Sachem Capital Corp.
For the period ended Dec 31, 2024. Filed Mar 31, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 31, 2025
SACH$0.82+0.3%Stored close · as of Nov 9, 2026
What changed in Risk Factors?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-04-01.
0001410578-24-000381
Item 1A. Risk FactorsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-31.
0001410578-25-000587
Item 1A. Risk FactorsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 178 previous paragraphs and 186 current paragraphs.
107 unchanged; 49 reworded; 30 added; 11 removed; 11 previous and 0 current paragraphs rearranged.
Tables are not compared: 60 previous and 58 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (30)
Current report
We incurred a net loss attributable to common shareholders for 2024 and we cannot assure you that we will be profitable for 2025.
Current report
For the year ended December 31, 2024, we reported a net loss of $43.9 million compared to net income of $12.1 million for the year ended December 31, 2023. This is the first annual net loss that we reported since we became a publicly traded company in 2017. There were a number of factors that contributed to this result. For the year ended December 31, 2024, we recorded a $22.0 million realized loss on sale of loans, a $4.9 million valuation allowance for loans held for sale, a $26.9 million provision for credit loss related to loans held for investment and loans transferred to real estate owned, and an impairment charge of $0.5 million relating to real estate owned, all of which are presented on our consolidated statement of operations. Second, top-line revenue for 2024 declined 11.2% compared to 2023, after we had delivered solid growth every year from 2017 through 2023. This decrease was due to the unavailability of capital required to grow our business. Historically, we relied on the capital markets to provide us with the bulk of our growth capital. Given the interest rate environment in 2023 and 2024 and the state of the real estate market in general, we were unable to access the capital markets and our existing credit facilities were not robust enough to fill the gap. The effects of this lack of growth was compounded by the fact that two tranches of outstanding Notes, having an aggregate principal amount of $58.2 million came due in 2024 and were repaid from cash flow from operations or drawdowns on our credit facilities. We cannot assure you that any of these structural issues adversely impacting our operational performance will ease or resolve in 2025. If they do not, and we are not able to find suitable solutions to address these issues, we may continue to incur losses in 2025.
Current report
Concurrently with the decline in our operational performance, we have reduced the dividend payable to shareholders.
Current report
As a real estate investment trust (REIT), to maintain our REIT status for income tax purposes, we are required to distribute at least 90% of our taxable income to our shareholders. As a practical matter, since we started to operate as a REIT in 2017 through the end of 2023, we distributed 100% of our GAAP income to shareholders, in cash. However, in 2024, primarily because we did not have access to growth capital, we reduced the dividend payable to shareholders. The reduction in the dividend payment does not jeopardize our REIT election because our taxable income has decreased as well. Any distributions we make to our shareholders, the amount of such dividend and whether such dividend is payable in cash, our Common Shares or other property, or a combination thereof, is at the discretion of the Board and will depend on, among other things, our actual results of operations and liquidity. Our ability to pay distributions will be affected by various factors, including the net interest and other revenue generated from operations, our operating expenses, working capital requirements, the restrictions and limitations imposed by the New York Business Corporation Law (“BCL”), and any restrictions and/or limitations imposed on us by our creditors. Accordingly, we cannot assure you as to the timing or amount of any dividend payments in the future or how they may be paid.
Current report
The price of our publicly traded securities has declined significantly.
Current report
Primarily because of our operating performance and the dividend cuts, in 2024 we experienced a steep decline in the trading price of all our securities. For example, the opening price of our Common Shares on January 2, 2024, as reported on the New York Stock Exchange, was $3.73 per share. The closing price on December 31, 2024, as reported by the New York Stock Exchange, was $1.35 per share. Similarly, the opening price of our Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”) on January 2, 2024, as reported on the New York Stock Exchange, was $20.00 per share. The closing price on December 31, 2024, as reported by the New York Stock Exchange, was $15.49 per share. Similar declines were recorded for the price of our Notes. The declining prices in our securities does not only adversely impact the holders of those securities, it also adversely impacts our ability to raise capital at accretive or market prices. Lower trading prices means we have to sell more securities to raise the funds we need for growth, which dilutes the interests of the existing security holders and raises the cost of issuance through interest expense or dividends. Thus, issuing more securities increases our costs, which, in turn, means we have to raise more money to cover the costs, which means we have to sell more securities. Therefore, during the second half of 2024, we did not sell Common Shares, shares of our Series A Preferred Stock, or debt securities to raise capital. We believe it is imperative for us to increase the value of our securities, both debt and equity, and for us to do so, we must improve our operating performance and increase our dividend. We are currently in the market for accretive working capital and working through opportunities to do so. However, we cannot assure you that capital will be available to us or, if it is, what will be the cost of such capital.
Current report
As of December 31, 2024, we were not in compliance with one of our loan covenants.
Current report
Under the Credit and Security Agreement, dated as of March 2, 2023, that governed our $65 million revolving credit facility with Needham Bank (“Needham”), we were required to maintain a debt service coverage ratio of 1.4-to-1.0 throughout the entire term of that facility. In other words, our operating cash flow must be equal to or greater than 1.4 times the interest payable on all our outstanding indebtedness. An identical covenant is contained in the Credit, Security and Guaranty Agreement, dated as of March 20, 2025, that governs our new $50 million revolving credit facility with Needham that replaced the 2023 $65 million credit facility with Needham. (The term “Needham Credit Facility” refers to either the $65 million credit facility or the $50 million credit facility, as applicable depending on the context.) Since September 30, 2024 we were not been in compliance with this covenant, which constituted an “Event of Default” under the $65 million Needham Credit. Since the $65 million Needham Credit Facility has now been terminated and replaced by the $50 million Needham Credit Facility, our failure to comply with this covenant is no longer an issue. However, under the terms of the new $50 million Needham Credit Facility, we are required to provide Needham with a certificate no later than May 15, 2025 that we were in compliance with the covenant at March 31, 2025, which we believe we will be to deliver. If we cannot deliver that compliance certificate we will be in default of the covenant under the new $50 million credit facility, and if Needham issues a notice of default, it could have significant adverse consequences on our business, operations, and financial condition. First, Needham could declare the entire outstanding balance on its credit facility, which at the time of this report was $36.1 million, immediately due and payable. Alternatively, it could look to execute on the collateral securing the loan, which would deprive us of a significant portion of our working capital and cash flow. In addition, a default under the Needham credit facility would trigger a default under the terms of the $200 million master repurchase financing facility (the “Churchill Credit Facility”) with Churchill MRA Funding I LLC (“Churchill”) as well as our $1.1 million mortgage with New Haven Bank (the “NHB Mortgage”).
Current report
Notes having an aggregate outstanding principal amount of $56.4 million are due and payable in full on September 30, 2025.
Current report
Notes having an outstanding principal balance of $56.4 million are due and payable in full on September 30, 2025. If we cannot repay these Notes and the holders of these Notes call a default, it may trigger defaults under our other obligations and impair our ability to raise capital from other sources. As previously noted, a default under the Notes would also trigger a default under the Master Purchase Agreement with Churchill and under the term of the NHB Mortgage. This could have a material adverse impact on our operations, financial condition and business. We believe we will have the ability to repay those notes on the due date from a combination of cash flow from operations and borrowings under our various credit facilities.
Current report
We are subject to the “baby shelf” rules, which limits the amount of securities we can sell pursuant to an S-3 Registration Statement.
Current report
To date, we have financed our operations through the sale of our Common Shares, Series A Preferred Stock and the Notes. These securities were covered by an S-3 Registration Statement that the SEC declared effective on February 25, 2022. At that time, we were not subject to any limitations on the volume of securities that we could sell under that Registration Statement. That Registration Statement expired on February 25, 2025. Given the fact that our public float is currently less than $75 million and for so long as the “public float” remains under $75 million, we are limited as to the amount of securities we can sell during any 12-month period. The limit is an amount equal to one-third of our “public float”.
Current report
Although alternative public and private transaction structures may be available, these may require additional time and cost, may impose operational restrictions on the Company, and may not be available on attractive terms. The Company’s inability to continue to raise capital when needed will harm its business, financial condition and results of operations, and will likely cause the Company’s stock value to decline further, which could have a material adverse impact on the Company’s business, operations and financial condition.
Current report
In December 2024, we consummated the sale of 32 mortgage loans in our portfolio, having an aggregate unpaid principal balance of $55.8 million to various buyers. The aggregate net proceeds from the sale of these mortgages was $36.1 million, or 64.7% of the unpaid principal balances. Most of the loans that were sold were designated as pending/pre-foreclosure. The purpose of the sale was (i) to raise working capital, (ii) to eliminate the need to provide for future credit losses with respect to these loans, and (iii) to utilize the proceeds towards the repayment of the Notes that matured on December 30, 2024. Despite the loss on the sale, both for GAAP purposes and tax purposes, we consider the transaction to be a success.
Current report
We have experienced a significant increase in the number of non-performing loans.
Current report
We define loans that are more than 90 days in arrears as non-performing status and stop accruing interest on such loans. Over the past two years, we have experienced a significant increase in the outstanding balance of loans in this category as well as the number of loans in foreclosure. For example, at December 31, 2022, the number of loans in non-performing status was 72 and the number of loans in foreclosure was 40. The aggregate outstanding balance on these loans was $45.9 million and $22.6 million, respectively. At December 31, 2023, the comparable numbers were 71 and 56. The aggregate outstanding balance on these loans was $84.6 million and $55.7 million, respectively. At December 31, 2024 the comparable numbers were 35 and 34. The aggregate outstanding balance on these loans was $87.0 million and $52.1 million, respectively. Of the $52.1 million of loans in foreclosure for the year ended December 31, 2024, $15.9 million was held for sale. This has had a material adverse impact on our operational performance and financial condition.
Current report
Although the Fed cut interest rates in 2024 and the rate of inflation has decreased as well, the economic data is still not conclusive to support the continuation of these trends. Thus, there is still the possibility of interest rate increases in the future, especially if there is a recurrence of inflation. Moreover, notwithstanding the reduction in the federal funds rate in 2024, mortgage rates continue to increase raising the concern that residential real estate values will begin to decline. Rising interest rates adversely impacts our business in several ways. First, it makes it more difficult for us to borrow money to sustain our growth. Second, even if we borrow money at higher rates there is no assurance that we can pass these increases on to our borrowers, without adversely impacting the demand for our products. If our borrowers and their related projects cannot manage the increase in interest rates, we may have an increase in non-performing loans. Further, if we cannot raise the rates on our mortgages, the spread between our cost of funds and the yield on our mortgage loan portfolio will decrease. Thus, increases in interest rates could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our shareholders.
Current report
In December 2024, our Chief Financial Officer, Nicholas Marcello resigned. Mr. Marcello had been involved in almost all aspects of our business, including administration, operations and finance. We immediately commenced a search to find a replacement for Mr. Marcello. Until then, Jeffery Walraven, a member of our Board, is serving as our Interim Chief Financial Officer. If we do not appoint a full-time Chief Financial Officer or find the right candidate in a timely manner, it could have an adverse effect on financial management, growth, and stability.
Current report
In order to raise working capital, we may sell or transfer mortgage loans to a third party, including a securitization entity. In December 2024, we consummated the sale of 32 mortgage loans, having an aggregate outstanding principal balance of $55.8 million to a number of buyers, all of whom specialize in distressed debt. Most of the loans sold were designated as pending/pre-foreclosure by us. In connection with these sales, we were required to make certain representations and warranties to the buyers that are typical in these types of transactions. If there is a material breach in any of theses representations and warranties, we may be liable for any damages incurred by the buyer as a result of such breach or we may be obligated to repurchase one or more of the sold loans that is directly impacted by the breach or replace the impacted loan with another loan. Any remedy, whether we have to pay damages or repurchase or replace a loan, could have a material adverse impact on our business, operations and financial condition.
Current report
Borrowings, also known as leverage, magnify the potential for income gain or loss on amounts invested in loans and, therefore, increase the risks associated with investing in us. We borrow from and issue senior debt securities to banks and other lenders that are secured by liens on our assets. Holders of these senior securities have fixed dollar claims on our assets that are superior to the claims of the holders of our other securities. Leverage is generally considered a speculative investment technique. Any increase in our income in excess of interest payable on our outstanding indebtedness would cause our net income to increase more than it would have had we not incurred leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not incurred leverage. Such a decline could negatively affect our ability to pay dividends to the holders of our equity securities or scheduled debt payments. There can be no assurance that our leveraging strategy will be successful.
Current report
Our outstanding indebtedness imposes, and additional debt we may incur in the future will likely impose, financial and operating covenants that restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a REIT.
Current report
Under the Indenture governing the Notes, as well as the agreements relating to our various credit facilities, we are generally required to meet an asset coverage ratio at least equal to 150%, respectively, of total assets to total borrowings and other senior securities, which include all our borrowings and any redeemable preferred stock we may issue in the future. In addition, we cannot pay dividends to our shareholders to the extent such dividends would cause us to fall below the 150% asset coverage ratio. If this ratio declines below 150%, we may not be able to incur additional debt and may need to sell a portion of our investments to repay some debt when it is disadvantageous to do so, and we may not be able to make distributions to our shareholders.
Current report
Despite our current debt levels, we may incur substantial additional debt in the future, secured or unsecured, senior or subordinate, subject to the restrictions contained in our debt instruments, by issuing additional debt securities in public or private transactions, arranging new credit facilities or increasing borrowings under our existing credit facilities, or by other means. A failure to add new debt facilities or issue additional debt securities or incur other indebtedness in lieu of or in addition to existing indebtedness could have a material adverse effect on our business, financial condition or results of operations. However, we cannot assure you that we will be able to raise additional debt capital on reasonable terms, if at all. Even if we are successful, we cannot assure that we will be able to service any increase in the amount of our indebtedness.
Current report
If we fail to comply with the continued listing standards of the NYSE American, all or some of our securities that currently are listed on the NYSE American could be delisted. This would have a material adverse impact on the holders of that security and as us.
Current report
The continued listing of our common stock on the NYSE American is contingent on our continued compliance with the listing standards of the exchange. The NYSE American retains substantial discretion to, at any time and without notice, suspend dealings in or remove from any security from listing. To maintain this listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of shareholders’ equity and a minimum number of public shareholders. In addition to these objective standards, the NYSE American may delist the securities of any issuer: (i) if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; (ii) if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; (iii) if the issuer sells or disposes of principal operating assets or ceases to be an operating company; (iv) if an issuer fails to comply with the NYSE American’s listing requirements; (v) if the trading price of a listed security falls below what the NYSE American considers a “low selling price” and the issuer fails to correct this situation within a reasonable period following receipt of notification from the NYSE American; or (vi) if any other event occurs or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable. There is no assurance that we will remain in compliance with these standards.
Current report
Delisting from the NYSE American would adversely affect our ability to raise additional financing through the public or private sale of equity securities, significantly affect the ability of investors to trade our securities and negatively affect the value and liquidity of our common stock. Delisting also could limit our strategic alternatives and attractiveness to potential counterparties and have other negative results, including the potential loss of employee confidence, decreased analyst coverage of our securities, the loss of institutional investors or interest in business development opportunities. Moreover, we committed in connection with the sale of securities to use commercially reasonable efforts to maintain the listing of our common stock during such time that certain warrants are outstanding.
Current report
At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. We and our shareholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.
Current report
The Tax Cuts and Jobs Act of 2017 (“TCJA”) made significant changes to the U.S. federal income tax rules for taxation of individuals and corporations. In the case of individuals, the tax brackets have been adjusted, the top federal income rate has been reduced to 37%, special rules reduce taxation of certain income earned through pass-through entities and reduce the top effective rate applicable to ordinary dividends from REITs to 29.6% (through a 20% deduction for ordinary REIT dividends received) and various deductions have been eliminated or limited, including limiting the deduction for state and local taxes to $10,000 per year. Most of the changes applicable to individuals are temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026. The top corporate income tax rate has been reduced to 21%. There were only minor changes to the REIT rules (other than the 20% deduction applicable to individuals for ordinary REIT dividends received). The TCJA made numerous other large and small changes to the tax rules that do not affect REITs directly but may affect our shareholders and may indirectly affect us. For example, the TCJA amends the rules for accrual of income so that income is taken into account no later than when it is taken into account on applicable financial statements, even if financial statements take such income into account before it would accrue under the original issue discount rules, market discount rules or other Code rules. Such rule may cause us to recognize income before receiving any corresponding receipt of cash. In addition, the TCJA reduces the limit for individuals’ mortgage interest expense to interest on $750,000 of mortgages and does not permit deduction of interest on home equity loans (after grandfathering all existing mortgages). Such change, and the reduction in deductions for state and local taxes (including property taxes), may adversely affect the residential mortgage markets in which we invest.
Removed paragraphs (11)
Previous report
Although the Fed has not increased since July 2023, and most analysts expect interest rates to decrease in 2024, there is still the possibility of interest rate increases in the future, especially if there is a recurrence of inflation. Rising interest rates generally reduce the demand for mortgage loans due to the higher cost of borrowing. In addition, rising interest rates may also cause loans that we originated prior to an interest rate increase to provide yields that are below prevailing market interest rates. Moreover, if we must refinance our existing indebtedness at higher rates, the spread between our cost of funds and the yield on our mortgage loan portfolio
Previous report
will decrease. As interest rates increase, the aforementioned factors could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our shareholders.
Previous report
Short-term loans may involve a greater risk of loss than traditional mortgage loans.
Previous report
Borrowers usually use the proceeds of a long-term mortgage loan or sale to repay a short-term loan. We may therefore depend on a borrower’s ability to obtain permanent financing or sell the property to repay our loan, which could depend on market conditions and other factors. In a period of rising interest rates, it may be more difficult for borrowers to obtain long-term financing, which increases the risk of non- payment. Similarly, declining real estate values could adversely impact an owner’s ability to refinance a mortgage or sell the underlying property. In this respect, we note that at December 31, 2023 approximately 89 mortgage loans in our portfolio have matured and have not been repaid in full or extended. Short-term loans are also subject to risks of borrower defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance. In the event of a default, we bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount and unpaid interest on our loan. To the extent we suffer such losses with respect to our loans, our enterprise value and the price of our Common Shares may be adversely affected.
Previous report
Inflation and rising interest rates could adversely impact our business, operations and financial condition.
Previous report
Inflation and rising interest rates could adversely impact our business, operations and financial condition. In 2023, the Fed raised interest rates four times for an aggregate of 1%. As a result, the Fed Funds rate increased from 4.50%, at January 1, 2023, to 5.50%, as of December 31, 2023 and the prime rate increased from 7.5% to 8.50%. The Fed’s rate increases are in response to a sharp increase in the annual rate of inflation in the United States over the last several years, which was reported to be 3.4% and 6.5% for the 12 months ended December 31, 2023 and 2022, respectively. The Fed increases appear to have suppressed inflation growth, but as a result has slowed growth in the commercial real estate sector. These economic factors have not had an adverse impact on the volume or velocity of our business, likely because of the slowdown in the regional banking system. However, they have led to an increase in our borrowing costs. Our ability to access the public markets to raise reasonably priced capital has been adversely impacted. Additionally, if these trends continue, they could result in decreased demand for our products given our increased pricing and a decrease in property valuations, which could have an adverse impact on the ability of our borrowers to repay their loans. Thus, we cannot assure you that our business, operations and financial condition will not be adversely impacted.
Previous report
In order to raise working capital, we may in the future sell or transfer mortgage loans to a third party, including a securitization entity. In such event, we probably will be required to make customary representations and warranties about such loans to the third party. In addition, the loan sale agreement and the terms of any securitizations into which we sell or transfer loans will generally require us to repurchase or substitute loans in the event we breach a representation or warranty given to the loan purchaser or securitization. Furthermore, we may be required to repurchase loans as a result of borrower fraud or in the event of early payment default on a mortgage loan. The remedies available to a purchaser of mortgage loans are generally broader than those available to us against an originating broker or correspondent. Repurchased loans are typically worth only a fraction of the original price. Significant repurchase activity could materially adversely affect our business, financial condition and results of operations and our ability to pay dividends to our shareholders.
Previous report
Our outstanding indebtedness as of December 31, 2023 was approximately $377.7 million, which exposes us to the risk of default thereunder, among other risks.
Previous report
Despite our current debt levels, we may be able to incur substantial additional debt in the future, subject to the restrictions contained in our debt instruments, some of which may be secured debt. We are not restricted presently under the terms of the agreements governing our borrowings from incurring additional debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that could have the effect of diminishing our ability to make payments on our indebtedness when due and distributions to our shareholders.
Previous report
If the Series A Preferred Stock or our Common Shares are delisted, your ability to transfer or sell your shares of the Series A Preferred Stock may be limited and the market value of the Series A Preferred Stock will likely be materially adversely affected.
Previous report
Other than in connection with a Change of Control (as defined in our certificate of incorporation, as amended) the Series A Preferred Stock does not contain rights that are intended to protect you if our Common Shares are delisted from the NYSE American. Because the Series A Preferred Stock has no stated maturity date, Series A Preferred Stock shareholders may be forced to hold their shares of the Series A Preferred Stock and receive stated dividends on the Series A Preferred Stock when, as and if authorized by the Board and paid by us with no assurance as to ever receiving the liquidation value thereof. In addition, if our Common Shares are delisted from the NYSE American, it is likely that the Series A Preferred Stock will be delisted from the NYSE American as well. Accordingly, if our Common Shares are delisted from the NYSE American, your ability to transfer or sell your shares of the Series A Preferred Stock may be limited and the market value of the Series A Preferred Stock will likely be materially adversely affected.
Reworded paragraphs (49)
Previous wording
Declining real estate valuations could result in impairment charges or provisions for credit losses, the determination of which involves a significant amount of judgment on our part. Any impairment or provision could have a material adverse effect on us.
Current wording
Declining real estate valuations have resulted in impairment charges or provisions for credit losses, the determination of which involves a significant amount of judgment on our part. Any future impairment or provision could have a material adverse effect on us.
Previous wording
We review our loan portfolio for impairments and provisions for credit losses on a quarterly basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indicators of loss include, but are not limited to, a sustained significant decrease in the value of the collateral securing the loan, including the value of the real estate and other assets pledged to secure the loan as well as personal guarantees by the principals of the borrower, or a borrower’s inability to stay current with respect to its obligations under the terms of the loan. A significant amount of judgment is involved in determining the presence of
Current wording
We review our loan portfolio for impairments and provisions for credit losses on a quarterly basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indicators of loss include, but are not limited to, a sustained significant decrease in the value of the collateral securing the loan, including the value of the real estate and other assets pledged to secure the loan as well as personal guarantees by the principals of the borrower, or a borrower’s inability to stay current with respect to its obligations under the terms of the loan. A significant amount of judgment is involved in determining the presence of an indicator of impairment or credit loss. If we determine that the value of the collateral is less than the amount outstanding on the loan or the amount that may become due upon the maturity of the loan, a loss must be recognized for the difference between the fair value of the property and the carrying value of the loan. Any impairment or credit losses could have a material adverse effect on our financial condition.
Previous wording
Historically, our mortgage loans were relatively small, and a small number of foreclosures did not have a material adverse impact on our business. However, our business strategy has changed, and we are now making larger loans with increasing frequency. At December 31, 2023 we had 113 loans, approximately 36.3% of all the loans in our portfolio, with an outstanding principal balance in excess of $1 million. These loans have an aggregate outstanding principal balance of $427.2 million, or approximately 85.6% of our loan portfolio. This alters the risk profile of our portfolio. At December 31, 2023, of the 311 mortgage loans in our portfolio, 56 were in the process of foreclosure, with an aggregate outstanding principal balance and the accrued but unpaid interest and borrower charges on these loans of approximately $68.1 million. In comparison, at December 31, 2022, of the 444 mortgage loans in our portfolio, 40 were in the process of foreclosure. The aggregate outstanding principal balance and the accrued but unpaid interest and borrower charges on these loans was approximately $24.0 million. If this trend continues, it could have a material adverse impact on our business, operations and financial condition.
Current wording
Historically, our mortgage loans were relatively small, and a small number of foreclosures did not have a material adverse impact on our business. However, our business strategy has changed, and we are now making larger loans with increasing frequency, changing the risk profile of our mortgage loan portfolio. When combined with the decline in commercial real estate values and restrictive credit conditions, the rate of foreclosures that we are experiencing is increasing. At December 31, 2024, we had 88 loans, 52.4% of the loans in our portfolio, with an outstanding principal balance exceeding $1 million. At December 31, 2023, we had 113 loans, 36.3% of the loans in our portfolio, with an outstanding principal balance exceeding $1 million. If this trend continues, it could have a material adverse impact on our business, operations and financial condition.
Previous wording
Our business is materially affected by conditions in the residential and commercial mortgage markets, the residential and commercial real estate markets, the financial markets and the economy generally. We believe the risks associated with our mortgage loan portfolio will be more acute during periods of economic slowdown, recession or market dislocations, especially if these periods are accompanied by declining real estate values and defaults. In prior years, concerns about the health of the global economy generally and the residential and commercial real estate markets specifically, as well as inflation, energy costs, perceived or actual changes in interest rates, European sovereign debt, U.S. budget debates, geopolitical issues, international trade issues, public health issues, and the availability and cost of credit have contributed to increased volatility and uncertainty for the economy and the financial and credit markets. For example, COVID-19 contributed significantly to the supply chain issues in the real estate sector that have affected our borrowers, ultimately slowing construction and driving up costs. In addition, we cannot assure that similar or a completely different set of adverse conditions will not arise in the future.
Current wording
Our business is materially affected by conditions in the residential and commercial mortgage and real estate markets, the financial markets and the economy generally. We believe the risks associated with our mortgage loan portfolio will be more acute during periods of economic slowdown, recession or market dislocation, especially if these periods are accompanied by declining real estate values and defaults. In prior years, concerns about the health of the global economy generally and the residential and commercial real estate markets specifically, as well as inflation, energy costs, perceived or actual changes in interest rates, European sovereign debt, U.S. debt limit and budget deficits, slowing economic growth among developed nations, geopolitical conflicts, international trade issues, public health issues, and the availability and cost of credit have contributed to increased volatility and uncertainty for the economy and the financial and credit markets. For example, COVID-19 contributed significantly to the supply chain issues in the real estate sector that have affected our borrowers, ultimately slowing construction and driving up costs. In addition, we cannot assure that similar or completely different set of adverse conditions will not arise in the future.
Previous wording
An economic slowdown, a public health crisis (such as COVID-19), delayed recovery or general disruption in the mortgage markets may result in decreased demand for residential and commercial properties, which could adversely impact homeownership rates and force owners of commercial properties to lower rents, thus placing additional pressure on property values. We believe there is a strong correlation between real estate values and mortgage loan delinquencies. For example, to the extent that a commercial property owner has fewer tenants or receives lower rents, such owner will generate less cash flow on the property, thus reducing the value of the property and increasing the likelihood that such property owner will default on its debt service obligations. If the borrowers of our mortgage loans default or become delinquent on their obligations, we may incur material losses on those loans. Any sustained period of increased payment delinquencies, defaults, foreclosures, or losses could adversely affect both our operating income and our ability to obtain financing on favorable terms or at all. Any deterioration in the mortgage markets, the residential or commercial real estate markets, the financial markets and the economy generally may lower net income, increase losses and a decline in the market value of our assets, all of which may adversely affect our results of operations, the availability and cost of credit and our ability to make distributions to our shareholders.
Current wording
An economic slowdown, a public health crisis (such as COVID-19), armed conflicts, societal unrest, delayed recovery or general disruption in the mortgage markets may result in decreased demand for residential and commercial properties, which could adversely impact homeownership rates and force owners of commercial properties to lower rents, thus placing additional pressure on property values. We believe there is a strong correlation between real estate values and mortgage loan delinquencies. For example, to the extent that a commercial property owner has fewer tenants or receives lower rents, such owner will generate less cash flow on the property, thus reducing the value of the property and increasing the likelihood that such property owner will default on its debt service obligations. If the borrowers of our mortgage loans default or become delinquent on their obligations, we may incur material losses on those loans. Any sustained period of increased payment delinquencies, defaults, foreclosures, or losses could adversely affect both our operating income and our ability to obtain financing on favorable terms or at all. Any deterioration in the mortgage markets, the residential or commercial real estate markets, the financial markets and the economy generally may lower net income, increase losses and impair the market value of our assets, all of which may adversely affect our results of operations, the availability and cost of credit and our ability to make distributions to our shareholders.
Previous wording
Further increases in interest rates could adversely affect our ability to generate income and pay dividends.
Current wording
Increases in interest rates could adversely affect our ability to generate income and pay dividends.
Previous wording
Currently, there are several geopolitical concerns that could, indirectly, have an adverse impact on our business. These concerns include the ongoing war between Russia and Ukraine and Israel and Hamas, heightened tensions between the United States and China over trade, intelligence gathering and Taiwan, Iran’s pursuit of nuclear weapons and its ongoing attempts to destabilize the Middle East and North Korea’s continued belligerence. The conditions, and the responses thereto, such as sanctions imposed by the United States and other western democracies, and any expansion thereof is likely to have unpredictable and wide-ranging effects on the domestic and global financial markets, which could have an adverse effect on our business and results of operations. Already, these conditions have led to market volatility, a sharp increase in certain commodity prices, such as wheat and oil, and an increasing number and frequency of cybersecurity threats. So far, we have not experienced any direct impact from the conflict and, as our business is conducted exclusively in the United States, we are probably less vulnerable than companies with international operations. We will continue to monitor the situation carefully and, if necessary, take action to protect our business, operations, and financial condition.
Current wording
Currently, there are several geopolitical concerns that could, indirectly, have an adverse impact on our business. These concerns include the ongoing armed conflicts in Europe and the Middle East, heightened tensions between the United States and China over trade, intelligence gathering and Taiwan and differences between the United States and some of its key allies on a variety of issues. These conditions, and the responses thereto, such as tariffs and sanctions imposed by the United States, and any expansion thereof is likely to have unpredictable and wide-ranging effects on the domestic and global financial markets, which could have an adverse effect on our business and results of operations. Already, these conditions have led to market volatility, a sharp increase in the cost of certain basic goods, and an increase in the number and frequency of cybersecurity threats. Even though our business is purely domestic, our borrowers are impacted by the uncertainty created by world events, price increases and market volatility.
Previous wording
Many of our loans do not have an interest reserve. Thus, we generally rely on the borrowers to make interest payments as and when due from other sources of cash. Given the fact that many of the properties securing our loans are not income producing or even cash producing and most of the borrowers are entities with no assets other than the single property that is the subject of the loan, some of our borrowers have considerable difficulty servicing our loans and the risk of a non-payment of default is considerable. We depend on the borrower’s ability to refinance the loan at maturity or sell the property for repayment. If the borrower is unable to repay the loan, together with all the accrued interest, at maturity, our operating results and cash flows would be materially and adversely affected.
Current wording
Many of our loans do not have an interest reserve. Thus, we generally rely on the borrowers to make interest payments as and when due from other sources of cash. Since many of the properties securing our loans are under construction or renovation and, therefore, are not income producing or even cash producing and most of the borrowers are entities with no assets other than the single property that is the subject of the loan, some of our borrowers could have considerable difficulty servicing our loans and the risk of a non-payment of default is considerable. We depend on the borrower’s ability to refinance the loan at maturity or sell the property for repayment. If the borrower is unable to repay the loan, together with all the accrued interest, at maturity, our operating results and cash flows would be materially and adversely affected.
Previous wording
In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent
Current wording
In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law. Foreclosure of a mortgage loan can be an expensive and lengthy process, which could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan.
Previous wording
Despite our efforts to manage credit risk, there are many aspects of credit risk that we cannot control. Our credit policies and procedures may not be successful in limiting future delinquencies, defaults, and losses, or they may not be cost effective. Our underwriting reviews and due diligence procedures may not be effective. Borrower circumstances could change during the term of the loan. Delay of foreclosures could delay resolution and increase ultimate loss severities, as a result. The value of the properties collateralizing or underlying the loans may decline. The frequency of default and the loss severity on loans upon default may be greater than we anticipate. If properties securing our mortgage loans become real estate owned because of foreclosure, we bear the risk of not being able to sell the property and recovering our investment and of being exposed to the risks attendant to the ownership of real property.
Current wording
Despite our efforts to manage credit risk, there are many aspects of credit risk that we cannot control. Our credit policies and procedures may not be successful in limiting future delinquencies, defaults, and losses. Our underwriting reviews and due diligence procedures are designed for completeness and accuracy and are based on pre-funding diligence. Borrower circumstances as well as market conditions could change significantly during the term of the loan resulting in non-performance. The foreclosure process is lengthy, in some cases pro-borrower and costly. The length of time it takes to gain control of our collateral may cause a decline in fair market value or other impairments related to operational costs like taxes and insurance. The frequency of default and the loss severity on loans upon default may be greater than we anticipate. If properties securing our mortgage loans become real estate owned because of foreclosure, we bear the risk of not being able to sell the property and recovering our investment and of being exposed to the risks attendant to the ownership of real property.
Previous wording
At December 31, 2023, approximately 67.5% of the loans in our loan portfolio (representing approximately 49.4% of our outstanding mortgage loans receivable) are secured by residential real property. None of these loans are guaranteed by the U.S. government or any government sponsored entity. Therefore, the value of the underlying property, the creditworthiness and financial position of the borrower and the priority and enforceability of the lien will significantly impact the value of such mortgage. In the event of foreclosure, we may assume direct ownership of the underlying real estate. The liquidation proceeds upon sale of such real estate may be less than the outstanding balance of the loan (including principal, accrued but unpaid interest and other fees and charges). In addition, any costs or delays involved in the foreclosure or liquidation process may increase losses.
Current wording
At December 31, 2024, 56.2% of the loans in our loan portfolio (representing 49.4% of our outstanding mortgage loans receivable) are secured by residential real property. None of these loans are guaranteed by the U.S. government or any government sponsored entity. Therefore, the value of the underlying property, the creditworthiness and financial position of the borrower and the priority and enforceability of our lien will significantly impact the value of such mortgage. In the event of foreclosure, we may assume direct ownership of the underlying real estate. The liquidation proceeds upon sale of such real estate may be less than the outstanding balance of the loan (including principal, accrued but unpaid interest and other fees and charges). In addition, any costs or delays involved in the foreclosure or liquidation process may increase losses.
Previous wording
At December 31, 2023, approximately 59.2% of our mortgage loans (representing approximately 39.8% of the aggregate outstanding principal balance of our loan portfolio) were secured by property located in Connecticut; 12.5% (representing approximately 13.8% of the aggregate outstanding principal balance of our loan portfolio) were secured by property located in New York State; and 10.9% (representing approximately 25.4% of the aggregate outstanding principal balance of our loan portfolio) were secured by property located in Florida. As a result, we are subject to the general economic and market conditions in those markets as well as in other markets where we lend. For example, other geographic markets in neighboring states could become more attractive for developers, investors and owners based on favorable costs and other conditions to construct or improve or renovate real estate properties. Some states have created tax and other incentives to attract businesses to relocate or to establish new facilities in their jurisdictions. These changes in other markets may increase demand in those markets and result in a corresponding decrease in demand in the markets in which we currently operate. Any adverse economic or real estate developments or any adverse changes in the local business climate in any geographic market in which we have a concentration of properties, could have a material adverse effect on us. To the extent any of the foregoing risks arise in Connecticut, New York and Florida, our business, financial condition and results of operations and ability to make distributions to shareholders could be materially adversely affected.
Current wording
At December 31, 2024, 53.6% of our mortgage loans held for investment (representing 34.4% of the aggregate outstanding principal balance of our loans held for investment portfolio) were secured by property located in Connecticut; 14.7% (representing 30.6% of the aggregate outstanding principal balance of our loans held for investment portfolio) were secured by property located in Florida; and 13.5% (representing 8.8% of the aggregate outstanding principal balance of our loans held for investment portfolio) were secured by property located in New York. As a result, we are subject to the general economic and market conditions in those markets as well as in other markets where we lend. For example, other geographic markets in neighboring states could become more attractive for developers, investors and owners based on favorable costs and other conditions to construct or improve or renovate real estate properties. Some states have created tax and other incentives to attract businesses to relocate or to establish new facilities in their jurisdictions. These changes in other markets may increase demand in those markets and result in a corresponding decrease in demand in the markets in which we currently operate. Any adverse economic or real estate developments or any adverse changes in the local business climate in any geographic market in which we have a concentration of properties, could have a material adverse effect on us. To the extent any of the foregoing risks arise in Connecticut, New York and Florida, our business, financial condition and results of operations and ability to make distributions to shareholders could be materially adversely affected.
Previous wording
We operate in a highly competitive market and we believe these conditions will persist for the foreseeable future as the financial services industry continues to consolidate, producing larger, better capitalized and more geographically diverse companies with broad product and service offerings. Our existing and potential future competitors include other “hard money” lenders, mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage banks, insurance companies, mutual funds, pension funds, private equity funds, hedge funds, institutional investors, investment banking firms, non-bank financial institutions, governmental bodies, family offices and high net worth individuals. We may also compete with companies that partner with and/or receive government financing. Many of our competitors are substantially larger and have considerably greater financial, technical, marketing and other resources than we do. In addition, larger and more established competitors may enjoy significant competitive advantages, including enhanced operating efficiencies, more extensive referral networks, greater and more favorable access to investment capital and more desirable lending opportunities. Several of these competitors, including mortgage REITs, have recently raised or are expected to raise, significant amounts of capital, which enables them to make larger loans or a greater number of loans. Some competitors may also have a lower cost of funds and access to funding sources that may not be available to us, such as funding from various governmental agencies or under various governmental programs for which we are not eligible. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of possible loan transactions or to offer more favorable financing terms than we would. Finally, as a REIT and because we operate in a manner to be exempt from the requirements of the Investment Company Act, we may face further restrictions to which some of our competitors may not be subject. For example, we may find that the pool of potential qualified borrowers available to us is limited. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. As a result of these competitive factors, we may not in the future be able to originate and fund mortgage loans at favorable spreads over our cost of capital, which could have a material adverse effect on our business, financial condition, results of operations and ability to make distributions to our shareholders.
Current wording
We operate in a highly competitive market, and we believe these conditions will persist for the foreseeable future as the financial services industry continues to consolidate, producing larger, better capitalized and more geographically diverse companies with broad product and service offerings. Our existing and potential future competitors include other “hard money” lenders, mortgage REITs, specialty finance companies, savings and loan associations, banks, mortgage banks, insurance companies, mutual funds, pension funds, private equity funds, hedge funds, institutional investors, investment banking firms, non-bank financial institutions, governmental bodies, family offices and high net worth individuals. We may also compete with companies that partner with and/or receive government financing. Many of our competitors are substantially larger than us and have considerably greater financial, technical, marketing and other resources than we do. In addition, larger and more established competitors may enjoy significant competitive advantages, including enhanced operating efficiencies, more extensive referral networks, greater and more favorable access to investment capital and more desirable lending opportunities. Several of these competitors, including mortgage REITs, have recently raised or are expected to raise significant amounts of capital, which enables them to make larger loans or a greater number of loans. Some competitors may also have a lower cost of funds and access to funding sources that may not be available to us, such as funding from various governmental agencies or under various governmental programs for which we are not eligible. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of possible loan transactions or to offer more favorable financing terms than we would. Finally, as a REIT and because we operate in a manner to be exempt from the requirements of the Investment Company Act, we may face further restrictions to which some of our competitors may not be subject. For example, we may find that the pool of potential qualified borrowers available to us is limited. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. As a result of these competitive factors, we may not be able to originate and fund mortgage loans at favorable spreads over our cost of capital, which could have a material adverse effect on our business, financial condition, results of operations and ability to make distributions to our shareholders.
Previous wording
of our existing strategies, policies and /or procedures regarding financing, hedging, asset allocation, lending, operations and management at any time without the consent of shareholders, which could result in us originating and funding mortgage loans or entering into financing or hedging transactions with which we have no or limited experience or that are different from, and possibly riskier than our existing strategies and policies. The adoption of new strategies, policies and procedures or any changes, modifications or revisions to existing strategies, policies and procedures, may increase our exposure to fluctuations in real estate values, interest rates, prepayment rates, credit risk and other factors and there can be no assurance that we will be able to effectively identify, manage, monitor or mitigate these risks. A change in our lending guidelines could result in us making riskier real estate loans than those we have been making until now.
Current wording
Currently, we have no policies in place that limit or restrict our ability to borrow money or raise capital by issuing debt securities. Similarly, we have only a limited number of policies regarding underwriting criteria, loan metrics and operations in general. Even within these policies, management has broad discretion. We may adopt new strategies, policies and/or procedures or change any of our existing strategies, policies and /or procedures regarding financing, hedging, asset allocation, lending, operations and management at any time without the consent of shareholders, which could result in us originating and funding mortgage loans or entering into financing or hedging transactions with which we have no or limited experience or that are different from, and possibly riskier than our existing strategies and policies. The adoption of new strategies, policies and procedures or any changes, modifications or revisions to existing strategies, policies and procedures, may increase our exposure to fluctuations in real estate values, interest rates, prepayment rates, credit risk and other factors and there can be no assurance that we will be able to effectively identify, manage, monitor or mitigate these risks. A change in our lending guidelines could result in us making riskier real estate loans than those we have been making until now.
Previous wording
Moreover, while the Board may periodically review our loan guidelines and our strategies and policies and while it may also approve certain loans, it does not approve every individual mortgage loan that we originate or fund, leaving management with day-to-day discretion over our loan portfolio composition within our broad lending guidelines. Within those guidelines, management has discretion to significantly change the composition of our loan portfolio. In addition, in conducting periodic reviews, the directors may rely primarily on information provided to them by management. Moreover, because management has great latitude within our guidelines in determining the amounts and other terms of a particular mortgage loan, there can be no assurance that management will not make or approve loans that result in returns that are substantially below expectations or result in losses, which would materially adversely affect our business, results of operations, financial condition and ability to make distributions to our shareholders.
Current wording
Moreover, while the Board may periodically review our loan guidelines and our strategies and policies and while it may also approve certain loans, it does not approve every individual mortgage loan that we originate or fund, leaving management with day-to-day discretion over our loan portfolio composition within our broad lending guidelines. Within those guidelines, management has the discretion to significantly change the composition of our loan portfolio. In addition, in conducting periodic reviews, the directors may rely primarily on information provided to them by management. Moreover, because management has great latitude within our guidelines in determining the amounts and other terms of a particular mortgage loan, there can be no assurance that management will not make or approve loans that result in returns that are substantially below expectations or result in losses, which would materially adversely affect our business, results of operations, financial condition and ability to make distributions to our shareholders.
Previous wording
In connection with our business of originating and funding mortgage loans, we rely on third-party service providers to perform a variety of services, comply with applicable laws and regulations, and carry out contractual covenants and terms. For example, we may rely on appraisers for a valuation analysis of the property that will be mortgaged to secure the loan. We may rely on attorneys to close the loans and to make sure that the loan is properly secured. These and other service providers upon whom we rely, may fail to adequately perform the services that they have been engaged to provide. As a result, we are subject to the risks associated with a third party’s failure to perform, including failure to perform due to reasons such as fraud, negligence, errors, miscalculations, or insolvency. In addition, we could also suffer reputational damage as a result of their acts or omissions, which could lead to borrowers and lenders and other counterparties ceasing to do business with us, which could materially adversely affect our business, financial condition and results of operations and ability to make distributions to our shareholders.
Current wording
In connection with our business of originating and funding mortgage loans, we rely on third-party service providers to perform a variety of services, comply with applicable laws and regulations, and carry out contractual covenants and terms. For example, we may rely on appraisers for a valuation analysis of the property that will be mortgaged to secure the loan or we may rely on attorneys to close the loans and to make sure that the loan is properly secured. These and other service providers upon whom we rely, may fail to adequately perform the services that they have been engaged to provide by committing errors, negligence, or fraud. As a result, we are subject to the risks associated with a third party’s failure to perform, including failure to perform due to reasons such as fraud, negligence, errors, miscalculations, or insolvency and the corresponding losses or impairments to our investments. In addition, we could also suffer reputational damage because of their acts or omissions, which could lead to borrowers and lenders and other counterparties ceasing to do business with us, which could materially adversely affect our business, financial condition and results of operations and ability to make distributions to our shareholders.
Previous wording
One of the biggest risks overhanging the mortgage market has been uncertainty around the timing and ability of lenders to foreclose on defaulted loans, so that they can liquidate the underlying properties. Given the magnitude of the housing crisis of 2008, and in response to the well-publicized failures of many mortgage servicing companies to follow proper foreclosure procedures (such as involving “robo-signing”), lenders, and their agents, are being held to much higher foreclosure-related documentation standards than they previously were. As a result, the mortgage foreclosure process has become lengthier and more expensive. Many factors delaying foreclosure, such as borrower lawsuits and judicial backlog and scrutiny, are outside of our control and have delayed, and will likely continue to delay, foreclosure processing in both judicial states (where foreclosures require court involvement) and non-judicial states. The extension of foreclosure timelines also increases the inventory backlog of distressed homes on the market and creates greater uncertainty about housing prices. The concerns about deficiencies in foreclosure practices of servicers and related delays in the foreclosure process may impact our loss assumptions and affect the values of, and our returns on, our mortgage loans.
Current wording
One of the biggest risks overhanging the mortgage market has been uncertainty around the timing and ability of lenders to foreclose on defaulted loans, so that they can liquidate the underlying properties. Given the magnitude of the housing crisis of 2008, and in response to the well-publicized failures of many mortgage servicing companies to follow proper foreclosure procedures (such as involving “robo-signing”), lenders, and their agents, are being held to much higher foreclosure-related documentation standards than they previously were. As a result, the mortgage foreclosure process has become lengthier and more expensive through the payment of past due taxes, insurance, as well as legal fees. Many factors delaying foreclosure, such as borrower lawsuits and judicial backlog and scrutiny, are outside of our control. Current defendant legal practice will likely continue to delay foreclosure processing in both judicial states (where foreclosures require court involvement) and non-judicial states to the benefit of our borrowers. The extension of foreclosure timelines also increases the inventory backlog of distressed homes on the market and creates greater uncertainty about housing prices. Continuing deficiencies in foreclosure practices of mortgage lenders and related delays in the foreclosure process may impact our loss assumptions and affect the values of, and our returns on, our mortgage loans.
Previous wording
At December 31, 2023, we had unfunded commitments under existing loans of approximately $97.9 million. We do not record these unfunded commitments as liabilities on our balance sheets as the unfunded portion of the loans are not included in the outstanding mortgage loan balances. We try to maintain a reasonable amount of working capital at all times, although not in amounts sufficient to cover all our deferred funding obligations. In addition, we can also borrow funds against our portfolio of marketable securities, although the value of these securities in our account fluctuate, which can reduce our liquidity. As of December 31, 2023, we had approximately $1.0 million of availability remaining under our Wells Fargo Loan and we may also be able to raise additional capital through one of our other credit facilities (i.e., Churchill and Needham, which have significant availability). Nevertheless, there is a risk that borrower demand for funding under existing loans could exceed our available working capital and if we fail to meet our funding obligations, we may be subject to legal claims by the borrowers. This could have a material and adverse impact on our business reputation, our operations as well as our financial condition.
Current wording
At December 31, 2024, we had unfunded commitments under existing loans of $49.9 million. We do not record these unfunded commitments as liabilities on our balance sheets as the unfunded portion of the loans are not included in the outstanding mortgage loan balances. We try to maintain a reasonable amount of working capital at all times, although not in amounts sufficient to cover all of our deferred funding obligations. Nevertheless, there is a risk that borrower demand for funding under existing loans could exceed our available working capital and if we fail to meet our funding obligations, we may be subject to legal claims by the borrowers. This could have a material and adverse impact on our business reputation, our operations as well as our financial condition.
Previous wording
In general, any adverse event that threatens the confidentiality, integrity, or availability of our information resources or the information resources of our third-party service providers is considered a cyber- attack. More specifically, a cyber-incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. The primary risks that could directly result from the occurrence of a cyber- incident include operational interruption and private data exposure. We cannot assure you that our business and results of operations will not be negatively impacted by a cyber incident.
Current wording
In general, any adverse event that threatens the confidentiality, integrity, or availability of our information resources or the information resources of our third-party service providers is considered a cyber incident. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining unauthorized access to systems to disrupt operations, corrupt data, or steal confidential information. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced. The primary risks that could directly result from the occurrence of a cyber incident include operational interruption and private data exposure. We cannot assure you that our business and results of operations will not be negatively impacted by a cyber incident.
Previous wording
We face risks from cybersecurity threats that could have a material adverse effect on our business, financial condition, results of operations, cash flows or reputation. We acknowledge that the risk of a cyber incident is prevalent in the current threat landscape and that a future cyber incident may occur in the normal course of our business. However, cyber incidents have not been identified to date, therefore having no material adverse effect on our business, financial condition, results of operations, or cash flows. We understand potential vulnerabilities to known or unknown threats remain and have implemented our cyber risk management program described in Item 1.C. below to stay up-to-date on attacks against IT assets, data, and services, and to prevent their occurrence and recurrence where practicable. We cannot assure you that our program will be effective in preventing a cyber incident in the future. If it’s not effective it could have a material adverse effect on our business, financial condition, results of operations, or cash flows.
Current wording
We face risks from cybersecurity threats that could have a material adverse effect on our business, financial condition, results of operations, cash flows or reputation. We acknowledge that the risk of a cyber incident is prevalent in the current threat landscape and that a future cyber incident may occur in the normal course of our business. However, cyber incidents have not been identified to date, therefore having no material adverse effect on our business, financial condition, results of operations, or cash flows. We understand potential vulnerabilities to known or unknown threats remain and have implemented our cyber risk management program described in Item 1.C. below to stay up-to-date on attacks against IT assets, data, and services, and to prevent their occurrence and recurrence where practicable. We cannot assure you that our program will be effective in preventing a cyber incident in the future. If it is not effective, it could have a material adverse effect on our business, financial condition, results of operations, or cash flows.
Previous wording
We believe that our continued success depends on the continued services of John L. Villano, our chairman, chief executive officer and president. Our reputation among and our relationships with our key customers are the direct result of a significant investment of time and effort by him to build our credibility in a highly specialized industry. The loss of Mr. Villano’s services could diminish our business and investment opportunities and our relationships with lenders, business partners and existing and prospective customers and could have a material adverse effect on us. While we have entered into an employment agreement with Mr. Villano, he can terminate his employment with us at any time, for any reason. In the event Mr. Villano terminates his employment with us or is unable to carry out his duties, our business and operations will be adversely impacted.
Current wording
We believe that our continued success depends on the continued services of John L. Villano, our Chairman, Chief Executive Officer and President. Our reputation and our relationships with our key customers are the direct result of a significant investment of time and effort by him to build our credibility in a highly specialized industry. The loss of Mr. Villano’s services could diminish our business and investment opportunities and our relationships with lenders, business partners and existing and prospective customers and could have a material adverse effect on us. While we have entered into an employment agreement with Mr. Villano, he can terminate his employment with us at any time, for any reason. In the event Mr. Villano terminates his employment with us or is unable to carry out his duties, our business and operations will be adversely impacted.
Previous wording
management personnel who maintain relationships with our customers and who can provide the technical, strategic and marketing skills that will help us grow. Currently, the U.S. labor market is “tight” – meaning there are many more jobs available than people to fill them. Accordingly, competition for quality personnel is fierce. Competitive pressures may require that we enhance our pay and benefits package to compete effectively for such personnel. An increase in these costs or our inability to recruit and retain necessary professional, technical, managerial, sales and marketing personnel or to maintain access to key third-party providers could have a material adverse effect on us.
Current wording
Training new employees is a difficult, time-consuming and expensive task but is key to our growth and success. We must continue to identify, hire, train, and retain qualified professionals, operations employees, and sales and senior management personnel who maintain relationships with our customers and who can provide the technical, strategic and marketing skills that will help us grow. Competitive pressures may require that we enhance our pay and benefits package to compete effectively for such personnel. An increase in these costs or our inability to recruit and retain necessary professional, technical, managerial, sales and marketing personnel or to maintain access to key third-party providers could have a material adverse effect on us.
Previous wording
For us to maintain our qualification as a REIT under the Code, not more than 50% in value of the issued and outstanding shares of our capital stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year (other than our first year as a REIT). This test is known as the “5/50 test.” Attribution rules in the Code apply to determine if any individual or entity actually or constructively owns our capital stock for purposes of this requirement. Additionally, at least 100 persons must beneficially own our capital stock during at least 335 days of each taxable year (other than our first year as a REIT). To help ensure that we meet these tests, our charter restricts the acquisition and ownership of shares of our capital stock. Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT and provides that, unless exempted by the Board, no person may own more than 4.99% in value of the aggregate of the outstanding shares of our capital stock or more than 4.99% in value or in number of shares, whichever is more restrictive, of the aggregate of our outstanding shares of our Common Shares. Our founders, Jeffrey C. Villano and John L. Villano, are both exempt from this provision. (Jeffrey Villano is no longer affiliated with us and, as far as we know, no longer owns any of our Common Shares.) The ownership limits contained in our charter could delay or prevent a transaction or a change in control of our company under circumstances that otherwise could provide our shareholders with the opportunity to realize a premium over the then current market price for our Common Shares or would otherwise be in the best interests of our shareholders.
Current wording
For us to maintain our qualification as a REIT under the Code, not more than 50% in value of the issued and outstanding shares of our capital stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year (other than our first year as a REIT). This test is known as the “5/50 test.” Attribution rules in the Code apply to determine if any individual or entity actually or constructively owns our capital stock for purposes of this requirement. Additionally, at least 100 persons must beneficially own our capital stock during at least 335 days of each taxable year (other than our first year as a REIT). To help ensure that we meet these tests, our charter restricts the acquisition and ownership of shares of our capital stock. Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT and provides that, unless exempted by the Board, no person may own more than 4.99% in value of the aggregate of the outstanding shares of our capital stock or more than 4.99% in value or in number of shares, whichever is more restrictive, of the aggregate of our outstanding shares of our Common Shares. Our founder John L. Villano, is exempt from this provision. The ownership limits contained in our charter could delay or prevent a transaction or a change in control of our company under circumstances that otherwise could provide our shareholders with the opportunity to realize a premium over the then current market price for our Common Shares or would otherwise be in the best interests of our shareholders.
Previous wording
In addition to our normal operating expenses, we have significant cash requirements, notably dividend payments and loan repayments. To qualify and maintain our qualification as a REIT, we are required under the Code to distribute at least 90% of our “REIT taxable income” (determined before the deduction for dividends paid and excluding net capital gains) annually. In addition, we are subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our “REIT taxable income,” including any net capital gains. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. In addition, approximately $58.2 million principal of our unsecured, unsubordinated notes will become due in 2024 and another $56.4 million will become due in 2025. Because of these distribution and repayment requirements, we may not be able to fund future capital needs, specifically, capital for funding mortgage loans, from operating cash flow. Consequently, we rely on third-party sources of capital to fund a substantial amount of our working capital needs. We may not be able to obtain such financing on favorable terms or at all. Any additional debt we incur will increase our leverage, expose us to the risk of default and impose operating restrictions on us. In addition, any equity financing could be materially dilutive to the equity interests held by our existing shareholders. Our access to third-party sources of capital depends, in part, on general market conditions, the market’s perception of our growth potential, leverage, current and expected results of operations, liquidity, financial condition and cash distributions to shareholders and the market price of our Common Shares. If we cannot obtain capital when needed, we may not be able to execute our business and growth strategies, satisfy our debt service obligations, make the cash distributions to our shareholders necessary to qualify and maintain our qualification as a REIT (which would expose us to significant penalties and corporate level taxation), or fund our other business needs, any of which could have a material adverse effect on us.
Current wording
In addition to the usual operating expenses, we have significant other cash requirements, notably interest and dividend payments (to maintain our REIT status, we are required to distribute at least 90% of our taxable income on a annual basis) and loan repayments ($56.4 million principal amount of Notes will become due in September of 2025 and another $51.8 million principal amount of Notes will become due in December of 2026.) Consequently, we rely on third-party sources of capital to fund a substantial amount of our working capital needs. Our access to third-party sources of capital depends, in part, on general market conditions, the market’s perception of our growth potential, leverage, current and expected results of operations, liquidity, financial condition and cash distributions to shareholders and the market price of our equity securities. If we cannot obtain capital when needed, we may not be able to execute our business and growth strategies, satisfy our debt service obligations, make the cash distributions to our shareholders necessary to qualify and maintain our qualification as a REIT (which would expose us to significant penalties and corporate level taxation), or fund our other business needs, any of which could have a material adverse effect on us.
Previous wording
If we are unable to leverage our assets 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 shareholders.
Current wording
We employ leverage, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us. If we are unable to leverage our assets to the extent we anticipate, the returns on certain if not all of our assets could be diminished, which may limit or eliminate our ability to make distributions to our shareholders.
Previous wording
A key element of our growth strategy is to use leverage to increase the size of our loan portfolio to enhance our returns. If we are unable to leverage our assets to the extent we currently anticipate, the returns on our loan portfolio could be diminished, which may limit or eliminate our ability to make distributions to our shareholders.
Current wording
A key element of our growth strategy is to use leverage to increase the size of our loan portfolio to enhance our returns. If we are unable to leverage our assets to the extent we currently anticipate, the returns on our loan portfolio could be diminished, which may limit or eliminate our ability to make distributions to our shareholders. For example, from June 2019 through August 2022, we consummated seven public offerings of unsecured unsubordinated five-year notes having an aggregate original principal amount of $288.4 million. Those funds were critical to our growth during that period.
Previous wording
At December 31, 2023, our total outstanding indebtedness was approximately $377.7 million, including approximately $58.2 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2024, approximately $56.4 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2025, approximately $51.8 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2026, approximately $122.1 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2027, a line of credit secured by our investment portfolio of approximately $26.8 million, approximately $26.5 million under the Churchill Facility that is secured by a first priority security interest on the mortgage loans pledged as collateral, approximately $1.1 million mortgage loan secured by our corporate office buildings and approximately $35 million under the Needham Credit Facility. Our organizational documents contain no limitations regarding the maximum level of indebtedness, whether as a percentage of our market capitalization or otherwise, that we may incur. As our capital needs continue to grow, we anticipate increasing our overall indebtedness. Our substantial outstanding indebtedness, and the limitations imposed on us by our debt agreements, could have other significant adverse consequences, including the following:
Current wording
Our organizational documents contain no limitations regarding the maximum level of indebtedness, whether as a percentage of our market capitalization or otherwise, that we may incur. The amount of leverage that we employ depends on managements assessment of market and other factors at the time of any proposed borrowing. As our capital needs continue to grow, we anticipate increasing our overall indebtedness. Our substantial outstanding indebtedness, and the limitations imposed on us by our debt agreements, could have other significant adverse consequences, including the following:
Previous wording
If we default on our obligations under the Churchill Facility, the Wells Fargo Loan, NHB Mortgage or Needham Credit Facility, we may suffer adverse consequences and may not be able to make payments on the Notes.
Current wording
We are leveraged. If we default on our obligations, we may suffer adverse consequences.
Previous wording
To secure our obligations under the Churchill Facility, Churchill has a first priority security interest on the mortgage loans pledged as collateral under the Churchill Facility. If we default on our obligations under the Churchill Facility and fail to cure, Churchill will have the right to assign, sell, or otherwise transfer, the mortgage loans subject to their security interests. If Churchill exercises its right to sell the mortgage loans pledged under the Churchill Facility, such sales may be completed at distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after repayment of the amounts outstanding under the Churchill Facility. The Wells Fargo Loan is secured by our portfolio of short-term securities held at Wells Fargo. A decline in the value of the securities below the margin call limit may require us to provide additional funds or securities to Wells Fargo to avoid a forced sale of such securities. All amounts borrowed under the Needham Credit Facility are secured by a first priority lien on virtually all our assets excluding real estate owned by us (other than real estate acquired pursuant to foreclosure) and mortgages sold under the Churchill Facility. The occurrence of any of the foregoing events could have a material adverse effect on our business, financial condition and results of operations, cash flows, our ability to make distributions to shareholders and make the interest payment on the Notes.
Current wording
Total outstanding indebtedness at December 31, 2024 was $304.9 million, which included $230.2 million aggregate outstanding principal balance of Notes, $40 million outstanding on the Needham Credit Facility (since reduced to $36.1 million), $33.7 million outstanding on the Churchill Credit Facility, and $1.0 million outstanding on the NHB Mortgage. All amounts borrowed under the Needham Credit Facility are secured by a first priority lien on virtually all our assets excluding real estate owned by us (other than real estate acquired pursuant to foreclosure) and mortgages sold under the Churchill Credit Facility. To secure our obligations under the Churchill Credit Facility, we grant Churchill a first priority security interest on the mortgage loans that are that are sold to Churchill under that facility. The NHB Mortgage is secured by a first mortgage lien on the property located at 568 E. Main Street, Branford Connecticut, which we own and which is our principal place of business. In addition, the Churchill Credit Facility and the NHB Mortgage have cross default provisions, which means that a default under the terms of any other indebtedness, would also be an event of default under the Churchill Credit Facility and the NHB Mortgage as well. Thus, any default under the Needham Credit or the Churchill Credit Facility or the NHB Mortgage could have a material adverse effect on our business, financial condition and results of operations, cash flows, our ability to make distributions to shareholders and make the interest payment on the Notes.
Previous wording
Any default under the agreements governing our existing indebtedness or other indebtedness to which we may be a party that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness, including the Notes. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest. In addition, the lenders under any revolving credit facility or other financing that we may obtain in the future could elect to terminate their commitment, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. Any such default may constitute a default under the Notes, which could further limit our ability to repay our indebtedness, including the Notes. If our operating performance declines, we may in the future need to seek to obtain waivers from our existing lenders at the time to avoid being in default. If we breach any loan covenants, we may not be able to obtain such a waiver from the lenders. If this occurs, we would be in default under the credit arrangement that we have, the lender could exercise its rights as described above, and we could be forced into bankruptcy or liquidation. If we are unable to repay indebtedness, lenders having secured obligations could proceed against the collateral securing the debt. Because the Churchill Facility and the NHB Mortgage have, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under the Notes, or under any future credit facility is accelerated, we may be unable to repay or refinance the amounts due.
Current wording
Any default under the agreements governing our existing indebtedness, or other indebtedness that we may incur in the future that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness, including the Notes. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest. In addition, the lenders under any revolving credit facility or other financing that we may obtain in the future could elect to terminate their commitment, cease making further loans and institute foreclosure proceedings against our assets and force us into bankruptcy or liquidation. Any such default may constitute a default under all our indebtedness, including the Notes, which could further limit our ability to repay our indebtedness, including the Notes. If our operating performance declines, we may in the future need to seek to obtain waivers from our existing lenders at the time to avoid being in default. If we breach any loan covenants, we may not be able to obtain such a waiver from the lenders in which case we would be in default under the credit arrangement and the lender could exercise its rights as described above, and we may be forced into bankruptcy or liquidation. If we are unable to repay indebtedness, lenders having secured obligations could proceed against the collateral securing the debt. Because the Churchill Credit Facility and the NHB Mortgage have, and any future credit facilities may have, customary cross-default provisions, if repayment of any outstanding indebtedness, such as the Notes, the Churchill Facility, the NHB Mortgage, the Needham Credit Facility or any future credit facility, is accelerated, we may be unable to repay or finance the amounts due.
Previous wording
Despite our current debt levels, we may still incur substantially more debt or take other actions which could have the effect of diminishing our ability to make payments on our indebtedness when due and distributions to our shareholders.
Current wording
Despite our current debt levels, we may incur substantially more debt or take other actions which could have the effect of diminishing our ability to make payments on our indebtedness when due and distributions to our shareholders.
Previous wording
As of December 31, 2023, we had approximately $288.4 million aggregate principal amount of fixed rate term notes (the “Notes”) outstanding. The Notes are unsecured. As a result, they are effectively subordinated to all our existing and future secured indebtedness, such as the Wells Fargo Loan, approximately $26.8 million at December 31, 2023, the Churchill Facility, approximately $26.5 million as of December 31, 2023, the Needham Facility, $35.0 million as of December 31, 2023, and the NHB Mortgage, approximately $1.1 million at December 31, 2023, as well as any secured indebtedness that we may incur in the future, or any indebtedness that is initially unsecured to which we subsequently grant a security interest, to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes. The Churchill Facility is secured by a first priority security interest on the mortgage loans pledged as collateral under the facility; the Wells Fargo Loan is collateralized by our portfolio of short-term securities held at Wells Fargo; the NHB Mortgage is secured by a first mortgage lien on the property located at 568 East Main Street, Branford, Connecticut; and all amounts borrowed under the Needham Credit Facility are secured by a first priority lien on virtually all our assets, not including real estate owned by us (other than real estate acquired pursuant to foreclosure) and mortgages sold under the Churchill Facility.
Current wording
As of December 31, 2024, we had $230.2 million aggregate principal amount of Notes outstanding. The Notes are unsecured. As a result, they are effectively subordinated to all our existing and future secured indebtedness, such as the Churchill Credit Facility ($33.7 million outstanding balance at December 31, 2024), the Needham Credit Facility, ($40.0 million outstanding balance at December 31, 2024), and the NHB Mortgage, ($1.0 million outstanding balance at December 31, 2024) as well as any secured indebtedness that we may incur in the future, or any indebtedness that is initially unsecured to which we subsequently grant a security interest, to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the Notes. The Needham Credit Facility is secured by a first priority lien on virtually all our assets excluding real estate owned by us (other than real estate acquired pursuant to foreclosure) and mortgages sold under the Churchill Credit Facility. The Churchill Credit Facility is secured by a first priority security interest on the mortgage loans pledged as collateral under the facility. The NHB Mortgage is secured by a first mortgage lien on the property located at 568 East Main Street, Branford, Connecticut.
Previous wording
The Notes are our exclusive obligations, and not of any of our subsidiaries. In addition, the Notes are not guaranteed by any third-party, whether an affiliate or unrelated. None of the assets of our subsidiaries will be directly available to satisfy the claims of holders of the Notes. Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors of our subsidiaries will have priority over our equity interests in such entities (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such entities. Even if we are recognized as a creditor of one or more of these entities, our
Current wording
The Notes are our exclusive obligations, and not of any of our subsidiaries. In addition, the Notes are not guaranteed by any third-party, whether an affiliate or unrelated. None of the assets of our subsidiaries will be directly available to satisfy the claims of holders of the Notes. Except to the extent, we are a creditor with recognized claims against our subsidiaries, all claims of creditors of our subsidiaries will have priority over our equity interests in such entities (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such entities. Even if we are recognized as a creditor of one or more of these entities, our claims would still be effectively subordinated to any security interests in the assets of any such entity and to any indebtedness or other liabilities of any such entity senior to our claims. Consequently, the Notes will be structurally subordinated to all indebtedness and other liabilities of any of our subsidiaries. In addition, our subsidiaries and these entities may incur substantial indebtedness in the future, all of which would be structurally senior to the Notes.
Previous wording
The Notes are generally redeemable any time beginning on the second anniversary of their issuance date. Notes having an aggregate principal amount of approximately $218.2 million are currently redeemable. Notes having an aggregate principal amount of $30.0 million will first become redeemable on May 11, 2024 and Notes having an aggregate principal amount of approximately $40.3 million will first become redeemable on August 23, 2024. We may choose to redeem the Notes when prevailing interest rates are lower than the rate borne by the Notes. If prevailing rates are lower at the time of redemption, holders of the Notes would not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the Notes being redeemed. Our redemption right also may adversely impact the ability of holders to sell the Notes as the optional redemption date or period approaches.
Current wording
All the Notes are currently redeemable at the time of our choosing. We may choose to redeem the Notes when prevailing interest rates are lower than the rate borne by the Notes. If prevailing rates are lower at the time of redemption, holders of the Notes would not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the Notes being redeemed. Our redemption right may adversely impact the ability of holders to sell the Notes as the optional redemption date or period approaches.
Previous wording
The Notes have received a private rating of BBB+ from Egan-Jones Ratings Company. An explanation of the significance of ratings may be obtained from the rating agency. Generally, rating agencies base their ratings on such material and information, and such of their own investigations, studies and assumptions, as they deem appropriate. We have no obligation to maintain our credit rating or to advise holders of the Notes of any changes in our credit rating. There can be no assurance that our credit rating will remain for any given period of time or that such credit rating will not be lowered or withdrawn entirely by the rating agency if in their judgment future circumstances relating to the basis of the credit rating so warrant.
Current wording
Upon issuance, each tranche of Notes received a private rating of BBB+ from Egan-Jones Ratings Company. An explanation of the significance of ratings may be obtained from the rating agency. Generally, rating agencies base their ratings on such material and information, and such of their own investigations, studies and assumptions, as they deem appropriate. We have no obligation to maintain our credit rating or to advise holders of the Notes of any changes in our credit rating. There can be no assurance that our credit rating will remain for any given period of time or that such credit rating will not be lowered or withdrawn entirely by the rating agency if in their judgment future circumstances relating to the basis of the credit rating so warrant.
Previous wording
In the event of our bankruptcy, liquidation, dissolution or winding up of our affairs, our assets will be available to pay obligations on the Series A Preferred Stock only after all of our indebtedness and other liabilities have been paid. At December 31, 2023, our total outstanding indebtedness, including the aggregate outstanding principal amount of unsecured, unsubordinated notes (net of deferred financing costs), amounts due under the Churchill Facility, the Wells Fargo Loan, the NHB Mortgage and the Needham Credit Facility, totaled $371.7 million, and total liabilities were $395.5 million.
Current wording
In the event of our bankruptcy, liquidation, dissolution or winding up of our affairs, our assets will be available to pay obligations on the Series A Preferred Stock only after all of our indebtedness and other liabilities have been paid. At December 31, 2024, our total outstanding indebtedness, including the aggregate outstanding principal amount of the Notes (net of deferred financing costs), amounts due under the Churchill Credit Facility, the NHB Mortgage and the Needham Credit Facility, totaled $301.2 million, and total liabilities were $310.3 million.
Previous wording
The rights of holders of the Series A Preferred Stock to participate in the distribution of our assets will rank junior to the prior claims of our current and future creditors and any future series or class of preferred stock we may issue that ranks senior to the Series A Preferred Stock. In addition, the Series A Preferred Stock effectively ranks junior to all existing and future indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries and any future subsidiaries in that the Series A Preferred Stock is structurally subordinated to these types of indebtedness and other liabilities. Our existing subsidiaries are, and any future subsidiaries would be, separate legal entities and have no legal obligation to pay any amounts to us in respect of dividends due on the Series A Preferred Stock. If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts due on any or all of the Series A Preferred Stock then outstanding. We and our subsidiaries have
Current wording
The rights of holders of the Series A Preferred Stock to participate in the distribution of our assets will rank junior to the prior claims of our current and future creditors and any future series or class of preferred stock we may issue that ranks senior to the Series A Preferred Stock. In addition, the Series A Preferred Stock effectively ranks junior to all existing and future indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries and any future subsidiaries in that the Series A Preferred Stock is structurally subordinated to these types of indebtedness and other liabilities. Our existing subsidiaries are, and any future subsidiaries would be, separate legal entities and have no legal obligation to pay any amounts to us in respect of dividends due on the Series A Preferred Stock. If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts due with respect to the outstanding shares of the Series A Preferred Stock. We and our subsidiaries have incurred and may in the future incur substantial amounts of debt and other obligations that will rank senior to the Series A Preferred Stock. Certain of our existing or future debt instruments may restrict the authorization, payment or setting apart of dividends on the Series A Preferred Stock.
Previous wording
Our ability to pay dividends on the Series A Preferred Stock is limited by the laws of New York. Under applicable New York law, a New York corporation may not make a distribution if, after giving effect to the distribution, the corporation would not be able to pay its debts as the debts become due in the usual course of business, or, except in limited circumstances, the corporation’s total assets would be less than the sum of its total liabilities plus, unless our certificate of incorporation, as amended, provides otherwise, the amount that would be needed, if the corporation were dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. Accordingly, we may not make a distribution on the Series A Preferred Stock if, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or, except in limited circumstances, our total assets would be less than the sum of our
Current wording
Our ability to pay dividends on the Series A Preferred Stock is limited by the laws of New York. Under applicable New York law, a New York corporation may not make a distribution if, after giving effect to the distribution, the corporation would not be able to pay its debts as the debts become due in the usual course of business, or, except in limited circumstances, the corporation’s total assets would be less than the sum of its total liabilities plus, unless our certificate of incorporation, as amended, provides otherwise, the amount that would be needed, if the corporation were dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. Accordingly, we may not make a distribution on the Series A Preferred Stock if, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or, except in limited circumstances, our total assets would be less than the sum of our total liabilities plus, unless the charter provides otherwise, the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any class or series of preferred shares then outstanding, if any, with preferences senior to those of the Series A Preferred Stock.
Previous wording
During the year ended December 31, 2023, the price for our Series A Preferred Stock on the NYSE American has ranged from a high of $23.00 to a low of $18.73. We cannot assure you that the market price of the Series A Preferred Stock will not fluctuate or decline significantly. The trading price of the Series A Preferred Stock will depend on many factors, which may change from time to time, including the following:
Current wording
During the year ended December 31, 2024, the price for our Series A Preferred Stock on the NYSE American has ranged from a high of $24.70 to a low of $15.39. We cannot assure you that the market price of the Series A Preferred Stock will not fluctuate or decline significantly. The trading price of the Series A Preferred Stock will depend on many factors, which may change from time to time, including the following:
Previous wording
The Series A Preferred Stock shareholders will have extremely limited voting rights.
Current wording
The Series A Preferred Stock shareholders has extremely limited voting rights.
Showing the first 40 of 49 pairs. Open the source sections for the rest.
Rearranged previous paragraphs (11)
Previous report — wording carried elsewhere
the lien is unenforceable under state law. Foreclosure of a mortgage loan can be an expensive and lengthy process, which could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan.
Previous report — wording carried elsewhere
an indicator of impairment or credit loss. If we determine that the value of the collateral is less than the amount outstanding on the loan or the amount that may become due upon the maturity of the loan, a loss must be recognized for the difference between the fair value of the property and the carrying value of the loan. The evaluation of the market value of the underlying collateral requires a significant amount of judgment on our part. For the year ended December 31, 2023, we recorded impairment charges of approximately $0.8 million compared to $0.8 million in 2022. For the years ended December 31, 2023 and 2022, we recorded provisions for credit losses related to loans of approximately $5.6 million and $105,000, respectively. Any impairment or credit losses could have a material adverse effect on our financial condition.
Previous report — wording carried elsewhere
Currently, we have no policies in place that limit or restrict our ability to borrow money or raise capital by issuing debt securities. Similarly, we have only a limited number of policies regarding underwriting criteria, loan metrics and operations in general. Even within these policies, management has broad discretion. We may adopt new strategies, policies and/or procedures or change any
Previous report — wording carried elsewhere
Over the last two years we added 14 employees, nine of which we hired when we acquired the assets of Urbane New Haven, LLC in October 2022, reflecting the increase in the size and volume of operations. Each of these new employees had to be trained to follow our policies and procedures. Training new employees is a difficult, time consuming and expensive task but is key to our growth and success. We must continue to identify, hire, train, and retain qualified professionals, operations employees, and sales and senior
Previous report — wording carried elsewhere
claims would still be effectively subordinated to any security interests in the assets of any such entity and to any indebtedness or other liabilities of any such entity senior to our claims. Consequently, the Notes will be structurally subordinated to all indebtedness and other liabilities of any of our subsidiaries. In addition, our subsidiaries and these entities may incur substantial indebtedness in the future, all of which would be structurally senior to the Notes.
Previous report — wording carried elsewhere
Any default under the agreements governing our existing indebtedness, including a default under the Churchill Facility, the Wells Fargo Loan, the NHB Mortgage or Needham Credit Facility or other indebtedness to which we may be a party that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness, including the Notes. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest. In addition, the lenders under any revolving credit facility or other financing that we may obtain in the future could elect to terminate their commitment, cease making further loans and institute foreclosure proceedings against our assets and force us into bankruptcy or liquidation. Any such default may constitute a default under all our indebtedness, including the Notes, which could further limit our ability to repay our indebtedness, including the Notes. If our operating performance declines, we may in the future need to seek to obtain waivers from our existing lenders at the time to avoid being in default. If we breach any loan covenants, we may not be able to obtain such a waiver from the lenders in which case we would be in default under the credit arrangement and the lender could exercise its rights as described above, and we may be forced into bankruptcy or
Previous report — wording carried elsewhere
liquidation. If we are unable to repay indebtedness, lenders having secured obligations could proceed against the collateral securing the debt. Because the Churchill Facility and the NHB Mortgage have, and any future credit facilities will likely have, customary cross-default provisions, if repayment of any outstanding indebtedness, such as the Notes, the Churchill Facility, the Wells Fargo Loan, the NHB Mortgage, the Needham Credit Facility or any future credit facility, is accelerated, we may be unable to repay or finance the amounts due.
Previous report — wording carried elsewhere
Even if we qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to
Previous report — wording carried elsewhere
significant number of our shareholders could determine to sell Common Shares to pay taxes owed on dividends, may put downward pressure on the market price of Common Shares.
Previous report — wording carried elsewhere
incurred and may in the future incur substantial amounts of debt and other obligations that will rank senior to the Series A Preferred Stock. Certain of our existing or future debt instruments may restrict the authorization, payment or setting apart of dividends on the Series A Preferred Stock.
Previous report — wording carried elsewhere
total liabilities plus, unless the charter provides otherwise, the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any class or series of preferred shares then outstanding, if any, with preferences senior to those of the Series A Preferred Stock.