Invesco Mortgage Capital (IVR) risk factors, FY2024 10-K

Risks Related to Our Investments

1. 01Fluctuations in interest rates could adversely affect the value of our investments and derivative financial instruments and cause our interest expense to increase, which could result in reduced earnings, decreased profitability and dividends, and diminished cash available for distribution to our stockholders
2. 02Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control
3. 03Elevated interest rates may cause a decrease in the availability of certain of our target assets which could adversely affect our ability to acquire target assets that satisfy our investment objectives and to generate income and pay dividends
4. 04Spread risk is inherent to investing in MBS and other mortgage-related assets
5. 05Our active portfolio management strategy may expose us to greater losses and lower returns than compared to passive strategies
6. 06The U.S. Federal Reserve’s or FDIC’s participation in the Agency RMBS market could have an adverse effect on our Agency RMBS investments
7. 07At times, upon a financial institution’s distress or impending failure, the FDIC may take control of a significant portion of the Agency RMBS held by that institution. The FDIC’s actions with respect to those securities can also materially impact the available supply, price and returns on Agency RMBS
8. 08Volatile market conditions for mortgages and mortgage-related assets as well as the broader financial markets can result in a significant contraction in liquidity for mortgages and mortgage-related assets, which may adversely affect the value of the assets in which we invest
9. 09A portion of our RMBS portfolio consists of premium securities. Premium securities may be subject to more risk than par value securities
10. 10Prepayment rates may adversely affect the value of our investment portfolio
11. 11Market conditions may upset the historical relationship between interest rate changes and prepayment trends, which would make it more difficult for us to analyze our investment portfolio
12. 12Our investments may be concentrated and will be subject to risk of default
13. 13The Federal conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between these agencies and the U.S. Government, may adversely affect our business
14. 14to suffer losses, be significantly reformed, or cease to exist, our business, operations and financial condition could be materially and adversely affected
15. 15We operate in a highly competitive market for investment opportunities and competition may limit our ability to acquire desirable investments in our target assets and could also affect the pricing of these securities
16. 16We may acquire certain target assets that are subject to defaults, foreclosure timeline extension, fraud, residential and commercial price depreciation, and unfavorable modification of loan principal amount, interest rate and amortization of principal, which could result in losses to us
17. 17A number of factors over which we have no control may impair a borrower’s ability to repay a mortgage loan secured by a residential property, including the income and assets of the borrower. As of December 31, 2024, we do not hold any mortgage loans secured by residential property
18. 18In the event of any default under a mortgage loan held directly by us, we bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our cash flow from operations
19. 19Our subordinated MBS assets may be in the “first loss” position, subjecting us to greater risks of loss
20. 20We may not control the special servicing of the mortgage loans included in CMBS in which we invest, and, in such cases, the special servicer may take actions that could adversely affect our interests
21. 21Due diligence of potential assets may not reveal all of the liabilities associated with such assets and may not reveal other weaknesses in such assets, which could lead to losses
22. 22We depend on third-party service providers, including mortgage servicers, for a variety of services related to our RMBS. We are, therefore, subject to the risks associated with third-party service providers
23. 23A decline in the market value of our mortgage-backed securities may adversely affect our results of operations and financial condition

Risks Related to Financing and Hedging

1. 24Our strategy involves the use of significant leverage, which increases the risk that we may incur substantial losses
2. 25We depend on repurchase agreement financing to acquire our target assets, and our inability to access this funding on acceptable terms could have a material adverse effect on our results of operations, financial condition and business
3. 26The inherent uncertainty of repurchase transactions, including counterparty credit risk, may cause us to incur a loss on our repurchase transactions
4. 27The repurchase agreements and other financing arrangements that we use to finance our investments may require us to provide additional collateral and may restrict us from leveraging our assets as fully as desired
5. 28A failure to comply with covenants in our repurchase agreements and other financing arrangements would have a material adverse effect on us, and any future financings may require us to provide additional collateral or pay down debt
6. 29Our use or future use of repurchase agreements to finance our target assets may give our lenders greater rights if either we or a lender files for bankruptcy
7. 30We enter into hedging transactions that could expose us to contingent liabilities in the future
8. 31Hedging may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders
9. 32Our hedging strategies may be ineffective
10. 33Clearing facilities or exchanges may increase the margin requirements we are required to post when entering into derivative instruments, which may negatively impact our ability to hedge and our liquidity
11. 34We may enter into derivative contracts that expose us to contingent liabilities, and those contingent liabilities may not appear on our balance sheet. We may invest in synthetic securities, credit default swaps, and other credit derivatives, which expose us to additional risks
12. 35It may be uneconomical to “roll” Agency MBS TBA holdings, or we may be unable to meet margin calls on TBA contracts, which could negatively affect our financial condition and results of operations

Risks Related to Our Business

1. 36Our business may be adversely affected by unfavorable or changing economic, market, and political conditions
2. 37We conduct our operations so that neither we, nor our operating partnership, IAS Operating Partnership LP (the “Operating Partnership”), nor the subsidiaries of the Operating Partnership are required to register as an investment company under the 1940 Act
3. 38The recent advancements in and increased use of AI present risks and challenges that may adversely impact our business
4. 39Our Manager utilizes quantitative models to support investment decisions and investment processes, including those related to our portfolio management and risk analysis, which may contain errors
5. 40The preparation of our financial statements involves use of estimates, judgments and assumptions, and our financial statements may be materially affected if our estimates prove to be inaccurate
6. 41Changes in the fair value of our derivatives may result in volatility in our U.S. GAAP earnings

Risks Related to Our Relationship with Our Manager

1. 42We are dependent on our Manager and its key personnel for our success
2. 43There are conflicts of interest in our relationship with our Manager and Invesco, which could result in decisions that are not in the best interests of our stockholders
3. 44Our Manager would have a conflict in recommending our participation in any equity investment it manages
4. 45The management agreement with our Manager was not negotiated on an arm’s-length basis and may not be as favorable to us as if it had been negotiated with an unaffiliated third party, and it may be costly and difficult to terminate
5. 46Our board of directors approved broad investment guidelines for our Manager and does not approve each investment and financing decision made by our Manager

Risks Related to Our Capital Stock

1. 47We have not established a minimum dividend payment level, and we cannot assure our stockholders of our ability to pay dividends in the future
2. 48Future offerings of debt or equity securities that would rank senior to our common stock may adversely affect the market price of our common stock

Risks Related to Our Organization and Structure

1. 49Certain provisions of Maryland law could inhibit changes in control
2. 50Ownership limitations may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their shares
3. 51Our authorized but unissued shares of capital stock may prevent a change in our control
4. 52The change of control conversion feature of our Series C Preferred Stock may make it more difficult for a party to acquire us or discourage a party from acquiring us
5. 53Our rights and the rights of our stockholders to take action against our directors and officers are limited
6. 54We are the sole general partner of our Operating Partnership and could become liable for the debts and other obligations of our Operating Partnership

Risks Related to our REIT Status and Certain Other Tax Items

1. 55If we do not qualify to be taxed as a REIT, we will be subject to tax as a regular corporation and could face a substantial tax liability
2. 56We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the price of our stock
3. 57To maintain our REIT status, we may have to borrow funds on a short-term basis during unfavorable market conditions
4. 58Compliance with REIT requirements may cause us to forgo otherwise attractive opportunities, which may hinder or delay our ability to meet our investment objectives and reduce your overall return
5. 59Compliance with REIT requirements may force us to liquidate or restructure otherwise attractive investments
6. 60Investments outside the United States may subject us to additional taxes and could present additional complications to our ability to satisfy the REIT qualification requirements
7. 61We may incur tax liabilities that would reduce our cash available for distribution to you
8. 62Restrictions on the deduction of all of our interest expense could prevent us from satisfying the REIT distribution requirements and avoiding the incurrence of income or excise taxes
9. 63Our board of directors is authorized to revoke our REIT election without stockholder approval, which may cause adverse consequences to our stockholders
10. 64We may choose to pay dividends in a combination of cash and shares of our common stock, in which case stockholders may be required to pay income taxes in excess of the cash dividends they receive
11. 65Generally, ordinary dividends payable by REITs do not qualify for reduced U.S. federal income tax rates
12. 66The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT
13. 67Our taxable REIT subsidiaries are subject to special rules that may result in increased taxes
14. 68If the Operating Partnership failed to qualify as a partnership or is not otherwise disregarded for U.S. federal income tax purposes, we would cease to qualify as a REIT
15. 69Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities
16. 70The “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
17. 71Liquidation of our assets to repay obligations to our lenders may jeopardize our REIT qualification
18. 72Purchases of mortgages at a discount may affect our ability to satisfy the REIT asset and gross income tests
19. 73Our qualification as a REIT could be jeopardized as a result of our interests in joint ventures or investment funds
20. 74We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them
21. 75The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to remain qualified as a REIT
22. 76The tax on prohibited transactions will limit our ability to engage in certain transactions, including certain methods of securitizing mortgage loans, which would be treated as sales for federal income tax purposes
23. 77Changing the nature of our assets may complicate our ability to satisfy the REIT gross income and asset tests
24. 78Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests
25. 79Our business is subject to extensive regulation
26. 80We may be adversely affected by the current and future economic, regulatory and other actions of government bodies and their agencies
27. 81We may change any of our strategies, policies or procedures without stockholder consent and make investment decisions with which our stockholders may not agree and/or fail to meet our investment criteria
28. 82We may enter into transactions and take certain actions in connection with such transactions that could affect the price of our common stock
29. 83The market price and trading volume of our capital stock may be volatile
30. 84Common stock eligible for future sale may have adverse effects on our share price
31. 85Investing in our capital stock may involve a high degree of risk
32. 86A change in market interest rates may cause a material decrease in the market price of our capital stock