Sunrise Realty Trust, Inc.(SUNS) - 2025 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements This chapter presents the company's unaudited consolidated financial statements and related notes for periods ending June 30, 2025, and December 31, 2024, detailing financial position, operations, equity, cash flows, and key accounting policies Consolidated Balance Sheets | Metric | June 30, 2025 (Unaudited) (US Dollars) | December 31, 2024 (US Dollars) | | :--- | :--- | :--- | | Net loans held for investment | $247,953,152 | $130,711,848 | | Cash and cash equivalents | $5,571,621 | $184,626,770 | | Total assets | $256,488,444 | $317,535,780 | | Credit line payable | $64,950,000 | $123,840,000 | | Related party credit line payable | — | $75,000,000 | | Total liabilities | $72,165,843 | $203,398,033 | | Total shareholders' equity | $184,322,601 | $114,137,747 | - As of June 30, 2025, the company's total assets were $256.49 million, a decrease from $317.54 million as of December 31, 2024, primarily due to a significant reduction in cash and cash equivalents, offset by a notable increase in net loans held for investment[11] - Total shareholders' equity increased from $114.14 million as of December 31, 2024, to $184.32 million as of June 30, 2025, reflecting a strengthened capital base[11] Consolidated Statements of Operations | Metric | Three Months Ended June 30, 2025 (US Dollars) | Three Months Ended June 30, 2024 (US Dollars) | Six Months Ended June 30, 2025 (US Dollars) | Six Months Ended June 30, 2024 (US Dollars) | | :--- | :--- | :--- | :--- | :--- | | 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 | | Total expenses | $1,842,660 | $393,979 | $3,247,939 | $657,940 | | Net income | $3,358,314 | $1,513,743 | $6,457,751 | $3,276,088 | | Basic earnings per share (US Dollars per Share) | $0.25 | $0.22 | $0.52 | $0.48 | | Diluted earnings per share (US Dollars per Share) | $0.25 | $0.22 | $0.52 | $0.48 | - Net income for the three months ended June 30, 2025, increased by 121.8% year-over-year to $3.36 million, primarily driven by a significant increase in interest income[13] - Interest income for the six months ended June 30, 2025, grew by 192.4% year-over-year to $11.71 million, reflecting the expansion of the company's loan portfolio[13] Consolidated Statements of Shareholders' Equity | Metric | Three Months Ended June 30, 2025 (US Dollars) | Three Months Ended June 30, 2024 (US Dollars) | Six Months Ended June 30, 2025 (US Dollars) | Six Months Ended June 30, 2024 (US Dollars) | | :--- | :--- | :--- | :--- | :--- | | Total shareholders' equity, end of period | $184,322,601 | $48,910,710 | $184,322,601 | $48,910,710 | | Net proceeds from common stock issuance (net of offering costs) | $(76,524) | — | $71,277,217 | — | | Net stock-based compensation (net of forfeitures) | $259,066 | — | $502,687 | — | | Common stock dividends declared | $(4,026,353) | — | $(8,052,801) | — | | Net income | $3,358,314 | $1,513,743 | $6,457,751 | $3,276,088 | - As of June 30, 2025, total shareholders' equity was $184.32 million, a substantial increase from $114.14 million as of December 31, 2024, primarily due to $71.28 million in net proceeds from common stock issuance[17] - The company declared $8.05 million in common stock dividends during the first half of 2025, at $0.60 per share[17] Consolidated Statements of Cash Flows | Cash Flow Activities | Six Months Ended June 30, 2025 (US Dollars) | Six Months Ended June 30, 2024 (US Dollars) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(1,237,338) | $3,198,412 | | Net cash used in investing activities | $(108,873,779) | $(37,557,988) | | Net cash (used in) provided by financing activities | $(68,944,032) | $14,400,000 | | Net (decrease) increase in cash and cash equivalents | $(179,055,149) | $(19,959,576) | | Cash and cash equivalents, end of period | $5,571,621 | $11,285,046 | - Net cash used in operating activities was $1.24 million in the first half of 2025, compared to net cash provided of $3.20 million in the same period of 2024[19] - Net cash used in investing activities was $109 million, primarily for funding and originating loans, reflecting the active expansion of the company's loan portfolio[19] - Net cash used in financing activities was $68.94 million, primarily including $240 million in repayments on the revolving credit facility, partially offset by $72.59 million in proceeds from common stock sales[19] Consolidated Notes to the Financial Statements 1. Organization - Sunrise Realty Trust, Inc. (SUNS) was formed on August 28, 2023, and converted from a Delaware limited liability company to a Maryland corporation in February 2024[21] - The company operates as an institutional lender focused on debt capital solutions in the Southern U.S. commercial real estate (CRE) market, primarily investing in senior mortgage loans, mezzanine loans, B-notes, commercial mortgage-backed securities (CMBS), and debt-like preferred equity securities[21] - The company plans to elect to be taxed as a REIT for U.S. federal income tax purposes, commencing with its taxable year ending December 31, 2024[23] - The company completed its spin-off and separation from Advanced Flower Capital Inc. (AFC) on July 9, 2024, becoming an independent public company[24] 2. Significant Accounting Policies - The unaudited consolidated interim financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and SEC rules and regulations for interim financial information[28] - As an 'emerging growth company,' the company has elected to use the extended transition period provided by the JOBS Act for complying with new or revised accounting standards[32] - The adoption of ASU 2023-09 (Improvements to Income Tax Disclosures) and ASU 2024-03/2025-01 (Disaggregation of Expense Disclosures in the Income Statement) is not expected to have a material impact on the company's consolidated financial statements[34][35] 3. Loans Held for Investment at Carrying Value | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Number of loans | 13 | 9 | | Total commitments (Millions of US Dollars) | $360.2 Million | $190.9 Million | | Outstanding principal (Millions of US Dollars) | $251.0 Million | $132.6 Million | | Floating-rate loans percentage (Percentage) | 86% | 79% | | Weighted average remaining term (Years) | 2.2 Years | 2.6 Years | - As of June 30, 2025, the company's loan portfolio comprised 13 loans held for investment at carrying value, with an aggregate outstanding principal of approximately $251 million, a significant increase from $133 million as of December 31, 2024[36] - During the first half of 2025, the company originated and funded approximately $130 million in new and additional principal on existing loans, and received approximately $11.5 million in principal repayments[36] 4. Current Expected Credit Losses | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total CECL allowance (US Dollars) | $626,321 | $40,180 | | Percentage of total loans (Percentage) | 0.25% | 0.03% | | Provision (reversal) (US Dollars) | $468,493 (Q2 2025) | $71,854 (Q2 2024) | | Provision (reversal) (US Dollars) | $586,141 (H1 2025) | $71,854 (H1 2024) | - As of June 30, 2025, the CECL allowance for loans held for investment at carrying value was approximately $0.6 million, representing 0.25% of total loans, a significant increase from $40,200 (0.03%) as of December 31, 2024[40] Risk Rating | Risk Rating | 2025 (US Dollars) | 2024 (US Dollars) | Total (US Dollars) | | :--- | :--- | :--- | :--- | | 1 (Very Low Risk) | $— | $— | $— | | 2 (Low Risk) | $78,908,742 | $142,824,032 | $221,732,774 | | 3 (Moderate Risk) | $— | $26,604,238 | $26,604,238 | | 4 (High Risk/Potential Loss) | $— | $— | $— | | 5 (Impaired/Probable Loss) | $— | $— | $— | | Total | $78,908,742 | $169,428,270 | $248,337,012 | 5. Interest Receivable | Metric | June 30, 2025 (US Dollars) | December 31, 2024 (US Dollars) | | :--- | :--- | :--- | | Interest receivable | $2,096,376 | $1,118,927 | | Unused fee receivable | $8,909 | $11,821 | | PIK receivable | $2,891 | — | | Other fees receivable | $1,718 | $7,813 | | Total interest receivable | $2,109,894 | $1,138,561 | - As of June 30, 2025, total interest receivable was $2.11 million, an increase from $1.14 million as of December 31, 2024, primarily driven by growth in interest receivable[46] 6. Debt - The company entered into a revolving credit facility on November 6, 2024, with an initial commitment of $50 million, subsequently increased to $140 million through multiple amendments, and maturing on November 8, 2027[47][48][55][56] Debt Outstanding and Available Borrowings | Debt Type | Outstanding Borrowings June 30, 2025 (Millions of US Dollars) | Outstanding Borrowings December 31, 2024 (Millions of US Dollars) | Available Borrowings June 30, 2025 (Millions of US Dollars) | Available Borrowings December 31, 2024 (Millions of US Dollars) | | :--- | :--- | :--- | :--- | :--- | | Revolving Credit Facility | $65.0 Million | $123.8 Million | $75.0 Million | $1.2 Million | | SRTF Credit Facility (Related Party) | — | $75.0 Million | $75.0 Million | — | - As of June 30, 2025, outstanding borrowings under the revolving credit facility were $65 million, with no outstanding borrowings under the SRTF Credit Facility (Related Party)[58][62] Interest Expense by Type | Interest Expense Type | Three Months Ended June 30, 2025 (US Dollars) | Six Months Ended June 30, 2025 (US Dollars) | | :--- | :--- | :--- | | Revolving Credit Facility Interest Expense | $937,773 | $1,183,278 | | SRTF Revolving Credit Facility Interest Expense | $17,645 | $40,249 | | Total Interest Expense | $1,083,212 | $1,419,371 | 7. Commitments and Contingencies | Metric | June 30, 2025 (US Dollars) | December 31, 2024 (US Dollars) | | :--- | :--- | :--- | | Total loan commitments | $360,190,381 | $190,921,475 | | Commitments drawn | $(250,957,151) | $(132,556,289) | | Total undrawn commitments | $109,233,230 | $58,365,186 | - As of June 30, 2025, the company's total undrawn loan commitments were $109 million, a significant increase from $58.37 million as of December 31, 2024[64] - As of June 30, 2025, the company was not aware of any legal claims that could materially impact its business, financial condition, or results of operations[64] 8. Shareholders' Equity - The company completed its corporate conversion on February 20, 2024, transitioning from a Delaware limited liability company to a Maryland corporation[65] - As of June 30, 2025, the company had 13,421,176 shares of common stock issued and outstanding, a significant increase from 7,004,676 shares as of December 31, 2024[68] - The company completed a public offering of common stock in January 2025, selling 6,400,000 shares and generating approximately $71.3 million in net proceeds[69] Stock-Based Compensation Expense | Stock-Based Compensation Expense | Three Months Ended June 30, 2025 (US Dollars) | Three Months Ended June 30, 2024 (US Dollars) | Six Months Ended June 30, 2025 (US Dollars) | Six Months Ended June 30, 2024 (US Dollars) | | :--- | :--- | :--- | :--- | :--- | | Stock-based compensation | $259,066 | — | $502,687 | — | - As of June 30, 2025, 132,144 restricted stock units have been granted under the 2024 Equity Incentive Plan, with 1,058,978 shares available for future issuance[76][77] 9. Earnings Per Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income attributable to common shareholders (US Dollars) | $3,302,613 | $1,513,743 | $6,316,570 | $3,276,088 | | Basic weighted average common shares outstanding (Shares) | 13,235,823 | 6,889,032 | 12,227,520 | 6,889,032 | | Diluted weighted average common shares outstanding (Shares) | 13,259,762 | 6,889,032 | 12,245,128 | 6,889,032 | | Basic earnings per share (US Dollars per Share) | $0.25 | $0.22 | $0.52 | $0.48 | | Diluted earnings per share (US Dollars per Share) | $0.25 | $0.22 | $0.52 | $0.48 | - For the six months ended June 30, 2025, basic earnings per share was $0.52 and diluted earnings per share was $0.52, both higher than $0.48 in the same period of 2024[82] - Due to the spin-off, 6,889,032 shares of common stock were outstanding on July 9, 2024, and this share count is used for calculating basic and diluted earnings per share for all presented periods prior to the spin-off[81] 10. Income Tax - The company plans to elect to be taxed as a REIT for U.S. federal income tax purposes, commencing with its taxable year ending December 31, 2024[83] - For the three and six months ended June 30, 2025, the company's income tax expense was zero[84] - The company currently has no unrecognized tax benefits and does not anticipate any changes within the next 12 months[86] 11. Fair Value | Financial Instrument | Carrying Value (June 30, 2025) (US Dollars) | Fair Value (June 30, 2025) (US Dollars) | | :--- | :--- | :--- | | Cash and cash equivalents | $5,571,621 | $5,571,621 | | Loans held for investment at carrying value | $248,337,012 | $249,047,098 | - The carrying value of cash and cash equivalents approximates its fair value and is classified as a Level 1 fair value measurement[87] - Loans held for investment at carrying value are measured using unobservable inputs (Level 3 inputs)[87] 12. Related Party Transactions - The company entered into a management agreement with Sunrise Manager LLC (the Manager), effective upon the completion of the spin-off on July 9, 2024[88] Related Party Costs | Related Party Costs | Three Months Ended June 30, 2025 (US Dollars) | Three Months Ended June 30, 2024 (US Dollars) | Six Months Ended June 30, 2025 (US Dollars) | Six Months Ended June 30, 2024 (US Dollars) | | :--- | :--- | :--- | :--- | :--- | | Base management fee | $689,140 | — | $689,140 | — | | Incentive fee earned | — | — | — | — | | Reimbursable management expenses to Manager | $532,262 | — | $1,144,827 | — | | Reimbursable professional fees to Manager | $12,905 | — | $17,894 | — | | Total | $1,234,307 | — | $1,851,861 | — | - The Manager agreed to waive management fee calculations on the net proceeds from the January 2025 offering and an additional $1 million in fees, resulting in $0.5761 million in waived base management fees and $0.4641 million in waived incentive fees for the first half of 2025[95][96] - As of June 30, 2025, the company co-invested in 13 loans with related parties[102] 13. Dividends and Distributions | Dividend Type | Declaration Date | Record Date | Payment Date | Amount Per Share (US Dollars per Share) | Total Amount (US Dollars) | | :--- | :--- | :--- | :--- | :--- | :--- | | Common Cash Dividend | 2025/3/4 | 2025/3/31 | 2025/4/15 | $0.30 | $4,026,448 | | Common Cash Dividend | 2025/6/13 | 2025/6/30 | 2025/7/15 | $0.30 | $4,026,353 | | H1 2025 Subtotal | | | | $0.60 | $8,052,801 | - In the first half of 2025, the company declared total cash dividends of $8.05 million, or $0.60 per share[105] - No dividends were declared in the first half of 2024[104] 14. Reportable Segments - The company operates as a single reportable operating segment, focusing on institutional lending in the Southern U.S. commercial real estate market[107] - The Chief Operating Decision Maker (CEO) assesses performance and makes resource and operating decisions based on the company's consolidated net income[107][108] - For the three months ended June 30, 2025, the company's interest income was concentrated among six borrowers, collectively accounting for 85% of consolidated interest income[110] 15. Subsequent Events - As of the financial statement issuance date, no material subsequent events requiring disclosure have occurred[112] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This chapter provides management's discussion and analysis of the company's financial condition and operating results, highlighting significant loan portfolio expansion and net income growth in the first half of 2025, along with key financial metrics and accounting policies Overview - SUNS is a Maryland corporation formed on August 28, 2023, plans to elect to be taxed as a REIT for U.S. federal income tax purposes, and made its first investment in January 2024[118] - The company focuses on originating and investing in secured commercial real estate (CRE) loans, providing capital to high-quality borrowers and sponsors with transitional business plans[121] - Target investment size ranges from approximately $15 million to $100 million, with terms of approximately 2-5 years, floating interest rates (e.g., SOFR plus a credit spread), and loan-to-value (LTV) ratios not exceeding 75%[122] - The company targets a net internal rate of return (IRR) in the low double digits for its investment portfolio, expected to increase to the mid-double digits after accounting for gross interest and other income[122] Developments During the Second Quarter June 30, 2025 - In June 2025, the company co-originated a $14.25 million senior loan for a residential property construction project in Park City, Utah, with the company committing $9.25 million alongside a related party[124] Dividend Declarations | Dividend Declaration Date | Record Date | Payment Date | Amount Per Share (US Dollars per Share) | Total Amount (US Dollars) | | :--- | :--- | :--- | :--- | :--- | | 2025年3月4日 | 2025年3月31日 | 2025年4月15日 | $0.30 | $4,026,448 | | 2025年6月13日 | 2025年6月30日 | 2025年7月15日 | $0.30 | $4,026,353 | | H1 2025 Subtotal | | | $0.60 | $8,052,801 | Key Financial Measures and Indicators - The company considers distributable earnings, book value per share, and dividends declared per share as key financial measures for its business[127] Book Value Per Share | Metric | June 30, 2025 (US Dollars per Share) | December 31, 2024 (US Dollars per Share) | | :--- | :--- | :--- | | Book value per share | $13.73 | $16.29 | Non-GAAP Metrics - Distributable Earnings - Distributable earnings is a non-GAAP financial measure used to evaluate the company's performance, excluding certain non-cash and one-time GAAP adjustments[129][130] Distributable Earnings Reconciliation | Metric | Three Months Ended June 30, 2025 (US Dollars) | Three Months Ended June 30, 2024 (US Dollars) | Six Months Ended June 30, 2025 (US Dollars) | Six Months Ended June 30, 2024 (US Dollars) | | :--- | :--- | :--- | :--- | :--- | | Net income | $3,358,314 | $1,513,743 | $6,457,751 | $3,276,088 | | Stock-based compensation expense | $259,066 | — | $502,687 | — | | Provision (reversal) for current expected credit losses | $468,493 | $71,854 | $586,141 | $71,854 | | Distributable earnings | $4,085,873 | $1,585,597 | $7,546,579 | $3,347,942 | | Distributable earnings per basic weighted average share (US Dollars per Share) | $0.31 | $0.23 | $0.62 | $0.49 | - For the first half of 2025, distributable earnings were $7.55 million, or $0.62 per basic weighted average share, a significant increase from $3.35 million ($0.49 per share) in the same period of 2024[133] Factors Impacting our Operating Results - The company's operating results are primarily dependent on the level of net interest spread, the market value of its assets, and the market supply and demand for commercial real estate debt and other financial assets[134] - Net interest spread includes the accretion and amortization of original issue discount (OID) and is recognized based on contractual interest rates and outstanding loan principal[134] Results of Operations for the Three and Six Months Ended June 30, 2025 and 2024 | Metric | Three Months Ended June 30, 2025 (US Dollars) | Three Months Ended June 30, 2024 (US Dollars) | Six Months Ended June 30, 2025 (US Dollars) | Six Months Ended June 30, 2024 (US Dollars) | | :--- | :--- | :--- | :--- | :--- | | Net income | $3,358,314 | $1,513,743 | $6,457,751 | $3,276,088 | | Interest income | $6,752,679 | $1,979,576 | $11,711,202 | $4,005,882 | | Interest expense | $(1,083,212) | — | $(1,419,371) | — | | 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 | | Provision (reversal) for current expected credit losses | $(468,493) | $(71,854) | $(586,141) | $(71,854) | - For the three months ended June 30, 2025, interest income increased by 241.1% to $6.75 million, primarily due to the expansion of the loan portfolio[136] - Interest expense increased by $1.4 million in the first half of 2025, primarily due to new credit facilities and related borrowings during the period[137] - The provision for current expected credit losses increased by $0.5 million in the first half of 2025, reflecting the growth of the loan portfolio[143] Loan Portfolio | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Number of loans | 13 | 9 | | Total commitments (Millions of US Dollars) | $360.2 Million | $190.9 Million | | Outstanding principal (Millions of US Dollars) | $251.0 Million | $132.6 Million | | Floating-rate loans percentage (Percentage) | 86% | 79% | | Weighted average remaining term (Years) | 2.2 Years | 2.6 Years | | Weighted average YTM (Percentage) | 12% | N/A | - As of June 30, 2025, the company's loan portfolio consisted of 13 loans with an aggregate outstanding principal of approximately $251 million, of which approximately 86% were floating-rate loans[147] - During the first half of 2025, the company originated and funded approximately $130 million in new and additional principal on existing loans, and received approximately $11.5 million in principal repayments[147] Collateral Overview - The company's debt investments are primarily secured by real estate assets, which are expected to be diversified across various asset classes including residential, retail, office, hospitality, industrial, mixed-use, and special-purpose properties[153] - In the event of loan default, the company may seek to sell the loan to a third party, work with the borrower through an affiliate or third party to sell the collateral, or initiate foreclosure proceedings to sell the collateral to repay the loan[154] Liquidity and Capital Resources | Metric | June 30, 2025 (Millions of US Dollars) | December 31, 2024 (Millions of US Dollars) | | :--- | :--- | :--- | | Cash and cash equivalents | $5.6 Million | $184.6 Million | | Revolving credit facility outstanding borrowings | $65.0 Million | $123.8 Million | | Revolving credit facility available capacity | $75.0 Million | $1.2 Million | | SRTF credit facility available capacity | $75.0 Million | — | - The company believes that its cash on hand, available capacity under the revolving credit facility and SRTF credit facility as of June 30, 2025, and cash flow from operations will be sufficient to meet its operating needs for the next twelve months[157] - In January 2025, the company generated approximately $71.3 million in net proceeds from a public offering of 6.4 million shares of common stock[159] - In the first half of 2025, net cash used in operating activities was $1.24 million, net cash used in investing activities was $109 million, and net cash used in financing activities was $68.94 million[169][170][171] Contractual Obligations, Other Commitments, and Off-Balance Sheet Arrangements | Commitment Type | Less than 1 Year (US Dollars) | 1-3 Years (US Dollars) | 3-5 Years (US Dollars) | More than 5 Years (US Dollars) | Total (US Dollars) | | :--- | :--- | :--- | :--- | :--- | :--- | | Undrawn commitments | $— | $89,037,689 | $20,195,541 | $— | $109,233,230 | - As of June 30, 2025, the company's total undrawn loan commitments were $109 million, with all commitments fundable within four years[172] - The company may be subject to various indemnification obligations, where potential future payments could be unlimited[173] Dividends - The company plans to elect to be taxed as a REIT for U.S. federal income tax purposes, commencing with its taxable year ending December 31, 2024, and intends to distribute at least 90% of its REIT taxable income to shareholders annually[175] - If the company distributes less than the required amount, it may be subject to a 4% non-deductible excise tax[175] Critical Accounting Policies and Estimates - No significant changes have occurred in critical accounting policies and estimates since the disclosure in the company's annual report on Form 10-K[177] Item 3. Quantitative and Qualitative Disclosures About Market Risk This chapter details the company's market risks, including interest rate and credit risks, and outlines management strategies through rigorous investment processes and continuous monitoring, assessing impacts on net interest income and loan fair value Risk Management - The company's investment portfolio is designed to include high-quality residential, retail, office, hospitality, industrial, mixed-use, and special-purpose real estate[178] - The Manager employs a rigorous investment process to achieve value creation and implement significant downside protection measures[178] Changes in Fair Value of Our Assets - As of June 30, 2025, and December 31, 2024, none of the company's loans held for investment at carrying value were measured at fair value[180] - Fair value is determined by the Board of Directors through its independent Audit and Valuation Committee, with reference to opinions from independent third-party valuation firms, primarily using an income approach[181][182] Changes in Market Interest Rates and Effect on Net Interest Income - The company's operating results are highly dependent on the difference between the yields on its assets and the cost of its borrowings[185] - As of June 30, 2025, the company had 11 floating-rate loans, representing approximately 86% of the total outstanding principal of its loan portfolio[186] - Assuming a 100 basis point increase in floating benchmark rates, annual interest income is projected to increase by approximately $2.2 million; a 100 basis point decrease is projected to reduce annual interest income by approximately $0.4 million (subject to benchmark floors)[186][187] Interest Rate Cap Risk - Floating-rate loans may be subject to periodic and lifetime interest rate caps and floors, which could limit the growth in asset yields during periods of rising interest rates, while borrowing costs may not be subject to similar limitations[188] Interest Rate Mismatch Risk - The company may fund loans with borrowings based on different benchmarks, leading to interest rate mismatch risk where rising index rates could increase borrowing costs without a corresponding increase in fixed-rate yields[189] Credit Risk - The company faces varying degrees of credit risk associated with its loans and interest receivable, which the Manager mitigates through comprehensive underwriting and selection processes and proactive monitoring[191] - As of June 30, 2025, the company's loan portfolio was concentrated among its top three borrowers, accounting for approximately 40.6% of the total outstanding principal[195] Real Estate Risk - Commercial real estate loans are affected by various factors, including national, regional, and local economic conditions, local real estate conditions, construction quality, demographic factors, and regulatory changes, all of which could adversely impact loan recovery[196] Item 4. Controls and Procedures Management, including the CEO and CFO, assessed the effectiveness of disclosure controls and procedures as of June 30, 2025, concluding they are effective, with no significant changes in internal financial reporting controls during the quarter - As of June 30, 2025, the effectiveness of the company's disclosure controls and procedures has been evaluated and determined to be effective[197] - No significant changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[198] Part II. Other Information Item 1. Legal Proceedings As of June 30, 2025, the company is not involved in any material pending legal proceedings - As of June 30, 2025, the company is not involved in any material pending legal proceedings[200] Item 1A. Risk Factors The company reports no material changes to the risk factors disclosed in its annual Form 10-K, beyond those in the quarterly report for the quarter ended March 31, 2025 - No material changes have occurred to the risk factors disclosed in the company's annual report on Form 10-K, other than those disclosed in the quarterly report for the quarter ended March 31, 2025[201] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no recent unregistered equity security sales and no common stock repurchases during the three months ended June 30, 2025 - There have been no recent unregistered sales of equity securities[202] - The company did not repurchase any common stock during the three months ended June 30, 2025[203] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - No defaults upon senior securities have occurred[204] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[205] Item 5. Other Information The company reports no other information requiring disclosure - No other information[206] Item 6. Exhibits This chapter lists exhibits filed with the quarterly report, including the separation and distribution agreement, articles of incorporation, loan amendments, and CEO/CFO certifications - Exhibits include the separation and distribution agreement, amended and restated articles of incorporation, amendments to the revolving credit facility, and Sarbanes-Oxley Act certifications from the Chief Executive Officer and Chief Financial Officer[207] Signatures This quarterly report was signed by CEO Brian Sedrish and CFO Brandon Hetzel on August 7, 2025 - This report was signed by Chief Executive Officer Brian Sedrish and Chief Financial Officer Brandon Hetzel on August 7, 2025[210]