In the normal course of business, our operations are exposed to market risks, including the effect of changes in interest rates. We may enter into derivative financial instruments to offset this underlying market risk. There have been no significant changes in our policy and strategy from what was disclosed in the financial statements included in our Annual Report.

The fair values of cash and cash equivalents, accrued interest and dividends, accounts payable and other accrued liabilities and accrued interest payable approximated their carrying values because of the short-term nature of these instruments. The estimated fair values of other financial instruments were determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.

In calculating the fair value of its long-term indebtedness, the Company used interest rate and spread assumptions that reflect current creditworthiness and market conditions available for the issuance of long-term debt with similar terms and remaining maturities. These financial instruments utilize Level 2 inputs.

Amounts borrowed under master repurchase agreements are based on their contractual amounts that reasonably approximate their fair value given the short to moderate term and floating rate nature.

The carrying values and fair values of the Company’s financial assets and liabilities recorded at fair value on a recurring basis, as well as other financial instruments not carried at fair value as of March 31, 2026 (in thousands):


			Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	22,643	$	22,643	$	—	$	—	$	22,643
Restricted cash		2,604		2,604		—		—		2,604
Loans, held-for-investment, net		679,376		—		—		673,985		673,985
Preferred stock investments, at fair value		157,966						157,966		157,966
Common stock investments, at fair value		52,860		—		—		52,860		52,860
Equity method investments		1,768		—		—		1,768		1,768
Mortgage loans, held-for-investment, net		108,903		—		—		107,827		107,827
Accrued interest		47,305		47,305		—		—		47,305
Mortgage loans held in variable interest entities, at fair value		3,873,034		—		3,869,278		3,756		3,873,034
CMBS structured pass-through certificates, at fair value		38,176		—		38,176		—		38,176
Stock warrant investments, at fair value		136,739		—		—		136,739		136,739
Accounts receivable and other assets		332		332		—		—		332
	$	5,121,706	$	72,884	$	3,907,454	$	1,134,901	$	5,115,239

Liabilities
Secured financing agreements, net	$	163,600	$	—	$	—	$	145,366	$	145,366
Master repurchase agreements		164,614		—		—		164,614		164,614
Unsecured notes, net		230,618		—		228,614		—		228,614
Mortgages payable, net		106,151		—		—		102,862		102,862
Accounts payable and other accrued liabilities		14,518		14,518		—		—		14,518
Accrued interest payable		16,971		16,971		—		—		16,971
Bonds payable held in variable interest entities, at fair value		3,688,881		—		3,688,881		—		3,688,881
	$	4,385,353	$	31,489	$	3,917,495	$	412,842	$	4,361,826


			Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	31,114	$	31,114	$	—	$	—	$	31,114
Restricted cash		3,240		3,240		—		—		3,240
Loans, held-for-investment, net		619,560		—		—		651,395		651,395
Preferred stock investments, at fair value		157,893						157,893		157,893
Common stock investments, at fair value		49,104		—		—		49,104		49,104
Equity method investments		1,714		—		—		1,714		1,714
Mortgage loans, held-for-investment, net		121,239		—		—		119,991		119,991
Accrued interest		54,009		54,009		—		—		54,009
Mortgage loans held in variable interest entities, at fair value		3,987,281		—		3,983,276		4,005		3,987,281
CMBS structured pass-through certificates, at fair value		40,427		—		40,427		—		40,427
Stock warrant investments		141,186		—		—		141,186		141,186
Accounts receivable and other assets		551		551		—		—		551
	$	5,207,318	$	88,914	$	4,023,703	$	1,125,288	$	5,237,905

Liabilities
Secured financing agreements, net	$	176,141	$	—	$	—	$	156,743	$	156,743
Master repurchase agreements		258,038		—		—		258,038		258,038
Unsecured notes, net		229,112		—		226,731		—		226,731
Mortgages payable, net		106,151		—		—		103,472		103,472
Accounts payable and other accrued liabilities		13,699		13,699		—		—		13,699
Accrued interest payable		13,795		13,795		—		—		13,795
Bonds payable held in variable interest entities, at fair value		3,692,390		—		3,692,390		—		3,692,390
	$	4,489,326	$	27,494	$	3,919,121	$	518,253	$	4,464,868

The significant unobservable inputs used in the fair value measurement of the Company’s investments are the discount rate and terminal capitalization rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement.

Management elected the fair value option to account for the Company's Level 3 assets as of March 31, 2026 (dollars in thousands):


	Carrying Value		Valuation Technique	Unobservable Inputs	Range	Weighted Average (1)
NexPoint Storage Partners	$	24,892	Discounted cash flow	Terminal cap rate	5.13% - 5.63%		5.38	%
				Discount rate	7.00% - 9.00%		8.00	%
NSP Series G Preferred Stock	$	3,269	Transaction Indication of Value	Recent transaction
IQHQ Series D Preferred Stock	$	18,616	Discounted cash flow	Discount rate	15.50% - 17.00%		16.25	%
IQHQ Series E Preferred Stock	$	136,081	Discounted cash flow	Discount rate	16.01% - 17.51%		16.76	%
Private REIT	$	27,968	Market approach	NAV per share multiple	0.85 - 1.05x		0.95	x
FREMF 2020-KF81 C	$	3,756,225	Market approach	Fair value of the collateral/appraisals			155,370
IQHQ Warrants	$	136,739	Market approach	Marketability discount	20.00% - 41.00%		30.50	%

(1)

Averages are weighted based on the fair value of the related instrument.

The following is a summary of significant unobservable inputs used in the fair valuation of the Company's Level 3 assets carried at fair value on the Consolidated Balance Sheets as of December 31, 2025 (dollars in thousands):


	Carrying Value		Valuation Technique	Unobservable Inputs	Range	Weighted Average (1)
NexPoint Storage Partners	$	24,761	Discounted cash flow	Terminal cap rate	5.00% - 5.50%		5.25	%
				Discount rate	7.00% - 9.00%		8.00	%
NSP Series G Preferred Stock	$	3,161	Transaction Indication of Value	Recent transaction
IQHQ Series D Preferred Stock	$	18,616	Discounted cash flow	Discount rate	15.50% - 17.50%		16.00	%
IQHQ Series E Preferred Stock	$	136,115	Discounted cash flow	Discount rate	16.01% - 17.51%		16.76	%
Private REIT	$	24,343	Market approach	NAV per share multiple	0.85 - 1.05x		0.95	x
FREMF 2020-KF81 C	$	4,005,397	Market approach	Fair value of the collateral/appraisals			187,000
IQHQ Warrants	$	141,186	Market approach	Marketability discount	27.50% - 48.50%		38.00	%

(1)

Averages are weighted based on the fair value of the related instrument.

The table below reflects a summary of changes for the Company's Level 3 common and preferred stock assets carried at fair value on the Consolidated Balance Sheets for the three months ended March 31, 2026:


	Balances as of December 31, 2025		Additions		Change in Unrealized Gains/(Losses)			Balances as of March 31, 2026
NexPoint Storage Partners	$	24,761		—	$	131		$	24,892
Private REIT		24,343		—		3,625			27,968
IQHQ Series D Preferred Stock		18,617		—		(1	)		18,616
IQHQ Series E Preferred Stock		136,115		—		(34	)		136,081
NSP Series G Preferred Stock		3,161		108		—			3,269
FREMF 2020-KF81 C		4,005,397		—		(249,172	)		3,756,225
IQHQ Warrants		141,186		—		(4,447	)		136,739

Redeemable noncontrolling interests in the OP, the 9.00% Series B Cumulative Redeemable Preferred Stock, par value $0.01 per share (the "Series B Preferred Stock") and the 8.00% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share (the "Series C Preferred Stock") have redemption features and are marked to their redemption value if such value exceeds the carrying value. The redemption values are based on the fair value of the Company’s common stock at the redemption date, and therefore, are calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, the redeemable noncontrolling interests in the OP, the Series B Preferred Stock and the Series C Preferred Stock are classified as Level 2 if they are adjusted to their redemption value. As of March 31, 2026, the redeemable noncontrolling interests in the OP, the Series B Preferred Stock and the Series C Preferred Stock are valued at their carrying value on the Consolidated Balance Sheets.