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Item 2. Management’s Discussion and Analysis

2024-11-13 compared with 2024-08-07 · 181 added, 211 removed, 284 unchanged (58% of the section changed)

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This discussion and analysis contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those anticipated in these forward-looking statements, including, but not limited to, risks and uncertainties discussed under the heading “Cautionary Note Regarding Forward-Looking Statements,” in this Form 10-Q.

AFC Gamma, Inc.

Advanced Flower Capital Inc.

is an institutional lender that was founded in July 2020 by a veteran team of investment professionals.

We primarily originate, structure, underwrite, invest in and manage senior secured loans and other types of mortgage loans and debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis.

Prior to the Spin-Off our investment guidelines were to deploy capital in attractive lending opportunities secured by commercial real estate, including (i) first and second lien loans secured by mortgages to commercial real estate owners, operators and related businesses that are not related to the cannabis industry, (ii) the ownership of non-cannabis related real property assets, and (iii) mortgage-backed securities, in addition to our prior sole focus on first lien loans secured by mortgages to cannabis operators in states that have legalized medical and/or adult use cannabis.

Following the Spin-Off, our investment guidelines primarily relate to deploying capital in attractive lending opportunities to state law-compliant cannabis operated, typically secured by real estate, cash flows and license value.

Our investment guidelines primarily relate to deploying capital in attractive lending opportunities to state law-compliant cannabis operators, typically secured by real estate, cash flows and license value.

Our objective is to provide attractive risk-adjusted returns over time through cash distributions and capital appreciation primarily by providing loans to real estate developers and state law compliant cannabis companies.

The loans we originate are primarily structured as senior loans secured by real estate, equipment, value associated with licenses (where applicable) and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties.

The loans we originate are primarily structured as senior loans typically secured by real estate, equipment, cashflows and the value associated with licenses (where applicable) and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties.

Some of our cannabis-related borrowers have their equity securities listed for public trading on the Canadian Securities Exchange (“CSE”) in Canada and/or over-the-counter (“OTC”) in the United States.

We previously expanded our investment guidelines to invest in attractive commercial real estate financing opportunities emerging from the current interest rate environment.

Federal Reserve Board (the “Federal Reserve”) began to increase interest rates in the first quarter of 2022 and continued to do so through the third quarter of 2023 in an effort to curb rising inflation, we believe the higher interest rates and associated pressures created an opportunity in real estate lending, where there is currently less capital available in the marketplace to finance real estate projects.

As a result of these market dynamics, we identified a number of opportunities to provide acquisition and construction financing for real estate owners, operators and related businesses at attractive rates and secured by valuable real estate collateral.

Separately, as states continue to legalize cannabis for medical and adult-use, an increasing number of companies operating in the cannabis industry need financing.

As states continue to legalize cannabis for medical and adult-use, an increasing number of companies operating in the cannabis industry need financing.

Due to the current capital constrained cannabis market, which does not typically have access to traditional bank financing, we believe we continue to be well positioned to act as a prudent financing source to cannabis industry operators given our stringent underwriting criteria, size and scale of operations and institutional infrastructure.

We are a Maryland corporation and externally managed by AFC Management, LLC, a Delaware limited liability company (our “Manager”), pursuant to the terms of the Amended and Restated Management Agreement, dated January 14, 2021, by and between the Company and AFC Management, LLC (as amended from time to time, the “Management Agreement”).

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TRS1 began operating in July 2021.

Our wholly-owned subsidiary prior to the Spin-Off, Sunrise Realty Trust, Inc.

(“SUNS”) (f/k/a CRE South LLC), was formed on August 28, 2023 and converted from a Delaware limited liability company to a Maryland corporation in February 2024.

The financial statements of TRS1 and SUNS are consolidated within our consolidated financial statements.

The financial statements of TRS1 are consolidated within our consolidated financial statements.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies.

As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult.

We have elected to take advantage of the extended transition period.

As a result, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies, which may make comparison of our financials to those of other public companies more difficult.

We could remain an “emerging growth company” for up to five years from our initial public offering, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.

On February 22, 2024, we announced a plan to separate into two independent, publicly traded companies - one focused on providing institutional loans to state law compliant cannabis operators in the U.S., the other an institutional commercial real estate lender focused on the Southern United States.

On July 9, 2024, we completed the separation of our CRE portfolio through the Spin-Off.

The Spin-Off was effected by the transfer of our CRE portfolio, from the Company to SUNS and the distribution of all of the outstanding shares of SUNS common stock to our shareholders of record as of the close of business on the Record Date.

On the Distribution Date, our shareholders of record as of the Record Date received one share of SUNS common stock for every three shares of AFCG common stock held as of the Record Date.

Shareholders received cash in lieu of fractional shares of SUNS common stock.

Prior to the Spin-Off, Sunrise Realty Trust, Inc.

(“SUNS”) held our CRE portfolio as our wholly-owned subsidiary.

On July 9, 2024, we completed the separation of our CRE portfolio through the spin-off of SUNS into an independent, publicly traded REIT (the “Spin-Off”) through a pro-rata distribution of all of the outstanding shares of SUNS common stock to our shareholders of record as of the close of business on July 8, 2024 (the “Record Date”).

Our shareholders of record as of the Record Date received one share of SUNS common stock for every three shares of our common stock held as of the Record Date.

We retained no ownership interest in SUNS following the Spin-Off.

Beginning in the third quarter of fiscal year 2024, the historical financial results of the SUNS business for periods prior to the Distribution Date will be reflected in our consolidated financial statements as discontinued operations.

Prior to the Spin-Off, we contributed approximately $115 million to SUNS in connection with the Spin-Off, comprised of the SUNS’ loan portfolio and cash.

In connection with the Spin-Off, we entered into several agreements with SUNS that govern the relationship between AFCG and SUNS following the Spin-Off, including the Separation and Distribution Agreement and the Tax Matters Agreement.

These agreements provide for the allocation between the Company and SUNS of the assets, liabilities and obligations (including, among others, investments, property and tax-related assets and liabilities) of the Company and its subsidiaries attributable to periods prior to, at and after the Spin-Off.

Pursuant to the amendment to our Management Agreement entered into in February 2024, following the completion of the Spin-Off, we plan to focus on our investments in first and second lien loans, typically secured by mortgages and other security interests, to cannabis operators in states that have legalized medical and/or adult use cannabis.

Pursuant to such amendment, following the completion of the Spin-Off, the investment guidelines were amended such that loans and investments made in respect of (x) first lien or second lien loans secured by mortgages or mezzanine loans to commercial real estate owners, operators and related businesses and (y) the ownership of non-cannabis related commercial real estate assets, were removed and are no longer permitted by the investment guidelines.

Effective as of the completion of the Spin-Off, Jodi Hanson Bond and James Fagan resigned from the Company’s Board of Directors and joined the Board of Directors of SUNS.

Additionally, Alexander Frank was appointed as a director of SUNS and will remain a director of AFCG.

In addition, effective July 1, 2024, Leonard Tannenbaum was appointed Executive Chairman of SUNS (and will remain Executive Chairman and Chief Investment Officer of the Company), Brandon Hetzel was appointed Chief Financial Officer and Treasurer of SUNS (and will remain the Chief Financial Officer of the Company), Robyn Tannenbaum was appointed President of SUNS (and will remain the President of the Company).

During the three and six months ended June 30, 2024, we incurred approximately $0.6 million and $1.1 million in expenses related to spin-off costs, which are recorded within professional fees in the unaudited interim consolidated statements of operations.

Developments During the Second Quarter June 30, 2024:

Updates to Our Loan Portfolio During the Second Quarter June 30, 2024

In April 2024, we received an approximately $8.1 million prepayment from Private Company L’s sale of certain collateral assets and a $0.2 million prepayment premium.

In May 2024, the Company and an affiliate of SUNS entered into an amendment to the existing secured mezzanine loan with CRE Private Company A and purchased approximately $2.5 million of the senior loan, of which approximately $1.3 million has been funded by us and another $1.3 million has been funded by an affiliate of SUNS.

The senior loan bears interest at an annual rate of SOFR plus a 3.48% spread, subject to a SOFR floor of 4.00%, and matures on November 30, 2024.

The amendment to the secured mezzanine loan, among other things, (1) extended the maturity date to November 30, 2024 and (2) replenished the interest reserves held by the administrative agent on the loan in an amount of approximately $9.6 million, for the payment of interest and other costs and expenses.

In May 2024, we entered into the first amendment to the credit agreement with Private Company N - Real Estate, which increased the commitment size approximately $0.7 million and is fully funded under the same terms of the existing credit agreement.

In May 2024, Private Company C repaid its loan in full.

The loan had an original maturity date of December 1, 2025 and the outstanding principal of Private Company C on the date of repayment was approximately $3.5 million.

We received exit fees of approximately $1.7 million.

In May 2024, we entered into a $7.5 million senior secured credit facility with Private Company O.

The loan bears interest at SOFR plus an 8.5% spread, subject to a SOFR floor of 5.0%, and matures June 1, 2028.

At closing, approximately $2.7 million was drawn and the remaining is available to be drawn one year from closing.

The use of proceeds may be used to pay for transaction costs and expenses, general working capital and other general corporate purposes, to fund acquisitions and to fund capital expenditures in accordance with the budget.

The loan is secured by substantially all assets of Private Company O.

As part of the equity requirements under the forbearance agreement with Private Company K, we received a cash payment of approximately $1.5 million in June 2024, which was applied to the outstanding interest and principal under the credit agreement with Private Company K.

In June 2024, we sold our loan with Private Company B at par plus accrued interest.

The outstanding principal of the Private Company B credit facility on the date of the sale was approximately $19.3 million.

In previous quarters, we noted that the Private Company B credit facility was in receivership and matured in September 2023.

In addition to the repayment of the outstanding principal amount of $19.3 million, we also received an exit fee of approximately $1.0 million.

Concurrently with the sale of the loan to Private Company B, we entered into an approximately $15.1 million senior secured credit facility with Private Company P.

The proceeds of the loan will be used to acquire Private Company B’s assets out of receivership.

The loan bears interest at a fixed rate of 13.0%.

The credit agreement has a maturity date of three years, provided that in the event Private Company P has not purchased the assets of Private Company B out of receivership within one year from closing, subject to a 120 day extension on the terms therein, our loan to Private Company P becomes due and payable.

The loan is secured by substantially all assets of Private Company P (and will include the assets of Private Company B when acquired).

In June 2024, we sold the Subsidiary of Public Company H credit facility at par plus accrued interest to a third-party.

The outstanding principal on the date of the sale was $84.0 million.

During the first quarter of fiscal year 2024, we noted that the borrower failed to make its April interest payment.

In addition to the repayment of the outstanding principal amount of $84.0 million, we also received and recognized past due cash interest of approximately $2.3 million and default interest of approximately $0.6 million during the three months ended June 30, 2024 .

During the three months ended June 30, 2024, we incurred approximately $0.6 million in expenses related to spin-off costs, which are recorded within professional fees in the unaudited interim consolidated statements of operations.

In connection with the Spin-Off, we declared a one-time dividend of $0.15 per share of AFCG Common Stock on June 27, 2024, payable on July 15, 2024 to shareholders of record as of July 8, 2024.

The aggregate amount of the one-time dividend payment was approximately $3.1 million .

In connection with the Spin-Off, the operating results of the SUNS business through the date of the Spin-Off are reported in net income from discontinued operations, net of tax in the consolidated statements of operations for all periods presented.

The related assets and liabilities are reported as assets and liabilities of discontinued operations on the consolidated balance sheets.

Cash flows from the Company’s discontinued operations are presented as such in the consolidated statements of cash flows for all periods presented.

Unless otherwise noted, all amounts, percentages and discussion below reflect only the results of operations and financial condition from our continuing operations.

Developments During the Third Quarter September 30, 2024:

Updates to Our Loan Portfolio During the Third Quarter September 30, 2024

In July 2024, we received an approximately $10.0 million principal prepayment and a $0.2 million prepayment premium on our investment in Subsidiary of Public Company M.

Following the prepayment, the aggregate outstanding principal balance on our investments in Subsidiary of Public Company M is approximately $2.8 million as of September 30, 2024.

In August 2024, we entered into the fourth amendment to the credit agreement with Private Company J, pursuant to which, we, among other things, amended certain financial covenants and increased the total aggregate commitment by an additional $5.5 million, of which we have funded $3.0 million as of September 30, 2024.

In August 2024, we entered into the second amendment to the credit agreement with Private Company N - Real Estate, which increased the total aggregate commitment by an additional approximately $1.8 million under the terms of the existing credit agreement.

We have funded approximately $1.2 million of the increased commitment as of September 30, 2024.

In August 2024, we entered into a $11.0 million senior secured credit facility with Private Company Q.

The loan was originated at a discount of 4.0% and matures September 1, 2028.

The loan bears interest at SOFR plus an 8.75% spread, subject to a SOFR floor of 5.0%.

As of September 30, 2024, approximately $5.2 million was drawn and the remainder is available to be drawn within two years of closing.

The loan is secured by substantially all assets of Private Company Q.

The proceeds of the loan will be used to, among other things, pay for transactional costs and expenses, general working capital and other general corporate purposes and to fund capital expenditures in accordance with the budget.

In August 2024, we entered into the first amendment to the credit agreement with Private Company P, which amended the interest payable for July 2024 and August 2024 to be paid in kind and payable in cash thereafter.

In September 2024, we purchased $4.6 million of outstanding principal of a third-party syndicate partner’s minority debt as part of the credit agreement with Private Company A for approximately $1.8 million.

We now hold approximately $53.8 million of outstanding principal as of September 30, 2024.

In September 2024, we received a voluntary prepayment from Private Company L of approximately $1.5 million, recognizing $45.5 thousand in prepayment premium and $37.9 thousand in exit fees.

On July 9, 2024, we completed the Spin-Off of SUNS, which held our CRE portfolio, into an independent, publicly traded REIT.

See “—Spin-Off” above.

At-the-Market Offering Program

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Under the terms of the Sales Agreement, we have agreed to pay the Sales Agents a commission of up to 3.0% of the gross proceeds from each sale of common stock under the Sales Agreement.

During the three and six months ended June 30, 2024, we did not sell any shares of our common stock under the Sales Agreement.

Share Repurchase Program

On June 13, 2023, our Board authorized the Repurchase Program.

The timing, price, and volume of repurchases will be based on our stock price, general market conditions, applicable legal requirements and other factors.

The repurchase of our common stock may be made from time to time in the open market, in privately negotiated transactions or otherwise in compliance with Rule 10b-18 and Rule 10b5-1 under the Exchange Act.

We expect to finance any share repurchases under the Repurchase Program using cash on hand, capacity available under our line of credit and cash flows from operations.

The Repurchase Program is authorized until December 31, 2025 and may be discontinued, modified or suspended at any time.

During the three and six months ended June 30, 2024, we did not repurchase any shares of our common stock pursuant to the Repurchase Program.

During the three and nine months ended September 30, 2024, we sold an aggregate of 1,214,953 shares of our common stock under the Sales Agreement at a weighted average price of $10.39 per share, generating net proceeds of approximately $12.2 million.

As of September 30, 2024, the Company’s remaining authorization under the Sales Agreement was approximately $51.0 million.

Dividends Declared Per Share

For the six months ended June 30, 2024 and 2023, we paid the following cash dividends:

Date Declared Payable to Shareholders of Record at the Close of Business on Date Paid Amount per Share Aggregate Amount Paid

For the nine months ended September 30, 2024 and 2023, we declared the following cash dividends:

Date Declared Payable to Shareholders of Record at the Close of Business on Payment Date Amount per Share Total Amount

March 2, 2023 March 31, 2023 April 14, 2023 $ 0.56 $ 11.5 million

June 15, 2023 June 30, 2023 July 14, 2023 0.48 9.8 million

September 15, 2023 September 30, 2023 October 13, 2023 0.48 9.8 million

2023 Period Subtotal

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June 27, 2024 July 8, 2024 July 15, 2024 0.15 3.1 million

September 13, 2024 September 30, 2024 October 15, 2024 0.33 7.2 million

2024 Period Subtotal

$ 1.44 $ 30.1 million

In connection with the Separation and Distribution, we declared a one-time dividend of $0.15 per share of AFCG Common Stock, payable on July 15, 2024 to shareholders of record as of July 8, 2024.

In connection with the Spin-Off, we declared a one-time dividend of $0.15 per share of our common stock, which was paid on July 15, 2024 to shareholders of record as of July 8, 2024.

The aggregate amount of the one-time dividend payment was approximately $3.1 million .

Recent Developments

In July 2024, we received a prepayment on our investment in Subsidiary of Public Company M.

We received approximately $10.0 million in principal prepayments and $0.2 million prepayment premium.

Following the prepayment, the outstanding principal balance on our investment in Subsidiary of Public Company M is approximately $2.8 million.

In July 2024, pre-Spin-Off, SUNS and an affiliate of SUNS entered into a senior secured credit facility with CRE Private Company C for a total aggregate commitment amount of approximately $35.2 million for the refinance of an active adult multi-family rental development in southwest Austin, Texas.

We committed a total of approximately $14.1 million, and an affiliate of SUNS committed the remaining approximately $21.1 million.

The senior loan commitments were issued by SUNS and an affiliate at a discount of 1.0%.

At closing, we funded approximately $11.4 million and an affiliate of SUNS funded approximately $17.0 million.

The loan bears interest at a rate of SOFR plus 4.25%, with a rate index floor of 4.75%.

The loan with CRE Private Company C has a maturity date of three years, which may be extended, at the borrower’s option, by two separate twelve-month extensions subject to the satisfaction of certain conditions on each extension in exchange for an extension fee of 0.50% of the total loan amount.

The loan with CRE Private Company C is secured by a deed of trust on the property and any deposit and reserve accounts established by the terms of the credit facility.

The proceeds of the loans will be used to, among other things, fund the completion of construction and other reserves, refinance existing debt and pay transaction costs.

Following completion of the Spin-Off, the loan with CRE Private Company C is part of the Spin-Off CRE portfolio held by SUNS.

On July 9, 2024, Sunrise Realty Trust, Inc.

became an independent, publicly-traded company, trading on the Nasdaq Capital Market under the symbol “SUNS”.

The Spin-Off was effected by the transfer of our CRE portfolio, from us to SUNS and the distribution of all of the outstanding shares of SUNS common stock to our shareholders of record as of the close of business on July 8, 2024.

Our shareholders of record as of the Record Date received one share of SUNS common stock for every three shares of our common stock held as of the Record Date.

We retained no ownership interest in SUNS following the Spin-Off.

Prior to the Spin-Off, we contributed approximately $115 million to SUNS in connection with the Spin-Off, comprised of the SUNS’ loan portfolio and cash.

In connection with the Spin-Off, we entered into several agreements with SUNS that govern the relationship between the us and SUNS following the spin-off, including the Separation and Distribution Agreement and the Tax Matters Agreement.

In October 2024, we entered into a $41.0 million senior secured credit facility with Private Company R, which was fully funded at closing.

The loan was originated at a discount of 2.0% and matures November 1, 2027.

The loan bears interest at SOFR plus a 7.5% spread, subject to a SOFR floor of 4.5%.

The loan is secured by substantially all assets of the borrowers, including a first-lien mortgage on the owned real property and a senior lien against the borrower’s assets, operations and the value of its cannabis licenses.

The loan is also guaranteed by certain direct or indirect shareholders of the borrowers.

The proceeds of the loan will be used to, among other things, refinance existing debt and provide working capital.

In October 2024, we received a prepayment of approximately $0.9 million from Private Company L’s sale of certain collateral assets and a $17.8 thousand prepayment premium.

In November 2024, we entered into an agreement to purchase $10.0 million in outstanding principal amount of a senior secured term loan to Subsidiary of Public Company S, a publicly traded operator, at par from a third party lender and we expect to settle the transaction in the near future.

The third party lender assigned all of its rights and obligations under such loan to us.

The term loan under the Subsidiary of Public Company S Credit Facility accrues interest at a fixed rate per annum of 9.5% and matures in August 2026.

In November 2024, in connection with its credit facility with Private Company P, we entered into a limited waiver and amendment to such facility to waive certain failures by Private Company P to pay monthly cash interest payments when due.

In connection with the waiver and amendment, Private Company P will make a cash payment constituting the majority of such missed interest payments of approximately $0.3 million, with the remaining amount due capitalized into the loan balance.

Cash interest payments on the facility will restart January 1, 2025.

Key Financial Measures and Indicators

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Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2024 2023 2024 2023

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Unrealized (gains) losses or other non-cash items 4,621,702 (787,799) 9,655,396 1,152,810

(Decrease) increase in provision for current expected credit losses (6,190,240) (1,606,187) (1,258,566) (903,761)

Increase (decrease) in provision for current expected credit losses (1)

181,370 1,053,398 (1,077,196) 149,637

TRS (income) loss, net of dividends 840,556 1,399,920 1,147,554 (716,684)

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Distributable earnings $ 7,246,005 $ 9,939,408 $ 28,632,701 $ 31,431,606

Basic weighted average shares of common stock outstanding (in shares) 20,400,004 20,317,341 20,396,940 20,310,606

Basic weighted average shares of common stock outstanding 20,684,149 20,324,125 20,493,375 20,315,162

Distributable earnings per basic weighted average share $ 0.35 $ 0.49 $ 1.40 $ 1.55

(1) The provision for current expected credit losses above includes approximately zero and $71.9 thousand for the three and nine months ended September 30, 2024, respectively, and zero for the three and nine months ended September 30, 2023, respectively, which is included in the net income from discontinued operations, net of tax financial statement line on the consolidated statement of operations.

Book Value Per Share

We believe that book value per share is helpful to shareholders in evaluating our growth as we scale our equity capital base and continue to invest in our target investments.

The book value per share of our common stock as of June 30, 2024 and December 31, 2023 was approximately $15.21 and $15.64, respectively.

The book value per share of our common stock as of September 30, 2024 and December 31, 2023 was approximately $9.42 and $15.64, respectively.

On July 9, 2024, we completed the Spin-Off of SUNS, which had a book value of approximately $114.8 million, or $5.55 per share, on the Distribution Date.

In connection with the Spin-Off, we recognized a reduction to additional paid-in capital of approximately $114.8 million related to the transfer of certain assets and liabilities associated with our CRE business to SUNS.

Factors Impacting our Operating Results

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Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by our borrowers.

Results of Operations f or the three and six months ended June 30, 2024 and 2023

Our net income allocable to our common shareholders for the three and six months ended June 30, 2024, was approximately $16.4 million and $16.4 million, or $0.80 and $0.79 per basic weighted average common share, respectively, compared to net income allocable to our common shareholders of approximately $12.1 million and $22.2 million, or $0.59 and $1.08 per basic weighted average common share for the three and six months ended June 30, 2023, respectively.

Interest income increased approximately $2.3 million, or 12.9%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

This increase was driven by lower interest income of approximately ($4.3) million driven by Subsidiary of Private Company G and Private Company A on nonaccrual status for the second quarter of fiscal year 2024, offset by higher interest income of approximately $0.9 million driven by additional principal deployed as well as an increase in variable interest rates, higher fee income of approximately $3.2 million driven by three loan exits during the second quarter of fiscal year 2024 of Subsidiary of Public Company H, Private Company C and Private Company B, and higher OID income of approximately $2.5 million due to the acceleration of unaccreted OID of current year loan exits during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, respectively.

Interest income increased approximately $0.1 million, or 0.4%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

This increase was driven by lower interest income of approximately ($9.5) million driven by Subsidiary of Private Company G and Private Company A placed on nonaccrual status during fiscal year 2024, offset by higher interest income of approximately $2.7 million driven by additional principal deployed as well as an increase in variable interest rates, higher fee income of approximately $3.5 million driven by three loan exits during the second quarter of fiscal year 2024 of Subsidiary of Public Company H, Private Company C and Private Company B, and higher OID income of approximately $3.4 million due to the acceleration of unaccreted OID of current year loan exits during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, respectively.

Interest expense remained consistent, decreasing approximately $(2.5) thousand, or (0.2)%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

Interest expense decreased approximately $(0.1) million, or (2.1)%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.

The decrease was primarily due to lower interest incurred on the 2027 Senior Notes due to a weighted average decrease in the 2027 Senior Notes principal outstanding of approximately $(3.8) million, or (4.0)%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.

This relates to the repurchase of $10.0 million of our 2027 Senior Notes during the six months ended June 30, 2023.

Results of Operations f or the three and nine months ended September 30, 2024 and 2023

Our net income from continuing operations allocable to our common shareholders for the three and nine months ended September 30, 2024, was approximately $1.2 million and $14.9 million, or $0.05 and $0.71 per basic weighted average common share from continuing operations, respectively, compared to net income from continuing operations allocable to our common shareholders of approximately $8.0 million and $30.1 million, or $0.39 and $1.47 per basic weighted average common share from continuing operations for the three and nine months ended September 30, 2023, respectively.

Interest income decreased approximately $(6.3) million, or (37.8)%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

This decrease was driven by lower interest income of approximately ($4.8) million related to Private Company A and Private Company K on nonaccrual status for the third quarter of fiscal year 2024, lower interest income of approximately ($4.1) million related to less capital deployed, partially offset by higher interest income of approximately $1.7 million related to Subsidiary of Private Company G received in cash, higher fee income of approximately $0.4 million driven by the prepayment of our investment in Subsidiary of Public Company M and higher OID income of approximately $0.4 million due to the acceleration of unaccreted OID related to the prepayment of our in investment in Subsidiary of Public Company M during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, respectively.

While Subsidiary of Private Company G is currently on nonaccrual and was on nonaccrual for two out of three months in the prior period, cash received exceeded prior year income for this borrower.

Interest income decreased approximately $(10.2) million, or (19.3)%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

This decrease was driven by lower interest income of approximately ($13.5) million driven by Subsidiary of Private Company G, Private Company K and Private Company A placed on nonaccrual status during fiscal year 2024, lower interest income of approximately ($4.4) million driven by less capital deployed relating to loan exits and prepayments, partially offset by higher fee income of approximately $3.7 million driven by loan exits and prepayments during the nine months ended September 30, 2024, and higher OID income of approximately $4.0 million due to the acceleration of unaccreted OID of current year loan exits and prepayments during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, respectively.

Interest expense increased approximately $39.8 thousand, or 2.6%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023 due to an increase in borrowings on the Revolving Credit Facility.

Interest expense decreased approximately $(27.7) thousand, or (0.6)%, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 driven by lower interest incurred on the 2027 Senior Notes due to a weighted average decrease in the 2027 Senior Notes principal outstanding of approximately $(2.5) million, or (2.7)%, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023.

This relates to the repurchase of $10.0 million of our 2027 Senior Notes during the nine months ended September 30, 2023.

No repurchases took place during the same period in 2024.

Management fees increased approximately $0.2 million, or 22.3%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023 driven by lower outside fees earned.

Incentive fees increased approximately $0.5 million, or 19.5%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, driven by higher Core Earnings (as defined in the Management Agreement).

Management fees increased approximately $0.3 million, or 17.2%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023 driven by lower outside fees earned.

Incentive fees increased approximately $0.1 million, or 2.3%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, driven by higher Core Earnings (as defined in the Management Agreement).

General and administrative expenses decreased approximately $(22.1) thousand, or (2.1)%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.

General and administrative expenses decreased approximately $(1.0) million, or (31.7)%, for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.

This decrease was primarily due to severance expense incurred during the six months ended June 30, 2023 attributable to the departure of our former Chief Financial Officer of approximately $0.7 million.

No severance expense was incurred during the six months ended June 30, 2024.

Stock-based compensation increased approximately $0.2 million, or 182.4%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

This was driven by additional equity awards granted in January 2024.

Stock-based compensation increased approximately $0.5 million, or 121.8%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

This is partially offset by an increase in interest expense relating to the Revolving Credit Facility due to an increase in borrowings period over period.

Management fees decreased approximately $(0.2) million, or (22.7)%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023 driven by lower outside fees earned and lower equity attributable to the Spin-Off of SUNS completed on July 9, 2024.

In connection with the Spin-Off, we recognized a reduction to additional paid-in capital of approximately $114.8 million.

Incentive fees decreased approximately $(2.4) million, or (90.4)%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, driven by lower Core Earnings (as defined in the Management Agreement).

Management fees increased approximately $0.1 million, or 3.5%, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 driven by lower outside fees earned and offset by lower equity attributable to the Spin-Off of SUNS completed on July 9, 2024.

In connection with the Spin-Off, we recognized a reduction to additional paid-in capital of approximately $114.8 million.

Incentive fees decreased approximately $(2.3) million, or (28.7)%, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, driven by lower Core Earnings (as defined in the Management Agreement).

General and administrative expenses decreased approximately $(0.1) million, or (13.1)%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023.

General and administrative expenses decreased approximately $(1.1) million, or (27.7)%, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023.

This decrease was primarily due to severance expense incurred during the nine months ended September 30, 2023 attributable to the departure of our former Chief Financial Officer of approximately $0.7 million.

No severance expense was incurred during the nine months ended September 30, 2024.

Stock-based compensation decreased approximately $(0.1) million, or (25.6)%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

This was driven by accelerated vesting of restricted stock awards in the prior period.

Stock-based compensation increased approximately $0.4 million, or 60.4%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

This was driven by additional equity awards granted in January 2024.

Professional fees increased approximately $0.6 million, or 141.7%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

This was driven by approximately $0.6 million of spin-off costs incurred during the three months ended June 30, 2024.

No spin-off costs were incurred during the three months ended June 30, 2023.

Professional fees increased approximately $1.1 million, or 134.5%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

This was driven by approximately $1.1 million of spin-off costs incurred during the three months ended June 30, 2024.

No spin-off costs were incurred during the six months ended June 30, 2023.

The net change in realized gains (losses) on investments was zero for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

The net change in realized gains (losses) on investments was $(0.1) million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, driven by the change in realized losses relating to separate sales of our investment in Subsidiary of Public Company M during such periods.

Professional fees increased approximately $0.1 million, or 41.3%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Prior to the third quarter of 2024, Spin-Off costs were previously presented within professional fees in the consolidated statements of operations and are now included in the measurement and presentation of discontinued operations for all periods presented.

Professional fees increased approximately $0.1 million, or 8.4%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

The net change in realized gains (losses) on investments was approximately $1.2 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, driven by the change in realized loss relating to the maturity of our loan to Public Company A without repayment in the prior period.

The net change in realized gains (losses) on investments was approximately $1.1 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, driven by the change in realized losses relating to separate sales of our investment in Subsidiary of Public Company M and realized loss relating to our loan to Public Company A during such periods.

Investments in loans held at fair value are recorded on the trade date at cost, which reflects the amount of principal funded net of any original issue discounts.

An unrealized gain arises when the fair value of the loan portfolio exceeds its cost and an unrealized loss arises when the fair value of the loan portfolio is less than its cost.

The net change in unrealized gain (loss) of approximately $(1.4) million and $(0.5) million for the three months ended June 30, 2024 and 2023, respectively, and $(5.0) million and $(1.9) million for the six months ended June 30, 2024 and 2023, respectively, was mainly driven by the sale of our loan with Private Company B with an unrealized loss that was recovered, as well as the net change in the valuation of the loans, which was impacted by changes in market yields, revenue multiples, and recovery rates.

The gain (loss) on extinguishment of debt was zero for both the three months ended June 30, 2024 and the three months ended June 30, 2023.

Gain (loss) on extinguishment of debt decreased approximately $(2.0) million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023.

This decrease was driven by the repurchase of $10.0 million of our 2027 Senior Notes during the six months ended June 30, 2023.

The net change in unrealized gain (loss) of approximately $(4.6) million and $0.8 million for the three months ended September 30, 2024 and 2023, respectively, and $(9.7) million and $(1.2) million for the nine months ended September 30, 2024 and 2023, respectively, was mainly driven by the sale of our loan with Private Company B with an unrealized loss that was recovered, maturity of our loan with Public Company A with an unrealized loss that was realized, as well as the net change in the valuation of the loans, which was impacted by changes in market yields, revenue multiples, and recovery rates.

The gain (loss) on extinguishment of debt was zero for both the three months ended September 30, 2024 and the three months ended September 30, 2023.

Gain (loss) on extinguishment of debt decreased approximately $(2.0) million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

This decrease was driven by the repurchase of $10.0 million of our 2027 Senior Notes during the nine months ended September 30, 2023.

No repurchases took place during the same period in 2024.

Provision for Current Expected Credit Losses

The provision for current expected credit losses decreased approximately $(4.6) million, or 285.4%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 .

The provision for current expected credit losses decreased approximately $(0.4) million, or 39.3%, for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023 .

The balance as of June 30, 2024 was approximatel y $25.2 million , or 9.13%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $275.6 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $25.0 million and (ii) a liability for unfunded commitments of approximately $0.2 million .

The balance as of June 30, 2023 was approximately $13.4 million, or 4.68%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $285.8 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $13.1 million and (ii) a liability for unfunded commitments of approximately $0.3 million.

The provision for current expected credit losses decreased approximately $(0.9) million, or (82.8)%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 .

The provision for current expected credit losses decreased approximately $(1.3) million, or (867.9)%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 .

The balance as of September 30, 2024 was approximatel y $25.3 million , or 10.70%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $236.3 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $25.1 million and (ii) a liability for unfunded commitments of approximately $0.2 million .

The balance as of September 30, 2023 was approximately $14.4 million, or 4.66%, of our total loans held at carrying value and loan receivable held at carrying value balance of approximately $310.1 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value and loan receivable held at carrying value of approximately $14.3 million and (ii) a liability for unfunded commitments of approximately $0.2 million.

The liability is based on the unfunded portion of loan commitments over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit.

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We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan.

The change in the provision for current expected credit losses for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 was due to changes in macroeconomic factors, changes to the loan portfolio including new commitments and repayments, borrower payment status, and changes in other data points we use in estimating the reserve.

The change in the provision for current expected credit losses for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 was due to changes in macroeconomic factors, changes to the loan portfolio including new commitments and repayments, borrower payment status, and changes in other data points we use in estimating the reserve.

Loan Portfolio

The below table summarizes our total loan portfolio as of June 30, 2024, unless otherwise specified.

The table below summarizes our total loan portfolio as of September 30, 2024, unless otherwise specified.

Borrower names have been kept confidential due to confidentiality agreement obligations.

Loan Names Original Funding Date (1)

Loan Maturity AFCG Loan, net of Syndication % of Total AFCG Principal Balance as of 6/30/2024 Cash Interest Rate PIK Fixed/

Loan Maturity AFC Loan, net of Syndication % of Total AFC Principal Balance as of 9/30/2024 Cash Interest Rate PIK Fixed/

Floating Amortization During Term YTM

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O 5/20/2024 6/1/2028 7,500,000 2.1% 2,728,647 13.5% N/A Floating Yes 18%

P 6/18/2024 7/1/2027 15,126,433 3.8% 15,126,433 13.0% N/A Fixed Yes 16%

CRE Private Co.

1/4/2024 11/30/2024 29,474,559 7.5% 16,209,825 20.0% N/A Floating No 24%

CRE Private Co.

B 1/31/2024 5/12/2027 28,188,775 7.2% 21,630,051 13.0% N/A Fixed No 14%

6/18/2024 7/1/2027 15,126,433 4.3% 15,383,749 13.0% N/A Fixed Yes 16%

Q 8/16/2024 9/1/2028 11,000,000 3.1% 5,208,468 13.8% N/A Floating Yes 17%

Subtotal (10)

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Estimated YTM is based on current management estimates and assumptions, which may change.

Estimated YTM is calculated using the interest rate as of June 30, 2024 applied through maturity.

Estimated YTM is calculated using the interest rate as of September 30, 2024 applied through maturity.

Actual results could differ from those estimates and assumptions.

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(8) Quarterly cash interest is paid in kind from closing to February 1, 2024 and then payable in cash thereafter.

(9) Cash interest rate for CRE Private Company A represents a blended rate of differing cash interest rates applicable to each of the senior and subordinate loans to which the Company is a lender under the credit agreements.

(9) Pursuant to the first amendment to the credit agreement entered into in August 2024, interest was paid in kind from July 1, 2024 to August 31, 2024 and then payable in cash thereafter.

(10) The interest and PIK subtotal rates are weighted average rates.

Loans Held for Investment at Fair Value

As of June 30, 2024 and December 31, 2023, our portfolio included one and two loans held at fair value, respectively.

The aggregate originated commitment under these loans was approximately $77.8 million and $94.2 million, respectively, and outstanding principal was approximately $49.7 million and $71.9 million as of June 30, 2024 and December 31, 2023 , respectively.

For the six months ended June 30, 2024, we received approximately $4.0 million of principal repayments of loans held at fair value and sold $19.3 million of the Company’s investment in Private Company B.

As of June 30, 2024 and December 31, 2023 , none of our loans held at fair value had floating interest rates.

The following tables summarize our loans held at fair value as of June 30, 2024 and December 31, 2023 :

As of June 30, 2024

As of September 30, 2024 and December 31, 2023, our portfolio included one and two loans held at fair value, respectively.

The aggregate originated commitment under these loans was approximately $85.3 million and $94.2 million, respectively, and outstanding principal was approximately $53.8 million and $71.9 million as of September 30, 2024 and December 31, 2023 , respectively.

For the nine months ended September 30, 2024, we funded approximately $4.6 million in new loans and additional principal and received approximately $4.5 million of principal repayments of loans held at fair value and sold $19.3 million of the Company’s investment in Private Company B.

As of September 30, 2024 and December 31, 2023 , none of our loans held at fair value had floating interest rates.

The following tables summarize our loans held at fair value as of September 30, 2024 and December 31, 2023 :

As of September 30, 2024

Fair Value (1)

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(2) The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted OID and loan origination costs.

(3) As of June 30, 2024, the maturity date passed on the credit facility with Private Company A without repayment.

(3) As of September 30, 2024, the maturity date passed on the credit facility with Private Company A without repayment.

(4) Weighted average remaining life is calculated based on the fair value of the loans as of December 31, 2023.

As of December 31, 2023, the weighted average remaining life only reflects the remaining life of the Private Company A Credit Facility.

The following table presents changes in loans held at fair value as of and for the six months ended June 30, 2024:

The following table presents changes in loans held at fair value as of and for the nine months ended September 30, 2024:

Principal Original Issue

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Change in unrealized gains (losses) on loans at fair value, net — — (9,655,396) (9,655,396)

New fundings 4,594,027 (2,756,417) — 1,837,610

Accretion of original issue discount — 128,384 — 128,384

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PIK interest 1,134,786 — — 1,134,786

Total loans held at fair value at June 30, 2024 $ 49,729,397 $ (111,015) $ (14,956,992) $ 34,661,390

Total loans held at fair value at September 30, 2024 $ 53,818,300 $ (2,867,432) $ (19,578,694) $ 31,372,174

Loans Held for Investment at Carrying Value

As of June 30, 2024 and December 31, 2023, our portfolio included twelve and nine loans held at carrying value, respectively.

The aggregate originated commitment under these loans was approximately $311.1 million and $333.1 million, respectively, and outstanding principal was approximately $283.7 million and $314.4 million, respectively, as of June 30, 2024 and December 31, 2023 .

During the six months ended June 30, 2024 , we funded approximately $107.2 million of new loans and additional principal, had approximately $49.1 million of principal repayments of loans held at carrying value and sold $90.0 million in the aggregate of our investments in Subsidiary of Public Company H and Subsidiary of Public Company M.

As of June 30, 2024 and December 31, 2023, approximately 44% and 84%, respectively, of our loans held at carrying value had floating interest rates.

As of June 30, 2024, t hese floating benchmark rates included one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 3.7% and quoted at 5.3%.

The following tables summarize our loans held at carrying value as of June 30, 2024 and December 31, 2023:

As of June 30, 2024

As of September 30, 2024 and December 31, 2023, our portfolio included eleven and nine loans held at carrying value, respectively.

A s of September 30, 2024 and December 31, 2023, the aggregate originated commitment under these loans was approximately $260.2 million and $333.1 million, respectively, and outstanding principal was approximately $242.8 million and $314.4 million, respectively.

During the nine months ended September 30, 2024, we funded approximately $65.5 million of new loans and additional principal, had approximately $48.8 million of principal repayments of loans held at carrying value and sold $90.0 million in the aggregate of our investments in Subsidiary of Public Company H and Subsidiary of Public Company M.

As of September 30, 2024 and December 31, 2023, approximately 47% and 84%, respectively, of our loans held at carrying value had floating interest rates.

As of September 30, 2024, these floating benchmark rates included one-month Secured Overnight Financing Rate (“SOFR”) subject to a weighted average floor of 3.6% and quoted at 4.8%.

The following tables summarize our loans held at carrying value as of September 30, 2024 and December 31, 2023:

As of September 30, 2024

Principal (1)

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Senior term loans $ 242,802,878 $ (8,545,836) $ 234,257,042 2.0

$ 262,048,014 $ (9,851,079) $ 252,196,935 2.1

Subordinate debt 21,630,051 (246,652) 21,383,399 2.9

Total loans held at carrying value $ 242,802,878 $ (8,545,836) $ 234,257,042 2.0

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(1) The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted OID and loan origination costs.

(2) Weighted average remaining life is calculated based on the carrying value of each respective group of loans as of June 30, 2024 and December 31, 2023.

(3) Senior term loans include senior loans that also have a contiguous subordinate loan because as a whole, the expected credit quality of the subordinate loan is more similar to that of a senior loan.

The following table presents changes in loans held at carrying value as of and for the six months ended June 30, 2024:

(2) Weighted average remaining life is calculated based on the carrying value of the loans as of September 30, 2024 and December 31, 2023.

The following table presents changes in loans held at carrying value as of and for the nine months ended September 30, 2024:

Principal Original Issue

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Loan amortization payments (3,512,621) — (3,512,621)

Total loans held at carrying value at June 30, 2024 $ 283,678,065 $ (10,097,731) $ 273,580,334

Total loans held at carrying value at September 30, 2024 $ 242,802,878 $ (8,545,836) $ 234,257,042

Loan Receivable Held at Carrying Value

As of June 30, 2024 and December 31, 2023, our portfolio included one loan receivable held at carrying value.

The originated commitment under this loan was $4.0 million and outstanding principal was approximately $2.0 million as of June 30, 2024 and December 31, 2023, respectively.

The following table presents changes in loans receivable as of and for the six months ended June 30, 2024:

As of September 30, 2024 and December 31, 2023, our portfolio included one loan receivable held at carrying value.

The originated commitment under this loan was $4.0 million and outstanding principal was approximately $2.0 million as of September 30, 2024 and December 31, 2023, respectively.

The following table presents changes in loans receivable as of and for the nine months ended September 30, 2024:

Principal Original Issue

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Loan repayments — — —

Total loan receivable held at carrying value at June 30, 2024 $ 2,041,744 $ (1,686) $ 2,040,058

Total loan receivable held at carrying value at September 30, 2024 $ 2,041,744 $ (1,686) $ 2,040,058

Collateral Overview

Our loans are secured by various types of assets of our borrowers, including real property and certain personal property, such as the value associated with licenses (where applicable), equipment, and other assets to the extent permitted by applicable laws and the regulations governing our borrowers.

Our loans are typically secured by various types of assets of our borrowers, including real property and certain personal property, such as cashflows and the value associated with licenses (where applicable), equipment, and other assets to the extent permitted by applicable laws and the regulations governing our borrowers.

With respect to our loans to cannabis operators, we do not have liens on cannabis inventory and are generally restricted from taking ownership of state licenses by current statutory prohibitions and exchange listing standards.

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Becoming the holder of a license through foreclosure or otherwise, the sale of a license or other realization of the value of licenses requires the approval of regulatory authorities.

As of June 30, 2024, our portfolio of assets held outside of TRS1 had a weighted average real estate collateral coverage of approximately 1.1 times our aggregate committed principal amount of such loans, with the real estate collateral coverage for each of our loans measured as of the time of closing for such loan and based on various sources of data available at such time.

As of September 30, 2024, our portfolio of assets held outside of TRS1 had a weighted average real estate collateral coverage of approximately 1.0 times our aggregate committed principal amount of such loans, with the real estate collateral coverage for each of our loans measured as of the time of closing for such loan and based on various sources of data available at such time.

We calculate our weighted average real estate collateral coverage by estimating the underlying value of our real estate collateral based on various objective and subjective factors, including, without limitation, third-party appraisals, total cost basis of the subject property and/or our own internal estimates.

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Our primary sources of cash generally consist of unused borrowing capacity under our Revolving Credit Facility, the net proceeds of future debt or equity offerings, including in connection with the ATM Program, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results.

Our net cash provided by operating activities for the six months ended June 30, 2024 of approximately $16.7 million was less than our dividend payments of $19.7 million made during the same period due to earned OID of $5.3 million and PIK repayments of $5.5 million related to the exits from Private Company I, Private Company C and Private Company B during such period.

Our net cash provided by operating activities for the nine months ended September 30, 2024 of approximately $19.3 million was less than our dividend payments of $32.8 million made during the same period due to earned OID of $7.1 million and PIK repayments of $5.5 million related to the exits from Private Company I, Private Company C and Private Company B during such period.

OID relates to cash withheld by the Company upon funding of its investments and is included under the ‘Supplemental disclosure of non-cash activity’ on the Consolidated Statements of Cash Flows.

As of June 30, 2024 and December 31, 2023, all of our cash was unrestricted and totaled approximately $170.3 million and $121.6 million, respectively.

As of June 30, 2024, we believe that our cash on hand, capacity available under our line of credit and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.

As of September 30, 2024 and December 31, 2023, all of our cash was unrestricted and totaled approximately $122.2 million and $90.4 million, respectively.

As of September 30, 2024, we believe that our cash on hand, capacity available under our line of credit and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.

Capital Markets

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We may also access liquidity through our ATM Program, which was established in April 2022, pursuant to which we may sell, from time to time, up to $75.0 million of our common stock.

During the three and six months ended June 30, 2024 and year ended December 31, 2023 , we did not sell any shares of our common stock under the Sales Agreement.

On June 13, 2023, our Board authorized the Repurchase Program.

The timing, price, and volume of repurchases will be based on our stock price, general market conditions, applicable legal requirements and other factors.

We expect to finance any share repurchases under the Repurchase Program using cash on hand, capacity available under our line of credit and cash flows from operations.

The Repurchase Program may be discontinued, modified or suspended at any time.

During the three and six months ended June 30, 2024 and year ended December 31, 2023 , the Company did not repurchase any shares of its common stock pursuant to the Repurchase Program.

As of September 30, 2024, our remaining authorization under the Sales Agreement was approximately $51.0 million.

Subsequent to September 30, 2024, we sold an aggregate of 70,630 shares of our common stock under the Sales Agreement at a weighted average price of $9.99 per share, generating net proceeds of approximately $0.7 million.

As of November 13, 2024, our remaining authorization under the Sales Agreement was approximately $50.3 million.

We may seek to raise further equity capital and issue debt securities in order to fund our future investments in loans.

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On April 29, 2022, we entered into the Revolving Credit Facility.

As of June 30, 2024, we had $35.0 million of borrowings outstanding and $25.0 million availability under our Revolving Credit Agreement, which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by us and subject to the satisfaction of other conditions provided under the Revolving Credit Facility.

As of September 30, 2024, we had $60.0 million of borrowings outstanding and zero availability under our Revolving Credit Agreement, which may be borrowed, repaid and redrawn, subject to a borrowing base based on eligible loan obligations held by us and subject to the satisfaction of other conditions provided under the Revolving Credit Facility.

The Revolving Credit Facility contains aggregate commitments of $60.0 million from two FDIC-insured banking institutions, which may be increased to up to $100.0 million in aggregate (subject to available borrowing base and additional commitments), and contains a maturity date of April 29, 2025.

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Commencing on the six-month anniversary of the closing date, the Revolving Credit Facility has an unused line fee of 0.25% per annum, payable semi-annually in arrears, which is included within interest expense in our unaudited interim consolidated statements of operations.

Based on the terms of the Revolving Credit Agreement, our estimated average cash balance will exceed the minimum balance required to waive the unused line fee and as such, we did not incur an unused line fee for the three and six months ended June 30, 2024.

Our obligations under the Revolving Credit Facility are secured by certain assets of ours comprising of or relating to loan obligations designated for inclusion in the borrowing base.

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(1) liquidity of at least $5.0 million, (2) annual debt service coverage of at least 1.50 to 1.0 and (3) secured debt not to exceed 25% of total consolidated assets of us and our subsidiaries.

To the best of our knowledge, as of June 30, 2024, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.

To the best of our knowledge, as of September 30, 2024, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.

2027 Senior Notes

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Under the Indenture governing the 2027 Senior Notes, we are required to cause all of our existing and future subsidiaries to guarantee the 2027 Senior Notes, other than certain immaterial subsidiaries as set forth in the Indenture.

TRS1 and SUNS are currently subsidiary guarantors under the Indenture.

Following the completion of the Spin-Off, SUNS will no longer be a guarantor under the Indenture.

TRS1 is currently a subsidiary guarantor under the Indenture.

Prior to February 1, 2027, we may redeem the 2027 Senior Notes in whole or in part, at a price equal to the greater of 100% of the principal amount of the 2027 Senior Notes being redeemed or a make-whole premium set forth in the Indenture, plus accrued and unpaid interest thereon to, but excluding, the applicable redemption date.

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We expect that these facilities will typically have maturities ranging from two to five years and may accrue interest at either fixed or floating rates.

As of June 30, 2024 , we believe that our cash on hand, capacity available under our Revolving Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.

The following table sets forth changes in cash and cash equivalents for the six months ended June 30, 2024 and 2023:

Net income $ 16,392,005 $ 22,160,607

Adjustments to reconcile net income to net cash provided by (used in) operating activities and changes in operating assets and liabilities 300,092 (12,632,145)

Net cash provided by (used in) operating activities 16,692,097 9,528,462

Net cash provided by (used in) investing activities 59,076,900 23,025,910

Net cash (used in) provided by financing activities (27,097,400) (90,847,811)

Change in cash and cash equivalents $ 48,671,597 $ (58,293,439)

Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities during the six months ended June 30, 2024 was approximately $16.7 million, compared to approximately $9.5 million for the same period in 2023.

The increase of approximately $7.2 million during the six months ended June 30, 2023 to June 30, 2024 was primarily due to an increase in the change in unrealized (gains) losses on loans held at fair value of approximately $3.1 million, decrease in PIK interest of approximately $5.8 million, decrease in gain (loss) on extinguishment of debt of approximately $2.0 million, increase in interest reserve of approximately $3.6 million, increase in accrued management and incentive fees of approximately $1.1 million, partially offset by a decrease in net income of approximately $(5.8) million and increase in OID accretion of approximately $(2.8) million, respectively.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities during the six months ended June 30, 2024 was approximately $59.1 million, compared to net cash provided by investing activities of approximately $23.0 million for the same period in 2023.

The decrease of net cash used in investing activities of approximately $36.1 million during the six months ended June 30, 2023 to June 30, 2024 was primarily due to an increase in issuance and fundings on loans of approximately $(73.3) million, offset by an increase in proceeds from the sale of loans of approximately $74.7 million and an increase in principal repayments of loans of approximately $34.6 million, respectively.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2024 was approximately $(27.1) million, compared to approximately $(90.8) million for the same period in 2023.

The increase of approximately $63.8 million during the six months ended June 30, 2023 to June 30, 2024 was primarily due to an increase in borrowings on the Revolving Credit Facility of $95.0 million, a decrease in repayments on the 2027 Senior Notes of approximately $7.7 million, offset by an increase in repayments on the Revolving Credit Facility of approximately $(42.0) million, respectively.

As of September 30, 2024 , we believe that our cash on hand, capacity available under our Revolving Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.

Cash provided by (used in) operating, investing and financing activities of continuing operations for the nine months ended September 30, 2024 and 2023 is as follows:

September 30,

Net cash provided by (used in) operating activities of continuing operations $ 16,064,202 $ 14,982,587

Net cash provided by (used in) investing activities of continuing operations $ 99,298,100 $ 18,508,853

Net cash (used in) provided by financing activities of continuing operations $ (70,885,129) $ (100,667,506)

Net Cash Provided by (Used in) Operating Activities of Continuing Operations

Net cash provided by operating activities of continuing operations during the nine months ended September 30, 2024 was approximately $16.1 million, compared to approximately $15.0 million for the same period in 2023.

The increase of approximately $1.1 million during the nine months ended September 30, 2023 to September 30, 2024 was primarily due to an increase in the change in unrealized (gains) losses on loans held at fair value of approximately $8.5 million, decrease in PIK interest of approximately $6.6 million, decrease in gain (loss) on extinguishment of debt of approximately $2.0 million, increase in interest reserve of approximately $4.1 million, increase in interest receivable of approximately $1.6 million, partially offset by a decrease in net income from continuing operations of approximately $(15.3) million, decrease in accrued management and incentive fees of approximately $(2.2) million, increase in provision for current expected credit losses of approximately $(1.3) million and increase in OID accretion of approximately $(2.7) million, respectively.

Net Cash Provided by (Used in) Investing Activities of Continuing Operations

Net cash provided by investing activities of continuing operations during the nine months ended September 30, 2024 was approximately $99.3 million, compared to approximately $18.5 million for the same period in 2023.

The increase in net cash provided by investing activities of approximately $80.8 million during the nine months ended September 30, 2023 to September 30, 2024 was primarily due to an decrease in issuance and fundings on loans of approximately $1.7 million, an increase in proceeds from the sale of loans of approximately $74.7 million and an increase in principal repayments of loans of approximately $3.3 million, respectively.

Net Cash Provided by (Used in) Financing Activities of Continuing Operations

Net cash used in financing activities of continuing operations during the nine months ended September 30, 2024 was approximately $(70.9) million, compared to approximately $(100.7) million for the same period in 2023.

The decrease of approximately $29.8 million during the nine months ended September 30, 2023 to September 30, 2024 was primarily due to an increase in borrowings on the Revolving Credit Facility of $164.0 million, offset by an increase in repayments on the Revolving Credit Facility of $(86.0) million, an increase in proceeds from the ATM program of $12.3 million, a decrease in repayments of the 2027 Senior Notes of approximately $7.7 million, and an increase in cash distributions in connection with the Spin-Off of SUNS of approximately $(67.9) million, respectively.

Cash provided by (used in) operating, investing and financing activities of discontinued operations for the nine months ended September 30, 2024 and 2023 is as follows:

September 30,

Net cash provided by (used in) operating activities of discontinued operations $ 3,271,445 $ 7,767

Net cash (used in) provided by investing activities of discontinued operations $ (47,211,339) $ —

Net cash provided by (used in) financing activities of discontinued operations $ — $ —

Net Cash Provided by (Used in) Operating Activities of Discontinued Operations

Net cash provided by operating activities of discontinued operations during the nine months ended September 30, 2024 was approximately $3.3 million, compared to approximately $7.8 thousand for the same period in 2023.

The increase of approximately $3.3 million during the nine months ended September 30, 2023 to September 30, 2024 was primarily due to an increase in net income from discontinued operations of $2.9 million and changes in working capital of $0.3 million, respectively.

Net Cash Provided by (Used in) Investing Activities of Discontinued Operations

Net cash used in investing activities of discontinued operations during the nine months ended September 30, 2024 was approximately $(47.2) million, compared to net cash provided by investing activities of zero for the same period in 2023.

The decrease of net cash used in investing activities of discontinued operations was primarily due to the issuance and fundings on loans of approximately $67.3 million, offset by principal repayments of loans of $15.1 million, respectively.

Net Cash Provided by (Used in) Financing Activities of Discontinued Operations

There were no cash flows related to financing activities of discontinued operations during the nine months ended September 30, 2024 and 2023.

Contractual Obligations, Other Commitments, and Off-Balance Sheet Arrangements

Our contractual obligations as of June 30, 2024 are as follows:

As of June 30, 2024

Our contractual obligations as of September 30, 2024 are as follows:

As of September 30, 2024

1 year 1-3 years 3-5 years More than

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Total $ 13,739,804 $ 5,791,532 $ 610,437 $ — $ 20,141,773

As of June 30, 2024 , all unfunded commitments were related to our total loan commitments and were available for funding in less than three years.

We also had the following contractual obligations as of June 30, 2024 relating to the 2027 Senior Notes:

As of June 30, 2024

As of September 30, 2024 , all unfunded commitments were related to our total loan commitments and were available for funding in less than four years.

We also had the following contractual obligations as of September 30, 2024 relating to the 2027 Senior Notes:

As of September 30, 2024

1 year 1-3 years 3-5 years More than

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Total $ 5,175,000 $ 100,350,000 $ — $ — $ 105,525,000

(1) Amounts include projected interest payments during the period based on interest rates in effect as of June 30, 2024 .

(1) Amounts include projected interest payments during the period based on interest rates in effect as of September 30, 2024 .

We may enter into certain contracts that may contain a variety of indemnification obligations.

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Critical Accounting Policies and Estimates

As of June 30, 2024 , there were no significant changes in or changes in the application of our critical accounting policies or estimates from those presented in our Annual Report on Form 10-K.

As of September 30, 2024 , there were no significant changes in or changes in the application of our critical accounting policies or estimates from those presented in our Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis