Adamas Trust (ADAM) risk factors, FY2024 10-K

Risks Related to Our Business

1. 01Declines 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
2. 02Our efforts to manage credit risks may fail
3. 03If our estimates of the loss-adjusted yields of our investments in credit sensitive assets prove inaccurate, we may experience losses
4. 04Interest 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
5. 05Residential loans are subject to increased risks of loss
6. 06Our investments in a mortgage loan originator exposes us to additional risks
7. 07Our portfolio of business purpose loans exposes us to risks that are different from the risks involved with our traditional investments in residential mortgage loans
8. 08Our investments may include subordinated tranches of RMBS, CMBS and ABS, which are subordinate in right of payment to more senior securities and have greater risk of loss than other investments
9. 09Prepayment rates can change, adversely affecting the performance of our assets
10. 10We have experienced and may experience in the future increased volatility in our GAAP results of operations as we have elected fair value option for the majority of our investments
11. 11The remedies available to us to resolve delinquent loans may not fully compensate us for any losses incurred and may result in lengthy and expensive legal processes
12. 12Any costs or delays involved in the completion of a foreclosure or liquidation of the underlying property of the residential loans we own may further reduce proceeds from the property and may increase our loss
13. 13Our preferred equity and mezzanine loan investments involve greater risks of loss than more senior loans secured by income-producing properties
14. 14Declining real estate valuations and impairment charges to real estate assets have adversely affected our earnings and financial condition in the past and may adversely affect our earnings and financial condition in the future
15. 15Our 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
16. 16Actions of our operating partners could subject us to liabilities in excess of those contemplated or prevent us from taking actions that are in the best interests of our stockholders, which could result in lower investment returns to our stockholders
17. 17Our business is subject to risks particular to real property and real estate-related assets
18. 18To the extent that due diligence is conducted as part of our acquisition or underwriting process, such due diligence 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
19. 19The lack of liquidity in certain of our assets may adversely affect our business
20. 20The 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
21. 21Valuations of some of our assets are subject to inherent uncertainty, may be based on estimates, may fluctuate over short periods of time and may differ from the values that would have been used if a ready market for these assets existed
22. 22Our investments in residential loans are difficult to value and are dependent upon the borrower’s ability to service or refinance their debt. The inability of the borrower to do so could materially and adversely affect our liquidity and results of operations
23. 23Competition may prevent us from acquiring assets on favorable terms or at all, which could have a material adverse effect on our business, financial condition and results of operations
24. 24Maintaining cybersecurity and data security is important to our business and a breach of our cybersecurity or data security could result in serious harm to our reputation and have a material adverse impact on our business and financial results
25. 25We have made and may in the future make investments in companies that we do not control

Risks Related to Debt Financing and Our Use of Hedging Strategies

1. 26Our access to financing sources, which may not be available on favorable terms, or at all, may be limited, and this may materially adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders
2. 27The 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
3. 28We 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
4. 29If 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
5. 30We 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
6. 31If 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
7. 32Our 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
8. 33Negative impacts on our business may cause us to default on certain financial covenants contained in our financing arrangements
9. 34Hedging 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
10. 35Difficult 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
11. 36We cannot predict the effect that changes in government policies, laws or regulations or the U.S. political environment will have on our business and the markets in which we operate

Risks Related To Our Organization, Our Structure and Other Risks

1. 37Maintenance of our Investment Company Act exemption imposes limits on our operations
2. 38The 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
3. 39Mortgage loan modification programs and future legislative action may adversely affect the value of, and the returns on, our targeted assets
4. 40We 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
5. 41Our business is subject to extensive regulation
6. 42Certain 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
7. 43The stock ownership limit imposed by our charter may inhibit market activity in our common stock and may restrict our business combination opportunities

Tax Risks

1. 44Failure to qualify as a REIT would adversely affect our operations and ability to make distributions
2. 45REIT distribution requirements could adversely affect our liquidity
3. 46Further, our lenders could require us to enter into negative covenants, including restrictions on our ability to distribute funds or to employ leverage, which could inhibit our ability to satisfy the 90% distribution requirement
4. 47Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations
5. 48Complying with REIT requirements may cause us to forego or liquidate otherwise attractive investments
6. 49Complying with REIT requirements may limit our ability to hedge effectively
7. 50The 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
8. 51We could fail to continue to qualify as a REIT if the IRS successfully challenges our treatment of our mezzanine loans
9. 52We 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
10. 53Our qualification as a REIT could be jeopardized as a result of our interests in joint ventures or preferred equity
11. 54The partnerships and limited liability companies in which we hold an interest may be limited in their ability to provide services to tenants by the REIT rules or such services may have to be provided through a TRS
12. 55The “taxable mortgage pool” rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations
13. 56However, because our subsidiary REIT is, in part, owned by a TRS of ours, that TRS will be subject to tax on any dividend income from our subsidiary REIT, including any excess inclusion income allocated to it
14. 57If our subsidiary REIT failed to qualify as a REIT, we could be subject to higher taxes and could fail to remain qualified as a REIT
15. 58The failure of excess MSRs held by us to qualify as real estate assets, or the failure of the income from excess MSRs to qualify as interest from mortgages, could adversely affect our ability to qualify as a REIT
16. 59We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock
17. 60We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, acts of violence or war, extreme weather events or other natural disasters
18. 61We face possible risks associated with the effects of climate change and severe weather
19. 62We are dependent on certain key personnel
20. 63Investing in our securities involves a high degree of risk
21. 64The market price and trading volume of our securities may be volatile
22. 65We 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
23. 66Your interest in us may be diluted if we issue additional shares
24. 67An increase in interest rates may have an adverse effect on the market price of our securities and our ability to make distributions to our stockholders