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Financial report summary
?Risks
- We are dependent on Starwood Capital Group, including our Manager and their key personnel, who provide services to us through the management agreement, and we may not find a suitable replacement for our Manager and Starwood Capital Group if the management agreement is terminated, or for these key personnel if they leave Starwood Capital Group or otherwise become unavailable to us.
- There are various conflicts of interest in our relationship with Starwood Capital Group, including our Manager, which could result in decisions that are not in the best interests of our stockholders.
- The 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 may be costly and difficult to terminate.
- The incentive fee payable to our Manager under the management agreement is payable quarterly and is based on our Distributable Earnings and, therefore, may cause our Manager to select investments in more risky assets to increase its incentive compensation.
- Our conflicts of interest policy may not adequately address all of the conflicts of interest that may arise with respect to our investment activities and also may limit the allocation of investments to us.
- We are subject to risk associated with pandemics, epidemics or other public health crises, including the COVID-19 pandemic, which may have a material adverse effect on our business. The nature and extent of future impacts are highly uncertain and unpredictable.
- Provisions for credit losses are difficult to estimate.
- We have not established a minimum distribution payment level and we may not be able to make distributions to our stockholders in the future at current levels or at all.
- Our access to sources of financing may be limited and thus our ability to maximize our returns may be adversely affected.
- Our significant indebtedness subjects us to increased risk of loss and may reduce cash available for distributions to our stockholders.
- Interest rate fluctuations could significantly decrease our results of operations and cash flows and the market value of our investments. Macroeconomic trends, including inflation and rising interest rates, may adversely affect us.
- Our warehouse facilities may limit our ability to acquire assets, and we may incur losses if the collateral is liquidated.
- The utilization of our repurchase agreements is subject to the pre-approval of the lender.
- A failure to comply with restrictive covenants in our 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.
- If one or more of our Manager’s executive officers are no longer employed by our Manager, the financial institutions providing us financing may not provide future financing to us, which could materially and adversely affect us.
- We directly or indirectly utilize non-recourse securitizations, and such structures expose us to risks that could result in losses to us.
- We may not have the ability to raise funds on acceptable terms necessary to settle conversions of our outstanding convertible senior notes or to purchase our outstanding convertible senior notes upon a fundamental change.
- We enter into hedging transactions that could expose us to contingent liabilities in the future.
- Hedging may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders.
- Hedging instruments often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities and involve risks and costs that could result in material losses.
- We may fail to qualify for, or choose not to elect, hedge accounting treatment.
- The lack of liquidity in our investments may adversely affect our business.
- Our investments may be concentrated and are subject to risk of default.
- Difficult conditions in the mortgage, commercial and residential real estate markets may cause us to experience market losses related to our holdings.
- We have been and may continue to be adversely affected by trends in the office sector.
- Our preferred equity investments involve a greater risk of loss than conventional debt financing.
- Our commercial construction or rehabilitation lending may expose us to increased lending risks.
- The commercial mortgage loans we originate or acquire and the mortgage loans underlying our CMBS investments are subject to the ability of the commercial property owner to generate net income from operating the property, as well as the risks of delinquency and foreclosure.
- Our investments in CMBS are generally subject to losses.
- Dislocations, illiquidity and volatility in the market for commercial real estate as well as the broader financial markets could adversely affect the performance and value of commercial mortgage loans, the demand for CMBS and the value of CMBS investments.
- If we overestimate the yields or incorrectly price the risks of our investments, we may experience losses.
- Real estate valuation is inherently subjective and uncertain.
- Any investments in corporate bank debt and debt securities of commercial real estate operating or finance companies are subject to the specific risks relating to the particular companies and to the general risks of investing in real estate-related loans and securities, which may result in significant losses.
- Investments in non-conforming and non-investment grade rated loans or securities involve increased risk of loss.
- Any credit ratings assigned to our investments are subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded.
- The B-Notes that we acquire are subject to additional risks related to the privately negotiated structure and terms of the transaction, which may result in losses to us.
- Our mezzanine loans involve greater risks of loss than senior loans secured by income-producing properties.
- Bridge loans involve a greater risk of loss than traditional investment-grade mortgage loans with fully insured borrowers.
- We purchase securities backed by subprime or alternative documentation residential loans, which are subject to increased risks.
- We may acquire and sell from time to time residential loans, including “non-QM” loans, which may subject us to legal, regulatory and other risks, which could adversely impact our business and financial results.
- The residential loans that we may acquire, and that underlie the RMBS we acquire, are subject to risks particular to investments secured by mortgage loans on residential property. These risks are heightened because we may purchase non-performing loans.
- Our inability to promptly foreclose upon defaulted residential loans could increase our cost of doing business and/or diminish our expected return on investments.
- Prepayment rates may adversely affect the value of our investment portfolio.
- Interest rate mismatches between our agency RMBS backed by ARMs and our borrowings used to fund our purchases of these assets may reduce our net interest income and cause us to suffer a loss during periods of rising interest rates.
- We may invest in distressed and non-performing commercial loans which could subject us to increased risks relative to performing loans, which may result in losses to us.
- Some of our portfolio investments are recorded at fair value and, as a result, there is uncertainty as to the value of these investments.
- We may experience a decline in the fair value of our assets.
- Liability relating to environmental matters may impact the value of properties that we may purchase or acquire.
- We invest in commercial properties subject to net leases, which could subject us to losses.
- Investments outside the U.S. that are denominated in foreign currencies subject us to foreign currency risks and to the uncertainty of foreign laws and markets, which may adversely affect our distributions and our REIT status.
- We face risks associated with acquisitions of commercial real estate assets.
- Government housing regulations may limit the opportunities at the affordable housing communities in which we invest, and failure to comply with resident qualification requirements may result in financial penalties or loss of benefits.
- We are subject to the general risks of owning properties relating to the healthcare industry.
- We have sponsored, and purchased the more junior securities of, CLOs and such instruments involve significant risks, including that these securities receive distributions from the CLO only if the CLO generates enough income to first pay all the investors holding senior tranches and all CLO expenses.
- Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on joint venture partners’ financial condition and liquidity and disputes between us and our joint venture partners.
- We may not realize all of the anticipated benefits of our prior acquisition of the Infrastructure Lending Segment or such benefits may take longer to realize than expected.
- For the Infrastructure Lending Segment to be successful, we must retain and motivate key employees, and failure to do so could seriously harm our business and financial results. In addition, the success of the Infrastructure Lending Segment depends, in part, on our ability to leverage the capabilities of Lotus Infrastructure Partners and Starwood Oil and Gas.
- We are subject to the risks of investing in project finance investments, many of which are outside our control, and that may negatively impact our business and financial results.
- We may have difficulty meeting our obligations on the unfunded commitments of the infrastructure loans, which could have a material adverse effect on us.
- The power and oil and gas industries are subject to extensive regulation, which could adversely impact the business and financial performance of the projects to which our infrastructure loans relate.
- We generally are not able to control the projects underlying our infrastructure loans.
- Operation of a project underlying an infrastructure loan involves significant risks and hazards that may impair the project company’s ability to repay the loan, resulting in its default, which could have a material adverse effect on our business and financial results.
- Loans to companies engaged in oil and gas exploration and production may be exposed to production risk and to commodity price risk.
- Tax considerations relating to the Infrastructure Lending Segment may reduce our net proceeds received from interest payments.
- The business activities of our Investing and Servicing Segment, particularly our special servicing business, expose us to certain risks.
- The business activities in our Investing and Servicing Segment are subject to an evolving regulatory environment that may affect certain aspects of these activities.
- The risks of investment in subordinated CMBS are magnified in the case of our Investing and Servicing Segment, where the principal payments received by the CMBS trust are made in priority to the higher rated securities.
- The market value of CMBS could fluctuate materially as a result of various risks that are out of our control and may result in significant losses.
- Our Consolidated Financial Statements changed materially following our acquisition of LNR, as we became required to consolidate the assets and liabilities of CMBS pools in which we own the controlling class of subordinated securities and are considered the “primary beneficiary.”
- Certain provisions of Maryland law could inhibit changes in control.
- Our authorized but unissued shares of common and preferred stock may prevent a change in control.
- Maintenance of our exemption from registration under the Investment Company Act imposes significant limits on our operations.
- Rapid changes in the values of our real estate-related and other investments may make it more difficult for us to maintain our qualification as a REIT or exemption from the Investment Company Act.
- Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests.
- Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management.
- Ownership limitations may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their shares.
- If we do not qualify as a REIT or fail to remain qualified as a REIT, we will be subject to tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our stockholders.
- Ordinary dividends payable by REITs do not qualify for the reduced tax rates available for some corporate dividends.
- REIT distribution requirements could adversely affect our ability to continue to execute our business plan.
- We may choose to make distributions to our stockholders in our own stock, or make a distribution of a subsidiary’s common stock, in which case our stockholders could be required to pay income taxes in excess of the cash dividends they receive.
- The stock ownership limit imposed by the Code for REITs and our charter may restrict our business combination opportunities.
- Even as a REIT, we may face tax liabilities that reduce our cash flow.
- Complying with REIT requirements may cause us to forgo otherwise attractive opportunities.
- Complying with REIT requirements may force us to liquidate otherwise attractive investments.
- The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to qualify as a REIT.
- We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them.
- The “taxable mortgage pool” rules will increase the taxes that we, or our stockholders may, incur and limit our actions with respect to our taxable mortgage pools.
- The tax on prohibited transactions may limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, which would be treated as sales for U.S. federal income tax purposes.
- Our investments in construction loans require us to make estimates about the fair value of land improvements that may be challenged by the IRS.
- The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.
- Liquidation of assets may jeopardize our REIT qualification.
- Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
- Partnership tax audits could increase the tax liability borne by us in the event of a U.S. federal income tax audit of a subsidiary partnership.
- Legislative or other actions affecting REITs could materially and adversely affect us and our stockholders.
- Changes in accounting rules and other policy or regulatory changes could occur at any time and could impact us in significantly negative ways that we are unable to predict or protect against.
- Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
- Our board of directors has approved very broad investment guidelines for our Manager and does not approve each investment and financing decision made by our Manager unless required by our investment guidelines.
- Our board of directors has in the past and may in the future at any time change one or more of our investment strategy or guidelines, financing strategy or leverage policies without stockholder consent.
- We 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 investment opportunities.
- Cybersecurity risks could result in the loss of data, interruptions in our business, damage to our reputation, and result in increased costs and financial losses that could have a material adverse effect on our business and results of operations.
- We are subject to risks from natural disasters such as earthquakes and severe weather, including as the result of global climate changes, which may result in damage to our properties.
- Our business may be adversely affected as the result of environmental, social and governance matters.
- There may be future dilution of our common stock as a result of additional issuances of our securities, which could adversely impact our stock price.