Sunrise Realty Trust, Inc. 10-Q

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 financial statements and the accompanying notes and other information included in this Quarterly Report on Form 10-Q (the “Quarterly Report”) and our Information Statement. 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 and “Risk Factors” in our Information Statement. 16 Index Overview SUNS is a Maryland corporation that was formed on August 28, 2023, that intends to elect to be treated as a real estate investment trust for federal income tax purposes and that made its first investment in January 2024. As of June 30, 2024, SUNS was led by the management team and external manager of AFC Gamma. Following the Spin-Off, it is led by a veteran team of commercial real estate investment professionals and its external manager, Sunrise Manager LLC, to provide capital solutions to commercial real estate markets in the Southern United States. SUNS’ focus is on originating CRE debt investments and providing capital to high-quality borrowers and sponsors with transitional business plans collateralized by CRE assets with opportunities for near-term value creation, as well as recapitalization opportunities. SUNS intends to create a diversified investment portfolio, targeting investments in senior mortgage loans, mezzanine loans, whole loans, B-notes, CMBS and debt-like preferred equity securities across CRE asset classes. We intend for SUNS’ investment mix to include high quality residential, including multi-family, condominiums and single-family communities, retail, office, hospitality, industrial, mixed use and specialty-use real estate. Our investment focus will include originating or acquiring loans backed by single assets or portfolios that typically have (i) an investment hold size of approximately $20-100 million, secured by CRE assets, including transitional or construction projects, across diverse property types, (ii) a duration of approximately 3-5 years, (iii) interest rates that are determined periodically on the basis of a floating base lending rate (e.g., 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 70% loan-to-value across the portfolio, in each case, at the time of origination or acquisition, and will be led by experienced borrowers and well-capitalized sponsors with high quality business plans. Our loans will typically feature origination fees and/or exit fees. Our investments will target mid-teens net internal rate of return (“IRR”). Our anticipated leverage ratio will be 1:1 debt-to-equity. Spin-Off On February 22, 2024, AFC Gamma 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 United States, the other an institutional commercial real estate lender focused on the Southern United States. On July 9, 2024, AFC Gamma completed the separation of its CRE portfolio through the spin-off of SUNS. The Spin-Off was effected by the transfer of AFC Gamma’s CRE portfolio from AFC Gamma to SUNS and the distribution of all of the outstanding shares of SUNS Common Stock to all of AFC Gamma’s shareholders of record as of the close of business on July 8, 2024. AFC Gamma’s shareholders of record as of the Record Date received one share of our Common Stock for every three shares of AFC Gamma common stock held as of the Record Date. AFC Gamma retained no ownership interest in us following the Spin-Off. Prior to the Spin-Off, AFC Gamma contributed approximately $115 million to us in connection with the Spin-Off, comprised of our loan portfolio and cash. In connection with the Spin-Off, we entered into several agreements with AFC Gamma that govern the relationship between us and AFC Gamma following the Spin-Off, including the Separation and Distribution Agreement and the Tax Matters Agreement. These agreements provide for the allocation between AFC Gamma and SUNS of the assets, liabilities and obligations (including, among others, investments, property and tax-related assets and liabilities) of AFC Gamma and its subsidiaries attributable to periods prior to, at and after the Spin-Off. Moreover, concurrent with the completion of the Spin-Off on July 9, 2024, our management agreement with SUNS Manager became effective. SUNS Manager also entered into an Administrative Services Agreement (the “Administrative Services Agreement”) with TCG Services LLC, an affiliate of the Manager and Leonard Tannenbaum, the Company’s Executive Chairman, and Robyn Tannenbaum, the Company’s President. We adopted the 2024 Stock Incentive Plan (the “Plan”). A summary of the Plan can be found in the Information Statement in the section entitled “Management—2024 Stock Incentive Plan.” Such description is incorporated herein by reference. The description of the foregoing Plan is intended to provide a general description only, is subject to the detailed terms and conditions of, and is qualified in its entirety by reference to the full text of, the Plan, which is attached hereto as Exhibit 10.4, which is incorporated herein by reference. 17 Index Effective July 1, 2024, Jodi Hanson Bond and James Fagan resigned from AFCG’s Board of Directors and joined our Board of Directors. 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 AFC Gamma) Brian Sedrish was appointed Chief Executive Officer, Brandon Hetzel was appointed Chief Financial Officer and Treasurer of SUNS (and will remain the Chief Financial Officer of AFC Gamma), Robyn Tannenbaum was appointed President of SUNS (and will remain the President of AFC Gamma). During the three and six months ended June 30, 2024, we incurred approximately $0.3 million and $0.6 million related to spin-off costs, which are recorded within professional fees in the unaudited interim statements of operations. Developments During the Second Quarter June 30, 2024: Updates to Our Loan Portfolio During the Second Quarter June 30, 2024 In May 2024, the Company and an affiliate of SUNS entered into an amendment to the existing secured mezzanine loan for the mixed-use property in Houston, Texas 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 the affiliate. 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. Spin-Off Expenses During the three months ended June 30, 2024, we incurred approximately $0.3 million in expenses related to spin-off costs, which are recorded within professional fees in the unaudited interim statements of operations. Recent Developments In July 2024, SUNS and an affiliate of SUNS entered into a senior secured credit facility for a total aggregate commitment amount of approximately $35.2 million for the refinance of an active adult multi-family residential rental development in southwest Austin, Texas. We committed a total of approximately $14.1 million and the affiliate committed the remaining approximately $21.1 million. The senior loan was issued at a discount of 1.0% and matures in three years. At closing, we funded approximately $11.4 million and the affiliate 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 credit facility 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 loan will be used to, among other things, fund the completion of construction and other reserves and refinance existing debt. In July 2024, SUNS and an affiliate of SUNS entered into a senior secured credit facility for a total aggregate commitment amount of $42.0 million for the refinance of a luxury hotel component of a 20-story mixed-use project in San Antonio, Texas. We committed a total of approximately $27.3 million , and the affiliate committed the remaining $14.7 million . The senior loan was issued at a discount of 1.0% and matures in three years. At closing, we funded approximately $25.0 million and the affiliate funded approximately $13.5 million . The loan bears interest at a rate of SOFR plus 6.35%, with a rate index floor of 4.50%. The is secured by a first-priority mortgage on the property and a security interest in all of the equity interests held by the borrower. The proceeds of the credit facility will be used to, among other things, fund the completion of reserves and refinance existing debt. 18 Index In August 2024, SUNS and affiliates entered into a $75.0 million senior secured revolving credit facility and a $85.0 million senior secured term credit facility for a total aggregate commitment amount of $160.0 million for the construction of a master-planned single-family residential home community and property development in Palm Beach Gardens, Florida. We committed a total of approximately $18.8 million and $21.3 million to the revolving loan and term loan, respectively, and funded $8.8 million and $18.8 million towards each respective loan at close. Affiliates committed the remaining $56.3 million and $63.8 million towards the revolving loan and term loan, funding $26.3 million and $56.3 million , respectively, at close. The term loan and secured revolver were each issued at a discount of 1.25%. The revolving loan bears interest at a rate of SOFR plus 6.25% , with a rate index floor of 4.0% , and unused fee of 2.0%. The proceeds of the revolving loan will be used to, among other things, fund the completion of reserves, fund home construction costs and refinance existing debt. The term loan bears an interest rate of SOFR plus 8.25% , with a rate index floor of 4.0% . The proceeds of the senior loan will be used to, among other things, fund the completion of construction and other reserves and refinance existing debt. The term loan and the secured revolver each mature in three years. The loans are each secured by senior first mortgage lien on the property and a security interest in all of the equity interests held by the borrower. Brian Sedrish was appointed as Chief Executive Officer (“CEO”), effective July 1, 2024. In connection with his recent appointment as CEO, we granted Mr. Sedrish 36,363 shares of restricted stock, which vest over a three-year period with approximately 33% vesting on each of the first, second and third anniversaries of July 9, 2024. In August 2024, we declared a partial quarter cash dividend of $0.21 per common share for the quarter ending September 30, 2024, which will be paid on October 15, 2024 to shareholders of record as of September 30, 2024, and a regular cash dividend of $0.42 per common share for the quarter ending December 31, 2024, which will be paid on January 15, 2025 to shareholders of record as of December 31, 2024. Spin-Off Effective July 9, 2024, AFC Gamma completed the separation of its CRE portfolio through the spin-off of SUNS and we became an independent, publicly traded company, trading on the Nasdaq Capital Market under the symbol “SUNS”. See “—Spin-Off” above. 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. 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, and 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. 19 Index 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) increase (decrease) in provision for 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. Distributable Earnings is one of many factors considered by our Board 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. The following table provides a reconciliation of GAAP net (loss) income to Distributable Earnings: Three months ended June 30, 2024 Six months ended June 30, 2024 Net income $ 1,513,743 $ 3,276,088 Adjustments to net income: Stock-based compensation expense — — Depreciation and amortization — — Unrealized (gains) losses, or other non-cash items — — Increase (decrease) in provision for current expected credit losses 71,854 71,854 TRS (income) loss — — One-time events pursuant to changes in GAAP and certain non-cash charges — — Distributable earnings $ 1,585,597 $ 3,347,942 Basic weighted average shares of common stock outstanding (in shares) 6,889,032 6,889,032 Distributable earnings per basic weighted average share $ 0.23 $ 0.49 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 $7.10 and $4.53, respectively, on a post-split share basis. 20 Index 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. Results of Operations f or the three and six months ended June 30, 2024 Since we were formed on August 28, 2023, we do not have results of operations reported for the three and six months ended June 30, 2023; and therefore, have no period to compare results for the three and six months ended June 30, 2024. Our net income allocable to our common shareholders for the three months ended June 30, 2024, was approximately $1.5 million, or $0.22 per basic weighted average common share. Net income was comprised of interest income earned of approximately $2.0 million. Operating expenses were approximately $0.4 million, mainly relating to approximately $0.3 million in spin-off costs incurred, which are recorded within professional fees in the unaudited interim statements of operations. Our net income allocable to our common shareholders for the six months ended June 30, 2024, was approximately $3.3 million, or $0.48 per basic weighted average common share. Net income was comprised of interest income earned of approximately $4.0 million. Operating expenses were approximately $0.7 million, mainly relating to approximately $0.6 million in spin-off costs incurred, which are recorded within professional fees in the unaudited interim statements of operations. Provision for Current Expected Credit Losses The (increase) decrease in provision for current expected credit losses for the three and six months ended June 30, 2024 was approximately $(71.9) thousand and $(71.9) thousand, respectively. The current expected credit loss reserve balance as of June 30, 2024 was approximatel y $71.9 thousand, or 0.19%, of our total loans held at carrying value balance of approximately $37.6 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value of approximately $37.4 thousand and (ii) a liability for unfunded commitments of approximately $34.4 thousand . 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. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion. We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan. Loan Portfolio The below table summarizes our total loan portfolio as of June 30, 2024, unless otherwise specified. Description Original Funding Date Loan Maturity Current Commitments as of 6/30/2024 % of Total SUNS Principal Balance as of 6/30/2024 Cash Interest Rate Fixed/ Floating YTM (1) Mixed-use senior mortgage loan (Houston, TX) (2) 1/4/2024 11/30/2024 $ 16,209,825 36.5% $ 16,209,825 20.0% Floating 24% Residential subordinate debt (Sarasota, FL) 1/31/2024 5/12/2027 28,188,775 63.5% 21,630,051 13.0% Fixed 14% Subtotal (3) $ 44,398,600 100.0% $ 37,839,876 16.0% 17% Wtd Average 21 Index (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 PIK 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, 2024 applied through maturity. Actual results could differ from those estimates and assumptions. (2) Cash interest rate 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. (3) The interest subtotal rate is a weighted average rate. Loans Held for Investment at Carrying Value As of June 30, 2024 and December 31, 2023, our portfolio included two and zero loans held at carrying value, respectively. The aggregate originated commitment under these loans was approximately $57.7 million and zero, respectively, and outstanding principal was approximately $37.8 million and zero, respectively, as of June 30, 2024 and December 31, 2023 . During the six months ended June 30, 2024 , we funded approximately $51.1 million of new loans and additional principal and had approximately $13.3 million of principal repayments of loans held at carrying value. As of June 30, 2024 and December 31, 2023, approximately 43% and zero , 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 floor of 4.0% and quoted at 5.3%. The following tables summarize our loans held at carrying value as of June 30, 2024: As of June 30, 2024 Outstanding Principal (1) Original Issue Discount Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior mortgage loans (3) $ 16,209,825 $ — $ 16,209,825 0.4 Subordinate debt 21,630,051 (246,652) 21,383,399 2.9 Total loans held at carrying value $ 37,839,876 $ (246,652) $ 37,593,224 1.8 (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. (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. The following table presents changes in loans held at carrying value as of and for the six months ended June 30, 2024: Principal Original Issue Discount Carrying Value Total loans held at carrying value at December 31, 2023 $ — $ — $ — New fundings 51,104,610 (281,888) 50,822,722 Accretion of original issue discount — 35,236 35,236 Loan repayments (13,264,734) — (13,264,734) Total loans held at carrying value at June 30, 2024 $ 37,839,876 $ (246,652) $ 37,593,224 22 Index 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 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.” 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, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results. We are negotiating a revolving credit facility with a commercial bank and intend to raise future equity capital and issue debt securities. As of June 30, 2024 and December 31, 2023, all of our cash was unrestricted and totaled approximately $11.3 million and $31.2 million, respectively. As of June 30, 2024, we believe that our cash on hand 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 the completion of the Spin-Off on July 9, 2024, we had estimated cash and cash equivalents of approximately $67.9 million. Capital Markets We intend to raise future equity capital and issue debt securities in order to fund our future investments in loans. 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 three to five years and may accrue interest at either fixed or floating rates. 23 Index Cash Flows The following table sets forth changes in cash and cash equivalents for the six months ended June 30, 2024: Six months ended June 30, 2024 Net income $ 3,276,088 Adjustments to reconcile net income to net cash (used in) provided by operating activities and changes in operating assets and liabilities (77,676) Net cash provided by (used in) operating activities 3,198,412 Net cash (used in) provided by investing activities (37,557,988) Net cash provided by (used in) financing activities 14,400,000 Change in cash and cash equivalents $ (19,959,576) Net Cash Provided by (Used in) Operating Activities Net cash provided by operating activities during the six months ended June 30, 2024 was approximately $3.2 million, driven by net income of approximately $3.3 million, partially offset by changes in net working capital. The most significant items in working capital were changes in accounts payable and other liabilities of approximately $0.5 million due to the increase in accrual for spin-off costs incurred and changes in interest receivable of approximately $(0.6) million due to the addition of two loans to the portfolio during the six months ended June 30, 2024. Net Cash Provided by (Used in) Investing Activities Net cash used in investing activities during the six months ended June 30, 2024 was approximately $(37.6) million, driven by an increase in issuance and fundings on loans of approximately $(50.8) million, partially offset by an increase in principal repayments of loans of approximately $13.3 million. Net Cash Provided by (Used in) Financing Activities Net cash provided by financing activities during the six months ended June 30, 2024 was approximately $14.4 million, consisting of net transfers from AFC Gamma. 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 Less than 1 year 1-3 years 3-5 years More than 5 years Total Unfunded commitments $ — $ 6,558,724 $ — $ — $ 6,558,724 Total $ — $ 6,558,724 $ — $ — $ 6,558,724 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 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. 24 Index Critical Accounting Policies and Estimates There have been no significant changes in our critical accounting policies and estimates from what was previously disclosed in the Information Statement included as Exhibit 99.1 to the Company’s Registration Statement on Form 10, the final version of which was included as Exhibit 99.1 to the Current Report on Form 8-K filed with the SEC on July 3, 2024 . 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.