Risk Factors Update Summary

• Increased interest rates: The Federal Reserve raised the funds rate by 425 basis points in 2022 and an additional 100 basis points in 2023, reaching its highest level in 23 years. This could significantly impact interest expenses and financial results.
• Compliance with REIT requirements may hinder attractive opportunities, impacting investment objectives.
• Failure to qualify as a REIT due to mezzanine loans could result in loss of REIT status.
• Property held for sale may subject us to tax if disposing of loans, affecting income.
• Financing risks: The company uses leverage and repurchase agreements to finance assets. Failure to comply with covenants or access funding could have a material adverse effect on operations and financial condition.
• Future legislation may reduce tax advantages for REITs, impacting real estate asset investments.
• Non-U.S. stockholders may face U.S. federal income tax on distributions and stock disposition.
• To maintain REIT status, borrowing during unfavorable market conditions may be necessary.
• Market value risks: Declines in the market value of MBS may adversely affect results and financial condition. Changes in interest rates could lead to losses on fixed-rate investments and impact liquidity.
• Changes in tax laws could increase tax liabilities, reducing cash available for distribution.
• Limiting sales structures to avoid tax may impact beneficial sales or structures.
• Cybersecurity risks: Dependency on information systems exposes the company to cyber-attacks. System failures or attacks could disrupt business operations, affect stock price, and dividend payments.
• Changing asset nature to maintain REIT status could impact income and qualification.
• Ownership limits restrict stock ownership, potentially limiting change in control and affecting stock value.
• Tax qualification risks: Failure to qualify as a REIT could subject the company to regular corporate taxation, reducing cash available for distribution to stockholders. Compliance failures could result in substantial tax liabilities and adverse effects on financials.
• Governance risks: Provisions in Maryland law and organizational documents may inhibit changes in control. Ownership limitations and governance provisions could impact the company's ability to respond to market changes or takeover attempts.
• Accounting risks: Risks associated with accounting estimates and fair value changes in derivatives could lead to volatility in earnings. Discrepancies between U.S. GAAP results and REIT taxable income may impact dividend distributions.