We are a specialty finance company that acquires, manages, and finances, directly or through our subsidiaries, commercial mortgage loans and other commercial real estate debt, commercial mortgage-backed securities, or CMBS, and other commercial real estate-related assets. We expect that the commercial real estate loans we acquire will be high quality fixed and floating rate first mortgage loans secured by commercial properties. We may also acquire subordinated commercial mortgage loans and mezzanine loans. We intend to acquire CMBS which are rated AAA through BBB as well as CMBS that are below investment grade or are non-rated. Other commercial real estate-related securities and other commercial real estate asset classes will consist of debt and equity tranches of commercial real estate collateralized debt obligations, or CRE CDOs, loans to real estate companies including real estate investment trusts, or REITs, and real estate operating companies, or REOCs, commercial real estate securities and commercial real property. In addition, to maintain our exemption from registration under the Investment Company Act of 1940, as amended, or the 1940 Act, we expect to acquire residential mortgage-backed securities, or RMBS, for which a U.S. Government agency such as the Government National Mortgage Association, or Ginnie Mae, or a federally chartered corporation such as the Federal National Mortgage Association, or Fannie Mae, or the Federal Home Loan Mortgage Corporation, or Freddie Mac, guarantees payments of principal and interest on the securities. We refer to these securities as Agency RMBS. We refer to Ginnie Mae, Fannie Mae, and Freddie Mac collectively as the Agencies.
We are externally managed by Fixed Income Discount Advisory Company, which we refer to as our manager or FIDAC. FIDAC is a wholly-owned subsidiary of Annaly Capital Management, Inc., or Annaly, a New York Stock Exchange-listed REIT. Annaly owns approximately 25% of our outstanding shares of common stock. We intend to elect and qualify to be taxed as a REIT, for U.S. federal income tax purposes.
Our objective is to provide attractive risk-adjusted returns to our investors over the long-term, primarily through dividends and secondarily through capital appreciation. We intend to achieve this objective by acquiring a broad range of commercial real estate-related assets to construct a portfolio that is designed to achieve attractive risk-adjusted returns and that is structured to comply with the various U.S. federal income tax requirements for REIT status. We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the 1940 Act.
Our Investment Strategy
We rely on our Manager’s expertise in identifying assets within our targeted asset classes. Our Manager makes decisions based on various factors, including expected cash yield, relative value, risk-adjusted returns, current and projected credit fundamentals, current and projected macroeconomic considerations, current and projected supply and demand, credit and market risk concentration limits, liquidity, cost of financing and financing availability, as well as maintaining our REIT qualification and our exemption from registration under the 1940 Act.
We recognize that making acquisitions in our targeted asset classes is highly competitive, and that our Manager will compete with many other investment managers for profitable opportunities in these areas. Annaly and our Manager have close relationships with a diverse group of financial intermediaries, including life insurance companies, commercial mortgage brokers, primary dealers, commercial and investment banks and brokerage firms, specialty investment dealers and financial sponsors. In addition, we benefit from our Manager’s analytical and portfolio management expertise and technology.
To facilitate our acquisition of commercial real estate loans, we have entered into a Mortgage Origination and Servicing Agreement, or MOSA and expect to enter into additional MOSAs with third parties to originate, underwrite, conduct due diligence, close and service commercial real estate loans. Under the terms of our MOSAs, we expect that borrowers will pay our MOSA counterparties any origination, commitment and closing fees for the loans originated under our MOSAs. Our Manager oversees the diligence, credit evaluation, underwriting, and financial reporting with respect to our potential loan acquisitions. We expect to have representations and warranties from our MOSA counterparties with respect to the counterparty themselves as well as the loans originated pursuant to our MOSAs. Our MOSAs may or may not require us to pay termination fees with respect to the termination of a MOSA or the transfer of loans serviced under such MOSA. In addition, we expect to make loan acquisitions from our own direct relationships with commercial mortgage brokers and borrowers. We believe that the combined and complementary strengths of Annaly and our Manager, as well as the capabilities of our MOSA counterparties, give us a competitive advantage over REITs with a similar focus to ours. On August 28, 2009, we entered into a MOSA with Principal Real Estate Investors, LLC, or Principal whereby Principal will originate, underwrite, conduct due diligence, close and service commercial real estate loans for us on the terms set forth above. Our MOSA with Principal has no fixed termination date but is terminable by us with or without cause upon 30 days prior written notice and is terminable by Principal with or without cause upon 180 days prior written notice provided that Principal shall continue to serve as the servicer until a successor servicer is appointed.
Over time, we will continually adjust our allocation strategy as market conditions change to seek to maximize the returns from our portfolio. We believe this strategy, combined with our Manager’s experience, will enable us to pay dividends and achieve capital appreciation throughout changing interest rate and credit cycles and provide attractive long-term returns to investors.
Our Financing Strategy
To the extent available, we have financed and may seek to finance our CMBS portfolio with non-recourse financings under the Term Asset-Backed Securities Loan Facility, or TALF, and based on market conditions we intend to utilize structural leverage through securitizations of CMBS. With regard to leverage available under the TALF, the maximum level of allowable leverage under currently announced CMBS programs is 6.7:1. If we are unable to obtain financing through U.S. Government programs and unable to invest in the asset classes expected to be financed through these programs, then we will consider using other non-recourse or recourse financing sources, invest in these assets on an unlevered basis or not invest in these asset classes. With regard to securitizations, the leverage will depend on the market conditions for structuring such transactions. We will seek to finance the acquisition of Agency RMBS using repurchase agreements with counterparties, which are recourse obligations. We anticipate that leverage for Agency RMBS would be available to us, which would provide for a debt-to-equity ratio in the range of 2:1 to 4:1 but would likely not exceed 6:1. Based on current market conditions, we expect to operate within the leverage levels described above in the near and long term. We are not required to maintain any specific debt-to-equity ratio, as we believe the level of leverage will vary based on the particular asset class, the characteristics of the portfolio and market conditions. We can provide no assurance that we will be able to obtain financing as described herein.