Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes and other information included in this Quarterly Report on Form 10-Q (the “Quarterly Report”). 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, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025 and our other filings with the SEC.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Quarterly Report”), filed by Sunrise Realty Trust, Inc. (the “Company,” “SUNS,” “we,” “us,” and “our”), and the information incorporated by reference herein, or made in other reports, filings with the SEC, and press releases contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend such statements to be covered by the safe harbor provisions contained therein. These forward-looking statements are based on our current intent, belief, expectations and views of future events. The forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results or performance, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “could,” “would,” “will,” “can,” “continuing,” “may,” “aim,” “intend,” “ongoing,” “plan,” “predict,” “potential,” “should,” “seeks,” “likely to” or words or phrases of similar meaning. Specifically, this Quarterly Report includes forward-looking statements regarding (i) our portfolio and strategies for the growth of our commercial real estate lending business; (ii) our working capital, liquidity and capital requirements; (iii) potential state and federal legislative and regulatory matters; (iv) our expectations and estimates regarding certain tax, legal and accounting matters, including the impact on our financial statements and/or those of our borrowers; (v) the amount, collectability and timing of cash flows, if any, from our loans; (vi) our expected ranges of originations and repayments; (vii) estimates relating to our ability to make distributions to our shareholders in the future; and (viii) our investment strategy.
These forward-looking statements reflect management’s current views about future events, and are subject to risks, uncertainties and assumptions. Our actual results may differ materially from the future results and events expressed or implied by the forward-looking statements. Key factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following:
• our ability to identify a successful business and investment strategy and execute on our strategy;
• the ability of our Manager to locate suitable loan opportunities for us and to monitor and actively manage our portfolio and implement our investment strategy;
• our ability to successfully complete our proposed Merger (as defined below) and/or realize all of the expected benefits or that such benefits may take longer to realize than expected (including because we expect to incur significant costs associated with such Merger);
• our ability to consummate the sale of the San Antonio hotel property on acceptable terms, or at all;
• our ability to meet our expected ranges of originations and repayments;
• our ability to obtain our target mix of loan and collateral types with our expected ranges of yields;
• the allocation of loan opportunities to us by our Manager and our ability to close those loans;
• changes in general economic conditions, in our industry and in the commercial finance and commercial real estate markets;
• we have limited history of operating as an independent company, and our historical financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results;
• the state of the U.S. economy generally or in the specific geographic regions in which we operate, including as a result of the impact of natural disasters;
• the impact of a protracted decline in the liquidity of credit markets on our business;
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• the amount, collectability and timing of our cash flows, if any, from our loans and other investments, including investments in real estate acquired through foreclosure and held through joint ventures;
• our ability to obtain and maintain competitive financing arrangements;
• our ability to achieve our expected leverage;
• changes in the value of our loans and other investments, including investments in real estate acquired through foreclosure and held through joint ventures;;
• losses that may be exacerbated due to the concentration of our portfolio in a limited number of loans and borrowers;
• our investment and underwriting process;
• the rates of default or recovery rates on our loans, including our ability to realize value from collateral and real estate acquired through foreclosure;
• the degree to which our hedging strategies may or may not protect us from interest rate volatility;
• the availability of investment opportunities in mortgage-related and real estate-related instruments and other securities, and our ability to reinvest proceeds from loan repayments, sales and other realizations in a timely manner and on favorable terms;
• interest rate mismatches between our loans and our borrowings used to fund such loans;
• the departure of any of the executive officers or key personnel supporting and assisting us from our Manager or its affiliates;
• impact of and changes in governmental regulations, tax law and rates, accounting guidance, tariffs and similar matters;
• the impact of a changing interest rate and inflation environment on our results of operations, cash flows and the market value of our loans;
• our ability to maintain our exemption from registration under the Investment Company Act of 1940 (the “Investment Company Act”);
• our ability to qualify and maintain our qualification as a real estate investment trust (a “REIT”) for U.S. federal income tax purposes;
• estimates relating to our ability to make distributions to our shareholders in the future;
• our understanding of our competition;
• market trends in our industry, interest rates, real estate values, the securities markets or the general economy;
• we may issue shares of preferred or common stock in the future, which could dilute your percentage ownership of SUNS;
• use of proceeds of our securities offerings; and
• litigation, including costs associated with prosecuting or defending claims and any adverse outcomes.
The above list of factors is not exhaustive or necessarily in order of importance.
Actual results may differ materially from those expressed in or implied by these forward-looking statements as a result of various risks and uncertainties, including, without limitation, those described below and elsewhere in this Quarterly Report, including in Part II, Item 1A, “Risk Factors,” and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, including in the section entitled “Risk Factors,” as well as in our subsequent filings with the SEC. These forward-looking statements speak only as of the date of this Quarterly Report. Except as required by applicable law, we undertake no obligation to update or revise any forward-looking statements contained in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events.
Overview
SUNS is a Maryland corporation that was formed on August 28, 2023 and that made its first investment in January 2024. We are a real estate focused debt fund, actively pursuing opportunities to finance transitional commercial real estate
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projects located across the Southern U.S. We are an integral part of the platform of affiliated asset managers under the Tannenbaum Capital Group (“TCG”).
Our investment focus includes originating or acquiring loans backed by single assets or portfolios of assets that typically have (i) an investment hold size of approximately $15-100 million, secured by CRE assets, including transitional or construction projects, across diverse property types, (ii) a duration of approximately 2-5 years, (iii) interest rates that are determined periodically on the basis of a floating base lending rate (e.g., Secured Overnight Financing Rate (“SOFR”)) plus a credit spread, (iv) a loan-to-value (“LTV”) ratio of no greater than approximately 75% on an individual investment basis and (v) no more than approximately 75% LTV across the portfolio, in each case, at the time of origination or acquisition, and are led by experienced borrowers and well-capitalized sponsors with high quality business plans. Our loans typically feature origination fees and/or exit fees. We target a portfolio net internal rate of return (“IRR”) in the low-teens, which we believe may increase to the mid-teens after including total interest and other revenue from the portfolio, including loans funded from drawing on our leverage, net of our interest expense from our portfolio lenders. We are also targeting a near to mid-term target capitalization of one-third equity, one-third secured debt availability and one-third unsecured debt. We do not expect to be fully drawn on our secured debt availability and, as a result, we are targeting an expected leverage ratio of 1.5:1 debt-to-equity.
We are an externally managed Maryland corporation and elected to be taxed as a REIT under Section 856 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2024. We believe our organization and current and proposed method of operation will enable us to qualify as a REIT. However, no assurances can be given that our beliefs or expectations will be fulfilled, since qualification as a REIT depends on our continuing to satisfy numerous asset, income, distribution and other tests, which in turn depends, in part, on our operating results and ability to obtain financing. We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company Act.
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 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. 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 will remain an “emerging growth company” until the earliest to occur of the following: (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which generally means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which we have issued more than $1 billion in non-convertible debt securities during the prior three-year period.
Developments During the Second Quarter June 30, 2026:
Updates to Our Loan Portfolio During the Second Quarter June 30, 2026
On April 1, 2026, our senior loan for a residential property in Austin, TX was repaid in full. The outstanding principal balance of the senior secured term loan on the date of repayment was approximately $14.1 million.
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Dividends Declared Per Share
During the three and six months ended June 30, 2026 and 2025, 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 4, 2025 March 31, 2025 April 15, 2025 $ 0.30 $ 4,026,448
June 13, 2025 June 30, 2025 July 15, 2025 0.30 4,026,353
2025 Period Subtotal $ 0.60 $ 8,052,801
March 10, 2026 March 31, 2026 April 15, 2026 $ 0.30 $ 4,055,897
June 15, 2026 June 30, 2026 July 15, 2026 $ 0.30 $ 4,055,220
2026 Period Subtotal $ 0.60 $ 8,111,117
Recent Developments
On May 21, 2026, we, through our investment in the Lex Ave JV, entered into a definitive agreement (the “Agreement”) to sell the San Antonio hotel property for a purchase price of $41.0 million, subject to closing costs and other transaction expenses, and customary closing conditions. Based on our 65.0% ownership interest in the Lex Ave JV, we expect to receive total consideration of approximately $26.7 million, subject to our proportionate share of such closing costs and transaction expenses. Under the terms of the Agreement, the purchaser paid a $4.0 million earnest money deposit upon execution of the Agreement, with the remaining purchase price to be funded at closing through approximately $5.0 million of purchaser cash and a $32.0 million senior secured loan to be originated by us and our affiliate co-lender in proportion to our respective ownership interests in the Lex Ave JV.
On July 30, 2026, we, through our investment in the Lex Ave JV, entered into an amendment to the Agreement to grant the purchaser an exclusive option to purchase the San Antonio hotel property on or before September 30, 2026. In connection with the amendment, the $4.0 million earnest money deposit was released and the purchaser made an additional $2.0 million payment, with the remaining purchase price to be funded at closing through approximately $3.0 million of purchaser cash and a $32.0 million senior secured loan from us and our affiliate co-lender. No assurance can be given that the transaction will close on the currently contemplated terms or at all.
On July 17, 2026, our senior term loan and a residential development project revolver for various residential development projects in Palm Beach Gardens, FL were repaid in full. The outstanding principal balances of the senior term loan and residential development project revolver on the date of repayment were approximately $31.6 million and $23.8 million, respectively. In connection with the repayment, we recognized approximately $0.2 million of default interest and breakage fees.
As previously reported, on August 5, 2026, we entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which we will acquire Southern Realty Trust Inc. (“SRT”), subject to the approval of our stockholders and the approval of the SRT stockholders. Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each outstanding share of SRT common stock will be converted into the right to receive the following: (i) 1.45 shares, or approximately 8.4 million shares in aggregate, of our common stock; and (ii) from the Manager, an amount in cash per share equal to $0.05.
Further, in the Merger Agreement, we have agreed to take all necessary corporate action so that upon and after the effective time of the Merger, the size of our Board of Directors will be increased by one member (the “SRT Director Designee”). The SRT Director Designee will be appointed to our Board of Directors.
Key Financial Measures and Indicators
As a commercial real estate finance company, we believe the key financial measures and indicators for our business are Distributable Earnings (as defined below), book value per share and dividends declared per share.
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, 2026 and December 31, 2025 was approximately $13.45 and $13.56, respectively.
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Non-GAAP Metrics
Distributable Earnings
In addition to using certain financial metrics prepared in accordance with GAAP to evaluate our performance, we also use Distributable Earnings to evaluate our performance, excluding the effects of certain transactions and GAAP adjustments we believe are not necessarily indicative of our current loan activity and operations. Distributable Earnings is a measure that is not prepared in accordance with GAAP. We use these non-GAAP financial measures both to explain our results to shareholders and the investment community and in the internal evaluation and management of our businesses. Our management believes that these non-GAAP financial measures and the information they provide are useful to investors since these measures permit investors and shareholders to assess the overall performance of our business using the same tools that our management uses to evaluate our past performance and prospects for future performance. The determination of Distributable Earnings is substantially similar to the determination of Core Earnings under our Management Agreement, provided that Core Earnings is a component of the calculation of any Incentive Compensation earned under the Management Agreement for the applicable time period. Thus, Core Earnings is calculated without giving effect to Incentive Compensation expense, while the calculation of Distributable Earnings accounts for any Incentive Compensation earned for such time period.
We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding (i) stock-based compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss); provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) provision for (reversal of) current expected credit losses, (v) TRS (income) loss, net of any dividends received from TRS and (vi) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors.
We believe providing Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to shareholders in assessing the overall performance of our business. As a REIT, we are required to distribute at least 90% of our annual REIT taxable income, subject to certain adjustments, and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of such taxable income. Given these requirements and our belief that dividends are generally one of the principal reasons that shareholders invest in our Common Stock, we generally intend to attempt to pay dividends to our shareholders in an amount at least equal to such REIT taxable income, if and to the extent authorized by our Board of Directors. Distributable Earnings is one of many factors considered by our Board of Directors in authorizing dividends and, while not a direct measure of net taxable income, over time, the measure can be considered a useful indicator of our dividends.
Distributable Earnings is a non-GAAP financial measure and should not be considered as a substitute for GAAP net income. We caution readers that our methodology for calculating Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our reported Distributable Earnings may not be comparable to similar measures presented by other REITs.
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The following table provides a reconciliation of GAAP net income to Distributable Earnings for the three and six months ended June 30, 2026 and 2025:
Three months ended
June 30, Six months ended
June 30,
2026 2025 2026 2025
Net income $ 3,076,025 $ 3,358,314 $ 7,329,375 $ 6,457,751
Adjustments to net income:
Stock-based compensation expense 297,484 259,066 667,446 502,687
Depreciation and amortization — — — —
Unrealized (gains) losses, or other non-cash items — — — —
Provision for current expected credit losses 557,248 468,493 617,531 586,141
TRS (income) loss — — — —
One-time events pursuant to changes in GAAP and certain non-cash charges — — — —
Distributable earnings $ 3,930,757 $ 4,085,873 $ 8,614,352 $ 7,546,579
Basic weighted average shares of common stock outstanding 13,329,968 13,235,823 13,324,626 12,227,520
Distributable earnings per basic weighted average share $ 0.29 $ 0.31 $ 0.65 $ 0.62
Factors Impacting our Operating Results
The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest margin, the market value of our assets and the supply of, and demand for, commercial real estate debt and other financial assets in the marketplace. Our net interest margin, which includes the accretion and amortization of OID, is recognized based on the contractual rate and the outstanding principal balance of the loans we originate. Interest rates will vary according to the type of loan, conditions in the financial markets, creditworthiness of our borrowers, competition and other factors, some of which cannot be predicted with any certainty. Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by our borrowers.
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Results of Operations f or the three and six months ended June 30, 2026 and 2025
The following table summarizes our consolidated results of operations for the three and six months ended June 30, 2026 and 2025:
Three months ended
June 30, Six months ended
June 30,
2026 2025 2026 2025
Revenue
Interest income $ 8,564,695 $ 6,752,679 $ 18,837,381 $ 11,711,202
Interest expense (2,745,781) (1,083,212) (5,713,418) (1,419,371)
Net interest income 5,818,914 5,669,467 13,123,963 10,291,831
Expenses
Management and incentive fees 878,995 689,140 2,514,131 689,140
General and administrative expenses 809,783 659,957 1,552,882 1,413,083
Stock-based compensation 297,484 259,066 667,446 502,687
Professional fees 231,666 234,497 474,885 643,029
Total expenses 2,217,928 1,842,660 5,209,344 3,247,939
Provision for current expected credit losses (557,248) (468,493) (617,531) (586,141)
Equity in earnings of unconsolidated real estate joint venture 32,287 — 32,287 —
Net income $ 3,076,025 $ 3,358,314 $ 7,329,375 $ 6,457,751
Net income. Our net income allocable to our common shareholders for the three and six months ended June 30, 2026, was approximately $3.1 million and $7.3 million, or $0.23 and $0.54 per basic weighted average common share, respectively, compared to net income allocable to our common shareholders of approximately $3.4 million and $6.5 million, or $0.25 and $0.52 per basic weighted average common share, respectively, for the three and six months ended June 30, 2025.
Interest income. Interest income increased approximately $1.8 million, or 26.8%, for the three months ended June 30, 2026, as compared to the three months ended June 30, 2025. Interest income increased approximately $7.1 million, or 60.8%, for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. The increase reflects a higher average investment balance driven by increased capital deployment. In addition, we recognized approximately $1.2 million of repayment premium income related to the early repayment of a $45.0 million secured mortgage loan in March 2026.
Interest expense. Interest expense increased approximately $1.7 million and $4.3 million for the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025, respectively, primarily driven by increased utilization of our lines of credit to support portfolio growth.
Management and incentive fees. Management and incentive fees increased approximately $0.2 million and $1.8 million for the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025, respectively. Base Management Fees incurred for the three and six months ended June 30, 2026 were approximately $0.7 million and $1.4 million, respectively, as compared $0.7 million, during both the three and six months ended June 30, 2025. The increase compared to the six months ended June 30, 2025 was driven by the waiver of approximately $7.3 thousand and $0.6 million of Base Management Fees for the three and six months ended June 30, 2025, respectively. Incentive Fees incurred for the three and six months ended June 30, 2026 were approximately $0.2 million and $1.1 million, respectively. There were no incentive fees incurred during the three and six months ended June 30, 2025 due to the waiver of approximately $0.2 million and $0.5 million of Incentive Fees, respectively.
General and administrative expenses . General and administrative expenses increased $149.8 thousand and $139.8 thousand during the three and six months ended June 30, 2026, respectively, compared to the three and six months ended June 30, 2025, primarily driven by higher reimbursable payroll and bonus costs payable to the Manager under the Management Agreement.
Professional fees. Professional fees were relatively consistent during the three months ended June 30, 2026, compared to the corresponding period in 2025, and decreased $(0.2) million during the six months ended June 30, 2026, compared to
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the six months ended June 30, 2025. The year-to-date decrease was primarily attributable to higher professional fees incurred during the first quarter of 2025 in connection with our first annual Form 10-K and proxy statement filing following our transition to a public company.
Provision for current expected credit losses. The provision for current expected credit losses increased $(88.8) thousand and $(31.4) thousand during the three and six months ended June 30, 2026, respectively, as compared to the three and six months ended June 30, 2025. The CECL Reserve balance as of June 30, 2026 was approximatel y $1.1 million, or 0.37%, of our total loans held at carrying value of approximately $296.8 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value of $0.9 million and (ii) a liability for unfunded commitments of approximately $0.2 million. The liability for unfunded commitments represents expected credit losses on the unfunded portion of loan commitments over the contractual period during which we are exposed to credit risk through our obligation to extend credit. In estimating this liability, we consider the likelihood that commitments will be funded and, if funded, the expected credit losses on the funded portion of those commitments. We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan.
Loan Portfolio
The table below summarizes our total loan portfolio as of June 30, 2026, unless otherwise specified.
Loan Type Location Original Funding Date Loan Maturity Current Commitments as of 06/30/2026 % of Total Principal Balance as of 06/30/2026 Cash Interest Rate PIK Fixed/
Floating Amortization During Term YTM (1)
Senior mortgage loans:
Residential Palm Beach Gardens, FL (2)
8/5/2024 9/1/2027 31,875,000 8.4% 31,239,158 12.3% N/A Floating No 15%
Residential Palm Beach Gardens, FL (2)
8/5/2024 9/1/2027 28,125,000 7.5% 23,609,542 10.3% N/A Floating No 13%
Residential Fort Lauderdale, FL (3)
11/1/2024 12/30/2026 30,000,000 7.9% 19,803,590 11.5% N/A Floating No 15%
Hospitality Austin, TX 12/12/2024 12/11/2027 32,000,000 8.5% 32,000,000 9.5% N/A Floating No 11%
Residential Aventura, FL 1/27/2025 1/27/2027 30,750,872 8.1% 30,750,872 9.0% N/A Floating No 11%
Net Leased Tenant New Orleans, LA (3)
1/30/2025 1/30/2028 44,000,000 11.7% 25,294,251 10.1% N/A Floating No 11%
Residential Park City, UT 6/11/2025 8/1/2027 9,250,000 2.5% 4,965,932 11.3% N/A Floating No 13%
Residential Miami, FL 9/26/2025 9/25/2028 35,000,000 9.3% 26,643,711 8.4% N/A Floating No 10%
Industrial Doral, FL 10/6/2025 10/6/2027 4,164,957 1.1% 3,902,832 10.0% N/A Floating No 14%
Industrial West Palm Beach, FL 10/16/2025 10/16/2027 16,240,000 4.3% 1,893,394 10.0% N/A Floating No 14%
Retail Houston, TX 10/24/2025 10/24/2028 30,000,000 7.9% 22,735,559 9.5% N/A Floating No 11%
Subordinate debt:
Residential Miami, FL 11/15/2024 11/15/2027 13,000,000 3.4% 11,693,918 13.3% N/A Fixed No 15%
Residential Miami, FL 3/21/2025 12/13/2028 25,761,225 6.8% 19,848,963 13.5% 1.0% Floating No 15%
Hospitality Diversified 2/13/2026 2/13/2029 47,254,616 12.5% 44,282,626 11.3% N/A Floating No 13%
Subtotal (4)
$ 377,421,670 100.0% $ 298,664,348 10.6% 0.1% 13%
Wtd
Average
(1) Estimated YTM includes a variety of fees and features that affect the total yield, which may include, but is not limited to, OID, exit fees, prepayment fees, unused fees and contingent features. OID is recognized as a discount to the funded loan principal and is accreted to income over the term of the loan.
The estimated YTM calculations require management to make estimates and assumptions, including, but not limited to, the timing and amounts of loan draws on delayed draw loans, the timing and collectability of exit fees, the probability and timing of prepayments and the probability of contingent features occurring. For example, certain credit agreements contain provisions pursuant to which certain interest rates and fees earned by us under such credit agreements will decrease upon the satisfaction of certain specified criteria which we believe may improve the risk profile of the applicable borrower. To be conservative, we have not assumed any prepayment penalties or early payoffs in our estimated YTM calculation. 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, 2026 applied through maturity. Actual results could differ from those estimates and assumptions.
(2) This loan is structured as a senior term loan and home construction revolver, of which the proceeds will be used to fund varying development projects. Under each credit facility, the borrower is able to re-draw funds after repayment through maturity. The actual YTM is presented based on repayment of the facilities on July 17, 2026.
(3) If the Company holds both the A-note and B-note, the loan is categorized as a senior mortgage loan.
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(4) The interest subtotal rate is a weighted average rate.
Loans Held for Investment at Carrying Value
As of June 30, 2026 and December 31, 2025, our portfolio included 14 and 16 loans held at carrying value, respectively. The aggregate originated commitment under these loans was approximately $377.4 million and $420.7 million, respectively, and outstanding principal was approximately $298.7 million and $305.5 million, respectively, as of June 30, 2026 and December 31, 2025. During the six months ended June 30, 2026 , we funded approximately $115.6 million of new loans and additional principal on existing loans and had approximately $96.1 million of principal repayments of loans held at carrying value. As of June 30, 2026 and December 31, 2025, approximately 96.1% and 96.4%, respectively, of our loans held at carrying value had floating interest rates. As of June 30, 2026, t hese floating benchmark rates included one-month SOFR quoted at 3.7% and subject to a weighted average floor of 3.9% and U.S. prime rate subject to a weighted average floor of 8.0% and quoted at 6.75% based on outstanding principal.
The following tables summarize our loans held at carrying value as of June 30, 2026 and December 31, 2025 :
As of June 30, 2026
Outstanding
Principal (1)
Original
Issue
Discount Carrying
Value (1)
Weighted
Average
Remaining Life
(Years) (2)
Senior mortgage loans (3)(4)
$ 222,838,841 $ (1,474,956) $ 221,363,885 1.4
Subordinate debt 75,825,507 (435,894) 75,389,613 2.4
Total loans held at carrying value $ 298,664,348 $ (1,910,850) $ 296,753,498 1.6
As of December 31, 2025
Outstanding
Principal (1)
Original
Issue
Discount Carrying
Value (1)
Weighted
Average
Remaining Life
(Years) (2)
Senior mortgage loans (3)(4)
$ 282,678,920 $ (2,803,998) $ 279,874,922 1.9
Subordinate debt 22,834,265 (34,444) 22,799,821 2.4
Total loans held at carrying value $ 305,513,185 $ (2,838,442) $ 302,674,743 1.9
(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, 2026 and December 31, 2025 .
(3) Senior mortgage 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.
(4) If the Company holds both the A-note and B-note, the loan is categorized as a senior mortgage loan.
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The following table presents changes in loans held at carrying value as of and for the six months ended June 30, 2026:
Principal Original Issue
(Discount)
Premium Carrying Value
Total loans held at carrying value at December 31, 2025 $ 305,513,185 $ (2,838,442) $ 302,674,743
New fundings 109,218,292 (903,136) 108,315,156
Interest drawn on loans 6,364,993 — 6,364,993
Accretion of original issue discount and premium, net — 1,663,895 1,663,895
Loan repayments (96,130,931) — (96,130,931)
Foreclosure and contribution to real estate joint venture (26,379,740) 166,833 (26,212,907)
PIK interest 78,549 — 78,549
Total loans held at carrying value at June 30, 2026 $ 298,664,348 $ (1,910,850) $ 296,753,498
Collateral Overview
Our loans are secured by various types of assets of our borrowers, including real property and certain personal property and other assets to the extent permitted by applicable laws and the regulations governing our borrowers.
Our debt investments will primarily be secured by real estate assets that are expected to be diversified across asset classes, including high quality residential (including multi-family, condominiums and single-family residential communities), retail, office, hospitality, industrial, mixed-use and specialty-use real estate.
Upon default of a loan, we may seek to sell the loan to a third-party or have an affiliate or a third party work with the borrower to have the borrower sell collateral securing the loan to a third party or institute a foreclosure proceeding to have such collateral sold, in each case, to generate funds towards the payoff of the loan. While we believe that the appraised value of any real estate assets or other collateral securing our loans may impact the amount of the recovery in each such scenario, the amount of any such recovery from the sale of such real estate or other collateral may be less than the appraised value of such collateral and the sale of such collateral may not be sufficient to pay off the remaining balance on the defaulted loan. If we do not or cannot sell a foreclosed property, we would then come to own and operate it as “real estate owned” (“REO”). During the six months ended June 30, 2026 , we acquired one REO asset through foreclosure proceedings and contemporaneously contributed such asset to the Lex Ave JV (see Note 6).
We may pursue a sale of a defaulted loan if we believe that a sale would yield higher proceeds or that a sale could be accomplished more quickly than a foreclosure proceeding while yielding proceeds comparable to what would be expected from a foreclosure sale. To the extent that we determine that the proceeds are more likely to be maximized through instituting a foreclosure sale or through taking title to the underlying collateral, we will be subject to the rules and regulations under state law that govern foreclosure sales. However, we can provide no assurances that a third party would buy such loans or that the sales price of such loans would be sufficient to recover the outstanding principal balance, accrued interest, and fees.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our shareholders and meet other general business needs. We use significant cash to purchase our target investments, repay principal and interest on our borrowings, make distributions to our shareholders and fund our operations. The sources of financing for our target investments are described below.
Our primary sources of cash generally consist of net proceeds of future debt or equity offerings, debt financing, including borrowings under a senior secured revolving credit facility (the “Revolving Credit Facility”) and an unsecured revolving credit facility (the “SRTF Credit Facility”), the net proceeds of future debt or equity offerings, including in connection with our ATM Program, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results.
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As of June 30, 2026 and December 31, 2025, all of our cash was unrestricted and totaled approximately $5.6 million and $6.4 million, respectively.
As of June 30, 2026, we believe that our cash on hand, capacity available under the Revolving Credit Facility, SRTF Credit Facility 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
Given the nature of our business, we constantly explore both the public and private capital markets to raise capital, subject to market and other considerations.
There were no capital markets transactions completed during the six months ended June 30, 2026 .
Our registration statement on Form S-3 (File No. 333-289188) (the “Shelf Registration Statement”) became effective on August 6, 2025 and allows us to offer and sell, from time to time, up to $500.0 million of our securities, including common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of our common stock or preferred stock. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement , or other offering materials, at the time of any offering. We may also access liquidity through our at-the-market offering program (the “ATM Program”), established in August 2025, pursuant to which we may offer and sell, from time to time, up to $50.0 million of our common stock. No shares were sold under the ATM Program during the six months ended June 30, 2026 .
On September 3, 2025, we also established a dividend reinvestment plan (the “DRIP”). The DRIP allows shareholders to reinvest all or a portion of their cash dividends in additional shares of our common stock (which shares, at our option, are either newly issued directly from us or purchased by the plan administrator in the open market). A total of 1,000,000 shares of common stock has been registered for issuance under the DRIP. No shares were issued under the DRIP during the six months ended June 30, 2026.
We intend to raise future equity capital and issue debt securities in order to fund our future investments in loans.
Revolving Credit Facility
On November 6, 2024, we entered into the Revolving Credit Facility, which contained an initial aggregate commitment of $50.0 million, 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 Agreement). During the year ended December 31, 2025, we entered into a series of amendments to the Revolving Credit Facility that, among other things, increased the aggregate commitment from $50.0 million to $140.0 million. The amount of total commitments under the Revolving Credit Facility may be increased to up to $200.0 million in aggregate, subject to available borrowing base and lenders’ commitment to provide additional commitments.
In February 2026, we entered into Amendment Number Seven to the Revolving Credit Facility (“Amendment Number Seven”), by and among the Company and certain subsidiaries, as borrowers, the lenders party thereto, and East West Bank as administrative agent, which, among other things (i) facilitated the entry of an additional lender; (ii) increased the aggregate commitment by $25.0 million, for a total maximum revolver usage of $165.0 million; and (iii) revised the required consent from certain lenders to advance additional funds under the Revolving Credit Agreement.
As amended, the Revolving Credit Facility requires us to, among other things: (i) maintain liquidity equal to the greater of (A) $5 million and (B) an amount equal to 10% of the outstanding obligations thereunder so long as we maintain at least $5 million in qualified cash, (ii) maintain a quarterly debt service coverage ratio of at least 1.50 to 1.0 and (iii) maintain a leverage ratio of not more than 3.25x measured as of the end of each fiscal quarter.
As of June 30, 2026, we had $82.6 million of outstanding borrowings under the Revolving Credit Facility and $82.4 million availability under our Revolving Credit Facility, 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 Agreement).
To the best of our knowledge, as of June 30, 2026 , we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.
SRTF Credit Facility
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On December 9, 2024, we entered into the SRTF Credit Facility, which provides for an unsecured revolving credit facility with a $75.0 million commitment, which may be borrowed, repaid and redrawn, subject to a draw fee and the other conditions provided in the SRTF Credit Agreement .
As of June 30, 2026, we had $59.1 million of outstanding borrowings under the SRTF Credit Facility and $15.9 million availability under our SRTF Credit Facility.
Other Credit Facilities, Warehouse Facilities and Repurchase Agreements
In the future, we may also use other sources of financing to fund the origination or acquisition of our target investments, including other credit facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized and may involve one or more lenders. 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.
Debt Service
As of June 30, 2026 , we believe that our cash on hand, capacity available under our Revolving Credit Facility and SRTF Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.
Cash Flows
The following table sets forth changes in cash and cash equivalents for the six months ended June 30, 2026 and 2025:
Six months ended
June 30,
2026 2025
Net cash provided by (used in) operating activities $ 1,536,202 $ (1,237,338)
Net cash used in investing activities (13,442,872) (108,873,779)
Net cash provided by (used in) financing activities 11,054,917 (68,944,032)
Change in cash and cash equivalents $ (851,753) $ (179,055,149)
Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities during the six months ended June 30, 2026 was approximately $1.5 million, compared to net cash used in operating activities of approximately $(1.2) million for the six months ended June 30, 2025. The increase of approximately $2.8 million period over period was primarily due to an increase in net interest income, partially offset by higher management and incentive fees paid.
Net Cash Used in Investing Activities
Net cash used in investing activities during the six months ended June 30, 2026 was approximately $(13.4) million, compared to $(108.9) million for the six months ended June 30, 2025. The decrease in net cash used of approximately $95.4 million was primarily due to an increase in principal repayments on loans of approximately $84.6 million and a decrease in issuance and fundings on loans of approximately $12.1 million, partially offset by $(1.3) million of contributions to unconsolidated real estate joint venture.
Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities during the six months ended June 30, 2026 was approximately $11.1 million, compared to net cash used in financing activities of $(68.9) million for the six months ended June 30, 2025. The decrease in cash used in financing activities of approximately $80.0 million was primarily due to an increase of $144.2 million in repayments on the revolving credit facilities and $9.4 million increase in borrowings on the revolving credit facilities, partially offset by a decrease of $(72.6) million from offering proceeds relating to the January 2025 Offering.
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Contractual Obligations, Other Commitments, and Off-Balance Sheet Arrangements
Our contractual obligations as of June 30, 2026 are as follows:
As of June 30, 2026
Less than
1 year 1-3 years 3-5 years More than
5 years Total
Unfunded commitments $ 10,196,410 $ 68,712,023 $ — $ — $ 78,908,433
Total $ 10,196,410 $ 68,712,023 $ — $ — $ 78,908,433
As of June 30, 2026 , all unfunded commitments were related to our total loan commitments and were available for funding in less than three years.
We may enter into certain contracts that may contain a variety of indemnification obligations. The maximum potential future payment amounts we could be required to pay under these indemnification obligations may be unlimited.
Off-balance sheet commitments consist of unfunded commitments on delayed draw loans. Other than as set forth in this Quarterly Report, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose entities or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment to provide, nor do we intend to provide, additional funding to any such entities.
Dividends
We elected to be taxed as a REIT for U.S. federal income tax purposes, commencing with the taxable year ending December 31, 2024, and, as such, intend to annually distribute to our shareholders at least 90% of our REIT taxable income, prior to the deduction for dividends paid and excluding our net capital gain. If we distribute less than 100% of our REIT taxable income in any tax year (taking into account any distributions made in a subsequent tax year under Sections 857(b)(9) or 858 of the Code), we will pay tax at regular corporate rates on that undistributed portion. Furthermore, if we distribute less than the sum of (i) 85% of our ordinary income for the calendar year, (ii) 95% of our capital gain net income for the calendar year and (iii) any undistributed shortfall from our prior calendar year (the “Required Distribution”) to our shareholders during any calendar year (including any distributions declared by the last day of the calendar year but paid in the subsequent year), then we are required to pay non-deductible excise tax equal to 4% of any shortfall between the Required Distribution and the amount that was actually distributed. Any of these taxes would decrease cash available for distribution to our shareholders. The 90% distribution requirement does not require the distribution of net capital gains. However, if we elect to retain any of our net capital gain for any tax year, we must notify our shareholders and pay tax at regular corporate rates on the retained net capital gain. The shareholders must include their proportionate share of the retained net capital gain in their taxable income for the tax year, and they are deemed to have paid the REIT’s tax on their proportionate share of the retained capital gain. Furthermore, such retained capital gain may be subject to the nondeductible 4% excise tax. If we determine that our estimated current year taxable income (including net capital gain) will be in excess of estimated dividend distributions (including capital gains dividends) for the current year from such income, we will accrue excise tax on a portion of the estimated excess taxable income as such taxable income is earned.
To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code, we may be required to fund distributions from working capital or through equity, equity-related or debt financings or, in certain circumstances, asset sales, as to which our ability to consummate transactions in a timely manner on favorable terms, or at all, cannot be assured, or we may make a portion of the Required Distribution in the form of a taxable stock distribution or distribution of debt securities.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies and estimates from what was previously disclosed in our Annual Report on Form 10-K. Many of these accounting policies require judgment and the use of estimates and assumptions when they are applied in the preparation of our financial statements. On a quarterly basis, we evaluate these estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances. These estimates are subject to change in the future if underlying assumptions or factors change. Certain accounting policies, while significant, may not require the use of estimates.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.