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 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, 2024 and Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025. 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 U.S. federal income tax purposes and that made its first investment in January 2024. SUNS is an integral part of the platform of affiliated asset managers under the Tannenbaum Capital Group (“TCG”). We are led by a veteran team of commercial real estate investment professionals and our external manager, Sunrise Manager LLC (our “Manager”), which, alongside other TCG platform asset managers pursuing similar or adjacent opportunities, are supported by the marketing, reporting, legal and other non-investment support services provided by the team of professionals within 23 Index the TCG platform. Our and our Manager’s relationship with TCG provide us with investment opportunities through a robust relationship network of commercial real estate owners, operators and related businesses as well as significant back-office personnel to assist in management of loans. Our focus is on originating and investing in secured commercial real estate (“CRE”) loans 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 further diversify its investment portfolio, targeting investments in senior mortgage loans, mezzanine loans, B-notes, commercial mortgage-backed securities (“CMBS”) and debt-like preferred equity securities across CRE asset classes. We intend for SUNS’ investment mix to include loans secured by high quality residential (including multi-family, condominiums and single-family residential communities), retail, office, hospitality, industrial, mixed-use and specialty-use real estate. 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. Spin-Off The Spin-Off of SUNS into an independent, publicly traded company was completed on July 9, 2024 through a pro-rata distribution of all of the outstanding shares of our common stock to all of AFC’s shareholders of record (the “Distribution”) as of the close of business on July 8, 2024 (the “Record Date”). AFC’s shareholders of record as of the Record Date received one share of our common stock for every three shares of AFC common stock held as of the Record Date. Developments During the Second Quarter June 30, 2025: Updates to Our Loan Portfolio During the Second Quarter June 30, 2025 In June 2025, we and an affiliated co-investor purchased $14.25 million of a $59.8 million senior loan for the construction of a residential property in Park City, Utah. We committed a total of $9.25 million and the affiliate committed the remaining $5.0 million. The senior loan matures in August 2027. At closing, we funded approximately $0.3 million and the affiliate funded approximately $0.2 million. The loan bears interest at a cash rate of U.S. prime rate plus 3.25%, with a rate index floor of 8.0%. The senior loan is secured by a first priority lien and security interest in certain real property as described on the loan agreement. The proceeds of the senior loan will be used to, among other things, fund the completion of construction. Dividends Declared Per Share During the six months ended June 30, 2025, we declared the following cash dividends. No dividends were declared during the six months ended June 30, 2024. 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 24 Index Recent Developments None. 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, 2025 and December 31, 2024 was approximately $13.73 and $16.29, respectively. 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. 25 Index The following table provides a reconciliation of GAAP net income to Distributable Earnings: Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Net income $ 3,358,314 $ 1,513,743 $ 6,457,751 $ 3,276,088 Adjustments to net income: Stock-based compensation expense 259,066 — 502,687 — Depreciation and amortization — — — — Unrealized (gains) losses, or other non-cash items — — — — Provision for (reversal of) current expected credit losses 468,493 71,854 586,141 71,854 TRS (income) loss — — — — One-time events pursuant to changes in GAAP and certain non-cash charges — — — — Distributable earnings $ 4,085,873 $ 1,585,597 $ 7,546,579 $ 3,347,942 Basic weighted average shares of common stock outstanding 13,235,823 6,889,032 12,227,520 6,889,032 Distributable earnings per basic weighted average share $ 0.31 $ 0.23 $ 0.62 $ 0.49 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. 26 Index Results of Operations f or the three and six months ended June 30, 2025 and 2024 The following table summarizes our consolidated results of operations for the three and six months ended June 30, 2025 and 2024: Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Revenue Interest income $ 6,752,679 $ 1,979,576 $ 11,711,202 $ 4,005,882 Interest expense (1,083,212) — (1,419,371) — Net interest income 5,669,467 1,979,576 10,291,831 4,005,882 Expenses Management and incentive fees 689,140 — 689,140 — General and administrative expenses 659,957 21,025 1,413,083 21,568 Stock-based compensation 259,066 — 502,687 — Professional fees 234,497 372,954 643,029 636,372 Total expenses 1,842,660 393,979 3,247,939 657,940 (Provision for) reversal of current expected credit losses (468,493) (71,854) (586,141) (71,854) Net income before income taxes 3,358,314 1,513,743 6,457,751 3,276,088 Income tax expense — — — — Net income $ 3,358,314 $ 1,513,743 $ 6,457,751 $ 3,276,088 Net income. Our net income allocable to our common shareholders for the three and six months ended June 30, 2025, was approximately $3.4 million and $6.5 million, or $0.25 and $0.52 per basic weighted average common share, respectively, compared to net income allocable to our common shareholders of approximately $1.5 million and $3.3 million, or $0.22 and $0.48 per basic weighted average common share for the three and six months ended June 30, 2024. Interest income. Interest income increased approximately $4.8 million, or 241.1%, for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024. Interest income increased approximately $7.7 million, or 192.4%, for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024. The increase was due to the expansion of our portfolio from two borrowers to thirteen as we deploy capital. Interest expense. Interest expense increased approximately $1.1 million and $1.4 million for the three and six months ended June 30, 2025, as compared to the three and six months ended June 30, 2024, respectively, due to the lines of credit available in the current period and related borrowings that were not in place in the prior period. Management and incentive fees. Management fees increased approximately $0.7 million and $0.7 million for the three and six months ended June 30, 2025, as compared to the three and six months ended June 30, 2024, respectively. There were no Incentive Fees incurred in the current period due to the fee waiver, or the prior period, as the Management Agreement was not in place in the prior period until the completion of the Spin-Off in July 2024. General and administrative expenses . General and administrative expenses increased $0.6 million and $1.4 million during the three and six months ended June 30, 2025, as compared to the three and six months ended June 30, 2024. The increase was primarily due to reimbursable shared expenses under the Management Agreement, which did not take effect until the completion of the Spin-Off in July 2024. Reimbursable shared expenses recorded within general and administrative expenses were approximately $0.5 million and $1.1 million for the three and six months ended June 30, 2025, compared to zero in the prior periods. Stock-based compensation. Stock-based compensation increased $0.3 million and $0.5 million during the three and six months ended June 30, 2025, as compared to the three and six months ended June 30, 2024, driven by restricted stock awards granted and restricted stock awards converted as part of the Spin-Off. Professional fees. Professional fees decreased $(0.1) million and increased $6.7 thousand during the three and six months ended June 30, 2025, as compared to the three and six months ended June 30, 2024, respectively. Professional fees 27 Index included approximately $0.3 million and $0.6 million in Spin-Off costs incurred in the prior periods during the three and six months ended June 30, 2024, respectively. No Spin-Off costs were incurred during the three and six months ended June 30, 2025. Other costs within professional fees related to legal, audit, and board of director fees. Provision for Current Expected Credit Losses The provision for current expected credit losses increased $0.4 million, or 552.0%, for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024. The provision for current expected credit losses increased $0.5 million, or 715.7%, for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024. The CECL Reserve balance as of June 30, 2025 was approximately $0.6 million, or 0.25%, of our total loans held at carrying value of approximately $248.3 million and was bifurcated between (i) the current expected credit loss reserve (contra-asset) related to outstanding balances on loans held at carrying value of $0.4 million and (ii) a liability for unfunded commitments of approximately $0.2 million. The CECL Reserve balance as of June 30, 2024 was approximately $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 when determining the amount to allocate to its CECL Reserve. 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, 2025, unless otherwise specified. Loan Type Location Original Funding Date Loan Maturity Current Commitments as of 6/30/2025 % of Total SUNS Principal Balance as of 6/30/2025 Cash Interest Rate PIK Fixed/ Floating Amortization During Term YTM (1) Senior mortgage loans: Residential Austin, TX 7/3/2024 7/3/2027 $ 14,087,288 3.9% $ 14,087,288 9.0% N/A Floating No 11% Hospitality San Antonio, TX 7/31/2024 8/9/2027 27,300,000 7.7% 26,793,821 10.9% N/A Floating No 13% Residential PBG, FL (2) 8/5/2024 9/1/2027 31,875,000 8.8% 29,632,394 12.6% N/A Floating No 13% Residential PBG, FL (2) 8/5/2024 9/1/2027 28,125,000 7.8% 27,093,251 10.6% N/A Floating No 12% Residential Fort Lauderdale, FL (3) 11/1/2024 12/30/2026 30,000,000 8.3% 7,678,034 11.5% N/A Floating No 14% Hospitality Austin, TX 12/12/2024 12/11/2027 32,000,000 8.9% 30,955,196 9.8% N/A Floating No 12% Residential Aventura, FL 1/27/2025 1/27/2027 30,750,872 8.5% 29,413,408 9.3% N/A Floating No 11% Net Leased Tenant New Orleans, LA (3) 1/30/2025 1/30/2028 44,000,000 12.2% 627,492 10.1% N/A Floating No 11% Residential Dallas, TX 3/14/2025 3/14/2028 46,500,000 12.9% 44,548,166 8.0% N/A Floating No 9% Residential Park City, UT 6/11/2025 8/1/2027 9,250,000 2.6% 299,312 11.3% N/A Floating No 13% Subordinate debt: Residential Sarasota, FL 1/31/2024 5/12/2027 28,188,776 7.8% 24,705,249 13.0% N/A Fixed No 14% Residential Miami, FL 11/15/2024 11/15/2027 13,000,000 3.6% 10,205,636 13.3% N/A Fixed No 15% Residential Miami, FL 3/21/2025 12/13/2028 25,113,445 7.0% 4,956,275 13.8% 1.0% Floating No 15% Subtotal (4) $ 360,190,381 100.0% $ 250,995,522 10.5% 0.0% 12% 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, 2025 applied through maturity. Actual results could differ from those estimates and assumptions. 28 Index (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. (3) If the Company holds both the A-note and B-note, the loan is categorized as a senior mortgage loan. (4) The interest subtotal rate is a weighted average rate. Loans Held for Investment at Carrying Value As of June 30, 2025 and December 31, 2024, our portfolio included thirteen and nine loans held at carrying value, respectively. The aggregate originated commitment under these loans was approximately $360.2 million and $190.9 million, respectively, and outstanding principal was approximately $251.0 million and $132.6 million, respectively, as of June 30, 2025 and December 31, 2024 . During the six months ended June 30, 2025 , we funded approximately $130.0 million of new loans and additional principal on existing loans and had approximately $11.5 million of principal repayments of loans held at carrying value. As of June 30, 2025 and December 31, 2024, approximately 86% and 79%, respectively, of our loans held at carrying value had floating interest rates. As of June 30, 2025, t hese floating benchmark rates included one-month SOFR quoted at 4.3% and subject to a weighted average floor of 4.1% and U.S. prime rate subject to a weighted average floor of 8.0% and quoted at 7.5% based on outstanding principal. The following tables summarize our loans held at carrying value as of June 30, 2025 and December 31, 2024 : As of June 30, 2025 Outstanding Principal (1) Original Issue (Discount) Premium Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior mortgage loans (3)(4) $ 211,128,362 $ (2,447,813) $ 208,680,549 2.2 Subordinate debt 39,867,160 (210,697) 39,656,463 2.2 Total loans held at carrying value $ 250,995,522 $ (2,658,510) $ 248,337,012 2.2 As of December 31, 2024 Outstanding Principal (1) Original Issue (Discount) Premium Carrying Value (1) Weighted Average Remaining Life (Years) (2) Senior mortgage loans (3) $ 109,300,553 $ (1,495,512) $ 107,805,041 2.6 Subordinate debt 23,255,736 (327,147) 22,928,589 2.4 Total loans held at carrying value $ 132,556,289 $ (1,822,659) $ 130,733,630 2.6 (1) The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID or premium 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, 2025 and December 31, 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. (4) If the Company holds both the A-note and B-note, the loan is categorized as a senior mortgage loan. 29 Index The following table presents changes in loans held at carrying value as of and for the six months ended June 30, 2025: Principal Original Issue (Discount) Premium Carrying Value Total loans held at carrying value at December 31, 2024 $ 132,556,289 $ (1,822,659) $ 130,733,630 New fundings 121,867,470 (1,451,078) 120,416,392 Interest drawn on loans 8,103,971 — 8,103,971 Accretion of original issue discount and premium, net — 615,227 615,227 Loan repayments (11,542,613) — (11,542,613) PIK interest 10,405 — 10,405 Total loans held at carrying value at June 30, 2025 $ 250,995,522 $ (2,658,510) $ 248,337,012 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.” 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 the Revolving Credit Facility and the SRTF Credit Facility, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results. As of June 30, 2025 and December 31, 2024, all of our cash was unrestricted and totaled approximately $5.6 million and $184.6 million, respectively. 30 Index As of June 30, 2025, 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. On January 29, 2025, we completed a registered public offering of 5,750,000 shares of common stock at a public offering price of $12.00 per share, of which 1,000,000 shares of common stock were sold to Leonard M. Tannenbaum, our Executive Chairman, at the public offering price. We received net proceeds from the January 2025 Offering of $65.3 million, net of underwriting discounts of $3.7 million. In connection with the January 2025 Offering, the underwriters were granted an over-allotment option to purchase up to an additional 862,500 shares of our common stock. On January 31, 2025, the underwriters partially exercised the over-allotment option with respect to 650,000 shares of common stock and we received additional net proceeds of $7.3 million, net of underwriting discounts of $0.5 million. We incurred approximately $1.3 million of expenses in connection with the offering. After giving effect to the partial exercise of the over-allotment option, the total number of shares sold by us in the public offering was 6,400,000 shares and total gross proceeds, before deducting underwriting discounts and commissions, and other offering expenses payable by us, were approximately $76.8 million. The net proceeds totaled approximately $71.3 million. 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). 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. During the three months ended June 30, 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. As amended, the Revolving Credit Facility modified certain financial covenants, requiring 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, 2025, we had $65.0 million outstanding borrowings under the Revolving Credit Facility and $75.0 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 the Company and subject to the satisfaction of other conditions provided under the Revolving Credit Agreement). To the best of our knowledge, as of June 30, 2025 , we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement. SRTF Credit Facility 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, 2025, we had no outstanding borrowings and $75.0 million availability under our SRTF Credit Agreement. 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. 31 Index Debt Service As of June 30, 2025 , 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, 2025 and 2024: Six months ended June 30, 2025 2024 Net cash (used in) provided by operating activities $ (1,237,338) $ 3,198,412 Net cash (used in) provided by investing activities (108,873,779) (37,557,988) Net cash (used in) provided by financing activities (68,944,032) 14,400,000 Change in cash and cash equivalents $ (179,055,149) $ (19,959,576) Net Cash (Used in) Provided by Operating Activities Net cash used in operating activities during the six months ended June 30, 2025 was approximately $(1.2) million, compared to net cash provided by operating activities of approximately $3.2 million for the six months ended June 30, 2024. The decrease of approximately $(4.4) million during the period from June 30, 2024 to the six months ended June 30, 2025 was primarily due to an increase in net income of approximately $3.2 million, partially offset by changes in net working capital. The most significant items in working capital were an increase in non-cash interest income capitalized of $(8.1) million, an increase in accrued management and incentive fees of $0.3 million and an increase in prepaid expenses and other assets of approximately $0.3 million, partially offset by an increase in interest receivable of approximately $(0.4) million and a decrease in accounts payable of approximately $(0.5) million, respectively. Net Cash (Used in) Provided by Investing Activities Net cash used in investing activities during the six months ended June 30, 2025 was approximately $(108.9) million, compared to $(37.6) for the six months ended June 30, 2024. The decrease of approximately $(71.3) million was primarily due to an increase in issuance and fundings on loans of approximately $(69.6) million and a decrease in principal repayments of loans of approximately $(1.7) million. Net Cash (Used in) Provided by Financing Activities Net cash used in financing activities during the six months ended June 30, 2025 was approximately $(68.9) million, compared to net cash provided by financing activities of $14.4 million for the six months ended June 30, 2024. The decrease of approximately $(83.3) million was primarily due to $(240.3) million in repayments on the revolving credit facilities, partially offset by an increase of $106.4 million in borrowings on the revolving credit facilities and an increase of $72.6 million from offering proceeds relating to the January 2025 Offering. Contractual Obligations, Other Commitments, and Off-Balance Sheet Arrangements Our contractual obligations as of June 30, 2025 are as follows: As of June 30, 2025 Less than 1 year 1-3 years 3-5 years More than 5 years Total Unfunded commitments $ — $ 89,037,689 $ 20,195,541 $ — $ 109,233,230 Total $ — $ 89,037,689 $ 20,195,541 $ — $ 109,233,230 As of June 30, 2025 , all unfunded commitments were related to our total loan commitments and were available for funding in less than four years. 32 Index 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 intend to elect 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.