on certain of our assets could be diminished, which may limit or eliminate our ability to make distributions to our stockholders. • We directly or indirectly utilize non-recourse securitizations and recourse structured financings and such structures expose us to risks that could result in losses to us. • If a counterparty to our repurchase transactions defaults on its obligation to resell the pledged assets back to us at the end of the transaction term or if we default on our obligations under the repurchase agreement, we may incur losses. • Our use of repurchase agreements to borrow funds may give our lenders greater rights in the event that either we or a lender files for bankruptcy. • Negative impacts on our business may cause us to default on certain financial covenants contained in our financing arrangements. • Hedging against interest rate and market value changes as well as other risks may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Such investments may involve risks not otherwise present when acquiring real estate directly, including, for example: • operating partners may share certain approval rights over major decisions; • our operating partners may have economic or business interests or goals that are or become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in the joint venture or the timing of termination or liquidation of the joint venture; • we may be limited in our ability to dispose of or refinance properties on a timely basis without financial penalty or at all; 28 Table of Contents • our operating partner in a property might become insolvent, bankrupt or otherwise refuse or be unable to meet its obligations to us or the venture (including its obligation to make capital contributions or property distributions when due); • we may incur liabilities as a result of an action taken by one of our operating partners; • one of our operating partners may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to maintaining our qualification as a REIT; • disputes between us and our operating partners may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business, which may subject the properties owned by the applicable joint venture to additional risk; • our operating partners obtain blanket property casualty and business interruption insurance insuring properties we own jointly and other properties in which we have no ownership interest and as a result, claims or losses with respect to properties owned by our operating partners but in which we have no interest could significantly reduce or eliminate the insurance available to properties in which we have an interest; • our operating partners may not perform their property oversight responsibilities; • under certain of our arrangements, neither partner may have control, and an impasse could be reached, which might have a negative influence on our investment; and • we rely on our operating partners to provide us with accurate financial information regarding the performance of the properties underlying our preferred equity, mezzanine loan and joint venture investments on a timely basis to enable us to satisfy our annual, quarterly and periodic reporting obligations under the Exchange Act and our operating partners and the entities in which we invest may have inadequate internal controls or procedures that could cause us to fail to meet our reporting obligations and other requirements under the federal securities laws.
Such investments may involve risks not otherwise present when acquiring real estate directly, including, for example: • operating partners may share or control certain approval rights over major decisions; • our operating partners may have economic or business interests or goals that are or become inconsistent with our business interests or goals, including inconsistent goals relating to the sale or refinancing of properties held in the joint venture or the timing of termination or liquidation of the joint venture; • we may be limited in our ability to dispose of or refinance properties on a timely basis without financial penalty or at all; • our operating partner in a property might become insolvent, bankrupt or otherwise refuse or be unable to meet its obligations to us or the venture (including its obligation to make capital contributions or property distributions when due); • we may incur liabilities as a result of an action taken by one of our operating partners; • one of our operating partners may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to maintaining our qualification as a REIT; 27 Table of Contents • disputes between us and our operating partners may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business, which may subject the properties owned by the applicable joint venture to additional risk; • our operating partners obtain blanket property casualty and business interruption insurance insuring properties we own jointly and other properties in which we have no ownership interest and as a result, claims or losses with respect to properties owned by our operating partners but in which we have no interest could significantly reduce or eliminate the insurance available to properties in which we have an interest; • our operating partners may not perform their property oversight responsibilities; • under certain of our arrangements, neither partner may have control, and an impasse could be reached, which might have a negative influence on our investment; and • we rely on our operating partners to provide us with accurate financial information regarding the performance of the properties underlying our preferred equity, mezzanine loan and joint venture investments on a timely basis to enable us to satisfy our annual, quarterly and periodic reporting obligations under the Exchange Act and our operating partners and the entities in which we invest may have inadequate internal controls or procedures that could cause us to fail to meet our reporting obligations and other requirements under the federal securities laws.
Tax Risks • Failure to remain qualified as a REIT would adversely affect our operations and ability to make distributions. • REIT distribution requirements could adversely affect our liquidity. • Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations. • Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments. • The failure of certain investments subject to a repurchase agreement to qualify as real estate assets would adversely affect our ability to qualify as a REIT. • We could fail to continue to qualify as a REIT if the IRS successfully challenges our treatment of our mezzanine loans. • We may incur a significant tax liability as a result of selling assets that might be subject to the prohibited transactions tax if sold directly by us. • Our qualification as a REIT could be jeopardized as a result of our interests in joint ventures or preferred equity. • We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock. 20 Table of Contents Set forth below are the risks that we believe are material to stockholders and prospective investors.
Tax Risks • Failure to remain qualified as a REIT would adversely affect our operations and ability to make distributions. • REIT distribution requirements could adversely affect our liquidity. • Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations. • Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments. • The failure of certain investments subject to a repurchase agreement to qualify as real estate assets would adversely affect our ability to qualify as a REIT. • We could fail to continue to qualify as a REIT if the IRS successfully challenges our treatment of our mezzanine loans. • We may incur a significant tax liability as a result of selling assets that might be subject to the prohibited transactions tax if sold directly by us. • Our qualification as a REIT could be jeopardized as a result of our interests in joint ventures or preferred equity. • We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock. 18 Table of Contents Set forth below are the risks that we believe are material to stockholders and prospective investors.
Any losses we incur on our repurchase transactions through our default or the default of our counterparty could adversely affect our earnings and thus our cash available for distribution to our stockholders. Our use of repurchase agreements to borrow funds may give our lenders greater rights in the event that either we or a lender files for bankruptcy.
Any losses we incur on our repurchase transactions through our default or the default of our counterparty could adversely affect our liquidity and earnings and thus our cash available for distribution to our stockholders. Our use of repurchase agreements to borrow funds may give our lenders greater rights in the event that either we or a lender files for bankruptcy.
Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, we cannot assure you that we can comply with the safe harbor in the future or that we will be able to avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business.
Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, we cannot assure you that we can comply with the safe harbor or that we will be able to avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business.
Pursuant to the operating agreement for one of our joint venture investments, s third party investors have the ability to sell their ownership interests to us at their election once a year subject to annual minimum and maximum amount limitations and we are obligated to purchase such interests for cash.
Pursuant to the operating agreement for one of our joint venture investments, third party investors have the ability to sell their ownership interests to us at their election once a year subject to annual minimum and maximum amount limitations and we are obligated to purchase such interests for cash.
To maintain our qualification as a REIT, we must continually satisfy various tests regarding the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our common stock. In order to meet these tests, we may be required to forego investments we might otherwise make.
To maintain our qualification as a REIT, we must continually satisfy various tests regarding the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. In order to meet these tests, we may be required to forego investments we might otherwise make.
Risks Related to Our Business Declines in the market values of assets in our investment portfolio may adversely affect periodic reported results and credit availability, which may reduce our earnings and book value and, in turn, may constrain our liquidity and cash available for distribution to our stockholders.
Risks Related to Our Business Declines in the market values of assets in our investment portfolio may adversely affect periodic reported results and credit availability, which may reduce our earnings, book value and the market value of our securities and, in turn, may constrain our liquidity and cash available for distribution to our stockholders.
The frequency of default and the loss severity on our assets upon default may be greater than we anticipate or price into the assets at acquisition. Credit sensitive assets that are partially collateralized by non-real estate assets may have increased risks and severity of loss.
The frequency of default and the loss severity on our assets upon default or otherwise may be greater than we anticipate or price into the assets at acquisition. Credit sensitive assets that are partially collateralized by non-real estate assets may have increased risks and severity of loss.
As a result, our portfolio of assets may, at times, be concentrated in certain asset types that are subject to higher risk of delinquency, default or foreclosure, or secured by properties concentrated in a limited number of real estate sectors or geographic locations, which increases, with respect to those sectors or geographic locations, our exposure to economic downturns and risks associated with the real estate and lending industries in general, thereby increasing the risk of loss and the magnitude of potential losses to us and our stockholders if one or more of these asset or property types perform poorly or the states or regions in which these properties are located are negatively impacted.
As a result, our investment portfolio may, at times, be concentrated in certain asset types that are subject to higher risk of delinquency, default or foreclosure, or secured by properties concentrated in a limited number of real estate sectors or geographic locations, which increases, with respect to those sectors or geographic locations, our exposure to economic downturns and risks associated with the real estate and lending industries in general, thereby increasing the risk of loss and the magnitude of potential losses to us and our stockholders if one or more of these asset or property types perform poorly or the states or regions in which these properties are located are negatively impacted.
While the determination of the fair value of our investment assets generally takes into consideration valuations provided by third-party dealers and pricing services, the final determination of exit price fair values for our investment assets is based on our judgment, and such valuations may differ from those provided by third-party dealers and pricing services.
While the determination of the fair value of our assets generally takes into consideration valuations provided by third-party dealers and pricing services, the final determination of exit price fair values for our assets is based on our judgment, and such valuations may differ from those provided by third-party dealers and pricing services.
As a result, a decline in market values of assets in our investment portfolio may reduce our earnings and book value. A decline in the market value of our interest-bearing assets may adversely affect us, particularly in instances where we have borrowed money based on the market value of those assets.
As a result, a decline in market values of assets in our investment portfolio may reduce our earnings, book value and the market value of our securities. A decline in the market value of our interest-bearing assets may adversely affect us, particularly in instances where we have borrowed money based on the market value of those assets.
The market value of our investment portfolio may move inversely with changes in interest rates. We anticipate that increases in interest rates will generally tend to decrease our net income and the market value of our investment portfolio, as occurred during much of 2022.
The market value of our investment portfolio may move inversely with changes in interest rates. We anticipate that increases in interest rates will generally tend to decrease our net income and the market value of our investment portfolio, as occurred during much of 2022 and in 2023.
If the net operating income of the subject property is reduced, the borrower's ability to repay the loan, on a timely basis or at all, or our ability to receive adequate returns on our investment, may be impaired.
If the net operating income of the subject property is reduced, the borrower's ability to repay the loan or recapitalize the property, on a timely basis or at all, or our ability to receive adequate returns on our investment, may be impaired.
Risks Related to Our Business • Declines in the market values of assets in our investment portfolio may adversely affect periodic reported results and credit availability. • We may experience losses if we inaccurately estimate the loss-adjusted yields of our investments in credit sensitive assets. • Interest rate increases may decrease the availability of certain of our targeted assets. • Interest rate mismatches between the interest-earning assets held in our investment portfolio and the borrowings used to fund the purchases of those assets may reduce our net income or result in a loss during periods of changing interest rates. • Our portfolio of assets may at times be concentrated in certain asset types or secured by properties concentrated in a limited number of real estate sectors or geographic areas, which increases our exposure to economic downturns and risks associated with the real estate and lending industries in general. • Our portfolio of business purpose loans exposes us to new and different risks from our traditional investments in residential mortgage loans. • Our investments may include subordinated tranches of CMBS, RMBS and ABS, which are subordinate in right of payment to more senior securities and residential loans that have greater risk of loss than other investments. • Prepayment rates can change, adversely affecting the performance of our assets. • We have experienced and may experience in the future increased volatility in our GAAP results of operations as we have elected fair value option for majority of our investments. • The failure of third-party service providers to perform a variety of services on which we rely may adversely impact our business and financial results. • Our preferred equity and mezzanine loan investments involve greater risks of loss than more senior loans secured by income-producing properties. • Our investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property as well as the risks of delinquency, default and foreclosure. • Our operating partners could subject us to liabilities in excess of those contemplated or prevent us from taking actions which are in the best interests of our stockholders. • We may not be able to complete the sale of our joint venture equity interests in multi-family properties on terms acceptable to us, or at all. • Our real estate and real estate-related assets are subject to risks particular to real property. • Due diligence as a part of our acquisition or underwriting process may be limited, may not reveal all of the risks associated with such assets and may not reveal other weaknesses in such assets, which could lead to material losses. • The lack of liquidity in certain of our assets may adversely affect our business. • The use of models in connection with the valuation of our assets subjects us to potential risks in the event that such models are incorrect, misleading or based on incomplete information. • Our investments in residential loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt. • Competition may prevent us from acquiring assets on favorable terms or at all. • Maintaining cybersecurity and data security is important to our business, and a breach could result in serious harm. • System failures and other operational disruptions in our information and communications systems and those of our third party service providers could significantly disrupt our business. • We have made and may in the future make investments in companies that we do not control.
Risks Related to Our Business • Declines in the market values of assets in our investment portfolio may adversely affect periodic reported results and credit availability. • We may experience losses if we inaccurately estimate the loss-adjusted yields of our investments in credit sensitive assets. • Interest rate increases may decrease the availability of certain of our targeted assets. • Interest rate mismatches between the interest-earning assets held in our investment portfolio and the borrowings used to fund the purchases of those assets may reduce our net income or result in a loss during periods of changing interest rates. • Our portfolio of assets may at times be concentrated in certain asset types or secured by properties concentrated in a limited number of real estate sectors or geographic areas, which increases our exposure to economic downturns and risks associated with the real estate and lending industries in general. • Our portfolio of business purpose loans exposes us to new and different risks from our traditional investments in residential mortgage loans. • Our investments may include subordinated tranches of CMBS, RMBS and ABS, which are subordinate in right of payment to more senior securities and residential loans that have greater risk of loss than other investments. • Prepayment rates can change, adversely affecting the performance of our assets. • We have experienced and may experience in the future increased volatility in our GAAP results of operations as we have elected fair value option for majority of our investments. • The failure of third-party service providers to perform a variety of services on which we rely may adversely impact our business and financial results. • Our preferred equity and mezzanine loan investments involve greater risks of loss than more senior loans secured by income-producing properties. • Our investments in multi-family properties are subject to the ability of the property owner to generate net income from operating the property as well as the risks of delinquency, default and foreclosure. • Declining real estate valuations and impairment charges to real estate assets, such as those held by our joint venture equity investments in multi-family properties, have adversely affected our earnings and financial condition in the past and may adversely affect our earnings and financial condition in the future. • Our operating partners could subject us to liabilities in excess of those contemplated or prevent us from taking actions which are in the best interests of our stockholders. • We may not be able to complete the sale of our joint venture equity interests in multi-family properties on terms acceptable to us, or at all. • Our real estate and real estate-related assets are subject to risks particular to real property. • Due diligence as a part of our acquisition or underwriting process may be limited, may not reveal all of the risks associated with such assets and may not reveal other weaknesses in such assets, which could lead to material losses. • The lack of liquidity in certain of our assets may adversely affect our business. • The use of models in connection with the valuation of our assets subjects us to potential risks in the event that such models are incorrect, misleading or based on incomplete information. • Our investments in residential loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt. • Competition may prevent us from acquiring assets on favorable terms or at all. • Maintaining cybersecurity and data security is important to our business, and a breach could result in serious harm. • System failures and other operational disruptions in our information and communications systems and those of our third party service providers could significantly disrupt our business. • We have made and may in the future make investments in companies that we do not control.
If we are faced with a larger haircut in order to roll a financing with a particular counterparty, or in order to move a financing from one counterparty to another, then we would need to make up the difference between the two haircuts in the form of cash, which could similarly require us to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses. 33 Table of Contents Issues related to financing are exacerbated in times of significant dislocation in the financial markets.
If we are faced with a larger haircut in order to roll a financing with a particular counterparty, or in order to move a financing from one counterparty to another, then we would need to make up the difference between the two haircuts in the form of cash, which could similarly require us to dispose of assets at significantly depressed prices and at inopportune times, which could cause significant losses. 32 Table of Contents Issues related to financing are exacerbated in times of significant dislocation in the financial markets.
Net operating income of an income-producing property can be adversely affected by, among other things: 27 Table of Contents • tenant mix; • the performance, actions and decisions of operating partners and the property managers we or they engage in the day-to-day management and maintenance of the property; • property location, condition, and design; • competition, including new construction or rehabilitation of competitive properties; • a surge in homeownership rates; • changes in laws that increase operating expenses or limit rents that may be charged; • changes in specific industry segments, including the labor, credit and securitization markets; • declines in regional or local real estate values or economic conditions; • declines in regional or local rental or occupancy rates; • increases in interest rates, real estate tax rates, construction costs, energy costs and other operating expenses; • costs of remediation and liabilities associated with environmental conditions; • the potential for uninsured or underinsured property losses; and • the risks particular to real property, including those described in “-Our business is subject to risks particular to real property and real estate-related assets.” In the event of any default under a loan held directly by us, we will bear a risk of loss to the extent of any deficiency between the value of the collateral and the outstanding principal and accrued interest of the mortgage loan, and any such losses could have a material adverse effect on our cash flow from operations and our ability to make distributions to our stockholders.
Net operating income of an income-producing property can be adversely affected by, among other things: • tenant mix; • the performance, actions and decisions of operating partners and the property managers we or they engage in the day-to-day management and maintenance of the property; • property location, condition, and design; • competition, including new construction or rehabilitation of competitive properties; • a surge in homeownership rates; • changes in laws that increase operating expenses or limit rents that may be charged; 26 Table of Contents • changes in specific industry segments, including the labor, credit and securitization markets; • declines in regional or local real estate values or economic conditions; • declines in individual property or regional or local rental or occupancy rates; • increases in interest rates, overall financing costs, real estate tax rates, construction costs, energy costs and other operating expenses; • costs of remediation and liabilities associated with environmental conditions; • the potential for uninsured or underinsured property losses; and • the risks particular to real property, including those described in “-Our business is subject to risks particular to real property and real estate-related assets.” In the event of any default under a loan held directly by us, we will bear a risk of loss to the extent of any deficiency between the value of the collateral and the outstanding principal and accrued interest of the mortgage loan, and any such losses could have a material adverse effect on our cash flow from operations and our ability to make distributions to our stockholders.
If an SPE defaults on its obligations and we have guaranteed the satisfaction of that obligation, we may be materially adversely affected. 35 Table of Contents In connection with our securitizations, we generally are required to prepare disclosure documentation for investors, including term sheets and offering memoranda, which contain information regarding the securitization generally, the securities being issued, and the assets being securitized.
If an SPE defaults on its obligations and we have guaranteed the satisfaction of that obligation, we may be materially adversely affected. 34 Table of Contents In connection with our securitizations, we generally are required to prepare disclosure documentation for investors, including term sheets and offering memoranda, which contain information regarding the securitization generally, the securities being issued, and the assets being securitized.
To the extent changes in the political environment have a negative impact on our business or the financial and mortgage markets, our business, results of operations, financial condition and ability to make distributions to our stockholders could be materially and adversely impacted. 38 Table of Contents The downgrade, or perceived potential downgrade, of the credit ratings of the U.S. and the failure to resolve issues related to U.S. fiscal and debt policies may materially adversely affect our business, liquidity, financial condition and results of operations.
To the extent changes in the political environment have a negative impact on our business or the financial and mortgage markets, our business, results of operations, financial condition and ability to make distributions to our stockholders could be materially and adversely impacted. 37 Table of Contents The downgrade, or perceived potential downgrade, of the credit ratings of the U.S. and the failure to resolve issues related to U.S. fiscal and debt policies may materially adversely affect our business, liquidity, financial condition and results of operations.
If property securing or underlying loans or other investments becomes real estate owned as a result of foreclosure, we bear the risk of not being able to sell the property and recovering our investment and of being exposed to the risks attendant to the ownership of real property. 21 Table of Contents If our estimates of the loss-adjusted yields of our investments in credit sensitive assets prove inaccurate, we may experience losses.
If property securing or underlying loans or other investments becomes real estate owned as a result of foreclosure, we bear the risk of not being able to sell the property and recovering our investment and of being exposed to the risks attendant to the ownership of real property. 19 Table of Contents If our estimates of the loss-adjusted yields of our investments in credit sensitive assets prove inaccurate, we may experience losses.
Where senior debt exists, the presence of intercreditor arrangements, which in this case are arrangements between the lender of the senior loan and the mezzanine lender or preferred equity investor that stipulate the rights and obligations of the parties, may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies or control decisions made in bankruptcy proceedings relating to borrowers or preferred equity investors.
Where senior debt exists, the presence of intercreditor arrangements, which in this case are arrangements between the lender of the senior loan and the mezzanine lender or preferred equity investor that stipulate the rights and obligations of the parties, may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies or control decisions made in bankruptcy proceedings relating to borrowers or preferred equity issuers.
For these and other reasons, our hedging activity may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders. 37 Table of Contents Risks Associated with Adverse Developments in the Mortgage, Real Estate, Credit and Financial Markets Generally Difficult conditions in the mortgage, real estate and financial markets and the economy generally have caused and may cause us to experience losses in the future.
For these and other reasons, our hedging activity may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders. 36 Table of Contents Risks Associated with Adverse Developments in the Mortgage, Real Estate, Credit and Financial Markets Generally Difficult conditions in the mortgage, real estate and financial markets and the economy generally have caused and may cause us to experience losses in the future.
In addition, an economic slowdown or general disruption in the mortgage markets may result in decreased demand for residential and commercial property, which would likely further compress homeownership rates and place pressure on home price performance, while potentially forcing commercial property owners to lower rents on properties with excess supply or experience higher vacancy rates.
In addition, an economic slowdown, elevated interest rates or general disruption in the mortgage markets may result in decreased demand for residential and commercial property, which would likely further compress homeownership rates and place pressure on home price performance, while potentially forcing commercial property owners to lower rents on properties with excess supply or experience higher vacancy rates.
In the event we experience unexpectedly high or low prepayment rates on the assets in our portfolio, our strategy for matching our assets with our liabilities is more likely to be unsuccessful which may result in reduced earnings or losses and reduced cash available for distribution to our stockholders. 22 Table of Contents Our portfolio of assets may at times be concentrated in certain asset types or secured by properties concentrated in a limited number of real estate sectors or geographic areas, which increases, with respect to those asset types, property types or geographic locations, our exposure to economic downturns and risks associated with the real estate and lending industries in general.
In the event we experience unexpectedly high or low prepayment rates on the assets in our portfolio, our strategy for matching our assets with our liabilities is more likely to be unsuccessful which may result in reduced earnings or losses and reduced cash available for distribution to our stockholders. 20 Table of Contents Our investment portfolio may at times be concentrated in certain asset types or secured by properties concentrated in a limited number of real estate sectors or geographic areas, which increases, with respect to those asset types, property types or geographic locations, our exposure to economic downturns and risks associated with the real estate and lending industries in general.
If market interest rates increase, prospective investors may demand a higher dividend rate on our shares or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuations and capital market conditions can affect the market price of our securities independent of the effects such conditions may have on our portfolio. 48 Table of Contents Item 1B.
If market interest rates increase, prospective investors may demand a higher dividend rate on our shares or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuations and capital market conditions can affect the market price of our securities independent of the effects such conditions may have on our portfolio. 49 Table of Contents Item 1B.
If rising interest rates or interest rate volatility cause us to be unable to acquire a sufficient volume of our targeted assets with a yield that is sufficiently above our borrowing cost, our ability to satisfy our investment objectives and to generate income and make distributions to our stockholders will be materially and adversely affected.
If higher interest rates or interest rate volatility cause us to be unable to acquire a sufficient volume of our targeted assets with a yield that is sufficiently above our borrowing cost, our ability to satisfy our investment objectives and to generate income and make distributions to our stockholders will be materially and adversely affected.
In September 2022, we announced that our Board of Directors had approved a strategic repositioning of our business pursuant to which we will opportunistically dispose of our joint venture equity interests in multi-family properties over time and, following disposition, we will reallocate the capital associated with such assets to our targeted assets.
In September 2022, we announced that our Board of Directors had approved a strategic repositioning of our business pursuant to which we will opportunistically dispose over time our joint venture equity investments in multi-family properties and, following disposition, we will reallocate the capital associated with such assets to our targeted assets.
As a result, a default on any of our financing agreements could materially and adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders. 36 Table of Contents Hedging against interest rate, credit and market value changes as well as other risks may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
As a result, a default on any of our financing agreements could materially and adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders. 35 Table of Contents Hedging against interest rate, credit and market value changes as well as other risks may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Consequently, we may choose not to engage in certain sales of our properties or may contribute those assets to one of our TRSs and conduct the marketing and sale of those assets through that TRS. No assurance can be given that the IRS will respect the transaction by which those assets are contributed to our TRS.
Consequently, we may choose not to engage in certain sales of property or may contribute those assets to one of our TRSs and conduct the marketing and sale of those assets through that TRS. No assurance can be given that the IRS will respect the transaction by which those assets are contributed to our TRS.
We own and originate mezzanine loans, which are loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. We also own and make preferred equity investments in entities that own property.
We own and originate mezzanine loans, which are loans secured by a pledge of the ownership interests of either the entity owning the multi-family property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the multi-family property. We also own and make preferred equity investments in entities that own multi-family property.
The liquidation proceeds upon sale of such real estate may not be sufficient to recover our cost basis in the loan, and any costs or delays involved in the foreclosure or liquidation process may increase losses. 23 Table of Contents Many of the loans we own or seek to acquire have been purchased by us at a discount to par value.
The liquidation proceeds upon sale of such real estate may not be sufficient to recover our cost basis in the loan, and any costs or delays involved in the foreclosure or liquidation process may increase losses. Many of the loans we own or seek to acquire have been purchased by us at a discount to par value.
Bankruptcy Code. 34 Table of Contents We leverage our equity, which can exacerbate any losses we incur on our current and future investments and may reduce cash available for distribution to our stockholders.
Bankruptcy Code. 33 Table of Contents We leverage our equity, which can exacerbate any losses we incur on our current and future investments and may reduce cash available for distribution to our stockholders.
Although we estimate prepayment rates to determine the effective yield of our assets and valuations, these estimates are not precise and prepayment rates do not necessarily change in a predictable manner as a function of interest rate changes. The adverse effects of prepayments may impact us in various ways.
Although we estimate prepayment rates to determine the effective yield of our assets and valuations, these estimates are not precise and prepayment rates do not necessarily change in a predictable manner as a function of interest rate changes. 23 Table of Contents The adverse effects of prepayments may impact us in various ways.
We cannot assure you that the market price of our securities will not fluctuate or decline significantly. 47 Table of Contents We have not established a minimum dividend payment level for our common stockholders and there are no assurances of our ability to pay dividends to common or preferred stockholders in the future.
We cannot assure you that the market price of our securities will not fluctuate or decline significantly. We have not established a minimum dividend payment level for our common stockholders and there are no assurances of our ability to pay dividends to common or preferred stockholders in the future.
During much of 2021, increased demand for the assets we target resulted in reduced levels of investment by us which negatively impacted our net earnings during those periods.
During much of 2021, increased demand for the assets we targeted resulted in reduced levels of investment by us which negatively impacted our net earnings during those periods.
If we foreclose on underlying properties, we, through a designated servicer that we retain, will have to manage these properties and may not be able to sell them. 31 Table of Contents We may work with our third-party servicers and seek to help a borrower to refinance an NPL or RPL to realize greater value from such loan.
If we foreclose on underlying properties, we, through a designated servicer that we retain, will have to manage these properties and may not be able to sell them. We may work with our third-party servicers and seek to help a borrower to refinance an NPL or RPL to realize greater value from such loan.
In acquiring our targeted assets, we compete with other REITs, investment banking firms, savings and loan associations, banks, insurance companies, mutual funds, private investors, lenders and other entities that purchase mortgage-related assets, many of which have greater financial resources than us.
In acquiring our targeted assets, we compete with other REITs, investment banking firms, savings and loan associations, banks, insurance companies, mutual funds, private investors, lenders and other entities that purchase mortgage-related assets, many of which have greater financial resources or access to opportunities than us.
There can be no assurance that such volatility in periodic financial results will not occur during 2022 or in future periods.
There can be no assurance that such volatility in periodic financial results will not occur during 2024 or in future periods.
In certain cases, these repurchase agreements allows the lender, to varying degrees, to revalue the collateral to values that the lender considers to reflect the market value.
In certain cases, these repurchase agreements allow the lender, to varying degrees, to revalue the collateral to values that the lender considers to reflect the market value.
Finally, securitization financing has been limited from time to time in the recent past. Currently, due to rising interest rates and current market conditions, residential loan securitization activity has fallen in a significant way as the terms of such financing, in many cases, have become less attractive.
Finally, securitization financing has been limited from time to time in the recent past. Currently, due to a higher interest rate environment and current market conditions, residential loan securitization activity has fallen in a significant way as the terms of such financing, in many cases, have become less attractive.
Risks Related To Our Organization, Our Structure and Other Risks • We may change our investment, financing, or hedging strategies and asset allocation and operational and management policies without stockholder consent. • Maintenance of our Investment Company Act exemption imposes limits on our operations. • Mortgage loan modification programs and future legislative action may adversely affect the value of, and the returns on, our targeted assets. • We could be subject to liability for potential violations of predatory lending laws, which could materially adversely affect our business, financial condition and results of operations, and our ability to make distributions to our stockholders. • Our business is subject to extensive regulation. • Certain provisions of Maryland law and our charter and bylaws could hinder, delay or prevent a change in control which could have an adverse effect on the value of our securities. • The stock ownership limit imposed by our charter may inhibit market activity in our common stock and may restrict our business combination opportunities.
Risks Related To Our Organization, Our Structure and Other Risks • We may change our investment, financing, or hedging strategies and asset allocation and operational and management policies without stockholder consent. • Maintenance of our Investment Company Act exemption imposes limits on our operations. • The accrual of dividends on certain of our series of preferred stock at a floating rate in the future could adversely affect our ability to make cash distributions at our intended levels, or at all, or otherwise materially adversely affect our earnings, cash flows or financial condition. • Mortgage loan modification programs and future legislative action may adversely affect the value of, and the returns on, our targeted assets. • We could be subject to liability for potential violations of predatory lending laws, which could materially adversely affect our business, financial condition and results of operations, and our ability to make distributions to our stockholders. • Our business is subject to extensive regulation. • Certain provisions of Maryland law and our charter and bylaws could hinder, delay or prevent a change in control which could have an adverse effect on the value of our securities. • The stock ownership limit imposed by our charter may inhibit market activity in our common stock and may restrict our business combination opportunities.
We have used swap agreements in the past and currently use interest rate caps as a means for attempting to fix the cost of certain of our liabilities over a period of time; however, these agreements would not be sufficient to match the cost of all our liabilities against all of our investments.
We use swap agreements and interest rate caps as a means for attempting to fix the cost of certain of our liabilities over a period of time; however, these agreements would not be sufficient to match the cost of all our liabilities against all of our investments.
As of December 31, 2022, 100% of our total investment portfolio was comprised of what we refer to as "credit assets." Despite our efforts to manage credit risk, there are many aspects of credit risk that we cannot control.
As of December 31, 2023, 61% of our total investment portfolio was comprised of what we refer to as "credit assets." Despite our efforts to manage credit risk, there are many aspects of credit risk that we cannot control.
Negative impacts on our business, including those caused by significant market disruptions like the COVID-19 pandemic or an economic recession, have and/or may make it more difficult to meet or satisfy these covenants, and we cannot assure you that we will remain in compliance with these covenants in the future.
Negative impacts on our business, including those caused by significant market disruptions or an economic downturn, have and/or may make it more difficult to meet or satisfy these covenants, and we cannot assure you that we will remain in compliance with these covenants in the future.
Moreover, because our management has great latitude within our investment guidelines in determining the types and amounts of assets in which to invest and leverage to employ on our behalf, there can be no assurance that our management will not make or approve investments that result in returns that are substantially below expectations or result in losses, which would materially adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders. 40 Table of Contents Maintenance of our Investment Company Act exemption imposes limits on our operations.
Moreover, because our management has great latitude within our investment guidelines in determining the types and amounts of assets in which to invest and leverage to employ on our behalf, there can be no assurance that our management will not make or approve investments that result in returns that are substantially below expectations or result in losses, which would materially adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders.
In August 2011, Standard & Poor's Ratings Services lowered its long-term sovereign credit rating on the U.S. from “AAA” to “AA+” due, in part, to concerns surrounding the burgeoning U.S. Government budget deficit. The impact of any further downgrades to the U.S.
In August 2011, Standard & Poor's Ratings Services lowered its long-term sovereign credit rating on the U.S. from “AAA” to “AA+” due, in part, to concerns surrounding the burgeoning U.S. Government budget deficit.
We have conducted and intend to continue to conduct our operations so as not to become regulated as an investment company under the Investment Company Act. We believe that there are a number of exclusions under the Investment Company Act that are applicable to us.
Maintenance of our Investment Company Act exemption imposes limits on our operations. We have conducted and intend to continue to conduct our operations so as not to become regulated as an investment company under the Investment Company Act. We believe that there are a number of exclusions under the Investment Company Act that are applicable to us.
There has been a corresponding meaningful increase in uncertainty with respect to interest rates, inflation, foreign exchange rates, trade volumes and trade, fiscal and monetary policy. The potential for changes in policy and regulation is heightened by the change in the U.S. administration.
There has been a corresponding meaningful increase in uncertainty with respect to interest rates, inflation, foreign exchange rates, trade volumes and trade, fiscal and monetary policy. With a U.S. presidential election year upon us in 2024, the potential for changes in policy and regulation is heightened by a potential change in the U.S. administration.
Government and the Federal Reserve took significant actions to support the economy and the continued functioning of the financial markets in response to the COVID-19 pandemic through multiple relief bills. More recently, the U.S. Government and the Federal Reserve have taken significant actions in response to the current inflationary environment in the U.S.
Government and the Federal Reserve took significant actions to support the economy and the continued functioning of the financial markets in response to the COVID-19 pandemic through multiple relief bills. More recently, the U.S.
Similarly, as of December 31, 2022, approximately 78.0% of our total investment portfolio was comprised of residential loans and non-Agency RMBS. Moreover, as of December 31, 2022, significant portions of the properties that secure our residential loans, including loans that secure Consolidated SLST, were concentrated in California, Florida, Texas, New York and New Jersey among other states.
Similarly, as of December 31, 2023, approximately 48.9% of our total investment portfolio was comprised of residential loans and non-Agency RMBS. Moreover, as of December 31, 2023, significant portions of the properties that secure our residential loans, including loans that secure Consolidated SLST, were concentrated in California, Florida, Texas, New York, New Jersey and Illinois among other states.
There can be no assurance that we will conduct any specific level of due diligence, or that, among other things, the due diligence process will uncover all relevant facts, the materials provided to us or that we review will be accurate and complete or that any purchase will be successful, which could result in losses on these assets, which, in turn, could adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders. 30 Table of Contents The lack of liquidity in certain of our assets may adversely affect our business.
There can be no assurance that we will conduct any specific level of due diligence, or that, among other things, the due diligence process will uncover all relevant facts, the materials provided to us or that we review will be accurate and complete or that any purchase or our projection for that purchase will prove successful, which could result in losses on these assets, which, in turn, could adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Our portfolio of business purpose loans exposes us to new and different risks from our traditional investments in residential mortgage loans. As of December 31, 2022, approximately 40.3% of the asset value of our total investment portfolio is comprised of business purpose loans.
Our portfolio of business purpose loans exposes us to new and different risks from our traditional investments in residential mortgage loans. As of December 31, 2023, approximately 22.9% of the asset value of our total investment portfolio is comprised of business purpose loans.
The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as COVID-19, or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks, acts of violence or war, extreme terrestrial or solar weather events or other natural disasters, could create economic and financial disruptions, and could lead to materially adverse declines in the market values of our assets, illiquidity in our investment and financing markets and our ability to effectively conduct our business. 46 Table of Contents We face possible risks associated with the effects of climate change and severe weather.
The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as COVID-19, or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks, acts of violence or war, extreme terrestrial or solar weather events or other natural disasters, could create economic and financial disruptions, and could lead to materially adverse declines in the market values of our assets, illiquidity in our investment and financing markets and our ability to effectively conduct our business.
We also expect that rising interest rates will cause our targeted assets that were issued, originated or acquired prior to an interest rate increase to experience a decline in their fair value or provide yields that are below prevailing market interest rates.
We also expect that higher interest rates will cause our targeted assets that were issued, originated or acquired prior to an interest rate increase to experience, as certain of them did in 2023, a decline in their fair value or provide yields that are below prevailing market interest rates.
Subject to compliance with the requirements to maintain our qualification as a REIT, we may engage in certain hedging transactions to limit our exposure to changes in interest rates and credit markets and therefore may expose ourselves to risks associated with such transactions. We may utilize instruments such as interest rate swaps, interest rate swaptions, Eurodollars and U.S.
Subject to compliance with the requirements to maintain our qualification as a REIT, we may engage in certain hedging transactions to limit our exposure to changes in interest rates and credit markets and therefore may expose ourselves to risks associated with such transactions.
It is also possible that short-term interest rates may exceed longer-term interest rates (a yield curve inversion), as occurred most recently during 2022, in which event our borrowing costs may exceed our interest income and we could incur significant operating losses.
It is also possible that short-term interest rates may exceed longer-term interest rates (a yield curve inversion), as they do currently, in which event our borrowing costs may exceed our interest income and we could incur significant operating losses.
Thus, compliance with the REIT requirements may hinder our investment performance. Complying with REIT requirements may limit our ability to hedge effectively. The REIT provisions of the Internal Revenue Code substantially limit our ability to hedge the RMBS in our investment portfolio.
Thus, compliance with the REIT requirements may hinder our investment performance. Complying with REIT requirements may limit our ability to hedge effectively. The REIT provisions of the Internal Revenue Code substantially limit our ability to hedge our assets and liabilities.
As of December 31, 2022, approximately 17.4% of our total investment portfolio represented direct or indirect investments in multi-family properties.
As of December 31, 2023, approximately 8.8% of our total investment portfolio represented direct or indirect investments in multi-family properties.
The use of derivative instruments is also subject to an increasing number of laws and regulations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank") and its implementing regulations.
The use of derivative instruments is also subject to an increasing number of laws and regulations, including the Dodd-Frank Act and its implementing regulations.
Many of the assets we own or acquire may be subject to legal, contractual and other restrictions on resale or will otherwise be less liquid than publicly traded securities.
The lack of liquidity in certain of our assets may adversely affect our business. Many of the assets we own or acquire may be subject to legal, contractual and other restrictions on resale or will otherwise be less liquid than publicly traded securities.
Relatedly, geographical concentrations in our portfolio, to include mortgages, mortgage securities, and investments in real properties, may present certain vulnerabilities to the impacts of localized weather conditions resulting from climate change, such as increased coastal flooding or prolonged droughts in arid regions.
Relatedly, geographical concentrations in our portfolio, to include mortgages, mortgage securities, and investments in real properties, may present certain vulnerabilities to the impacts of localized weather conditions resulting from climate change, such as increased coastal flooding or prolonged droughts, which can contribute to, among other things, heightened wildfire risk.
We are a small company and are substantially dependent upon the efforts of our Chief Executive Officer, Jason T. Serrano, our President, Nicholas Mah, and certain other key individuals employed by us. The sudden loss of Messrs. Serrano or Mah or any key personnel of our Company could have a material adverse effect on our operations.
We are a small company and are substantially dependent upon the efforts of our Chief Executive Officer, Jason T. Serrano, our President, Nicholas Mah, and certain other key individuals employed by us. The sudden loss of Messrs.
In addition, any market uncertainty that arises from any such proposed changes, or the perception that such changes will come to fruition, could have a similar impact on us and the values of the MBS and other assets that we own. 39 Table of Contents The planned discontinuation of LIBOR and the transition from LIBOR to an alternative reference rate may adversely impact our borrowings and assets.
In addition, any market uncertainty that arises from any such proposed changes, or the perception that such changes will come to fruition, could have a similar impact on us and the values of the MBS and other assets that we own. 38 Table of Contents The discontinuation of LIBOR and the transition from LIBOR to an alternative reference rate, such as SOFR, may adversely impact our borrowings, operations, cash flows and assets and the value of investments in our Series D Preferred Stock and Series E Preferred Stock.
If we cannot sell these joint venture equity interests in a timely manner and/or on terms acceptable to us, we may have less flexibility to rotate into more preferred asset classes, which may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
If we cannot sell these joint venture equity interests in a timely manner and/or on terms acceptable to us, we may have less flexibility to rotate into more preferred asset classes and/or we may incur a loss on these investments, which may have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders. 28 Table of Contents Our business is subject to risks particular to real property and real estate-related assets.
Our business is subject to risks particular to real property and real estate-related assets. We own assets secured or backed by, or closely connected to, real estate, and to a lesser extent real estate assets, and expect in the future to continue to acquire, own and manage these assets.
We own assets secured or backed by, or closely connected to, real estate, and to a lesser extent real estate assets, and expect in the future to continue to acquire, own and manage these assets.
New legislative, regulatory or policy changes could significantly impact our business and the markets in which we operate. In addition, disagreements over the federal budget and federal debt limits have led to the shutdown of the U.S. Government for periods of time in the recent past and may recur in the future.
New legislative, regulatory or policy changes could significantly impact our business and the markets in which we operate. In addition, disagreements over the federal budget and federal debt limits have increasingly led to the actual or near shutdown of the U.S. Government.
We cannot predict the rate at which climate change will progress. However, the physical effects of climate change could have a material adverse effect on our operations.
We face possible risks associated with the effects of climate change and severe weather. We cannot predict the rate at which climate change will progress. However, the physical effects of climate change could have a material adverse effect on our operations.
However, the capital and credit markets have experienced unprecedented levels of volatility and disruption in recent years, including most recently in 2020 as a result of the COVID-19 pandemic and, prior to that, the 2008 financial crisis, that have generally negatively impacted the availability of credit from time-to-time.
However, the capital and credit markets have experienced unprecedented levels of volatility and disruption in recent years, including in 2020 as a result of the COVID-19 pandemic and most recently in 2023 due to concerns with the solvency of certain regional banks, that have generally negatively impacted the availability of credit from time-to-time.
Rising interest rates, which we experienced throughout much of 2022, generally reduce economic activity, which, in turn, generally reduces the demand for mortgage loans due to the higher cost of borrowing and new construction redevelopment or renovation.
A higher interest rate environment, which we have experienced since 2022, generally reduces economic activity, which, in turn, generally reduces the demand for mortgage loans due to the higher cost of borrowing and new construction redevelopment or renovation.
Risks Related To Our Organization, Our Structure and Other Risks We may change our investment, financing, or hedging strategies and asset allocation and operational and management policies without stockholder consent, which may result in the purchase of riskier assets, the use of greater leverage or commercially unsound actions, any of which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Further, there is no assurance that the characteristics of any successor rate will be similar to LIBOR, or that any successor rate will produce the economic equivalent of LIBOR. 39 Table of Contents Risks Related To Our Organization, Our Structure and Other Risks We may change our investment, financing, or hedging strategies and asset allocation and operational and management policies without stockholder consent, which may result in the purchase of riskier assets, the use of greater leverage or commercially unsound actions, any of which could materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Government or the Federal Reserve will affect our business and the efficiency, liquidity and stability of financial and mortgage markets. Moreover, uncertainty with respect to the actions discussed above combined with uncertainty surrounding legislation, regulation and government policy at the federal, state and local levels have introduced new and difficult-to-quantify macroeconomic and political risks with potentially far-reaching implications.
Moreover, uncertainty with respect to the actions discussed above combined with uncertainty surrounding legislation, regulation and government policy at the federal, state and local levels have introduced new and difficult-to-quantify macroeconomic and political risks with potentially far-reaching implications.
Government may materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. • The planned discontinuation of LIBOR and the transition from LIBOR to an alternative reference rate may adversely impact our borrowings and assets.
Government may materially adversely affect our business, financial condition and results of operations, and our ability to pay dividends to our stockholders. • The discontinuation of LIBOR and the transition from LIBOR to an alternative reference rate, such as SOFR, may adversely impact our borrowings, operations, cash flows and assets and the value of our Series D Preferred Stock and Series E Preferred Stock.
Events of this type, were they to occur again in the future, could have a material adverse impact on our liquidity and could lead to significant losses, a rapid deterioration of our financial condition and possibly require us to file for protection under the U.S.
Disruptive events, including events similar to these, could have a material adverse impact on our liquidity and could lead to significant losses, a rapid deterioration of our financial condition and possibly require us to file for protection under the U.S.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2022, our principal executive and administrative offices are located in leased space at 90 Park Avenue, Floor 23, New York, New York 10016. We also maintain offices in Charlotte, North Carolina and Woodland Hills, California.
Biggest changeAs of December 31, 2023, our principal executive and administrative offices are located in leased space at 90 Park Avenue, New York, New York 10016. We also maintain offices in Charlotte, North Carolina and Woodland Hills, California.
"Exhibits and Financial Statement Schedules—Schedule III—Real Estate and Accumulated Depreciation" for additional information on our single-family rental homes and consolidated multi-family properties, both in this Annual Report on Form 10-K, which is incorporated herein by reference.
"Exhibits and Financial Statement Schedules—Schedule III—Real Estate and Accumulated Depreciation" for additional information on our single-family rental homes and consolidated multi-family properties, both in this Annual Report on Form 10-K, which are incorporated herein by reference.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAs of the date of this Annual Report on Form 10-K, we do not believe that any of our current legal proceedings, individually or in the aggregate, will have a material adverse effect on our operations, financial condition or cash flows. Item 4. MINE SAFETY DISCLOSURES Not applicable. 49 Table of Contents PART II
Biggest changeAs of the date of this Annual Report on Form 10-K, we do not believe that any of our current legal proceedings, individually or in the aggregate, will have a material adverse effect on our operations, financial condition or cash flows. Item 4. MINE SAFETY DISCLOSURES Not applicable. 51 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIn February 2023, the Board of Directors extended the stock repurchase program expiration from March 31, 2023 to March 31, 2024.
Biggest changeIn March 2023, the Board of Directors approved an upsize of the common stock repurchase program to $246.0 million. On February 21, 2024, the Company announced that its Board of Directors extended the expiration date for the common stock repurchase program from March 31, 2024 to March 31, 2025.
Shares of the Company's common stock repurchased by us under the stock repurchase program are cancelled and, until reissued by us, are deemed to be authorized but unissued shares of the Company's common stock.
Shares of the Company's common stock repurchased by us under the common stock repurchase program are cancelled and, until reissued by us, are deemed to be authorized but unissued shares of the Company's common stock.
Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth information as of December 31, 2022 with respect to compensation plans under which equity securities of the Company are authorized for issuance. The Company has no such plans that were not approved by security holders.
Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth information as of December 31, 2023 with respect to compensation plans under which equity securities of the Company are authorized for issuance. The Company has no such plans that were not approved by security holders.
As of December 31, 2022, we had 364,774,752 shares of common stock outstanding and there were approximately 90 registered holders of record of our common stock, which does not reflect the beneficial ownership of shares held in nominee name, which we are unable to estimate. We intend to pay regular quarterly dividends to holders of shares of our common stock.
As of December 31, 2023, we had 90,675,403 shares of common stock outstanding and there were approximately 100 registered holders of record of our common stock, which does not reflect the beneficial ownership of shares held in nominee name, which we are unable to estimate. We intend to pay regular quarterly dividends to holders of shares of our common stock.
Plan Category Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance under Equity Compensation Plan Equity compensation plans approved by security holders 7,288,253 $ — 28,796,097 Performance Graph The following line graph sets forth, for the period from December 31, 2017 through December 31, 2022, a comparison of the percentage change in the cumulative total stockholder return on the Company’s common stock compared to the cumulative total return of the Russell 2000 Index and the FTSE National Association of Real Estate Investment Trusts Mortgage REIT (“FTSE NAREIT Mortgage REITs”) Index.
Plan Category Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance under Equity Compensation Plan Equity compensation plans approved by security holders 2,154,320 $ — 6,249,922 Performance Graph The following line graph sets forth, for the period from December 31, 2018 through December 31, 2023, a comparison of the percentage change in the cumulative total stockholder return on the Company’s common stock compared to the cumulative total return of the Russell 2000 Index and the FTSE National Association of Real Estate Investment Trusts Mortgage REIT (“FTSE NAREIT Mortgage REITs”) Index.
Subject to applicable securities laws, repurchases of the Company's common stock under the stock repurchase program may be made at times and in amounts as we deem appropriate, using available cash resources. The stock repurchase program does not require the purchase of any minimum number of shares.
Subject to applicable securities laws, repurchases of the Company's common stock under the common stock repurchase program may be made at times and in amounts as we deem appropriate, using available cash resources.
The graph assumes (i) that the value of the investment in the Company’s common stock and each of the indices was $100 as of December 31, 2017 and (ii) the reinvestment of all dividends. 50 Table of Contents 12/17 12/18 12/19 12/20 12/21 12/22 New York Mortgage Trust, Inc. 100.00 108.91 131.03 83.71 92.63 73.38 Russell 2000 100.00 88.99 111.70 134.00 153.85 122.41 FTSE Nareit Mortgage REITs 100.00 97.48 118.27 96.07 111.09 81.53 The foregoing graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act or under the Exchange Act, except to the extent we specifically incorporate this information by reference, and shall not otherwise by deemed "filed" with the SEC or deemed "soliciting material" under those acts. 51 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers In February 2022, the Board of Directors approved a $200.0 million stock repurchase program.
The graph assumes (i) that the value of the investment in the Company’s common stock and each of the indices was $100 as of December 31, 2018 and (ii) the reinvestment of all dividends. 52 Table of Contents 12/18 12/19 12/20 12/21 12/22 12/23 New York Mortgage Trust, Inc. 100.00 120.31 76.86 85.05 67.38 63.85 Russell 2000 100.00 125.52 150.58 172.90 137.56 160.85 FTSE Nareit Mortgage REITs 100.00 121.33 98.56 113.97 83.64 96.48 The foregoing graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act or under the Exchange Act, except to the extent we specifically incorporate this information by reference, and shall not otherwise by deemed "filed" with the SEC or deemed "soliciting material" under those acts. 53 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers Common Stock In February 2022, the Board of Directors approved a $200.0 million common stock repurchase program.
As of December 31, 2022, $155.8 million of the approved amount remained available for the repurchase of shares of the Company's common stock under the stock repurchase program.
As of December 31, 2023, $97.6 million of the approved amount remained available for the repurchase of shares of preferred stock under the preferred stock repurchase program. 54 Table of Contents Item 6. [RESERVED] 55 Table of Contents
The stock repurchase program allows the Company to make repurchases of shares of common stock from time to time in open market transactions, including through block purchases, through privately negotiated transactions or pursuant to any Rule 10b-18 or 10b5-1 plan.
The common stock repurchase program allows the Company to make repurchases of shares of common stock from time to time, in open market transactions, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws and the rules and regulations of Nasdaq.
Removed
The Company intends to only consider repurchasing shares of common stock when the purchase price is less than the last publicly reported book value per common share and expect to fund the share repurchases from current liquidity.
Added
During the three months ended December 31, 2023, the Company did not repurchase any shares of its common stock pursuant to the common stock repurchase program. As of December 31, 2023, $193.2 million of the approved amount remained available for the repurchase of shares of the Company's common stock under the common stock repurchase program.
Removed
During the three months ended December 31, 2022, the Company repurchased 8,365,473 shares of its common stock pursuant to the stock repurchase program for a total cost of approximately $22.5 million, including fees and commissions paid to the broker of approximately $0.1 million, representing an average repurchase price of $2.69 per common share.
Added
Preferred Stock In March 2023, the Board of Directors approved a $100.0 million preferred stock repurchase program originally scheduled to expire on March 31, 2024. On February 21, 2024, the Company announced that its Board of Directors extended the expiration date for the preferred stock repurchase program to March 31, 2025.
Removed
During the year ended December 31, 2022, the Company repurchased 16,629,615 shares of its common stock pursuant to the stock repurchase program for a total cost of approximately $44.4 million, including fees and commissions paid to the broker of approximately $0.2 million, representing an average repurchase price of $2.67 per common share.
Added
The preferred stock repurchase program allows the Company to make repurchases of shares of preferred stock, from time to time, in open market transactions, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws and the rules and regulations of Nasdaq.
Removed
The following table presents information with respect to the shares of the Company's common stock that we purchased during the three months ended December 31, 2022 (dollar amounts in thousands, except per share data): Period (1) Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs October 1, 2022 - October 31, 2022 2,086,774 $ 2.22 2,086,774 $ 173,601 November 1, 2022 - November 30, 2022 — $ — — $ 173,601 December 1, 2022 - December 31, 2022 6,278,699 $ 2.84 6,278,699 $ 155,767 Total 8,365,473 $ 2.69 8,365,473 $ 155,767 (1) On February 15, 2022, the Company’s Board of Directors approved a $200.0 million stock repurchase program that authorizes the Company to make repurchases of shares of the Company’s common stock, which was announced on February 17, 2022.
Added
During the three months ended December 31, 2023, the Company did not repurchase any shares of its preferred stock pursuant to the preferred stock repurchase program.
Removed
The repurchase program was initially set to expire March 31, 2023. On February 20, 2023, the Company's Board of Directors extended the repurchase program's expiration to March 31, 2024. This extension was announced on February 22, 2023. 52 Table of Contents Item 6. [RESERVED] 53 Table of Contents

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [ Reserved ] 53 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 54 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 107 Item 8. Financial Statements and Supplementary Data 113 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 114 Item 9A. Controls and Procedures 115
Biggest changeItem 6. [ Reserved ] 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 56 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 113 Item 8. Financial Statements and Supplementary Data 119 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 120 Item 9A. Controls and Procedures 121

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following tables summarize our investment securities portfolio as of December 31, 2022 and 2021, respectively (dollar amounts in thousands): December 31, 2022 Unrealized Weighted Average Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value Coupon (1) Yield (2) Outstanding Repurchase Agreements Available for Sale (“AFS”) Non-Agency RMBS Senior $ 41 $ 41 $ — $ (5) $ 36 2.74 % 2.89 % $ — Mezzanine 30,250 29,325 — (2,153) 27,172 4.77 % 5.58 % — Subordinated 39,104 28,108 — (13,282) 14,826 9.38 % 8.37 % — IO 524,726 17,100 9,436 — 26,536 1.44 % 20.79 % — Total Non-Agency RMBS 594,121 74,574 9,436 (15,440) 68,570 2.09 % 10.38 % — CMBS Mezzanine 26,033 26,033 — (1,662) 24,371 5.43 % 5.42 % — Subordinated 6,000 6,000 — (238) 5,762 9.29 % 9.29 % — Total CMBS 32,033 32,033 — (1,900) 30,133 6.14 % 6.13 % — ABS Residuals 4 797 59 — 856 — 30.19 % — Total ABS 4 797 59 — 856 — 30.19 % — Total - AFS $ 626,158 $ 107,404 $ 9,495 $ (17,340) $ 99,559 2.45 % 9.33 % $ — Consolidated SLST Non-Agency RMBS Subordinated $ 256,155 $ 210,733 $ — $ (40,182) $ 170,551 4.47 % 4.92 % $ 50,077 IO 149,873 21,528 — (546) 20,982 3.50 % 3.01 % — Total Non-Agency RMBS 406,028 232,261 — (40,728) 191,533 4.10 % 4.73 % 50,077 Total - Consolidated SLST $ 406,028 $ 232,261 $ — $ (40,728) $ 191,533 4.10 % 4.73 % $ 50,077 Total Investment Securities $ 1,032,186 $ 339,665 $ 9,495 $ (58,068) $ 291,092 3.09 % 6.19 % $ 50,077 96 Table of Contents December 31, 2021 Unrealized Weighted Average Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value Coupon (1) Yield (2) Outstanding Repurchase Agreements Available for Sale (“AFS”) Non-Agency RMBS Senior $ 14,055 $ 14,054 $ — $ (6) $ 14,048 5.97 % 5.97 % $ — Mezzanine 40,350 39,243 1,787 (8) 41,022 6.72 % 6.18 % — Subordinated 63,153 53,386 374 (2,265) 51,495 4.35 % 6.12 % — IO 633,530 21,246 575 (367) 21,454 1.01 % 12.08 % — Total Non-Agency RMBS 751,088 127,929 2,736 (2,646) 128,019 1.80 % 6.86 % — CMBS Mezzanine 26,600 26,600 159 (138) 26,621 3.81 % 3.81 % — Subordinated 6,000 6,000 525 — 6,525 7.69 % 7.69 % — Total CMBS 32,600 32,600 684 (138) 33,146 4.52 % 4.52 % — ABS Residuals 117 21,795 17,884 — 39,679 — 24.58 % — Total ABS 117 21,795 17,884 — 39,679 — 24.58 % — Total - AFS $ 783,805 $ 182,324 $ 21,304 $ (2,784) $ 200,844 5.49 % 9.36 % $ — Consolidated SLST Non-Agency RMBS Subordinated $ 256,807 $ 212,254 $ 1,514 $ — $ 213,768 4.57 % 4.88 % $ — IO 174,483 26,415 — (9,839) 16,576 3.50 % 8.48 % — Total Non-Agency RMBS 431,290 238,669 1,514 (9,839) 230,344 4.11 % 5.30 % — Total - Consolidated SLST $ 431,290 $ 238,669 $ 1,514 $ (9,839) $ 230,344 4.11 % 5.30 % $ — Total Investment Securities $ 1,215,095 $ 420,993 $ 22,818 $ (12,623) $ 431,188 4.90 % 6.97 % $ — (1) Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods.
Biggest changeThe following tables summarize our investment securities portfolio as of December 31, 2023 and 2022, respectively (dollar amounts in thousands): December 31, 2023 Unrealized Weighted Average Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value Coupon (1) Yield (2) Outstanding Repurchase Agreements Available for Sale (“AFS”) Agency RMBS Fixed rate $ 1,756,343 $ 1,761,138 $ 21,581 $ (1,829) $ 1,780,890 5.74 % 5.64 % $ 1,602,695 Adjustable rate 149,052 147,460 1,741 — 149,201 5.48 % 5.35 % 137,084 Interest-only 1,139,828 52,623 6,813 (203) 59,233 0.76 % 14.81 % 31,657 Total Agency RMBS 3,045,223 1,961,221 30,135 (2,032) 1,989,324 4.34 % 5.79 % 1,771,436 Non-Agency RMBS Senior 35 35 — (4) 31 3.65 % 3.60 % — Subordinated 8,164 7,526 — (4,281) 3,245 4.61 % 7.39 % — IO 375,563 14,571 6,646 — 21,217 1.63 % 27.42 % — Total Non-Agency RMBS 383,762 22,132 6,646 (4,285) 24,493 1.70 % 20.27 % — Total - AFS $ 3,428,985 $ 1,983,353 $ 36,781 $ (6,317) $ 2,013,817 3.64 % 6.20 % $ 1,771,436 Consolidated SLST Non-Agency RMBS Subordinated $ 238,017 $ 189,962 $ — $ (49,684) $ 140,278 4.44 % 4.01 % $ 55,881 IO 139,914 17,937 — (1,061) 16,876 3.50 % 7.43 % — Total Non-Agency RMBS 377,931 207,899 — (50,745) 157,154 4.09 % 4.32 % 55,881 Total - Consolidated SLST $ 377,931 $ 207,899 $ — $ (50,745) $ 157,154 4.09 % 4.32 % $ 55,881 Total Investment Securities $ 3,806,916 $ 2,191,252 $ 36,781 $ (57,062) $ 2,170,971 3.74 % 5.80 % $ 1,827,317 93 Table of Contents December 31, 2022 Unrealized Weighted Average Investment Securities Current Par Value Amortized Cost Gains Losses Fair Value Coupon (1) Yield (2) Outstanding Repurchase Agreements Available for Sale (“AFS”) Non-Agency RMBS Senior $ 41 $ 41 $ — $ (5) $ 36 2.74 % 2.89 % $ — Mezzanine 30,250 29,325 — (2,153) 27,172 4.77 % 5.58 % — Subordinated 39,104 28,108 — (13,282) 14,826 9.38 % 8.37 % — IO 524,726 17,100 9,436 — 26,536 1.44 % 20.79 % — Total Non-Agency RMBS 594,121 74,574 9,436 (15,440) 68,570 2.09 % 10.38 % — CMBS Mezzanine 26,033 26,033 — (1,662) 24,371 5.43 % 5.42 % — Subordinated 6,000 6,000 — (238) 5,762 9.29 % 9.29 % — Total CMBS 32,033 32,033 — (1,900) 30,133 6.14 % 6.13 % — ABS Residuals 4 797 59 — 856 — 30.19 % — Total ABS 4 797 59 — 856 — 30.19 % — Total - AFS $ 626,158 $ 107,404 $ 9,495 $ (17,340) $ 99,559 2.45 % 9.33 % $ — Consolidated SLST Non-Agency RMBS Subordinated $ 256,155 $ 210,733 $ — $ (40,182) $ 170,551 4.47 % 4.92 % $ 50,077 IO 149,873 21,528 — (546) 20,982 3.50 % 3.01 % — Total Non-Agency RMBS 406,028 232,261 — (40,728) 191,533 4.10 % 4.73 % 50,077 Total - Consolidated SLST $ 406,028 $ 232,261 $ — $ (40,728) $ 191,533 4.10 % 4.73 % $ 50,077 Total Investment Securities $ 1,032,186 $ 339,665 $ 9,495 $ (58,068) $ 291,092 3.09 % 6.19 % $ 50,077 (1) Our weighted average coupon was calculated by dividing our annualized coupon income by our weighted average current par value for the respective periods.
Changes in the estimates and assumptions could have a material effect on these financial statements. Accounting policies and estimates related to specific components of our consolidated financial statements are disclosed in the notes to our consolidated financial statements.
Changes in the estimates and assumptions could have a material effect on these consolidated financial statements. Accounting policies and estimates related to specific components of our consolidated financial statements are disclosed in the notes to our consolidated financial statements.
We have entered into or amended repurchase agreements with three new or existing counterparties that are secured by certain of our residential loans and are not subject to margin calls in the event the market value of the collateral declines.
We have entered into or amended repurchase agreements with three new and existing counterparties that are secured by certain of our residential loans and are not subject to margin calls in the event the market value of the collateral declines.
At December 31, 2022: Single-Family Multi-Family Corporate/Other Total Residential loans $ 3,525,080 $ — $ — $ 3,525,080 Consolidated SLST CDOs (634,495) — — (634,495) Multi-family loans — 87,534 — 87,534 Investment securities available for sale 68,570 30,133 856 99,559 Equity investments — 152,246 27,500 179,746 Equity investments in consolidated multi-family properties (1) — 144,735 — 144,735 Equity investments in disposal group held for sale (2) — 244,039 — 244,039 Single-family rental properties 149,230 — — 149,230 Total investment portfolio carrying value 3,108,385 658,687 28,356 3,795,428 Liabilities: Repurchase agreements (737,023) — — (737,023) Residential loan securitization CDOs (1,468,222) — — (1,468,222) Senior unsecured notes — — (97,384) (97,384) Subordinated debentures — — (45,000) (45,000) Cash, cash equivalents and restricted cash (3) 135,401 — 224,403 359,804 Adjustment of redeemable non-controlling interest to estimated redemption value — (44,237) — (44,237) Other 61,063 (2,554) (54,659) 3,850 Net Company capital allocated $ 1,099,604 $ 611,896 $ 55,716 $ 1,767,216 Company Recourse Leverage Ratio (4) 0.3x Portfolio Recourse Leverage Ratio (5) 0.3x (1) Represents the Company's equity investments in consolidated multi-family properties that are not in disposal group held for sale.
At December 31, 2022: Single-Family Multi-Family Corporate/Other Total Residential loans $ 3,525,080 $ — $ — $ 3,525,080 Consolidated SLST CDOs (634,495) — — (634,495) Investment securities available for sale 68,570 30,133 856 99,559 Multi-family loans — 87,534 — 87,534 Equity investments — 152,246 27,500 179,746 Equity investments in consolidated multi-family properties (1) — 144,735 — 144,735 Equity investments in disposal group held for sale (2) — 244,039 — 244,039 Single-family rental properties 149,230 — — 149,230 Total investment portfolio carrying value 3,108,385 658,687 28,356 3,795,428 Liabilities: Repurchase agreements (737,023) — — (737,023) Residential loan securitization CDOs (1,468,222) — — (1,468,222) Senior unsecured notes — — (97,384) (97,384) Subordinated debentures — — (45,000) (45,000) Cash, cash equivalents and restricted cash (3) 135,401 — 224,403 359,804 Cumulative adjustment of redeemable non-controlling interest to estimated redemption value — (44,237) — (44,237) Other 61,063 (2,554) (54,659) 3,850 Net Company capital allocated $ 1,099,604 $ 611,896 $ 55,716 $ 1,767,216 Company Recourse Leverage Ratio (4) 0.3x Portfolio Recourse Leverage Ratio (5) 0.3x (1) Represents the Company's equity investments in consolidated multi-family properties that are not in disposal group held for sale.
However, because the corresponding real estate assets are not reported at fair value and thus not adjusted to reflect unrealized gains or losses in our consolidated financial statements, the adjustment of the redeemable non-controlling interests to fair value directly affects our GAAP book value.
However, because the corresponding real estate assets are not reported at fair value and thus not adjusted to reflect unrealized gains or losses in our consolidated financial statements, the cumulative adjustment of the redeemable non-controlling interests to fair value directly affects our GAAP book value.
However, unlike our use of the fair value option for the assets in our investment portfolio, the CDOs issued by our residential loan securitizations, senior unsecured notes, subordinated debentures and Convertible Notes that finance our investment portfolio assets are carried at amortized cost in our consolidated financial statements.
However, unlike our use of the fair value option for the assets in our investment portfolio, the CDOs issued by our residential loan securitizations, senior unsecured notes and subordinated debentures that finance our investment portfolio assets are carried at amortized cost in our consolidated financial statements.
The Company determined that these joint venture entities are VIEs and that the Company is the primary beneficiary of all but two of these VIEs, resulting in consolidation of the VIEs where we are the primary beneficiary, including their assets, liabilities, income and expenses, in our financial statements in accordance with GAAP.
The Company determined that these joint venture entities are VIEs and that the Company is the primary beneficiary of all but two of these VIEs, resulting in consolidation of the VIEs where we are the primary beneficiary, including their assets, liabilities, income and expenses, in our consolidated financial statements in accordance with GAAP.
In the event we fail to pay dividends on our preferred stock, the Company would become subject to certain limitations on its ability to pay dividends or redeem or repurchase its common stock or preferred stock. 105 Table of Contents Redeemable Non-Controlling Interest Pursuant to the operating agreement for one of our joint venture equity investments, third party investors in this joint venture have the ability to sell their ownership interests to us, at their election once a year subject to annual minimum and maximum amount limitations, and we are obligated to purchase, subject to certain conditions, such interests for cash.
In the event we fail to pay dividends on our preferred stock, the Company would become subject to certain limitations on its ability to pay dividends or redeem or repurchase its common stock or preferred stock. 111 Table of Contents Redeemable Non-Controlling Interest Pursuant to the operating agreement for one of our joint venture equity investments, third party investors in this joint venture have the ability to sell their ownership interests to us, at their election once a year subject to annual minimum and maximum amount limitations, and we are obligated to purchase, subject to certain conditions, such interests for cash.
Commencing with the quarter ended December 31, 2022, we have discontinued disclosure of undepreciated book value per common share and instead present adjusted book value per common share, also a non-GAAP financial measure.
Commencing with the quarter ended December 31, 2022, we discontinued disclosure of undepreciated book value per common share and instead present adjusted book value per common share, also a non-GAAP financial measure.
Projected interest payments are based on interest rates in effect and outstanding balances as of December 31, 2022. (2) We exclude our CDOs from the contractual obligations disclosed in the table above as this debt is non-recourse and not cross-collateralized and, therefore, must be satisfied exclusively from the proceeds of the residential loans held in securitization trusts.
Projected interest payments are based on interest rates in effect and outstanding balances as of December 31, 2023. (2) We exclude our CDOs from the contractual obligations disclosed in the table above as this debt is non-recourse and not cross-collateralized and, therefore, must be satisfied exclusively from the proceeds of the residential loans held in securitization trusts.
Refer to Item 7A., "Quantitative and Qualitative Disclosures about Market Risk—Fair Value Risk" for a quantitative interest rate sensitivity analysis of our investment portfolio. 80 Table of Contents Revenue Recognition Investment Securities Issued by Consolidated SLST Interest income on first loss subordinated securities and certain IOs issued by Consolidated SLST is recognized based on the securities' effective yield.
Refer to Item 7A., "Quantitative and Qualitative Disclosures about Market Risk—Fair Value Risk" for a quantitative interest rate sensitivity analysis of our investment portfolio. 83 Table of Contents Revenue Recognition Investment Securities Issued by Consolidated SLST Interest income on first loss subordinated securities and certain IOs issued by Consolidated SLST is recognized based on the securities' effective yield.
The Company applies a discount rate to the estimated future cash flows from the multi-family apartment properties held by the applicable Consolidated VIEs that are allocable to the redeemable non-controlling interest. The estimation of cash flows used in pricing models for real estate held for sale and redeemable non-controlling interest is inherently subjective and imprecise.
The Company applies a discount rate to the estimated future cash flows from the multi-family apartment properties held by the applicable Consolidated VIEs that are allocatable to the redeemable non-controlling interest. The estimation of cash flows used in pricing models for real estate held for sale and redeemable non-controlling interest is inherently subjective and imprecise.
Senior Unsecured Notes As of December 31, 2022, the Company had $100.0 million aggregate principal amount of its 5.75% Senior Unsecured Notes (the "Senior Unsecured Notes") outstanding, due on April 30, 2026. The Senior Unsecured Notes were issued at par and carry deferred charges resulting in a total cost to the Company of approximately 6.64%.
Senior Unsecured Notes As of December 31, 2023, the Company had $100.0 million aggregate principal amount of its 5.75% Senior Unsecured Notes (the "Senior Unsecured Notes") outstanding, due on April 30, 2026. The Senior Unsecured Notes were issued at par and carry deferred charges resulting in a total cost to the Company of approximately 6.64%.
Our investment and capital allocation decisions depend on prevailing market conditions, among other factors, and may change over time in response to opportunities available in different economic and capital market environments. 55 Table of Contents Historical Financial Information The following tables set forth our selected historical operating and financial data.
Our investment and capital allocation decisions depend on prevailing market conditions, among other factors, and may change over time in response to opportunities available in different economic and capital market environments. 57 Table of Contents Historical Financial Information The following tables set forth our selected historical operating and financial data.
The Company considers the value of acquired in-place leases and utilizes an amortization period that is the average remaining term of the acquired leases. 81 Table of Contents The estimation of fair value for purposes of allocating the purchase price of investments in real estate requires significant judgement based on the available sources.
The Company considers the value of acquired in-place leases and utilizes an amortization period that is the average remaining term of the acquired leases. 84 Table of Contents The estimation of fair value for purposes of allocating the purchase price of investments in real estate requires significant judgement based on the available sources.
The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE. As of December 31, 2022 and 2021, we owned 100% of the first loss subordinated securities of Consolidated SLST.
The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE. As of December 31, 2023 and 2022, we owned 100% of the first loss subordinated securities of Consolidated SLST.
Our investment securities also include first loss subordinated securities and certain IOs issued by Consolidated SLST. At December 31, 2022, we had no investment securities in a single issuer or entity that had an aggregate book value in excess of 5% of our total assets.
Our investment securities also include first loss subordinated securities and certain IOs issued by Consolidated SLST. At December 31, 2023, we had no investment securities in a single issuer or entity that had an aggregate book value in excess of 5% of our total assets.
The selected historical operating and balance sheet data for the years ended and as of December 31, 2022, 2021, 2020, 2019 and 2018 have been derived from our historical financial statements. Prior year information has been conformed to current year financial statement presentation.
The selected historical operating and balance sheet data for the years ended and as of December 31, 2023, 2022, 2021, 2020 and 2019 have been derived from our historical financial statements. Prior year information has been conformed to current year financial statement presentation.
See Note 12 in the Notes to Consolidated Financial Statements for further information regarding our CDOs. We also exclude mortgages payable on real estate as they are non-recourse debt for which we have no obligation for repayment. See Note 13 in the Notes to Consolidated Financial Statements for further information regarding our mortgages payable on real estate.
See Note 13 in the Notes to Consolidated Financial Statements for further information regarding our CDOs. We also exclude mortgages payable on real estate as they are non-recourse debt for which we have no obligation for repayment. See Note 14 in the Notes to Consolidated Financial Statements for further information regarding our mortgages payable on real estate.
A detailed discussion of our liquidity and capital resources is provided in “Liquidity and Capital Resources” elsewhere in this section. The following tables set forth our allocated capital by investment category at December 31, 2022 and 2021, respectively (dollar amounts in thousands).
A detailed discussion of our liquidity and capital resources is provided in “Liquidity and Capital Resources” elsewhere in this section. The following tables set forth our allocated capital by investment category at December 31, 2023 and 2022, respectively (dollar amounts in thousands).
Although our estimates contemplate conditions as of December 31, 2022 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially affect reported amounts of assets, liabilities and accumulated other comprehensive income at the date of the consolidated financial statements and the reported amounts of income, expenses and other comprehensive income during the periods presented.
Although our estimates contemplate conditions as of December 31, 2023 and how we expect them to change in the future, it is reasonably possible that actual conditions could be different than anticipated in those estimates, which could materially affect reported amounts of assets, liabilities and accumulated other comprehensive income (loss) at the date of the consolidated financial statements and the reported amounts of income, expenses and other comprehensive income (loss) during the periods presented.
Our short-term (the 12 months ending December 31, 2023) and long-term (beyond December 31, 2023) liquidity requirements include ongoing commitments to repay borrowings, fund and maintain investments, comply with margin requirements, fund our operations, pay dividends to our stockholders and other general business needs.
Our short-term (the 12 months ending December 31, 2024) and long-term (beyond December 31, 2024) liquidity requirements include ongoing commitments to repay borrowings, fund and maintain investments, comply with margin requirements, fund our operations, pay dividends to our stockholders and other general business needs.
The type and terms of financing used by us depends on the asset being financed and the financing available at the time of the financing.
The type and terms of the ultimate financing used by us depends on the asset being financed and the financing available at the time of the financing.
When presented in prior periods, undepreciated book value was calculated by excluding from GAAP book value the Company's share of cumulative depreciation and lease intangible amortization expenses related to operating real estate, net held at the end of the period.
When presented in prior periods, undepreciated book value was calculated by excluding from GAAP book value the Company's share of cumulative depreciation and lease intangible amortization expenses related to real estate held at the end of the period.
As of December 31, 2022, we had assets available to be posted as margin which included liquid assets, such as unrestricted cash and cash equivalents, and unencumbered investment securities that could be monetized to pay down or collateralize a liability immediately.
As of December 31, 2023, we had assets available to be posted as margin which included liquid assets, such as unrestricted cash and cash equivalents, and unencumbered investment securities that could be monetized to pay down or collateralize a liability immediately.
In September 2022, the Company announced a repositioning of its business through the opportunistic disposition over time of the Company's joint venture equity investments in multi-family properties and reallocation of its capital away from such assets to its targeted assets.
In September 2022, the Company announced a repositioning of its business through the opportunistic disposition over time of the Company's joint venture equity investments in multi-family properties and reallocation of the returned capital from such investments to its targeted assets.
The directive was spurred by the fact that banks are uncomfortable contributing to the LIBOR panel given the shortage of underlying transactions on which to base levels and the liability associated with submitting an unfounded level.
The directive was spurred by the fact that banks were uncomfortable contributing to the LIBOR panel given the shortage of underlying transactions on which to base levels and the liability associated with submitting an unfounded level.
Dividends For information regarding the declaration and payment of dividends on our common stock and preferred stock for the periods covered by this report, please see Note 16 to our consolidated financial statements included in this report.
Dividends For information regarding the declaration and payment of dividends on our common stock and preferred stock for the periods covered by this report, please see Note 17 to our consolidated financial statements included in this report.
These interest rate cap contracts are with a counterparty that involve the receipt of variable-rate amounts from the counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During the period these contracts are open, changes in the value of the contract are recognized as unrealized gains or losses.
These interest rate cap contracts are with a counterparty that involve the receipt of variable-rate amounts from the counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During the period these contracts are open, changes in the value of the contract are recognized as gains or losses on derivative instruments.
These interest rate cap contracts are with a counterparty that involve the receipt of variable-rate amounts from the counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During the period these contracts are open, changes in the value of the contract are recognized as unrealized gains or losses.
These interest rate cap contracts are with a counterparty that involve the receipt of variable-rate amounts from the counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During the period these contracts are open, changes in the value of the contract are recognized as gains or losses on derivative instruments.
A reconciliation of GAAP book value to adjusted book value and calculation of adjusted book value per common share as of December 31, 2022 and 2021, respectively, is presented below (amounts in thousands, except per share data).
A reconciliation of GAAP book value to adjusted book value and calculation of adjusted book value per common share as of December 31, 2023 and 2022, respectively, is presented below (amounts in thousands, except per share data).
(2) Adjusted book value per common share is calculated using the adjusted book value and the common shares outstanding for the periods indicated. 79 Table of Contents Critical Accounting Estimates We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
(3) Adjusted book value per common share is calculated using the adjusted book value and the common shares outstanding for the periods indicated. 82 Table of Contents Critical Accounting Estimates We prepare our consolidated financial statements in conformity with GAAP, which requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
In addition, pursuant to the operating agreement for one of our joint venture equity investments, subject to certain conditions, third party investors in this joint venture have the ability to sell their ownership interests to us, at their election, and we are obligated to purchase such interests for cash.
In addition, pursuant to the operating agreement for one of our joint venture equity investments, subject to certain conditions, third party investors in this joint venture have the ability to sell their ownership interests to us, at their election, and we are obligated to purchase such interests for cash. 112 Table of Contents
A number of the tables contain a “change” column that indicates the amount by which results from the year ended December 31, 2022 are greater or less than the results from the year ended December 31, 2021.
A number of the tables contain a “change” column that indicates the amount by which results from the year ended December 31, 2023 are greater or less than the results from the year ended December 31, 2022.
Unless otherwise specified, references in this section to increases or decreases in 2022 refer to the change in results for the year ended December 31, 2022 when compared to the year ended December 31, 2021.
Unless otherwise specified, references in this section to increases or decreases in 2023 refer to the change in results for the year ended December 31, 2023 when compared to the year ended December 31, 2022.
The Company’s valuation methodologies are described in “Note 15 – Fair Value of Financial Instruments” included in Item 8 of this Annual Report on Form 10-K.
The Company’s valuation methodologies are described in “Note 16 – Fair Value of Financial Instruments” included in Item 8 of this Annual Report on Form 10-K.
For a discussion related to our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Part II, Item 7.
For a discussion related to our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7.
(4) Average Interest Bearing Liabilities for the respective periods include repurchase agreements, residential loan securitization CDOs, Convertible Notes, senior unsecured notes and subordinated debentures and exclude Consolidated SLST CDOs, Consolidated K-Series CDOs and mortgages payable on real estate as the Company does or did not directly incur interest expense on these liabilities that are consolidated for GAAP purposes.
(4) Average Interest Bearing Liabilities for the respective periods include repurchase agreements, residential loan securitization CDOs, Convertible Notes, senior unsecured notes and subordinated debentures and exclude Consolidated SLST CDOs and mortgages payable on real estate as the Company does not directly incur interest expense on these liabilities that are consolidated for GAAP purposes.
Accordingly, as of December 31, 2022, the assets and liabilities related to certain joint venture equity investments in multi-family properties are included in assets and liabilities of disposal group held for sale on the accompanying consolidated balance sheets.
As of December 31, 2023, the assets and liabilities related to certain joint venture equity investments in multi-family properties are included in assets and liabilities of disposal group held for sale on the accompanying consolidated balance sheets.
(6) See "Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated balance sheets. 59 Table of Contents Current Market Conditions and Commentar y The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income, the market value of our assets, which is driven by numerous factors including the supply and demand for mortgage, housing and credit assets in the marketplace, the ability of our operating partners, tenants and borrowers of our loans and those that underlie our investment securities to meet their payment obligations, the terms and availability of adequate financing and capital, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate, mortgage, credit and financial markets, and the credit performance of our credit sensitive assets.
(6) See "Balance Sheet Analysis—Equity Investments in Multi-Family Entities" for a reconciliation of equity investments in consolidated multi-family properties and disposal group held for sale to the Company's consolidated balance sheets. 61 Table of Contents Current Market Conditions and Commentar y The results of our business operations are affected by a number of factors, many of which are beyond our control, and primarily depend on, among other things, the level of our net interest income, the market value of our assets, which is driven by numerous factors including changes in interest rates and the supply and demand for mortgage, housing and credit assets in the marketplace, our ability to identify and acquire assets on favorable terms, our ability to dispose of assets from time to time on favorable terms, the ability of our operating partners, tenants and borrowers of our loans and those that underlie our investment securities to meet their payment obligations, the terms and availability of adequate financing and capital, general economic and real estate conditions (both on a national and local level), the impact of government actions in the real estate, mortgage, credit and financial markets, and the credit performance of our credit sensitive assets.
Consolidated SLST represents a Freddie Mac-sponsored residential mortgage loan securitization of which we own or owned the first loss subordinated securities and certain IOs and senior securities. We determined that Consolidated SLST was a VIE and that we are the primary beneficiary of Consolidated SLST.
Consolidated SLST represents a Freddie Mac-sponsored residential mortgage loan securitization of which we own the first loss subordinated securities and certain IOs. We determined that Consolidated SLST was a VIE and that we are the primary beneficiary of Consolidated SLST.
Adjusted net interest income and net interest spread (both supplemental non-GAAP financial measures) are impacted by factors such as our cost of financing, the interest rate that our investments bear and our interest rate hedging strategies.
Adjusted net interest income and net interest spread (both supplemental non-GAAP financial measures) are impacted by factors such as our cost of financing, including our hedging costs, and the interest rate that our investments bear.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We are a REIT for U.S. federal income tax purposes, in the business of acquiring, investing in, financing and managing primarily mortgage-related single-family and multi-family residential assets.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General We are an internally-managed REIT for U.S. federal income tax purposes, in the business of acquiring, investing in, financing and managing primarily mortgage-related single-family and multi-family residential assets.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on February 25, 2022 and is available on the SEC’s website at www.sec.gov.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 24, 2023 and is available on the SEC’s website at www.sec.gov.
As of December 31, 2022, our Company recourse leverage ratio, which represents our total outstanding recourse repurchase agreement financing, subordinated debentures and Senior Unsecured Notes divided by our total stockholders' equity, was approximately 0.3 to 1. Our Company recourse leverage ratio does not include outstanding non-recourse repurchase agreement financing, debt associated with CDOs or mortgages payable on real estate.
As of December 31, 2023, our Company recourse leverage ratio, which represents our total outstanding recourse repurchase agreement financing, subordinated debentures and Senior Unsecured Notes divided by our total stockholders' equity, was approximately 1.6 to 1. Our Company recourse leverage ratio does not include outstanding non-recourse repurchase agreement financing, debt associated with CDOs or mortgages payable on real estate.
As of December 31, 2022, our portfolio recourse leverage ratio, which represents our outstanding recourse repurchase agreement financing divided by our total stockholders’ equity, was approximately 0.3 to 1. We monitor all at risk or shorter-term financings to enable us to respond to market disruptions as they arise.
As of December 31, 2023, our portfolio recourse leverage ratio, which represents our outstanding recourse repurchase agreement financing divided by our total stockholders’ equity, was approximately 1.5 to 1. We monitor all at risk or shorter-term financings to enable us to respond to market disruptions as they arise.
Restricted cash is included in the Company's accompanying consolidated balance sheets in other assets. (4) Represents the Company's total outstanding recourse repurchase agreement financing, subordinated debentures and senior unsecured notes divided by the Company’s total stockholders’ equity.
Restricted cash of $136.2 million is included in the Company's accompanying consolidated balance sheets in other assets. (4) Represents the Company's total outstanding recourse repurchase agreement financing, subordinated debentures and senior unsecured notes divided by the Company’s total stockholders’ equity.
Subordinated Debentures As of December 31, 2022, certain of our wholly-owned subsidiaries had trust preferred securities outstanding of $45.0 million with a weighted average interest rate of 8.43% which are due in 2035. The securities are fully guaranteed by us with respect to distributions and amounts payable upon liquidation, redemption or repayment.
Subordinated Debentures As of December 31, 2023, certain of our wholly-owned subsidiaries had trust preferred securities outstanding of $45.0 million with a weighted average interest rate of 9.46% which are due in 2035. The securities are fully guaranteed by us with respect to distributions and amounts payable upon liquidation, redemption or repayment.
As discussed above, as a result of the severe market dislocations related to the COVID-19 pandemic and, more specifically, the unprecedented illiquidity in our short-term repurchase agreement financing and MBS markets during that time, we have placed and expect to continue to place a greater emphasis on procuring longer-termed and/or more committed financing arrangements, such as securitizations, term financings and corporate debt securities that provide less or no exposure to fluctuations in the collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets.
As a result of the severe market dislocations related to the COVID-19 pandemic and, more specifically, the unprecedented illiquidity in our short-term repurchase agreement financing and MBS markets during that time, we have placed a greater emphasis on procuring longer-termed and/or more committed financing arrangements for our credit investments, such as securitizations, term financings and corporate debt securities that provide less or no exposure to fluctuations in the collateral repricing determinations of financing counterparties or rapid liquidity reductions in repurchase agreement financing markets.
At December 31, 2022, we also had other longer-term debt which includes Company-sponsored residential loan securitization CDOs with a carrying value of $1.5 billion. We had ten Company-sponsored securitizations with CDOs outstanding as of December 31, 2022. See Note 12 to our consolidated financial statements included in this report for further discussion.
At December 31, 2023, we also had other longer-term debt which includes Company-sponsored residential loan securitization CDOs with a carrying value of $1.3 billion. We had ten Company-sponsored securitizations with CDOs outstanding as of December 31, 2023. See Note 13 to our consolidated financial statements included in this report for further discussion.
We provide the following non-GAAP financial measures, in total and by investment category, for the respective periods: • adjusted interest income – calculated by reducing our GAAP interest income by the interest expense recognized on Consolidated SLST CDOs and Consolidated K-Series CDOs, • adjusted interest expense – calculated by reducing our GAAP interest expense by the interest expense recognized on Consolidated SLST CDOs and Consolidated K-Series CDOs, • adjusted net interest income – calculated by subtracting adjusted interest expense from adjusted interest income, • yield on average interest earning assets – calculated as the quotient of our adjusted interest income and our average interest earning assets and excludes all Consolidated SLST and Consolidated K-Series assets other than those securities owned by the Company, • average financing cost – calculated as the quotient of our adjusted interest expense and the average outstanding balance of our interest bearing liabilities, excluding Consolidated SLST CDOs, Consolidated K-Series CDOs and mortgages payable on real estate, and • net interest spread – calculated as the difference between our yield on average interest earning assets and our average financing cost.
We provide the following non-GAAP financial measures, in total and by investment category, for the respective periods: • adjusted interest income – calculated as our GAAP interest income reduced by the interest expense recognized on Consolidated SLST CDOs, • adjusted interest expense – calculated as our GAAP interest expense reduced by the interest expense recognized on Consolidated SLST CDOs and adjusted to include the net interest component of interest rate swaps, • adjusted net interest income – calculated by subtracting adjusted interest expense from adjusted interest income, • yield on average interest earning assets – calculated as the quotient of our adjusted interest income and our average interest earning assets and excludes all Consolidated SLST assets other than those securities owned by the Company, • average financing cost – calculated as the quotient of our adjusted interest expense and the average outstanding balance of our interest bearing liabilities, excluding Consolidated SLST CDOs and mortgages payable on real estate, and • net interest spread – calculated as the difference between our yield on average interest earning assets and our average financing cost.
(4) Represents the Company's outstanding recourse repurchase agreement financing divided by the Company’s total stockholders’ equity. 66 Table of Contents Results of Operations The following discussion provides information regarding our results of operations for the years ended December 31, 2022 and 2021, including a comparison of year-over-year results and related commentary.
(5) Represents the Company's outstanding recourse repurchase agreement financing divided by the Company’s total stockholders’ equity. 68 Table of Contents Results of Operations The following discussion provides information regarding our results of operations for the years ended December 31, 2023 and 2022, including a comparison of year-over-year results and related commentary.
The Alternative Reference Rates Committee (“ARRC”), which was convened by the Federal Reserve Board and the Federal Reserve Bank of New York to help ensure a successful transition from LIBOR, proposed that the Secured Overnight Funding Rate (“SOFR”) would replace LIBOR. SOFR is based on overnight Treasury General Collateral repo rates.
The Alternative Reference Rates Committee, which was convened by the Federal Reserve Board and the Federal Reserve Bank of New York to help ensure a successful transition from LIBOR, proposed that SOFR replace LIBOR. SOFR is based on overnight Treasury General Collateral repo rates.
Additionally, previously recognized net unrealized gains reported in OCI were reclassified to net realized gains in relation to the sale of certain investment securities during the year ended December 31, 2021.
Additionally, previously recognized net unrealized losses reported in OCI were reclassified to net realized losses in relation to the sale of certain investment securities during the year ended December 31, 2023.
Weakening multi-family housing fundamentals, including, among other things, increasing interest rates, widening capitalization rates and reduced liquidity for owners of multi-family properties, may cause our operating partners to fail to meet their obligations to us and/or contribute to reduced cash flows from and/or valuation declines for multi-family properties, and in turn, many of the multi-family investments that we own.
Weakening multi-family housing fundamentals, including, among other things, increasing supply of apartments and declining rents in the markets or submarkets in which we invest, increasing interest rates, widening capitalization rates and reduced liquidity for owners of multi-family properties, may cause our operating partners to fail to meet their obligations to us and/or contribute to reduced cash flows from and/or valuation declines for multi-family properties, and in turn, many of the multi-family investments that we own.
The third-party owners of certain of the non-controlling interests in Consolidated VIEs have the ability to sell their ownership interests to the Company, at their election. The Company has classified these third-party ownership interests as redeemable non-controlling interest and determines the fair value of the redeemable non-controlling interest on a non-recurring basis utilizing discounted cash flows.
The third-party owners of certain of the non-controlling interests in Consolidated VIEs have the ability to sell their ownership interests to the Company, at their election. The Company has classified these third-party ownership interests as redeemable non-controlling interest and determines the fair value of the redeemable non-controlling interest utilizing market assumptions and discounted cash flows.
Our investment in Consolidated SLST as of December 31, 2022 and 2021 was limited to the RMBS comprised of first loss subordinated securities and IOs issued by the securitization with an aggregate net carrying value of $191.5 million and $230.3 million, respectively.
Our investment in Consolidated SLST as of December 31, 2023 and 2022 was limited to the RMBS comprised of first loss subordinated securities and IOs issued by the securitization with an aggregate net carrying value of $157.2 million and $191.5 million, respectively.
Executive Summary Since the significant market disruption that occurred in March 2020, we have endeavored to build out a low-levered, higher-yielding portfolio of credit sensitive single-family and multi-family assets through proprietary sourcing channels while reducing our exposure to investment securities.
Executive Summary Since the significant market disruption that occurred in March 2020, we have sought to build out a low-levered, higher-yielding portfolio of credit sensitive single-family and multi-family assets through our proprietary sourcing channels.
Commencing with the quarter ended December 31, 2022, we have reclassified the interest expense on mortgages payable on real estate to expenses related to real estate on our consolidated statements of operations and, as such, it is no longer included in GAAP interest expense.
Commencing with the quarter ended December 31, 2022, we reclassified the interest expense on mortgages payable on real estate to expenses related to real estate on our consolidated statements of operations and, as such, it is no longer included in GAAP interest expense. Prior period disclosures have been conformed to the current period presentation.
A discussion of significant accounting policies is included in “Note 2 — Summary of Significant Accounting Policies” included in Item 8 of this Annual Report on Form 10-K. 82 Table of Contents Balance Sheet Analysis As of December 31, 2022, we had approximately $6.2 billion of total assets.
A discussion of significant accounting policies is included in “Note 2 — Summary of Significant Accounting Policies” included in Item 8 of this Annual Report on Form 10-K. 85 Table of Contents Balance Sheet Analysis As of December 31, 2023, we had approximately $7.4 billion of total assets.
Policies, regulations or laws implemented to further the principles discussed in the Blueprint could lead to increased costs and reduced operational flexibility for multi-family and single-family rental properties, which could contribute to reduced cash flows from and/or valuation declines for multi-family and single-family rental properties, and in turn, many of the multi-family investments and single-family rentals that we own.
Policies, regulations or laws implemented to further the principles discussed in the Blueprint or reduce or limit fees could lead to increased costs and reduced operational flexibility for multi-family and single-family rental properties, which could contribute to reduced cash flows from and/or valuation declines for multi-family and single-family rental properties, and in turn, many of the multi-family investments and single-family rentals that we own. 63 Table of Contents Credit Spreads.
Accordingly, we calculate adjusted book value per common share by making the following adjustments to GAAP book value: (i) exclude the Company's share of cumulative depreciation and lease intangible amortization expenses related to operating real estate, net held at the end of the period, (ii) exclude the adjustment of redeemable non-controlling interests to estimated redemption value and (iii) adjust our liabilities that finance our investment portfolio to fair value.
Accordingly, we calculate adjusted book value per common share by making the following adjustments to GAAP book value: (i) exclude the Company's share of cumulative depreciation and lease intangible amortization expenses related to real estate held at the end of the period for which an impairment has not been recognized, (ii) exclude the cumulative adjustment of redeemable non-controlling interests to estimated redemption value and (iii) adjust our liabilities that finance our investment portfolio to fair value.
This joint venture entity also has third-party investors that have the ability to sell their ownership interests to us, at their election once a year subject to annual minimum and maximum amount limitations, and we are obligated to purchase, subject to certain conditions, such interests for cash, representing redeemable non-controlling interests of approximately $63.8 million.
One of the joint venture entities has third-party investors that have the ability to sell their ownership interests to us, at their election once a year subject to annual minimum and maximum amount limitations, and we are obligated to purchase, subject to certain conditions, such interests for cash, representing redeemable non-controlling interests of approximately $28.1 million.
Our cash flow provided by operating activities differs from our net income due to these primary factors: (i) differences between (a) accretion, amortization, depreciation and recognition of income and losses recorded with respect to our investments and (b) the cash received therefrom and (ii) unrealized gains and losses on our investments.
Our cash flow provided by operating activities differs from our net income due to these primary factors: (i) differences between (a) accretion, amortization, depreciation and recognition of income and losses recorded with respect to our investments and (b) the cash received therefrom and (ii) unrealized gains and losses on our investments (including impairment of real estate and loss on reclassification of disposal group).
We continue to monitor the emergence of this new rate carefully, as it has in many cases, and will likely become in other cases, the new benchmark for hedges and a range of interest rate investments and financing arrangements.
We continue to carefully integrate this new rate into our operations, as it has become in many cases, and will likely become in other cases, the new benchmark for hedges and a range of interest rate investments and financing arrangements.
Repurchase agreements we have historically used to finance our investment securities, including the one repurchase agreement we currently have, are secured by certain of our investment securities and bear interest rates that move in close relationship to SOFR. Any financings under these repurchase agreements are based on the fair value of the assets that serve as collateral under these agreements.
The repurchase agreements we use to finance our investment securities are secured by certain of our investment securities and bear interest rates that move in close relationship to SOFR. Any financings under these repurchase agreements are based on the fair value of the assets that serve as collateral under these agreements.
In addition, in the event a repurchase agreement counterparty defaults on its obligation to “re-sell” or return to us the assets that are securing the financing at the end of the term of the repurchase agreement, we would incur a loss on the transaction equal to the amount of “haircut” associated with the short-term repurchase agreement, which we sometimes refer to as the “amount at risk.” 103 Table of Contents At December 31, 2022, we had longer-term repurchase agreements with terms of up to three years with four third-party financial institutions that are secured by certain of our residential loans.
In addition, in the event a repurchase agreement counterparty defaults on its obligation to “re-sell” or return to us the assets that are securing the financing at the end of the term of the repurchase agreement, we would incur a loss on the transaction equal to the amount of “haircut” associated with the short-term repurchase agreement, which we sometimes refer to as the “amount at risk.” At December 31, 2023, we had longer-term repurchase agreements with terms of up to two years with multiple third-party financial institutions that are secured by certain of our residential loans and single-family rental properties.
In response to the difficult conditions encountered in March and April 2020 resulting from the COVID-19 pandemic, since late March 2020, we have focused on strengthening our balance sheet and long-term capital preservation primarily by focusing on assets and markets that provide compelling risk-adjusted returns through either an unlevered strategy or through residential loan repurchase agreement financing with terms of one year or more or sustainable non-mark-to-market financing arrangements, including securitizations and non-mark-to-market repurchase agreement financing.
Since late March 2020, we have focused on strengthening our balance sheet and long-term capital preservation primarily by focusing on assets and markets that provide compelling risk-adjusted returns through either an unlevered strategy or through residential loan repurchase agreement financing with terms of one year or more or sustainable non-mark-to-market financing arrangements, including securitizations and non-mark-to-market repurchase agreement financing.
In January 2023, the White House Domestic Policy Council and National Economic Council released a white paper entitled the “Blueprint for a Renters Bill of Rights” (the “Blueprint”). The Blueprint discusses potential tenant protections regarding leasing and management of rental properties, tenant organizing, evictions and rent increases, among other potential protections.
Additionally, multi-family investments face growing regulatory and political headwinds. In January 2023, the White House Domestic Policy Council and National Economic Council released a white paper entitled the “Blueprint for a Renters Bill of Rights” (the “Blueprint”). The Blueprint discusses potential tenant protections regarding leasing and management of rental properties, tenant organizing, evictions and rent increases, among other potential protections.
As of December 31, 2022, we had $223.6 million included in cash and cash equivalents and $120.5 million in unencumbered investment securities available to meet additional haircuts or market valuation requirements.
As of December 31, 2023, we had $171.5 million included in cash and cash equivalents and $170.6 million in unencumbered investment securities available to meet additional haircuts or market valuation requirements.
FICO Scores at Purchase December 31, 2022 December 31, 2021 550 or less 8.4 % 11.3 % 551 to 600 7.3 % 10.0 % 601 to 650 8.1 % 11.0 % 651 to 700 16.5 % 16.1 % 701 to 750 25.6 % 23.4 % 751 to 800 27.3 % 22.1 % 801 and over 6.8 % 6.1 % Total 100.0 % 100.0 % Current Coupon December 31, 2022 December 31, 2021 3.00% or less 7.4 % 10.0 % 3.01% - 4.00% 15.8 % 15.5 % 4.01% - 5.00% 19.8 % 19.7 % 5.01% - 6.00% 7.9 % 7.5 % 6.01% - 7.00% 7.7 % 5.9 % 7.01% - 8.00% 16.4 % 13.2 % 8.01% and over 25.0 % 28.2 % Total 100.0 % 100.0 % Delinquency Status December 31, 2022 December 31, 2021 Current 90.6 % 92.6 % 31 – 60 days 2.2 % 2.5 % 61 – 90 days 1.8 % 0.8 % 90+ days 5.4 % 4.1 % Total 100.0 % 100.0 % 85 Table of Contents Origination Year December 31, 2022 December 31, 2021 2007 or earlier 20.6 % 28.2 % 2008 - 2016 4.1 % 5.6 % 2017 1.3 % 1.9 % 2018 2.5 % 3.6 % 2019 4.0 % 6.0 % 2020 8.0 % 16.1 % 2021 26.1 % 38.6 % 2022 33.4 % — Total 100.0 % 100.0 % As of December 31, 2022, the Company had the option to purchase 50% of the issued and outstanding interests of an entity that originates residential loans.
FICO Scores at Purchase December 31, 2023 December 31, 2022 550 or less 9.1 % 8.4 % 551 to 600 7.9 % 7.3 % 601 to 650 8.3 % 8.1 % 651 to 700 15.6 % 16.5 % 701 to 750 24.0 % 25.6 % 751 to 800 28.0 % 27.3 % 801 and over 7.1 % 6.8 % Total 100.0 % 100.0 % Current Coupon December 31, 2023 December 31, 2022 3.00% or less 7.6 % 7.4 % 3.01% - 4.00% 16.5 % 15.8 % 4.01% - 5.00% 20.9 % 19.8 % 5.01% - 6.00% 9.3 % 7.9 % 6.01% - 7.00% 7.2 % 7.7 % 7.01% - 8.00% 8.1 % 16.4 % 8.01% and over 30.4 % 25.0 % Total 100.0 % 100.0 % Delinquency Status December 31, 2023 December 31, 2022 Current 88.0 % 90.6 % 31 – 60 days 2.2 % 2.2 % 61 – 90 days 1.0 % 1.8 % 90+ days 8.8 % 5.4 % Total 100.0 % 100.0 % 88 Table of Contents Origination Year December 31, 2023 December 31, 2022 2007 or earlier 22.4 % 20.6 % 2008 - 2016 4.4 % 4.1 % 2017 - 2019 7.9 % 7.8 % 2020 7.8 % 8.0 % 2021 19.3 % 26.1 % 2022 21.4 % 33.4 % 2023 16.8 % — Total 100.0 % 100.0 % The Company exercised its option to purchase 50% of the issued and outstanding interests of an entity that originates residential loans during the year ended December 31, 2023.
Market opportunities in our areas of investment focus did become more abundant from the fourth quarter of 2021 through May of 2022, allowing us to expand our total investment portfolio to approximately $4.6 billion as of June 30, 2022, up from $3.6 billion as of December 31, 2021.
We managed to capitalize on more opportunities in our areas of investment focus from the fourth quarter of 2021 through May of 2022, allowing us to expand our total investment portfolio to approximately $4.6 billion as of June 30, 2022, up from $3.6 billion as of December 31, 2021.
The outstanding financing under one of these repurchase agreements is subject to margin calls to the extent the market value of the residential loans falls below specified levels.
The outstanding financing under three of these repurchase agreements is subject to margin calls to the extent the market value of the collateral falls below specified levels.
The floating rate we receive under our swap agreements has the effect of offsetting the repricing characteristics and cash flows of our financing arrangements.
The variable rate we pay or receive under our swap agreements has the effect of offsetting the repricing characteristics and cash flows of the Company's financing arrangements.
For more information on investment securities held by the Company within Consolidated SLST, refer to "Investment Securities" section below. 86 Table of Contents The following table details the loan characteristics of the underlying residential loans that back our first loss subordinated securities issued by Consolidated SLST as of December 31, 2022 and 2021, respectively (dollar amounts in thousands, except current average loan size): December 31, 2022 December 31, 2021 Current fair value $ 827,582 $ 1,070,882 Current unpaid principal balance $ 955,579 $ 1,071,228 Number of loans 6,160 6,802 Current average loan size $ 155,126 $ 157,487 Weighted average original loan term (in months) at purchase 351 351 Weighted average LTV at purchase 68 % 67 % Weighted average credit score at purchase 703 710 Current Coupon: 3.00% or less 3.0 % 2.8 % 3.01% – 4.00% 38.0 % 37.2 % 4.01% – 5.00% 39.3 % 39.9 % 5.01% – 6.00% 11.9 % 12.1 % 6.01% and over 7.8 % 8.0 % Delinquency Status: Current 69.5 % 70.3 % 31 - 60 11.1 % 12.3 % 61 - 90 4.4 % 4.7 % 90+ 15.0 % 12.7 % Origination Year: 2005 or earlier 31.1 % 30.9 % 2006 15.6 % 15.4 % 2007 21.4 % 21.1 % 2008 or later 31.9 % 32.6 % Geographic state concentration (greater than 5.0%): California 10.6 % 10.5 % Florida 10.3 % 10.5 % New York 9.8 % 9.8 % New Jersey 7.4 % 7.3 % Illinois 7.2 % 7.1 % 87 Table of Contents Residential Loans Financing Repurchase Agreements As of December 31, 2022, the Company had repurchase agreements with four third-party financial institutions to fund the purchase of residential loans.
For more information on investment securities held by the Company within Consolidated SLST, refer to "Investment Securities" section below. 89 Table of Contents The following table details the loan characteristics of the underlying residential loans that back our first loss subordinated securities issued by Consolidated SLST as of December 31, 2023 and 2022, respectively (dollar amounts in thousands, except current average loan size): December 31, 2023 December 31, 2022 Current fair value $ 754,860 $ 827,582 Current unpaid principal balance $ 892,546 $ 955,579 Number of loans 5,813 6,160 Current average loan size $ 153,543 $ 155,126 Weighted average original loan term (in months) at purchase 352 351 Weighted average LTV at purchase 68 % 68 % Weighted average credit score at purchase 701 703 Current Coupon: 3.00% or less 2.5 % 3.0 % 3.01% – 4.00% 38.5 % 38.0 % 4.01% – 5.00% 39.5 % 39.3 % 5.01% – 6.00% 11.8 % 11.9 % 6.01% and over 7.7 % 7.8 % Delinquency Status: Current 72.6 % 69.5 % 31 - 60 12.9 % 11.1 % 61 - 90 5.0 % 4.4 % 90+ 9.5 % 15.0 % Origination Year: 2005 or earlier 31.1 % 31.1 % 2006 15.7 % 15.6 % 2007 21.5 % 21.4 % 2008 or later 31.7 % 31.9 % Geographic state concentration (greater than 5.0%): California 10.7 % 10.6 % Florida 10.3 % 10.3 % New York 10.0 % 9.8 % New Jersey 7.6 % 7.4 % Illinois 7.2 % 7.2 % 90 Table of Contents Residential Loans and Single-Family Rental Property Financing Repurchase Agreements As of December 31, 2023, the Company had repurchase agreements with five third-party financial institutions to fund the purchase of residential loans and single-family rental properties.
The number of unemployed persons decreased by 0.6 million year-over-year to 5.7 million as of December 2022. There continues to be a wide disparity between the number of available job openings, 11.0 million as of the end of December 2022, and the number of unemployed persons, resulting in a competitive labor market and rising wages.
The number of unemployed persons increased by 0.6 million year-over-year to 6.3 million as of December 2023. There continues to be a wide disparity between the number of available job openings, 9.0 million as of the end of December 2023, and the number of unemployed persons, resulting in a competitive labor market and rising wages.
Equity Investments in Disposal Group Held for Sale The following table provides summary information regarding the multi-family properties in the disposal group held for sale as of December 31, 2022.
Property Data for Joint Venture Equity Investments in Multi-Family Properties in Disposal Group Held for Sale The following table provides summary information regarding the multi-family properties in the disposal group held for sale as of December 31, 2023.
(3) The net increase relates to the reclassification of unrealized gains and losses to net income in relation to the sale of investment securities and net unrealized gains on our investment securities due to improved pricing. 72 Table of Contents Non-GAAP Financial Measures In addition to the results presented in accordance with GAAP, this Annual Report on Form 10-K includes certain non-GAAP financial measures, including adjusted interest income, adjusted interest expense, adjusted net interest income, yield on average interest earning assets, average financing cost, net interest spread, undepreciated earnings and adjusted book value per common share.
(3) The net decrease relates to unrealized losses on our investment securities resulting from a reduction in pricing. 75 Table of Contents Non-GAAP Financial Measures In addition to the results presented in accordance with GAAP, this Annual Report on Form 10-K includes certain non-GAAP financial measures, including adjusted interest income, adjusted interest expense, adjusted net interest income, yield on average interest earning assets, average financing cost, net interest spread, undepreciated (loss) earnings and adjusted book value per common share.
As of December 31, 2022, the Company's only repurchase agreement exposure where the amount at risk was in excess of 5% of the Company's stockholders’ equity was to Bank of America at 6.82%.
As of December 31, 2023, the Company's only repurchase agreement exposure where the amount of investment securities at risk was in excess of 5% of the Company's stockholders’ equity was to Bank of America at 5.34%.
Department of Housing and Urban Development, starts on multi-family homes containing five or more units averaged a seasonally adjusted annual rate of 529,000 and 529,000 for the three and twelve months ended December 31, 2022, respectively, as compared to 462,000 for the year ended December 31, 2021.
Department of Housing and Urban Development, starts on multi-family homes containing five or more units averaged a seasonally adjusted annual rate of 396,333 and 458,583 for the three and twelve months ended December 31, 2023, respectively, as compared to 530,500 for the year ended December 31, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAlthough market value sensitivity analysis is widely accepted in identifying interest rate risk, it does not take into consideration changes that may occur such as, but not limited to, changes in investment and financing strategies, changes in market spreads and changes in business volumes.
Biggest changeFair Value Changes Changes in Interest Rates Changes in Fair Value (1) Net Duration (1) (basis points) (dollar amounts in thousands) +200 $(153,356) 2.5 +100 $(49,587) 2.6 Base 2.2 -100 $98,457 1.7 -200 $149,344 1.5 (1) Assets analyzed include residential loans, Mezzanine Lending investments, investment securities and derivatives held at fair value. 117 Table of Contents Although the use of a model to perform market value sensitivity analysis is widely accepted as a tool in identifying potential risk in a changing interest rate environment, it should be noted that the model does not take into consideration changes that may occur such as, but not limited to, changes in portfolio composition, financing strategies, market spreads, business volumes or overall market liquidity.
Interest rate changes may also impact our GAAP book value and adjusted book value as our assets and related hedge derivatives, if any, are marked-to-market each quarter. Generally, as interest rates increase, the value of our mortgage assets decreases, and conversely, as interest rates decrease, the value of such investments will increase.
Interest rate changes may also impact our GAAP book value and adjusted book value as many of our assets and related hedge derivatives, if any, are marked-to-market each quarter. Generally, as interest rates increase, the value of our mortgage assets decreases, and conversely, as interest rates decrease, the value of such investments will increase.
This analysis also takes into consideration the value of options embedded in our mortgage assets including constraints on the re-pricing of the interest rate of assets resulting from periodic and lifetime cap features, as well as prepayment options. Assets and liabilities that are not interest rate-sensitive such as cash, payment receivables, prepaid expenses, payables and accrued expenses are excluded.
This analysis also takes into consideration the value of options embedded in certain of our assets including constraints on the re-pricing of the interest rate of assets resulting from periodic and lifetime cap features, as well as prepayment options. Assets and liabilities that are not interest rate-sensitive such as cash, payment receivables, prepaid expenses, payables and accrued expenses are excluded.
Additionally, the Company's preferred equity and equity investments typically provide us with various rights and remedies to protect our investment. 110 Table of Contents Fair Value Risk Changes in interest rates, market liquidity, credit quality and other factors also expose us to market value (fair value) fluctuation on our assets, liabilities and hedges.
Additionally, the Company's preferred equity and equity investments typically provide us with various rights and remedies to protect our investment. 116 Table of Contents Fair Value Risk Changes in interest rates, market liquidity, credit quality and other factors also expose us to market value (fair value) fluctuation on our assets, liabilities and hedges.
Based on the currently uncertain market environment, we expect the capital markets to remain volatile and uncertain at varying levels for the near future and this may adversely affect our ability to access capital to fund our operations, meet our obligations and make distributions to our stockholders. 112 Table of Contents
Based on the currently uncertain market environment, we expect the capital markets to remain volatile and uncertain at varying levels for the near future and this may adversely affect our ability to access capital to fund our operations, meet our obligations and make distributions to our stockholders. 118 Table of Contents
The table below presents the sensitivity of the fair value and net duration changes of our portfolio as of December 31, 2022, using a discounted cash flow simulation model assuming an instantaneous interest rate shift.
The table below presents the sensitivity of the fair value and net duration changes of our portfolio as of December 31, 2023, using a discounted cash flow simulation model assuming an instantaneous interest rate shift.
Accordingly, we make extensive use of an earnings simulation model to further analyze our level of interest rate risk. 111 Table of Contents Capital Market Risk We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock, preferred stock or other equity instruments.
Accordingly, we make extensive use of an earnings simulation model to further analyze our level of interest rate risk. Capital Market Risk We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our common stock, preferred stock or other equity instruments.
Our fair value estimates and assumptions are indicative of the interest rate and business environments as of December 31, 2022 and do not take into consideration the effects of subsequent changes.
Our fair value estimates and assumptions are indicative of the interest rate and business environments as of December 31, 2023 and do not take into consideration the effects of subsequent changes.
Any future period of payment deferrals, forbearance, delinquencies, defaults, foreclosures or losses will likely adversely affect our net interest income from preferred equity investments, residential loans, mezzanine loans and our RMBS, CMBS and ABS investments and reduce the distributions we receive from our joint venture equity investments in multi-family apartment communities, the fair value of these assets, our ability to liquidate the collateral that may underlie these investments or obtain additional financing and the future profitability of our investments.
Any future period of payment deferrals, forbearance, delinquencies, defaults, foreclosures or losses will likely adversely affect our net interest income and adjusted net interest income from multi-family loans, residential loans and our RMBS investments and rental income and reduce the distributions we receive from our joint venture equity investments in multi-family apartment communities, the fair value of these assets, our ability to liquidate the collateral that may underlie these investments or obtain additional financing and the future profitability of our investments.
The performance and value of these investments depend upon the applicable operating partner’s or borrower’s ability to effectively operate the multi-family and residential properties, that serve as the underlying collateral, to produce cash flows adequate to pay distributions, interest or principal due to us.
The performance and value of these investments depend upon the applicable operating partner’s or borrower’s ability to effectively operate the multi-family properties, that serve as the underlying collateral, to produce cash flows adequate to pay distributions, interest or principal due to us or other investors or lenders.
For example, under the interest rate swaps we have utilized, typically we would pay a fixed rate to the counterparties while they would pay us a floating rate. If interest rates drop below the fixed rate we pay on an interest rate swap, we may be required to post cash margin.
For example, under the interest rate swaps we utilize, typically we pay a fixed rate to the counterparties while they pay us a floating rate. If interest rates drop below the fixed rate we pay on an interest rate swap, we may be required to post cash margin.
Accordingly, each of these scenarios can negatively impact our net interest income.
Accordingly, each of these scenarios can negatively impact our net interest income and adjusted net interest income.
Since this time, we have placed and expect to continue to place a greater emphasis on procuring longer-termed and/or more committed financing arrangements, such as non-mark-to-market repurchase agreements, securitizations and other term financings, which may involve greater expense relative to repurchase agreement funding.
Since this time, we have placed a greater emphasis on procuring longer-termed and/or more committed financing arrangements for our credit investments, such as non-mark-to-market repurchase agreements, securitizations and other term financings, which may involve greater expense relative to repurchase agreement funding.
These investments typically consist of either the senior, mezzanine or subordinate tranches in securitizations. The underlying collateral of these securitizations may be exposed to various macroeconomic and asset-specific credit risks. These securities have varying levels of credit enhancement which provide some structural protection from losses within the securitization.
The underlying collateral of these securitizations may be exposed to various macroeconomic and asset-specific credit risks. These securities have varying levels of credit enhancement which provide some structural protection from losses within the securitization.
Credit Risk Credit risk is the risk that we will not fully collect the principal we have invested in our credit sensitive assets, including residential loans, non-Agency RMBS, ABS, multi-family CMBS, preferred equity and mezzanine loan and joint venture equity investments, due to borrower defaults or defaults by our operating partners in their payment obligations to us.
Historically, we have not hedged 100% of our liability costs due to prepayment risk. 115 Table of Contents Credit Risk Credit risk is the risk that we will not fully collect the principal we have invested in our credit sensitive assets, including residential loans, non-Agency RMBS, preferred equity and mezzanine loan and joint venture equity investments, due to borrower defaults or defaults by our operating partners in their payment obligations to us.
Similarly, current inflationary pressures have caused, and a possible economic recession in the U.S. in the next 12 months will cause, an increase in the credit risk of our credit sensitive assets.
Current inflationary pressures have caused, and a possible economic recession in the U.S. in the near future may cause, an increase in the credit risk of our credit sensitive assets.
Furthermore, we stress-test the portfolio as to prepayment speeds and interest rate risk in order to further develop or make modifications to our hedge balances. Historically, we have not hedged 100% of our liability costs due to prepayment risk.
Furthermore, we stress-test the portfolio as to prepayment speeds and interest rate risk in order to further develop or make modifications to our hedge balances.
We manage and forecast our liquidity needs and sources daily to ensure that we have adequate liquidity at all times. We plan to meet liquidity through normal operations with the goal of avoiding unplanned sales of assets or emergency borrowing of funds. We are subject to “margin call” risk on a portion of our repurchase agreements.
We plan to meet liquidity through normal operations with the goal of avoiding unplanned sales of assets or emergency borrowing of funds. We are subject to “margin call” risk on a portion of our repurchase agreements.
This involves, among other things, performing due diligence on the servicer prior to their engagement, assigning the appropriate servicer on each loan based on certain characteristics and monitoring each servicer's performance on an ongoing basis. We are exposed to credit risk in our investments in non-Agency RMBS, CMBS and ABS.
This involves, among other things, performing due diligence on the servicer prior to their engagement, assigning the appropriate servicer on each loan based on certain characteristics and monitoring each servicer's performance on an ongoing basis. Investments in non-Agency RMBS, CMBS and ABS contain credit risk. These investments typically consist of either the senior, mezzanine or subordinate tranches in securitizations.
Application of this method results in an estimation of the fair market value change of our assets, liabilities and hedging instruments per 100 basis point shift in interest rates.
Application of this method results in an estimation of the fair market value change of our assets, liabilities and hedging instruments per 100 basis point shift in interest rates. Net duration is the sensitivity of our portfolio to changes in interest rates and we estimate duration using management's assumptions.
Based on the results of the model, the instantaneous changes in interest rates specified below would have had the following effect on adjusted net interest income for the next 12 months based on our assets and liabilities as of December 31, 2022 (dollar amounts in thousands): 107 Table of Contents Changes in Interest Rates (basis points) Changes in Adjusted Net Interest Income (1) +200 $ (14,638) +100 $ (7,443) -100 $ 7,213 (1) Represents a non-GAAP financial measure.
Based on the results of the model, the instantaneous changes in interest rates specified below would have had the following effect on adjusted net interest income based on our assets and liabilities as of December 31, 2023 (dollar amounts in thousands): Changes in Interest Rates (basis points) Changes in Adjusted Net Interest Income (1) (2) +200 $ (50,224) +100 $ (25,101) -100 $ 25,043 -200 $ 49,993 (1) Represents a non-GAAP financial measure.
As a result, our net interest income is particularly affected by changes in interest rates. For example, we hold residential loans and RMBS, some of which may have fixed rates or interest rates that adjust on various dates that are not synchronized to the adjustment dates on our repurchase agreements.
For example, we hold residential loans and RMBS, some of which may have fixed rates or interest rates that adjust on various dates that are not synchronized to the adjustment dates on our repurchase agreements. In general, the re-pricing of our repurchase agreements occurs more quickly than the re-pricing of our variable-interest rate assets.
Certain of our consolidated multi-family properties with variable rate mortgages payable have entered into interest rate cap contracts as required by the mortgage loan agreement. The Company also has an interest rate cap contract related to a repurchase agreement for residential loans, as required by the counterparty.
Certain of our consolidated multi-family properties with variable-rate mortgages payable have entered into interest rate cap contracts as required by the respective mortgage loan agreements.
Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all or substantially all of our interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition.
Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities and the market value of all or substantially all of our interest-earning assets and interest-bearing liabilities, which in turn could have a material adverse effect on our net income, operating results, or financial condition. 114 Table of Contents Liquidity Risk Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay dividends to our stockholders and other general business needs.
Changes in interest rates affect the value of the assets we manage and hold in our investment portfolio and the variable-rate borrowings we use to finance our portfolio. Changes in interest rates also affect the interest rate swaps and caps, TBAs and other securities or instruments we may use to hedge our portfolio.
Changes in interest rates affect, among other things, the value of the assets we manage and hold in our investment portfolio and the variable-rate borrowings and floating-rate preferred stock we use or issue to fund our operations and portfolio.
Higher income volatility from changes in interest rates could cause a loss of future net interest income and a decrease in current fair market values of our assets.
A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Higher income volatility from changes in interest rates could cause a loss of future net interest income and adjusted net interest income and a decrease in current fair market values of our assets.
We undertake an in-depth assessment of the underlying collateral and securitization structure when investing in these assets, which may include modeling defaults, prepayments and loss across different scenarios.
We undertake an in-depth assessment of the underlying collateral and securitization structure when investing in these assets, which may include modeling defaults, prepayments and loss across different scenarios. In addition, we are exposed to credit risk in our Mezzanine Lending and equity investments in owners of multi-family properties, including joint venture equity investments in multi-family apartment communities.
However, the relationship between spreads on our assets and spreads on our hedging instruments may vary from time to time, resulting in a net aggregate book value increase or decline. The interest rates for certain of our investments and our subordinated debt are either explicitly or indirectly based on LIBOR, which has been the subject of recent reform.
However, the relationship between spreads on our assets and spreads on our hedging instruments may vary from time to time, resulting in a net aggregate book value increase or decline.
Although we did not see an increase in forbearance and delinquency rates in our portfolio during the year ended December 31, 2022, we would expect delinquencies, defaults and requests for forbearance arrangements to rise should savings, incomes and revenues of borrowers, operating partners and other businesses become increasingly constrained from inflation or a slow-down in economic activity and/or the reduction or elimination of policies intended to help keep borrowers and renters in their residences.
We would expect delinquencies, defaults and requests for forbearance arrangements to rise should savings, incomes and revenues of renters, borrowers, operating partners and other businesses become increasingly constrained from a slow-down in economic activity.
In general, we evaluate relative valuation, supply and demand trends, prepayment rates, delinquency and default rates, vintage of collateral and macroeconomic factors as part of this process.
In general, we evaluate relative valuation, supply and demand trends, prepayment rates, delinquency and default rates, vintage of collateral and macroeconomic factors as part of this process. Nevertheless, these procedures provide no assurance that we will not experience unanticipated credit losses which would materially affect our operating results.
Our net interest income, the fair value of our assets and our financing activities could be negatively affected by volatility in interest rates, as was the case throughout much of 2022. A prolonged period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies.
Our net interest income, adjusted net interest income and the fair value of our assets and our financing activities could be negatively affected by volatility in interest rates, as has been the case throughout much of 2022 and in 2023.
Additionally, if one or more of our repurchase agreement counterparties chooses not to provide ongoing funding, we may be unable to replace the financing through other lenders on favorable terms or at all. 108 Table of Contents As discussed throughout this Annual Report on Form 10-K, in March 2020, we observed unprecedented illiquidity in repurchase agreement financing and MBS markets which resulted in our receiving margin calls under our repurchase agreements that were well beyond historical norms.
Additionally, if one or more of our repurchase agreement counterparties chooses not to provide ongoing funding, we may be unable to replace the financing through other lenders on favorable terms or at all.
We took a number of decisive actions in response to these conditions, including the sale of assets and termination of our interest rate swaps.
As previously disclosed, in March 2020, we observed unprecedented illiquidity in repurchase agreement financing and MBS markets which resulted in our receiving margin calls under our repurchase agreements that were well beyond historical norms. We took a number of decisive actions in response to these conditions, including the sale of assets and termination of our interest rate swaps.
Liquidity Risk Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay dividends to our stockholders and other general business needs. The primary liquidity risk we face arises from financing long-maturity assets with shorter-term financings. We recognize the need to have funds available to operate our business.
The primary liquidity risk we face arises from financing long-maturity assets with shorter-term financings. We recognize the need to have funds available to operate our business. We manage and forecast our liquidity needs and sources daily to ensure that we have adequate liquidity at all times.
Besides the interest rate cap contracts, we do not have any other interest rate derivatives in place as of December 31, 2022. We utilize a model-based risk analysis system to assist in projecting portfolio performances over a scenario of different interest rates.
The Company also has an interest rate cap contract related to a repurchase agreement for residential loans, as required by the counterparty. 113 Table of Contents We utilize a model-based risk analysis system to assist in projecting interest rate-sensitive asset and liability portfolio performances over a scenario of different interest rates.
Removed
In general, the re-pricing of our repurchase agreements occurs more quickly than the re-pricing of our variable-interest rate assets.
Added
Changes in interest rates also affect the interest rate swaps and caps, TBAs and other securities or instruments we may use to hedge our portfolio. As a result, our net interest income and adjusted net interest income are particularly affected by changes in interest rates.
Removed
In line with its plans to transition away from LIBOR, the United Kingdom's Financial Conduct Authority ceased publication for the one week and two month LIBOR tenors as of December 31, 2021, and intends to stop publication for all other tenors on June 30, 2023.
Added
Computation of the cash flows for interest rate-sensitive assets that may affect annualized adjusted net interest income are based on assumptions related to, among other things, prepayment speeds, slope of the yield curve, and composition and size of our portfolio.
Removed
At this time, it is not possible to predict the effect of such change, including the establishment of potential alternative reference rates, on the economy or markets we are active in either currently or in the future, or on any of our assets or liabilities whose interest rates are based on LIBOR.
Added
Assumptions for interest rate-sensitive liabilities relate to, among other things, anticipated interest rates, collateral requirements as a percentage of repurchase agreement financings and amounts and terms of borrowings. As these assumptions may not be realized, adjusted net interest income results may therefore be significantly different from the annualized adjusted net interest income produced in our analyses.
Removed
We are working closely with the entities that are involved in calculating the interest rates for our RMBS, our loan servicers for our floating rate loans, and with the trustee of our subordinated debt in order to determine what changes, if any, are required to be made to existing agreements for these transactions.
Added
We also note that the uncertainty associated with the estimate of a change in adjusted net interest income is directly related to the size of interest rate move considered.
Removed
Given current market volatility and historically low interest rates, we do not currently have any interest rate swaps in place.
Added
(2) Certain assumptions have been made in connection with the calculation of the information set forth in the table and, as such, there can be no assurance that assumed events will occur or that other events will not occur that would affect the outcomes. The base interest rate scenario assumes interest rates as of December 31, 2023.
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Nevertheless, these procedures provide no assurance that we will not experience unanticipated credit losses which would materially affect our operating results. 109 Table of Contents Concern surrounding the ongoing COVID-19 pandemic and certain of the actions taken to reduce its spread caused and may in the future, with respect to COVID-19 or other pandemics or global health emergencies, cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and multi-family property vacancy and lease default rates, reduced profitability and ability for property owners to make loan, mortgage and other payments, and overall economic and financial market instability, all of which may cause an increase in the credit risk of our credit sensitive assets.
Added
This analysis utilizes assumptions and estimates based on management's judgment and experience. Future purchases and sales of assets could materially change our interest rate risk profile.
Removed
In addition, we are exposed to credit risk in our single-family rental property investments and preferred equity, mezzanine loan and equity investments in owners of multi-family properties, including joint venture equity investments in multi-family apartment communities.
Added
While this table reflects the estimated impact of interest rate changes on the static portfolio, we actively manage our portfolio and continuously make adjustments to the size and composition of our asset and derivative hedge portfolios and interest-bearing liabilities. Actual results could differ significantly from those estimated in the table.
Removed
Changes in Interest Rates Changes in Fair Value (1) Net Duration (1) (basis points) (dollar amounts in thousands) +200 $(164,875) 2.9 +100 $(86,330) 3.1 Base 3.2 -100 $95,372 3.4 (1) Assets analyzed include residential loans, Mezzanine Lending investments, investment securities and derivatives held at fair value.
Removed
It should be noted that the model is used as a tool to identify potential risk in a changing interest rate environment but does not include any changes in portfolio composition, financing strategies, market spreads or changes in overall market liquidity.

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