Adamas Trust (ADAM) risk factors, FY2025 10-K

Risks Related to Our Business

1. 01Declines in the market values of our investments 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 stockholders26% rewritten
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 rates31% rewritten
5. 05Residential loans are subject to increased risks of loss
6. 06Our portfolio of business purpose loans exposes us to risks that are different from the risks involved with our traditional investments in residential mortgage loans
7. 07Our 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
8. 08Prepayment rates can change, adversely affecting the performance of our assets
9. 09We 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
10. 10The 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
11. 11Any 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
12. 12Our preferred equity investments involve greater risks of loss than more senior loans secured by income-producing properties58% rewritten
13. 13Declining 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 future25% rewritten
14. 14Our 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 foreclosure34% rewritten
15. 15Actions 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 stockholders56% rewritten
16. 16Our business is subject to risks particular to real property and real estate-related assets
17. 17To 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
18. 18The lack of liquidity in certain of our assets may adversely affect our business
19. 19The 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
20. 20Valuations 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 existed70% rewritten
21. 21Competition 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
22. 22Maintaining 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
23. 23We have made and may in the future make investments in companies that we do not control34% rewritten
24. 24It may be uneconomical to "roll" our TBA dollar roll transactions or we may be unable to meet margin calls on our TBA contractsNew
25. 25Our acquisition of the remaining 50% ownership interest in Constructive not previously held by us, or future acquisition targets, could fail to improve our business or result in diminished returns and could increase our cost of doing businessNew

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 stockholders23% rewritten
10. 35Volatility in the market value of certain derivatives we use to manage exposures to geopolitical and general market risks may cause volatility in our net incomeNew
11. 36Difficult 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
12. 37We 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. 38Maintenance of our exemption from registration as an investment company under the Investment Company Act imposes significant limits on our operations32% rewritten
2. 39The 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. 40Mortgage loan modification programs and future legislative action may adversely affect the value of, and the returns on, our targeted assets
4. 41We 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. 42Our business is subject to extensive regulation24% rewritten
6. 43Certain 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. 44The 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. 45Failure to qualify as a REIT would adversely affect our operations and ability to make distributions
2. 46REIT distribution requirements could adversely affect our liquidity
3. 47Further, 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 requirement21% rewritten
4. 48Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations60% rewritten
5. 49Complying with REIT requirements may limit our ability to hedge effectively
6. 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
7. 51We 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
8. 52Our qualification as a REIT could be jeopardized as a result of our interests in joint ventures or preferred equity27% rewritten
9. 53The 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
10. 54The “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
11. 55However, 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
12. 56If 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
13. 57The 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
14. 58We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common stock
15. 59Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income testsNew
16. 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
17. 61We face possible risks associated with the effects of climate change and severe weather
18. 62We are dependent on certain key personnel
19. 63Investing in our securities involves a high degree of risk
20. 64The market price and trading volume of our securities may be volatile
21. 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
22. 66Your interest in us may be diluted if we issue additional shares
23. 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