# Chicago Atlantic Real Estate Finance, Inc. (REFI) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Chicago Atlantic Real Estate Finance, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1867949/000095017025037616/refi-20241231.htm
Accession: 0000950170-25-037616
Filing date: 2025-03-12
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/REFI/
All MD&A years: /company/REFI/mda/
Previous year: /company/REFI/mda/fy2023/ (FY 2023)
Next year: /company/REFI/mda/fy2025/ (FY 2025)

Item 7. 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 together with the consolidated financial statements and related notes that are included elsewhere in this annual report on Form 10-K. This discussion contains forward-looking statements that reflect our current expectations and views of future events, which involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed above in “Risk Factors” and those identified below and elsewhere in this annual report on Form 10-K. See “Forward-Looking Statements.”

Overview

We are a commercial mortgage real estate investment trust. Our primary investment objective is to provide attractive, risk-adjusted returns for stockholders over time primarily through consistent current income dividends and other distributions and secondarily through capital appreciation. We intend to achieve this objective by originating, structuring and investing in first mortgage loans and alternative structured financings secured by commercial real estate properties. Our current portfolio is comprised primarily of senior loans to state-licensed operators in the cannabis industry, secured by real estate, equipment, receivables, licenses or other assets of the borrowers to the extent permitted by applicable laws and regulations governing such borrowers. We may also invest in companies or properties that are not related to the cannabis industry that provide return characteristics consistent with our investment objective. We intend to grow the size of our portfolio by continuing the track record of our business and the business conducted by our Manager and its affiliates by making loans to leading operators and property owners in the cannabis industry. There is no assurance that we will achieve our investment objective.

Our Manager and its affiliates seek to originate real estate loans between $5 million and $200 million, generally with one- to five-year terms and amortization when terms exceed three years. We generally act as co-lenders in such transactions and intend to hold up to $50 million of the aggregate loan amount, with the remainder to be held by affiliates or third party co-investors. We may revise such concentration limits from time to time as our loan portfolio grows. Other investment vehicles managed by our Manager or affiliates of our Manager may co-invest with us or hold positions in a loan where we have also invested, including by means of splitting commitments, participating in loans or other means of syndicating loans. We will not engage in a co-investment transaction with an affiliate where the affiliate has a senior position to the loan held by us. To the extent that an affiliate provides financing to one of our borrowers, such loans will be working capital loans or loans that are subordinate to our loans. We may also serve as co-lenders in loans originated by third parties and, in the future, we may also acquire loans or loan participations. Loans that have one to two year maturities are generally interest only loans.

Our loans are secured by real estate and, in addition, when lending to owner-operators in the cannabis industry, other collateral, such as equipment, receivables, licenses or other assets of the borrowers to the extent permitted by applicable laws and regulations. In addition, we seek to impose strict loan covenants and seek personal or corporate guarantees for additional protection. As of December 31, 2024 and 2023, 36.5% and 27.1%, respectively, of the loan principal held in our portfolio are backed by personal or corporate guarantees. We aim to maintain a portfolio diversified across jurisdictions and across verticals, including cultivators, processors, dispensaries, as well as ancillary businesses. In addition, we may invest in borrowers that have equity securities that are publicly traded on the Canadian Stock Exchange (“CSE”) in Canada and/or over-the-counter in the United States.

As of December 31, 2024, our portfolio is comprised primarily of first mortgages to established multi-state or single-state cannabis operators or property owners. We consider cannabis operators to be established if they are state-licensed and are deemed to be operational and in good standing by the applicable state regulator. We do not own any stock, warrants to purchase stock or other forms of equity in any of our portfolio companies that are involved in the cannabis industry, and we will not take stock, warrants or equity in such issuers until permitted by applicable laws and regulations, including U.S. federal laws and regulations.

We are an externally managed Maryland corporation that elected to be taxed as a REIT under Section 856 of the Code, commencing with our taxable year ended December 31, 2021. We believe that we have qualified as a REIT and that our method of operation will enable us to continue to qualify as a REIT. However, no assurances can be given that our beliefs or expectations will be fulfilled, since qualification as a REIT depends on us continuing to satisfy numerous asset, income and distribution tests, which in turn depend, in part, on our operating results. We also intend to operate our business in a manner that will permit us and our subsidiaries to maintain one or more exclusions or exemptions from registration under the Investment Company Act.

Revenues

We operate as one operating segment and are primarily focused on financing senior secured loans and other types of loans for established state-licensed operators in the cannabis industry. These loans are generally held for investment and are substantially secured by real estate, equipment, licenses and other assets of the borrowers to the extent permitted by the applicable laws and the regulations governing such borrowers.

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We generate revenue primarily in the form of interest income on loans. As of December 31, 2024 and 2023, approximately 62.1% and 80.5%, respectively, of our portfolio was comprised of floating rate loans, and 37.9% and 19.5% of our portfolio was comprised of fixed rate loans, respectively. The floating rate loans described above are variable based upon the Prime Rate plus an applicable margin, and in many cases, a Prime Rate floor.

The Prime Rate during the years ended December 31, 2024 and 2023 was as follows:

[[GREPCENT_TABLE]]
[["Effective Date","","Rate(1)"],["December 19, 2024","","","7.50","%"],["November 8, 2024","","","7.75","%"],["September 19, 2024","","","8.00","%"],["July 27, 2023","","","8.50","%"],["May 4, 2023","","","8.25","%"],["March 23, 2023","","","8.00","%"],["February 2, 2023","","","7.75","%"]]
[[/GREPCENT_TABLE]]

(1)
Rate obtained from the Wall Street Journal’s “Bonds, Rates & Yields” table.

Interest on our loans is generally payable monthly. The principal amount of our loans and any accrued but unpaid interest thereon generally become due at the applicable maturity date. In some cases, our interest income includes a paid-in-kind (“PIK”) component for a portion of the total interest. The PIK interest, computed at the contractual rate specified in each applicable loan agreement, is accrued in accordance with the terms of such loan agreement and capitalized to the principal balance of the loan and recorded as interest income. The PIK interest added to the principal balance is typically amortized and paid in accordance with the applicable loan agreement. In cases where the loans do not amortize, the PIK interest is collected upon repayment of the outstanding principal. We also generate revenue from original issue discounts (“OID”), which is also recognized as interest income from loans over the initial term of the applicable loans. Delayed draw loans may earn interest or unused fees on the undrawn portion of the loan, which is recognized as interest income in the period earned. Other fees, including prepayment fees and exit fees, are also recognized as interest income when received. Any such fees will be generated in connection with our loans and recognized as earned in accordance with generally accepted accounting principles (“GAAP”).

Expenses

Our primary operating expense is the payment of Base Management Fees and Incentive Compensation under our Management Agreement with our Manager and the allocable portion of overhead and other expenses paid or incurred on our behalf, including reimbursing our Manager for a certain portion of the compensation of certain personnel of our Manager who assist in the management of our affairs, excepting only those expenses that are specifically the responsibility of our Manager pursuant to our Management Agreement. We bear all other costs and expenses of our operations and transactions, including (without limitation) fees and expenses relating to:

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organizational and offering expenses;

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quarterly valuation expenses;

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fees payable to third parties relating to, or associated with, making loans and valuing loans (including third-party valuation firms);

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fees and expenses associated with investor relations and marketing efforts (including attendance at investment conferences and similar events);

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accounting and loan servicing fees from our third-party fund administrator;

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audit and tax compliance fees and expenses from our independent registered public accounting firm;

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federal and state registration fees;

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any exchange listing fees;

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federal, state and local taxes;

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independent directors’ fees and expenses;

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•
brokerage commissions;

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costs of proxy statements, stockholders’ reports and notices; and

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costs of preparing government filings, including periodic and current reports with the SEC.

Income Taxes

We are a Maryland corporation that elected to be taxed as a REIT under the Code, commencing with the taxable year ended December 31, 2021. We believe that we have qualified as a REIT and that our method of operation will enable us to continue to qualify as a REIT. However, no assurances can be given that our beliefs or expectations will be fulfilled, since qualification as a REIT depends on us satisfying numerous asset, income and distribution tests which depends, in part, on our operating results.

To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute annually to our stockholders at least 90% of our REIT taxable income prior to the deduction for dividends paid. To the extent that 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 1) 85% of our ordinary income for the calendar year, 2) 95% of our capital gain net income for the calendar year, and 3) any undistributed shortfall from our prior calendar year (the “Required Distribution”) to our stockholders 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 a non-deductible excise tax equal to 4% of any shortfall between the Required Distribution and the amount that was actually distributed. 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 stockholders and pay tax at regular corporate rates on the retained net capital gain. Our stockholders 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 it is determined that our estimated current year taxable income will be in excess of estimated dividend distributions (including capital gain dividend) for the current year from such income, we will accrue excise tax on estimated excess taxable income as such taxable income is earned. The annual expense is calculated in accordance with applicable tax regulations. Excise tax expense, if any, is included in the line item, income tax expense. For the years ended December 31, 2024 and 2023, we did not incur excise tax expense.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740 - Income Taxes (“ASC 740”), prescribes a recognition threshold and measurement attribute for the consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have analyzed our various federal and state filing positions and believe that our income tax filing positions and deductions are documented and supported as of December 31, 2024 and 2023. Based on our evaluation, there is no reserve for any uncertain income tax positions. Accrued interest and penalties, if any, are included within other liabilities in the consolidated balance sheets.

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 income, 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 income, 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 borrowers.

Changes in Market Interest Rates and Effect on Net Interest Income

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our assets and our related financing obligations.

Our operating results depend in large part on differences between the income earned on our assets and our cost of borrowing. The cost of our borrowings generally are based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase (a) while the yields earned on our leveraged fixed-rate loan assets will remain static, and (b) at a faster pace than the yields earned on our leveraged floating-rate loan assets, which could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time as well as the magnitude and

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duration of the interest rate increase. Further, an increase in short-term interest rates could also have a negative impact on the market value of our target investments. If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely affect our liquidity and results of operations.

Interest Rate Cap Risk

We currently own and intend to acquire in the future, floating-rate assets. These are assets in which the loans may be subject to periodic and lifetime interest rate caps and floors, which limit the amount by which the asset’s interest yield may change during any given period. However, our borrowing costs pursuant to our financing agreements may not be subject to similar restrictions. Therefore, in a period of increasing interest rates, interest rate costs on our borrowings could increase without limitation by caps, while the interest-rate yields on our floating-rate assets would effectively be limited. In addition, floating-rate assets may be subject to periodic payment caps that result in some portion of the interest being deferred and added to the principal outstanding. This could result in our receipt of cash income from such assets in an amount that is less than the amount that we would need to pay the interest cost on our related borrowings.

These factors could lower our net interest income or cause a net loss during periods of rising interest rates, which would harm our financial condition, cash flows and results of operations. As of December 31, 2024, we had $250.6 million of floating rate loans of which 93.2%, based on principal outstanding, have interest rate floors as summarized below:

[[GREPCENT_TABLE]]
[["As of December 31, 2024"],["Prime Rate Floor","","Outstanding Principal"],["8.50%","","$","51,068,629"],["8.00%","","","7,620,000"],["7.75%","","","16,880,308"],["7.50%","","","42,839,358"],["7.00%","","","75,902,295"],["6.25%","","","19,324,557"],["5.50%","","","580,000"],["3.25%","","","18,966,668"],["0.00%","","","17,400,000"],["","","$","250,581,815"]]
[[/GREPCENT_TABLE]]

Interest Rate Mismatch Risk

We may fund a portion of our origination of loans, or of loans that we may in the future acquire, with borrowings that are based on the Prime Rate or a similar measure, while the interest rates on these assets may be fixed or indexed to the Prime Rate or another index rate. Accordingly, any increase in the Prime Rate will generally result in an increase in our borrowing costs that would not be matched by fixed-rate interest earnings and may not be matched by a corresponding increase in floating-rate interest earnings. Any such interest rate mismatch could adversely affect our profitability, which may negatively impact distributions to our stockholders.

Our analysis of risks is based on our Manager’s experience, estimates, models and assumptions. These analyses rely on models which utilize estimates of fair value and interest rate sensitivity. Actual economic conditions or implementation of decisions by our Manager and our management may produce results that differ significantly from the estimates and assumptions used in our models and the projected results.

Market Conditions

We believe that favorable market conditions, including an imbalance in supply and demand of credit to cannabis operating companies, have provided attractive opportunities for non-bank lenders, such as us, to finance commercial real estate loans and other loans that exhibit strong fundamentals but also require more customized financing structures and loan products than regulated financial institutions can presently provide. Additionally, to the extent that additional states legalize cannabis, our addressable market will increase. We intend to continue to capitalize on these opportunities and grow the size of our portfolio.

Risk Management

To the extent consistent with maintaining our REIT qualification and our exemption from registration under the Investment Company Act, we seek to manage risk exposure by closely monitoring our portfolio and actively managing the financing, interest rate,

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credit, prepayment and convexity (a measure of the sensitivity of the duration of a loan to changes in interest rates) risks associated with holding our portfolio of loans. Generally, with the guidance and experience of our Manager:

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we manage our portfolio through an interactive process with our Manager and generally service our self-originated loans through our Manager’s servicer;

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we invest in a mix of floating-and fixed-rate loans to mitigate the interest rate risk associated with the financing of our portfolio;

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we actively employ portfolio-wide and asset-specific risk measurement and management processes in our daily operations, including utilizing our Manager’s risk management tools such as software and services licensed or purchased from third-parties and proprietary analytical methods developed by our Manager; and

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we seek to manage credit risk through our due diligence process prior to origination or acquisition and through the use of non-recourse financing, when and where available and appropriate. In addition, with respect to any particular target investment, prior to origination or acquisition our Manager’s investment team evaluates, among other things, relative valuation, comparable company analysis, supply and demand trends, shape-of-yield curves, delinquency and default rates, recovery of various sectors and vintage of collateral.

Recent Developments

Updates to Our Credit Facilities during Fiscal Year 2024

Revolving Loan

On February 28, 2024, CAL entered into a Fifth Amended and Restated Loan and Security Agreement (the “Fifth Amendment and Restatement”). The Fifth Amendment and Restatement extended the contractual maturity date of the Revolving Loan until June 30, 2026, and expanded the existing accordion feature to permit aggregate loan commitments of up to $150.0 million. No other material terms of the Revolving Loan were modified as a result of the execution of the Fifth Amendment and Restatement. The Company incurred debt issuance costs of approximately $0.1 million related to the Fifth Amendment and Restatement, which were capitalized and will subsequently be amortized through maturity.

On June 26, 2024, CAL entered into the First Amendment to the Fifth Amendment and Restatement. The amendment increased the current loan commitment from $100.0 million to $105.0 million. No other material terms were modified as a result of the execution of this amendment.

On September 30, 2024, CAL entered into the Sixth Amended and Restated Loan and Security Agreement (the "Sixth Amendment"). The Sixth Amendment increased the current loan commitment from $105.0 million to $110.0 million. No other material terms were modified as a result of the execution of this amendment.

Notes Payable

On October 18, 2024, the Company entered into a Loan Agreement by and among the Company and the various financial institutions party thereto, for an aggregate commitment of $50.0 million in senior unsecured notes (the "Notes Payable"). The Notes Payable have a contractual four year term maturing on October 18, 2028 and bear a fixed interest rate of 9.00% per annum. The Company may prepay the Notes Payable at any time without penalty following the second anniversary of the Closing Date. A prepayment penalty of 3.00% and 2.00% would be due and payable in the event of prepayment prior to the first and second anniversary of the Closing Date, respectively.

Updates to Our Loan Portfolio during Fiscal Year 2024

For the year ended December 31, 2024, our cash loan fundings of loans held for investment, net of original issue discounts and other upfront fees were approximately $161.3 million. We received approximately $121.5 million of total proceeds from sales and principal amortization of loans of $19.0 million and $102.5 million, respectively.

In total, our loans held for investment, at carrying value, increased by $48.9 million, from $353.6 million at December 31, 2023 to $402.5 million as of December 31, 2024.

In February 2024, we entered into an amendment to Loan #16, which modified certain financial covenants. No monetary terms of the loan were modified in connection with the amendment.

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In February 2024, we entered into an amendment to Loan #6, which extended the maturity date to April 15, 2024. No other terms of the loan were modified in connection with this amendment.

In February 2024, we entered into an amendment to Loan #19, which extended the maturity date from August 29, 2025 to December 31, 2025. Additionally, make-whole interest protections were extended through June 30, 2025 and the PIK rate was increased from 3.0% to 5.0%.

In March 2024, we entered into an amendment to Loan #8 which waived amortization to April 30, 2024 and waives all PIK interest during the first quarter of 2024. In June 2024, we entered into an amendment to Loan #3, which extended the maturity date to July 31, 2024 of two of the three tranches held. No other terms of the loan were modified in connection with this amendment.

In June 2024, we entered into an amendment to Loan #4, which extended the maturity date from May 17, 2024 to June 17, 2026, and decreased the PIK rate from 15% to 0%. The cash interest is fixed at $65,765 per month until May 31, 2025, and $67,738 per month thereafter to maturity.

In June 2024, we entered into an amendment to Loan #6, which extended the maturity date from May 31, 2024 to January 30, 2026 and increased the PIK interest rate to the greater of Prime plus 6.5% or 15.0%. Additionally, amortization payments will start on October 31, 2024.

In June 2024, we entered into an amendment to Loan #8 which waived amortization from May 1, 2024 to June 30, 2024 and capitalized unpaid accrued interest to PIK interest during the second quarter of 2024. The PIK rate also increased from 2% to 10%.

In June 2024, we entered into an amendment to Loan #12, which extended the maturity date to April 30, 2025. Amortization payments began again on July 31, 2024 at $60,000 per month. No other terms of the loan were modified in connection with this amendment.

In July 2024, we entered into an amendment to Loan #3, which extended the maturity date to January 29, 2027 of two of the three tranches held. No other terms of the loan were modified in connection with this amendment.

In August 2024, we entered into an amendment to Loan #8 which extended the maturity date from September 1, 2024 to December 31, 2025. The cash interest rate was amended to a fixed rate of 10.00% from a floating rate of Prime + 9.25%. The PIK rate also decreased from 10% to 0%.

In September 2024, we entered into an amendment to Loan #16, which extended the maturity date from December 31, 2024 to August 29, 2025. The cash interest rate was amended to a fixed rate of 16.75% from a floating rate of Prime + 9.25%.

In September 2024, the Company entered into a conditional assignment agreement with an affiliate under common control to sell $6.0 million of principal of Loan #11. Upon the change in management's intent to hold this portion of Loan #11 to maturity or payoff, the loan was transferred from loans held for investment to loans held for sale, and was recorded at fair value of approximately $6.0 million. As a result of the expected repayment of this loan at the contractual maturity date of October 4, 2024, there was no decrease to the CECL reserve as a result of this transfer.

In September 2024, the Company transferred $13.0 million of principal of Loan #2 from held for investment to held for sale upon receipt of an offer from a third party to purchase such loan. On September 30, 2024, the Company sold $13.0 million of Loan #2 to a third- party for a selling price of $13.0 million.

In October 2024, we originated Loan #36, a $27.0 million term loan to an operator in Illinois, of which $25.0 million was funded at closing. The loan bears interest at a floating rate, based on the prime rate, and a spread of 6.25% subject to a 7.50% prime rate floor. The loan is interest only for the first 15 months and thereafter amortizes at a rate of 10.0% per annum.

On October 1, 2024, the Company sold $6.0 million of the principal balance of Loan #11, which was classified as held for sale, to an affiliate under common control with the Manager. The total selling price of approximately $6.0 million was approved by the audit committee of the Board. The fair value approximated the carrying value of the loan of $6.0 million plus accrued unpaid interest through the sale date. On October 4, 2024, the outstanding principal balance of Loan #11 was repaid in full along with all applicable accrued interest and fees payable at maturity.

In October 2024, we entered into an amendment to Loan #2, which extended the maturity date from December 31, 2024 to December 31, 2025. Additionally, the cash interest rate was amended to a rate equal to the greater of: (i) the Prime Rate plus 3.00% and (ii) 11.50%, and the Prime Rate floor was increased from 3.25% to 8.50%.

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On October 30, 2024, the Company entered into an Omnibus Assignment and Assumption Agreement with an affiliate under common control whereby the Company sold $6.0 million of the principal balance of Loan #1, in exchange for aggregate consideration of $6.0 million comprised of approximately $4.5 million and $1.5 million of principal of existing Loans #7 and #20, respectively. The fair value approximated the carrying value of the loan plus accrued unpaid interest through the sale date.

In November 2024, we entered into an amendment to Loan #3, which extended the maturity date to May 29, 2026 of one of the three tranches held. No other terms of the loan were modified in connection with this amendment.

In December 2024, we entered into an amendment to Loan #12, which extended the maturity date from April 30, 2025 to October 31, 2027. Additionally, the PIK interest rate was amended from 0% to 2.0%.

On December 31, 2024, approximately $6.5 million of the Company's outstanding principal in Loan #26 was refinanced by an affiliate under common control. The Company received net proceeds of approximately $6.5 million, which included the full repayment of principal, accrued unpaid interest and prepayment fees net of interest reserves transferred on the sale date. The Company recognized approximately $0.1 million of prepayment fee income in connection with this transaction. The fair value price which was equal to the proceeds received was approved by the audit committee of the Board.

As described in Note 3, Loan #9 remains on non-accrual status and the Company will continue to cease further recognition of income until such events of default are cured or obligations are repaid. As of December 31, 2024, Loan #9 is held on the consolidated balance sheet as a loan held for investment – related party with a carrying value of approximately $16.4 million and a reserve for current expected credit losses of approximately $1.2 million.

Dividends Declared Per Share

The following tables summarize the Company’s dividends declared during the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","","Record Date","","Payment Date","","Common Share Distribution Amount","","","Taxable Ordinary Income","","","Return of Capital","","","Section 199A Dividends"],["Regular cash dividend","","3/28/2024","","4/15/2024","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","6/28/2024","","7/15/2024","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","9/30/2024","","10/15/2024","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","12/31/2024","","1/13/2025","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Special cash dividend","","12/31/2024","","1/13/2025","","$","0.18","","","$","0.18","","","$","-","","","$","0.18"],["Total cash dividend","","","","","","$","2.06","","","$","2.06","","","","-","","","$","2.06"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Record Date","","Payment Date","","Common Share Distribution Amount","","","Taxable Ordinary Income","","","Return of Capital","","","Section 199A Dividends"],["Regular cash dividend","","3/31/2023","","4/14/2023","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","6/30/2023","","7/14/2023","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","9/29/2023","","10/13/2023","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","12/29/2023","","1/12/2024","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Special cash dividend","","12/29/2023","","1/12/2024","","$","0.29","","","$","0.29","","","$","-","","","$","0.29"],["Total cash dividend","","","","","","$","2.17","","","$","2.17","","","$","-","","","$","2.17"]]
[[/GREPCENT_TABLE]]

The payment of these dividends is not indicative of our ability to pay such dividends in the future.

Subsequent Updates to Our Loan Portfolio in 2025

During the period from January 1, 2025 through March 12, 2025, we advanced approximately $1.1 million of principal to existing borrowers under delayed draw term loan facilities. Additionally, we received approximately $1.8 million of scheduled principal repayments.

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Results of Operations

Comparison of the years ended December 31, 2024 and 2023

[[GREPCENT_TABLE]]
[["","","For the year ended December 31,","","","Variance"],["","","2024","","","2023","","","Amount","","","%"],["Revenues"],["Interest income","","$","62,104,092","","","$","62,900,004","","","$","(795,912",")","","","-1","%"],["Interest expense","","","(7,153,207",")","","","(5,752,908",")","","","(1,400,299",")","","","24","%"],["Net interest income","","","54,950,885","","","","57,147,096","","","","(2,196,211",")","","","-4","%"],["Expenses"],["Management and incentive fees, net","","","8,061,896","","","","8,782,834","","","","(720,938",")","","","-8","%"],["General and administrative expense","","","5,388,967","","","","5,260,287","","","","128,680","","","","2","%"],["Professional fees","","","1,811,067","","","","2,153,999","","","","(342,932",")","","","-16","%"],["Stock based compensation","","","3,058,674","","","","1,479,736","","","","1,578,938","","","","107","%"],["(Benefit) provision for current expected credit losses","","","(583,298",")","","","940,385","","","","(1,523,683",")","","","-162","%"],["Total expenses","","","17,737,306","","","","18,617,241","","","","(879,935",")","","","-5","%"],["Change in unrealized (loss) gain on investments","","","(240,604",")","","","75,604","","","","(316,208",")","","","100","%"],["Realized gain on debt securities, at fair value","","","72,428","","","","104,789","","","","(32,361",")","","","100","%"],["Net Income before income taxes","","","37,045,403","","","","38,710,248","","","","(1,664,845",")","","","-4","%"],["Income tax expense","","","-","","","","-","","","","-","","","","-"],["Net Income","","$","37,045,403","","","$","38,710,248","","","$","(1,664,845",")","","","-4","%"]]
[[/GREPCENT_TABLE]]

•
Gross interest income decreased by approximately $0.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease in interest income is partially driven by the decrease in the Prime rate of 100 basis points during the year from 8.50% to 7.50%, which impacted the approximately 62.1% of the Company’s aggregate loan portfolio, which bears a floating rate as of December 31, 2024. Additionally, we recognized approximately $3.2 million of interest income from prepayment fees and acceleration of original issue discounts and other upfront fees during the year ended December 31, 2024, as compared to $3.5 million for the year ended December 31, 2023, contributing to $0.3 million of the decline. Additionally, the weighted average YTM IRR on our portfolio decreased from 19.4% to 17.2% during the year, as a result of certain re-pricing amendments relating to de-risking of our portfolio and the impact of the 100 basis point prime rate decline on our floating rate portfolio. The impact of the declining yield was offset by the increase in outstanding principal balance of our portfolio which increased to $410.2 million as of December 31, 2024 from $355.7 million as of December 31, 2023.

•
Interest expense increased by approximately $1.4 million during the comparative period. During the fourth quarter of 2024, the Company entered into an agreement to obtain an additional $50.0 million of debt financing in the form of senior unsecured notes (the "Notes Payable"), which bear interest at a fixed rate of 9.0%. The Notes Payable, which were not included in interest expense during the year ended December 31, 2023, contributed to approximately $1.0 million of the increase. Additionally, the weighted average borrowings under our Revolving Loan increased to $67.0 million from $60.6 million during the years ended December 31, 2024 and 2023, respectively. The increase in weighted average borrowings was offset by the decrease in the Revolving Loan interest rate, which is based off of the Prime Rate that decreased 100 basis points during 2024. Lastly, the Company increased the availability under the Revolving Loan from $100.0 million as of December 31, 2023 to $110.0 million as of December 31, 2024, though this increase did not cause a significant fluctuation in unused fee expense year over year.

•
Management and incentive fees decreased approximately $0.7 million during the comparative periods ending December 31, 2024 and 2023. Management fees increased by approximately $0.1 million, resulting from the increase in weighted average equity which increased to approximately $302.4 million from $283.5 million as of December 31, 2024 and 2023, respectively. Incentive fees decreased approximately $0.8 million primarily attributable to the year over year decrease in Core Earnings, as defined in the Management Agreement, of $2.4 million, the base on which the incentive fees are earned.

•
General and administrative expense increased by approximately $0.1 million and professional fees decreased by approximately $0.3 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. Overhead expense reimbursements for costs incurred by the Manager, which are reflected in the General and administrative expense on the consolidated statement of operations, remained flat at $4.8 million for the year ended December 31, 2024 and 2023.

70

•
Stock based compensation increased by approximately $1.6 million as a result of a full year of expense recognition on the grant of 323,452 restricted stock awards granted to employees of our Manager during the year ended December 31, 2023, as well as an additional 187,335 of restricted stock awards granted during the year ended December 31, 2024. Stock based compensation expense is recognized ratably over the vesting period.

•
During the year ended December 31, 2024, the Company recognized a change in unrealized (loss) gain on investments of approximately $0.2 million, which was driven primarily by $0.2 million of unrealized losses on the Company's loan held at fair value of $5.3 million as of December 31, 2024.

•
Our provision for current expected credit losses decreased due to both borrower specific credit factors, and regular re-evaluations of overall current macroeconomic conditions affecting our borrowers and the industry.

o
As of December 31, 2024 and 2023, greater than 60% of the portfolio bears a floating rate based on the Prime Rate. The Prime rate decreased 100 basis points in 2024, as compared to an increase of 100 basis points in 2023, indicating a more stabilized credit market in 2024 compared to 2023. The upward movement in benchmark interest rates during 2023 contributed to a greater change in the probability of default when compared to 2024, and contributed to the decrease in the provision year over year.

o
Changes in portfolio risk composition resulting from principal paydowns and new fundings also contributed to the decrease, with reserves on new 2024 originations representing a smaller portion of the reserve than loans originated in prior years. As of December 31, 2024, approximately 71.2% of our loans carry a risk rating of "1" or 2", an increase when compared to 68.9% as of December 31, 2023.

o
Additionally, improvement in enterprise valuations of our borrowers, driven by valuation multiples of comparable companies remaining more stable or increasing during the year ended December 31, 2024 as compared to December 31, 2023.

•
The current expected credit loss reserve represents approximately 105 basis points of our aggregate loan commitments held at carrying value of approximately $4.3 million. The liability is based on the unfunded portion of loan commitments over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit. 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

As of December 31, 2024 and 2023, our portfolio included 30 and 27 loans held for investment of approximately $402.5 million and $353.6 million at carrying value, respectively, prior to the reserve for current expected credit losses. The outstanding principal was approximately $404.7 million and $355.7 million as of December 31, 2024 and 2023, respectively. As of December 31, 2024 and 2023, our loan portfolio had a weighted-average yield-to-maturity internal rate of return (“YTM IRR”) of 17.2% and 19.4%, respectively, and was substantially secured by real estate and, with respect to certain of our loans, substantially all assets of the borrowers and certain of their subsidiaries, including equipment, receivables, and licenses. YTM IRR is calculated using various inputs, including (i) cash and paid-in-kind (“PIK”) interest, which is capitalized and added to the outstanding principal balance of the applicable loan, (ii) original issue discount (“OID”), (iii) amortization, (iv) unused fees, and (v) exit fees. Certain of our loans have extension fees, which are not included in our YTM IRR calculations, but may increase YTM IRR if such extension options are exercised by borrowers.

The below table summarizes our portfolio of loans held for investment by rate type as of December 31, 2024 and 2023.

[[GREPCENT_TABLE]]
[["","As of December 31, 2024"],["","","Total Principal","","","Original Issue Discount","","","Carrying Value","","","Percentage of loans held for investment"],["Fixed-rate loans","","$","149,771,871","","","$","(545,081",")","","$","149,226,790","","","","37.0","%"],["Floating-rate loans","","","254,949,683","","","","(1,699,427",")","","","253,250,256","","","","63.0","%"],["Total","","$","404,721,554","","","$","(2,244,508",")","","$","402,477,046","","","","100.0","%"]]
[[/GREPCENT_TABLE]]

As of December 31, 2024, the Company has one loan held at fair value with a principal balance of $5.5 million, which bears a fixed rate. On an aggregate basis, our total loan portfolio is comprised of 62.1% and 37.9% floating rate loans and fixed rate loans, respectively.

71

[[GREPCENT_TABLE]]
[["","As of December 31, 2023"],["","","Total Principal","","","Original Issue Discount","","","Carrying Value","","","Percentage of loans held for investment"],["Fixed-rate loans","","$","69,366,367","","","$","(244,753",")","","$","69,121,614","","","","19.5","%"],["Floating-rate loans","","","286,378,938","","","","(1,859,942",")","","","284,518,996","","","","80.5","%"],["Total","","$","355,745,305","","","$","(2,104,695",")","","$","353,640,610","","","","100.0","%"]]
[[/GREPCENT_TABLE]]

The table below summarizes our portfolio as of December 31, 2024:

[[GREPCENT_TABLE]]
[["Loan (1)","","Location(s)","","Initial Funding Date (1)","Maturity Date (2)","Principal Balance","","","Original Issue Discount","","","Carrying Value","","","Percentage of Our Loan Portfolio","","","Future Fundings","","","Interest Rate (3)","Periodic Payment (4)","","YTM IRR (5)"],["1","","Various","","10/27/2022","10/30/2026","$","19,324,557","","","$","(314,110",")","","$","19,010,447","","","","4.7","%","","","-","","","P+6.5% Cash (8)","P&I","","17.1%"],["2","","Michigan","","12/31/2021","12/31/2025","","27,110,506","","","","-","","","","27,110,506","","","","6.7","%","","","-","","","P+3% Cash (13)(20)","I/O","","17.3%"],["3","","Various","","11/18/2021","1/29/2027","","21,248,176","","","","(523,689",")","","","20,724,487","","","","5.1","%","","","-","","","P+10.375% Cash, 2.75% PIK (11)(14)(15)","I/O","","22.2%"],["4","","Arizona","","4/19/2021","6/17/2026","","6,626,809","","","","-","","","","6,626,809","","","","1.6","%","","","-","","","11.91% Cash","I/O","","17.0%"],["5","","Massachusetts","","4/19/2021","4/30/2025","","2,564,180","","","","-","","","","2,564,180","","","","0.6","%","","","-","","","P+12.25% Cash (6)","P&I","","22.6%"],["6","","Michigan","","8/20/2021","1/30/2026","","4,958,123","","","","-","","","","4,958,123","","","","1.2","%","","","-","","","P+6.5% Cash (13)","I/O","","17.2%"],["7","","Illinois, Arizona","","8/24/2021","6/30/2025","","24,293,793","","","","(54,413",")","","","24,239,380","","","","6.0","%","","","-","","","P+6% Cash, 2% PIK (9)","P&I","","19.3%"],["8","","West Virginia","","9/1/2021","12/31/2025","","8,491,943","","","","-","","","","8,491,943","","","","2.1","%","","","-","","","10% Cash","I/O","","15.0%"],["9","","Pennsylvania","","9/3/2021","6/30/2024","","16,402,488","","","","-","","","","16,402,488","","","","4.1","%","","","-","","","P+20.75% Cash(6)(16)","P&I","","17.5%"],["12","","Various","","11/8/2021","10/31/2027","","11,159,358","","","","(35,634",")","","","11,123,724","","","","2.8","%","","","-","","","P+7% Cash, 2% PIK (10)","I/O","","19.3%"],["16","","Florida","","12/30/2021","8/29/2025","","6,557,500","","","","(25,236",")","","","6,532,264","","","","1.6","%","","","-","","","16.75% Cash","I/O","","31.2%"],["18","","Ohio","","2/3/2022","12/31/2025","","45,024,611","","","","(433,918",")","","","44,590,693","","","","11.1","%","","","-","","","P+1.75% Cash, 5% PIK (9)(17)","I/O","","16.1%"],["19","","Florida","","3/11/2022","12/31/2025","","18,892,211","","","","(23,850",")","","","18,868,361","","","","4.7","%","","","-","","","11% Cash, 5% PIK","P&I","","16.5%"],["20","","Missouri","","5/9/2022","11/28/2025","","22,243,402","","","","(65,969",")","","","22,177,433","","","","5.5","%","","","-","","","11% Cash, 2% PIK","P&I","","14.7%"],["21","","Illinois","","7/1/2022","7/29/2026","","6,583,891","","","","(34,755",")","","","6,549,136","","","","1.6","%","","","-","","","P+7% Cash, 2% PIK (9)","P&I","","23.3%"],["23","","Arizona","","3/27/2023","3/31/2026","","1,620,000","","","","(20,682",")","","","1,599,318","","","","0.4","%","","","-","","","P+7.5% Cash (12)","P&I","","18.7%"],["24","","Oregon","","9/27/2022","9/27/2026","","580,000","","","","-","","","","580,000","","","","0.1","%","","","-","","","P+10.5% Cash (7)","P&I","","21.7%"],["25","","New York","","8/1/2023","6/29/2036","","25,093,595","","","","-","","","","25,093,595","","","","6.2","%","","","-","","","15% Cash","P&I","","16.6%"],["27","","Nebraska","","8/15/2023","6/30/2027","","17,400,000","","","","-","","","","17,400,000","","","","4.3","%","","","-","","","P+6.5% Cash (18)","I/O","","15.7%"],["28","","Ohio","","9/13/2023","3/13/2025","","2,466,705","","","","-","","","","2,466,705","","","","0.6","%","","","-","","","15% Cash","I/O","","17.4%"],["29","","Illinois","","10/11/2023","10/9/2026","","1,943,217","","","","-","","","","1,943,217","","","","0.5","%","","","-","","","11.4% Cash, 1.5% PIK","P&I","","14.7%"],["30","","Missouri, Arizona","","12/19/2023","12/31/2026","","19,000,000","","","","(139,306",")","","","18,860,694","","","","4.7","%","","","-","","","P+7.75% Cash (13)","P&I","","18.7%"],["31","","California, Illinois","","5/3/2023","5/3/2026","","6,680,000","","","","-","","","","6,680,000","","","","1.7","%","","","-","","","P+8.75% Cash (10)","I/O","","18.3%"],["32","","Nevada","","4/15/2024","8/15/2027","","6,000,000","","","","(27,982",")","","","5,972,018","","","","1.5","%","","","-","","","P+6.5% Cash (12)","I/O","","16.1%"],["33","","Minnesota","","5/20/2024","5/28/2027","","1,116,000","","","","(4,776",")","","","1,111,224","","","","0.3","%","","","-","","","12% Cash (14)","P&I","","12.9%"],["34","","Arizona","","6/17/2024","5/29/2026","","10,000,000","","","","-","","","","10,000,000","","","","2.5","%","","","-","","","11.91% Cash","I/O","","12.8%"],["35","","California","","8/23/2024","8/23/2027","","24,256,045","","","","-","","","","24,256,045","","","","6.0","%","","","-","","","12% Cash, 3% PIK","I/O","","16.3%"],["36","","Illinois","","10/28/2024","1/1/2027","","25,000,000","","","","(114,937",")","","","24,885,063","","","","6.2","%","","","2,000,000","","","P+6.25% Cash (10)","I/O","","15.2%"],["37","","Various","","11/26/2024","11/24/2028","","20,019,444","","","","(390,404",")","","","19,629,040","","","","4.9","%","","","10,000,000","","","12% Cash, 1% PIK (19)","I/O","","15.2%"],["38","","Minnesota","","12/13/2024","12/13/2025","","2,065,000","","","","(34,847",")","","","2,030,153","","","","0.5","%","","","2,935,000","","","10% Cash (19)","I/O","","14.7%"],["","","","","","Total","$","404,721,554","","","$","(2,244,508",")","","$","402,477,046","","","","100","%","","$","14,935,000","","","","Wtd Average","","17.2%"]]
[[/GREPCENT_TABLE]]

(1)
Loan numbering in the table above is maintained from origination for purposes of comparability and may not be sequential due to maturities, payoffs, or refinancings.

(2)
Certain loans are subject to contractual extension options and may be subject to performance based on other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein and certain borrowers may have the right to prepay with or without a contractual prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications.

(3)
"P" = prime rate and depicts floating rate loans that pay interest at the prime rate plus a specific percentage; "PIK" = paid-in-kind interest.

(4)
P&I = principal and interest. I/O = interest only. P&I loans may include interest only periods for a portion of the loan term.

(5)
Estimated YTM, calculated on a weighted average principal basis, 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. Actual results could differ from those estimates and assumptions.

72

(6)
This Loan is subject to a prime rate floor of 3.25%

(7)
This Loan is subject to a prime rate floor of 5.50%

(8)
This Loan is subject to a prime rate floor of 6.25%

(9)
This Loan is subject to a prime rate floor of 7.00%

(10)
This Loan is subject to a prime rate floor of 7.50%

(11)
This Loan is subject to a prime rate floor of 7.75%

(12)
This Loan is subject to a prime rate floor of 8.00%

(13)
This Loan is subject to a prime rate floor of 8.50%

(14)
The borrower of Loan #33 is an affiliate of the borrower of Loan #3, a related party. The aggregate principal balance of these loans is included on the consolidated balance sheet as loans held for investment - related party. See Note 9 of the consolidated financial statements for further details.

(15)
The aggregate principal balance outstanding of Loan #3 is comprised of two tranches. The first tranche has a principal balance of approximately $16.9 million, bears a floating interest rate of prime plus 10.375% cash and 2.75% PIK and has a maturity date of January 29, 2027. The second tranche has a principal balance of approximately $4.4 million, bears an interest rate of 15.00% cash and 2.00% PIK, and a maturity date of May 29, 2026. The statistics presented reflect the weighted average of the rate terms under both tranches for the total aggregate loan principal, however only the maturity date for the first tranche has been presented in the table above.

(16)
As of May 1, 2023, Loan #9 was placed on non-accrual status and remains on non-accrual as of December 31, 2024. Loan #9 is included on the consolidated balance sheet as a loan held for investment – related party (Note 9). This loan had an original maturity date of June 30, 2024 and is included in amounts past due in the tables included in Note 3 to the consolidated financial statements.

(17)
An affiliate under common control holds a controlling equity investment in this portfolio company (Note 9).

(18)
This loan has floating grid pricing based on the Prime Rate plus a spread of 5.00% to 8.75% based on monthly annualized EBITDA performance. As of December 31, 2024, applied interest rate is Prime Rate + 6.50%.

(19)
Loan #37 and Loan #38 bear unused fees on the unfunded commitment of 0.75% and 1.50% per annum, respectively.

(20)
On September 27, 2024, $13.0 million of principal of Loan #2 was reclassified to held for sale, and was subsequently sold to a third party at a price of $13.0 million on September 30, 2024. The remaining balance presented is held for investment as of December 31, 2024.

The following tables summarize our loans held for investment as of December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","","As of December 31, 2024"],["","","Outstanding Principal","","","Original Issue Discount","","","Carrying Value","","","Weighted Average Remaining Life (Years) (1)"],["Senior Term Loans","","$","404,721,554","","","$","(2,244,508",")","","$","402,477,046","","","","2.2"],["Current expected credit loss reserve","","","-","","","","-","","","","(4,346,869",")"],["Total loans held at carrying value, net","","$","404,721,554","","","$","(2,244,508",")","","$","398,130,177"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","As of December 31, 2023"],["","","Outstanding Principal","","","Original Issue Discount","","","Carrying Value","","","Weighted Average Remaining Life (Years) (1)"],["Senior Term Loans","","$","355,745,305","","","$","(2,104,695",")","","$","353,640,610","","","","2.1"],["Current expected credit loss reserve","","","-","","","","-","","","","(4,972,647",")"],["Total loans held at carrying value, net","","$","355,745,305","","","$","(2,104,695",")","","$","348,667,963"]]
[[/GREPCENT_TABLE]]

(1) Weighted average remaining life is calculated on the carrying value of the loans as of December 31, 2024 and 2023, respectively.

73

The following tables present changes in loans held for investment at carrying value as of and for the years ended December 31, 2024 and 2023:

[[GREPCENT_TABLE]]
[["","","Principal","","","Original Issue Discount","","","Current Expected Credit Loss Reserve","","","Carrying Value"],["Balance at December 31, 2023","","$","355,745,305","","","$","(2,104,695",")","","$","(4,972,647",")","","$","348,667,963"],["New fundings","","","161,289,523","","","","(1,836,952",")","","","-","","","","159,452,571"],["Principal repayment of loans","","","(102,461,111",")","","","-","","","","-","","","","(102,461,111",")"],["Accretion of original issue discount","","","-","","","","1,697,139","","","","-","","","","1,697,139"],["Transfer of loan held for investment to loan held for sale","","","(19,000,000",")","","","","","","213,913","","","","(18,786,087",")"],["PIK Interest","","","9,147,837","","","","-","","","","-","","","","9,147,837"],["Decrease in provision for current expected credit losses","","","-","","","","-","","","","411,865","","","","411,865"],["Balance at December 31, 2024","","$","404,721,554","","","$","(2,244,508",")","","$","(4,346,869",")","","$","398,130,177"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Principal","","","Original Issue Discount","","","Current Expected Credit Loss Reserve","","","Carrying Value"],["Balance at December 31, 2022","","$","343,029,334","","","$","(3,755,796",")","","$","(3,940,939",")","","$","335,332,599"],["New fundings","","","93,533,516","","","","(1,332,340",")","","","-","","","","92,201,176"],["Principal repayment of loans","","","(76,876,048",")","","","-","","","","-","","","","(76,876,048",")"],["Accretion of original issue discount","","","-","","","","2,983,441","","","","-","","","","2,983,441"],["Transfer of loan held for investment to loan held for sale","","","(13,399,712",")","","","-","","","","-","","","","(13,399,712",")"],["PIK Interest","","","9,458,215","","","","-","","","","-","","","","9,458,215"],["Increase in provision for current expected credit losses","","","-","","","","-","","","","(1,031,708",")","","","(1,031,708",")"],["Balance at December 31, 2023","","$","355,745,305","","","$","(2,104,695",")","","$","(4,972,647",")","","$","348,667,963"]]
[[/GREPCENT_TABLE]]

We may make modifications to loans, including loans that are in default. Loan terms that may be modified include interest rates, required prepayments, maturity dates, covenants, principal amounts and other loan terms. The terms and conditions of each modification vary based on individual circumstances and will be determined on a case by case basis. Our Manager monitors and evaluates each of our loans held for investment and has maintained regular communications with borrowers regarding potential impacts on our loans.

Non-GAAP Measures and Key Financial Measures and Indicators

As a commercial mortgage real estate investment trust, we believe the key financial measures and indicators for our business are Distributable Earnings, book value per share, and dividends declared per share.

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. Distributable Earnings is a measure that is not prepared in accordance with GAAP. We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period; 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 current expected credit losses and (v) 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 stockholders 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 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 stockholders invest in our common stock, we generally intend to attempt to pay dividends to our stockholders in an amount equal to our net 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.

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Distributable Earnings should not be considered as substitutes 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 income to Distributable Earnings (in thousands, except per share data):

[[GREPCENT_TABLE]]
[["","","Year ended","","","Year ended"],["","","December 31, 2024","","","December 31, 2023"],["Net Income","","$","37,045,403","","","$","38,710,248"],["Adjustments to net income"],["Stock based compensation","","","3,058,674","","","","1,479,736"],["Amortization of debt issuance costs","","","256,998","","","","550,906"],["(Benefit) provision for current expected credit losses","","","(583,298",")","","","940,385"],["Change in unrealized loss (gain) on investments","","","240,604","","","","(75,604",")"],["Distributable Earnings","","$","40,018,381","","","$","41,605,671"],["Basic weighted average shares of common stock outstanding (in shares)","","","19,279,501","","","","18,085,088"],["Basic Distributable Earnings per Weighted Average Share","","$","2.08","","","$","2.30"],["Diluted weighted average shares of common stock outstanding (in shares)","","","19,713,916","","","","18,343,725"],["Diluted Distributable Earnings per Weighted Average Share","","$","2.03","","","$","2.27"]]
[[/GREPCENT_TABLE]]

Book Value Per Share

The book value per share of our common stock as of December 31, 2024 and 2023 was approximately $14.83 and $14.94, respectively.

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 stockholders, and meet other general business needs. We use significant cash to invest in loans, repay principal and interest on our borrowings, make distributions to our stockholders, and fund our operations.

Our primary sources of cash generally consist of unused borrowing capacity under our financing sources, the net proceeds of future offerings of equity or debt securities, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results. On a long-term basis, we expect that our primary sources of financing will be, to the extent available to us, through (a) credit facilities and (b) public and private offerings of our equity and debt securities. We may utilize other sources of financing to the extent available to us. As the cannabis industry continues to evolve and to the extent that additional states legalize cannabis, the demand for capital continues to increase as operators seek to enter and build out new markets. In the short-term, we expect the principal amount of the loans we originate to increase and that we will need to raise additional equity and/or debt financing to increase our liquidity. We expect to achieve this through recycling capital from loan paydowns, repayments, and sales of common stock related to our shelf registration statement.

As of December 31, 2024 and 2023, all of our cash was unrestricted and totaled approximately $26.4 million and $7.9 million, respectively. We believe that our cash on hand, capacity available under our Revolving Loan, and cash flows from operations for the next twelve months will be sufficient to satisfy the operating requirements of our business through at least the next twelve months. The sources of financing for our target investments are described below.

Credit Facilities

Revolving Loan

As of December 31, 2024, the Company's secured revolving credit facility (the “Revolving Loan”) has aggregate commitments of $110.0 million which may be increased to $150.0 million pursuant to its accordion feature. The Revolving Loan bears interest, payable in cash in arrears, at a per annum rate equal to the greater of (1) the Prime Rate plus the applicable margin and (2) 3.25%. The applicable margin is derived from a floating rate grid based upon the ratio of debt to equity of CAL and increases from 0% at a ratio of 0.25 to 1 to 1.25% at a ratio of 1.5 to 1. The Revolving Loan has a maturity date of June 30, 2026.

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The Revolving Loan provides for certain affirmative covenants, including requiring us to deliver financial information and any notices of default, and conducting business in the normal course. Additionally, the Company must comply with certain financial covenants including: (1) maximum capital expenditures of $150,000, (2) maintaining a debt service coverage ratio greater than 1.35 to 1, and (3) maintaining a leverage ratio less than 1.50 to 1. As of December 31, 2024, the Company is in compliance with all financial covenants with respect to the Revolving Loan.

For the year ended December 31, 2024, we had net repayments of $11.0 million against the Revolving Loan. As of December 31, 2024, we had $55.0 million available and $55.0 million outstanding under the Revolving Loan. Refer to Note 8 of the consolidated financial statements for additional information.

Notes Payable

On October 18, 2024 (the "Closing Date"), the Company entered into a Loan Agreement by and among the Company and the various financial institutions party thereto, for an aggregate commitment of $50.0 million in senior unsecured notes (the "Unsecured Notes"). The Unsecured Notes have a contractual four year term maturing on October 18, 2028 and bear a fixed interest rate of 9.00% per annum. The Company may prepay the Unsecured Notes at any time without penalty following the second anniversary of the Closing Date. A prepayment penalty of 3.00% and 2.00% would be due and payable in the event of prepayment prior to the first and second anniversary of the Closing Date, respectively.

The $50.0 million aggregate commitment was advanced on the closing date and proceeds were used to temporarily repay outstanding obligations on the Revolving Loan and for other working capital purposes. The Company incurred debt issuance costs of approximately $0.9 million related to Unsecured Notes, which were capitalized and offset against the outstanding face value of the Unsecured Notes within the line item titled Notes Payable, net on the consolidated balance sheets.

The Unsecured Notes provide for certain affirmative covenants, including requiring us to deliver certain financial information and any notices of default, and conducting business in the normal course. Additionally, the Company must comply with certain financial and non-financial covenants including but not limited to: (1) minimum stockholders' equity of $200.0 million, (2) maximum aggregate indebtedness of $225.0 million, subject to increase from time to time based upon ratable increases in stockholders' equity, and (3) maintenance of a credit rating. As of December 31, 2024, the Company is in compliance with all financial covenants with respect to the Unsecured Notes.

Capital Markets

We may seek to raise further equity capital and issue debt securities in order to fund our future investments in loans. Our Shelf Registration Statement on Form S-3 became effective on January 19, 2023, allowing us to sell, from time to time in one or more offerings, up to $500 million of our securities, including common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of our common stock, preferred stock, or debt securities. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

Registered Direct Offering

On February 15, 2023, the Company completed a registered direct offering of 395,779 shares of common stock at a price of $15.16 per share, raising net proceeds of approximately $6.0 million. The Company sold shares of common stock directly, without the use of underwriters or placement agents, to institutional investors registered pursuant to its effective shelf registration statement.

At-the-Market Offering Program (“ATM” Program”)

On June 20, 2023, the Company entered into an At-the-Market Sales Agreement (the “Sales Agreement”) with BTIG, LLC, Compass Point Research & Trading, LLC and Oppenheimer & Co. Inc. (each a “Sales Agent” and together the “Sales Agents”) under which the Company may, from time to time, offer and sell shares of common stock, having an aggregate offering price of up to $75.0 million. Under the terms of the Sales Agreement, the Company has agreed to pay the Sales Agents a commission of up to 3.0% of the gross proceeds from each sale of common stock sold through the Sales Agents. Sales of common stock, if any, may be made in transactions that are deemed to be “at-the-market” offerings, as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

During the years ended December 31, 2024 and 2023, the Company sold an aggregate of 2,489,290 and 79,862 shares of the Company’s common stock under the Sales Agreement, respectively, which generated which generated proceeds, net of commissions and offering expenses of approximately $38.4 million and $1.2 million, during the comparable periods. The weighted average price for sales of our common stock in connection with the ATM program was $15.90 for the year ended December 31, 2024 and $15.78 for the year ended December 31, 2023.

76

As of December 31, 2024, the shares of common stock sold pursuant to the registered direct offering in February 2023 and under the ATM Program are the only offerings that have been initiated under the Shelf Registration Statement.

Cash Flows

The following table sets forth changes in cash and cash equivalents for the years ended December 31, 2024 and 2023, respectively:

[[GREPCENT_TABLE]]
[["","","For the year ended December 31,"],["","","2024","","","2023"],["Net income","","$","37,045,403","","","$","38,710,248"],["Adjustments to reconcile net income to net cash used in operating activities and changes in operating assets and liabilities","","","(13,886,027",")","","","(10,293,789",")"],["Net cash provided by operating activities","","","23,159,376","","","","28,416,459"],["Net cash used in investing activities","","","(39,296,863",")","","","(1,925,416",")"],["Net cash provided by/(used in) financing activities","","","34,639,895","","","","(24,308,830",")"],["Change in cash and cash equivalents","","","18,502,408","","","","2,182,213"]]
[[/GREPCENT_TABLE]]

Net Cash Provided by Operating Activities

For the years ended December 31, 2024 and 2023, we reported “Net cash provided by operating activities” of approximately $23.2 million and $28.4 million, respectively. Net cash provided by operating activities decreased approximately $5.3 million, primarily attributable to a decrease in net income over the comparable period of approximately $1.7 million, a decrease in current expected credit losses of approximately $0.6 million, a decrease in interest receivable of approximately $0.5 million, a decrease in related party receivables of $3.3 million, a decrease in related party payables of 0.7 million, a decrease in redemption of debt securities of $1.6 million and a decrease in management and incentive fees payable of approximately $0.4 million. These changes were offset by a change in the interest reserve of approximately $4.0 million, a decrease in PIK interest of approximately $0.3 million, an increase in stock based compensation of approximately $1.6 million, $0.1 million in unrealized gain relating to the purchase of debt securities at fair value, and $0.1 million in realized gain relating to the purchase of debt securities over the comparable period.

Net Cash Used in Investing Activities

For the years ended December 31, 2024 and 2023, we reported “Net cash used in investing activities” of $39.3 million and $1.9 million, respectively.

For the year ended December 31, 2024, cash outflows primarily related to $160.8 million used for the origination and funding of loans held for investment and loans at fair value, partially offset by $19.0 million of cash received from the sale of loans and $102.5 million of cash received from the principal repayment of loans held for investment.

For the year ended December 31, 2023, cash outflows primarily related to $92.2 million used for the origination and funding of loans held for investment, partially offset by $13.4 million of cash received from the sale of loans and $76.9 million of cash received from the principal repayment of loans held for investment.

Net Cash Provided/(Used in) by Financing Activities

For the years ended December 31, 2024 and 2023, we reported “Net cash provided by/(used in) financing activities” of $34.6 million and $(24.3) million, respectively.

For the year ended December 31, 2024, cash inflows of approximately $39.6 million related to proceeds received from sales of our common stock through the ATM offering. Additionally, we had cash inflows related to draw downs on our Revolving Loan of $159.0 million, and inflows related to proceeds from notes payable of $50.0 million, which were offset by approximately $170.0 million in repayments on our Revolving Loan, approximately $41.6 million in dividends paid, approximately $1.1 million in debt issuance costs paid, and approximately $1.2 million in offering costs paid associated with the ATM offering.

For the year ended December 31, 2023, cash inflows of approximately $7.2 million related to proceeds received from sales of our common stock through the registered direct offering and ATM offering of $6.0 million and $1.2 million, respectively. Additionally, we had cash inflows related to draw downs on our Revolving Loan of $82.0 million, which were offset by $74.0 million in repayments on our Revolving Loan, approximately $39.1 million in dividends paid, approximately $0.1 million in debt issuance costs paid, and approximately $0.3 million in offering costs paid associated with the registered direct offering and ATM offering.

Leverage Policies

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Although we are not required to maintain any particular leverage ratio, we expect to employ prudent amounts of leverage and, when appropriate, to use debt as a means of providing additional funds for the acquisition of loans, to refinance existing debt or for general corporate purposes. Leverage is primarily used to provide capital for forward commitments until additional equity is raised or additional medium- to long-term financing is arranged. This policy is subject to change by management and our Board.

Dividends

We have elected to be taxed as a REIT for United States federal income tax purposes and, as such, anticipate annually distributing to our stockholders at least 90% of our REIT taxable income, prior to the deduction for dividends paid and 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 Required Distribution to our stockholders 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 stockholders. 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 stockholders and pay tax at regular corporate rates on the retained net capital gain. The stockholders 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 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.

The following table summarizes the Company’s dividends declared during the years ended December 31, 2024 and 2023.

[[GREPCENT_TABLE]]
[["","","Record Date","","Payment Date","","Common Share Distribution Amount","","","Taxable Ordinary Income","","","Return of Capital","","","Section 199A Dividends"],["Regular cash dividend","","3/28/2024","","4/15/2024","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","6/28/2024","","7/15/2024","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","9/30/2024","","10/15/2024","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","12/31/2024","","1/13/2025","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Special cash dividend","","12/31/2024","","1/13/2025","","$","0.18","","","$","0.18","","","$","-","","","$","0.18"],["Total cash dividend","","","","","","$","2.06","","","$","2.06","","","","-","","","$","2.06"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Record Date","","Payment Date","","Common Share Distribution Amount","","","Taxable Ordinary Income","","","Return of Capital","","","Section 199A Dividends"],["Regular cash dividend","","3/31/2023","","4/14/2023","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","6/30/2023","","7/14/2023","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","9/29/2023","","10/13/2023","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Regular cash dividend","","12/29/2023","","1/12/2024","","$","0.47","","","$","0.47","","","$","-","","","$","0.47"],["Special cash dividend","","12/29/2023","","1/12/2024","","$","0.29","","","$","0.29","","","$","-","","","$","0.29"],["Total cash dividend","","","","","","$","2.17","","","$","2.17","","","$","-","","","$","2.17"]]
[[/GREPCENT_TABLE]]

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP which requires the use of estimates and assumptions that involve the exercise of judgment as to future uncertainties. The following discussion addresses the accounting estimates that we believe apply to us based on the nature of our operations. Our most critical accounting estimates involve a significant level of estimation

78

uncertainty that have had or are reasonably likely to have a material impact on our financial conditions and results of operations. We believe that all of the decisions and assessments used to prepare our consolidated financial statements are based upon reasonable assumptions given the information available to us at that time. Our critical accounting estimates will be expanded over time as we fully implement our strategy. Those accounting estimates that we believe are most critical to an investor’s understanding of our financial results and condition and require complex management judgment are discussed below.

CECL Reserve

We record a current expected credit loss reserve ("CECL Reserve") for our loans held for investment. The CECL Reserve is deducted from the gross carrying amount of the assets to present the net carrying value of the amounts expected to be collected on such assets. The Company estimates its CECL Reserve using among other inputs, third-party valuations, and a third-party probability-weighted model that considers the likelihood of default and expected loss given default for each individual loan based on the risk profile for approximately three years after which we immediately revert to use of historical loss data.

We consider historical loss experience, current conditions, and a reasonable and supportable forecast of the macroeconomic environment. We consider multiple datapoints and methodologies that may include likelihood of default and expected loss given default for each individual loans, valuations derived from discounted cash flows (“DCF”), and other inputs including the risk rating of the loan, how recently the loan was originated compared to the measurement date, and expected prepayment, if applicable. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, and off-balance sheet credit exposures such as unfunded loan commitments.

We evaluate our loans on a collective (pool) basis by aggregating on the basis of similar risk characteristics as explained above. We make the judgment that loans to cannabis-related borrowers that are fully collateralized by real estate exhibit similar risk characteristics and are evaluated as a pool. Further, loans that have no real estate collateral, but are secured by other forms of collateral, including equity pledges of the borrower, and otherwise have similar characteristics as those collateralized by real estate are evaluated as a pool. All other loans are analyzed individually, either because they operate in a different industry, may have a different risk profile, or have maturities that extend beyond the forecast horizon for which we are able to derive reasonable and supportable forecasts.

Estimating the CECL Reserve also requires significant judgment with respect to various factors, including (i) the appropriate historical loan loss reference data, (ii) the expected timing of loan repayments, (iii) calibration of the likelihood of default to reflect the risk characteristics of our loan portfolio, and (iv) our current and future view of the macroeconomic environment. From time to time, we may consider loan-specific qualitative factors on certain loans to estimate our CECL Reserve, which may include (i) whether cash from the borrower’s operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan and (iii) the liquidation value of collateral. For loans where we have deemed the borrower/sponsor to be experiencing financial difficulty, we may elect to apply a practical expedient, in which the fair value of the underlying collateral is compared to the amortized cost of the loan in determining a CECL Reserve.

To estimate the historic loan losses relevant to the Company’s portfolio, the Company evaluates its historical loan performance, which includes zero realized loan losses since the inception of its operations. Additionally, the Company analyzed its repayment history, noting it has limited portfolio turnover from the date of our initial public offering. However, the Company’s Sponsor and its affiliates have had operations for the past three fiscal periods and have made investments in similar loans that have similar characteristics including interest rate, collateral coverage, guarantees, and prepayment/make whole provisions, which fall into the pools identified above. Given the similarity of the structuring of the credit agreements for the loans in the Company’s portfolio to the loans originated by its Sponsor, management considered it appropriate to consider the past repayment history of loans originated by the Sponsor and its affiliates in determining the extent to which a CECL Reserve shall be recorded.

In addition, the Company reviews each loan on a quarterly basis and evaluates the borrower’s ability to pay the monthly interest and principal, if required, as well as the loan-to-value (LTV) ratio. When evaluating qualitative factors that may indicate the need for a CECL Reserve, the Company forecasts losses considering a variety of factors. In considering the potential current expected credit loss, the Manager primarily considers significant inputs to the Company’s forecasting methods, which include (i) key loan-specific inputs such as the value of the real estate collateral, liens on equity (including the equity in the entity that holds the state-issued license to cultivate, process, distribute, or retail cannabis), presence of personal or corporate guarantees, among other credit enhancements, LTV ratio, rate type (fixed or floating) and IRR, loan-term, geographic location, and expected timing and amount of future loan fundings, (ii) performance against the underwritten business plan and the Company’s internal loan risk rating, and (iii) a macro-economic forecast. Estimating the enterprise value of our borrowers in order to calculate LTV ratios is often a significant estimate. The Manager utilizes a third-party valuation appraiser to assist with the Company’s valuation process primarily using comparable transactions to estimate enterprise value of its portfolio companies and supplement such analysis with a multiple-based approach to enterprise value to revenue multiples of publicly-traded comparable companies obtained from Bloomberg and S&P Capital IQ as of December 31, 2024, to which the Manager may apply a private company discount based on the Company’s current borrower profile. These estimates may change in

79

future periods based on available future macro-economic data and might result in a material change in the Company’s future estimates of expected credit losses for its loan portfolio.

Regarding real estate collateral, we generally cannot take the position of mortgagee-in-possession as long as the property is used by a cannabis operator, but we can request that the court appoint a receiver to manage and operate the subject real property until the foreclosure proceedings are completed. Additionally, while we cannot foreclose under state Uniform Commercial Code (“UCC”) and take title or sell equity in a licensed cannabis business, a potential purchaser of a delinquent or defaulted loan could.

In order to estimate the future expected loan losses relevant to our portfolio, we utilize historical market loan loss data obtained from a third-party database for commercial real estate loans, which we believe is a reasonably comparable and available data set to use as an input for our type of loans. We expect this dataset to be representative for future credit losses whilst considering that the cannabis industry is maturing, and consumer adoption, demand for production, and retail capacity are increasing akin to commercial real estate over time. For periods beyond the reasonable and supportable forecast period, we revert back to historical loss data.

All of the above assumptions, although made with the most available information at the time of the estimate, are subjective and actual activity may not follow the estimated schedule. These assumptions impact the future balances that the loss rate will be applied to and as such impact our CECL Reserve. As we acquire new loans and our Manager monitors loan and borrower performance, these estimates will be revised each period.

Risk Ratings

We assess the risk factors of each loan, and assign a risk rating based on a variety of factors, including, without limitation, payment history, real estate collateral coverage, property type, geographic and local market dynamics, financial performance, enterprise value of the portfolio company, loan structure and exit strategy, and project sponsorship. This review is performed quarterly. Based on a 5-point scale, our loans are rated “1” through “5,” from less risk to greater risk, which ratings are defined as follows:

[[GREPCENT_TABLE]]
[["Rating","","Definition"],["1","","Very low risk"],["2","","Low risk"],["3","","Moderate/average risk"],["4","","High risk/potential for loss: a loan that has a risk of realizing a principal loss"],["5","","Impaired/loss likely: a loan that has a high risk of realizing principal loss, has incurred principal loss or an impairment has been recorded"]]
[[/GREPCENT_TABLE]]

The risk ratings are primarily determined based on current and historical performance metrics specific to each portfolio company, as well as consideration of future economic conditions and each borrower’s estimated ability to meet debt service requirements. The risk ratings shown in the following table as of December 31, 2024 and 2023 consider borrower specific credit history and performance and reflect a quarterly re-evaluation of overall current macroeconomic conditions affecting the Company’s borrowers, specifically those designated as held for investment.

As of December 31, 2024 and 2023, the carrying value, excluding the CECL Reserve, of the Company’s loans within each risk rating by year of origination is as follows:

[[GREPCENT_TABLE]]
[["","","As of December 31, 2024(1)"],["Risk Rating","","2024","","","2023","","","2022","","","2021","","","Total"],["1","","$","1,111,224","","","$","580,000","","","$","41,045,793","","","$","-","","","$","42,737,017"],["2","","","63,823,279","","","","64,896,824","","","","90,874,764","","","","24,239,380","","","","243,834,247"],["3","","","34,653,247","","","","2,466,705","","","","27,110,506","","","","13,687,904","","","","77,918,362"],["4","","","10,000,000","","","","-","","","","-","","","","27,987,420","","","","37,987,420"],["5","","","-","","","","-","","","","-","","","","-","","","","-"],["Total","","$","109,587,750","","","$","67,943,529","","","$","159,031,063","","","$","65,914,704","","","$","402,477,046"]]
[[/GREPCENT_TABLE]]

80

[[GREPCENT_TABLE]]
[["","","As of December 31, 2023(1)"],["Risk Rating","","2024","","","2023","","","2022","","","2021","","","Total"],["1","","$","-","","","$","820,000","","","$","37,644,911","","","$","-","","","$","38,464,911"],["2","","","-","","","","51,320,161","","","","107,007,422","","","","46,792,941","","","","205,120,524"],["3","","","-","","","","2,466,705","","","","5,296,308","","","","58,829,717","","","","66,592,730"],["4","","","-","","","","-","","","","-","","","","43,462,445","","","","43,462,445"],["5","","","-","","","","-","","","","-","","","","-","","","","-"],["Total","","$","-","","","$","54,606,866","","","$","149,948,641","","","$","149,085,103","","","$","353,640,610"]]
[[/GREPCENT_TABLE]]

(1)
Amounts are presented by loan origination year with subsequent advances shown in the original year of origination.

Credit Risk

We are subject to varying degrees of credit risk in connection with our loans and interest receivable. Our Manager seeks to mitigate this risk by seeking to originate loans, and may in the future acquire loans, of higher quality at appropriate prices given anticipated and unanticipated losses, by employing a comprehensive review and selection process and by proactively monitoring originated and acquired loans. Nevertheless, unanticipated credit losses could occur that could adversely impact our operating results. None of our borrowers are now, or have previously been in payment or otherwise material default under their respective loan agreements with us.

We expect to be subject to varying degrees of credit risk in connection with holding our portfolio of loans. We will have exposure to credit risk on our commercial real estate loans and other targeted types of loans. Our Manager will seek to manage credit risk by performing deep credit fundamental analysis of potential assets and through the use of non-recourse financing, when and where available and appropriate.

Credit risk will also be addressed through our Manager’s on-going review, and loans will be monitored for variance from expected prepayments, defaults, severities, losses and cash flow on a quarterly basis.

Our Manager or affiliates of our Manager have originated all of our loans and intend to continue to originate our loans, but we may in the future also acquire loans from time to time. Our Investment Guidelines are not subject to any limits or proportions with respect to the mix of target investments that we make or that we may in the future acquire other than as necessary to maintain our exemption from registration under the Investment Company Act and our qualification as a REIT. Our investment decisions will depend on prevailing market conditions and may change over time in response to opportunities available in different interest rate, economic and credit environments. As a result, we cannot predict the percentage of our capital that will be invested in any individual target investment at any given time.

Our portfolio of loans held for investment as of December 31, 2024 and 2023 was concentrated with the top three borrowers representing approximately 24.0% and 28.7% of the funded principal and approximately 21.6% and 26.4% of the total commitments to borrowers, respectively.

As of December 31, 2024 and 2023, the top three borrowers represented approximately 21.2% and 28.4% of interest income, respectively. The largest loan represented approximately 11.1% and 10.9% of the funded principal and approximately 9.9% and 9.7% of the total commitments as of December 31, 2024 and 2023, respectively.

As of December 31, 2024 and 2023, our borrowers have operations in the jurisdictions in the table below:

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[[GREPCENT_TABLE]]
[["As of December 31, 2024","","","As of December 31, 2023"],["Jurisdiction","","Outstanding Principal (1)","","","Percentage of Our Loan Portfolio","","","Jurisdiction","","Outstanding Principal (1)","","","Percentage of Our Loan Portfolio"],["Ohio","","$","60,065,707","","","","15","%","","Ohio","","$","27,902,362","","","","8","%"],["Illinois","","","55,958,079","","","","14","%","","Illinois","","","25,599,133","","","","7","%"],["Florida","","","42,712,285","","","","11","%","","Florida","","","48,815,066","","","","14","%"],["Missouri","","","38,208,259","","","","9","%","","Missouri","","","25,191,575","","","","7","%"],["Pennsylvania","","","35,727,045","","","","9","%","","Pennsylvania","","","21,674,160","","","","6","%"],["Michigan","","","32,068,629","","","","8","%","","Michigan","","","56,466,635","","","","16","%"],["Arizona","","","28,023,340","","","","7","%","","Arizona","","","24,466,609","","","","7","%"],["California","","","26,057,479","","","","6","%","","California","","","\u2014","","","","-","%"],["New York","","","25,093,595","","","","6","%","","New York","","","22,611,938","","","","6","%"],["Maryland","","","21,835,901","","","","5","%","","Maryland","","","53,907,352","","","","15","%"],["Nebraska","","","17,400,000","","","","4","%","","Nebraska","","","13,061,667","","","","4","%"],["West Virginia","","","8,491,943","","","","2","%","","West Virginia","","","11,706,059","","","","3","%"],["Nevada","","","6,000,000","","","","1","%","","Nevada","","","5,764,439","","","","2","%"],["Texas","","","2,756,870","","","","1","%","","Texas","","","\u2014","","","","-","%"],["Massachusetts","","","2,626,423","","","","1","%","","Massachusetts","","","12,308,310","","","","3","%"],["Minnesota","","","1,116,000","","","","0","%","","Minnesota","","","\u2014","","","","-","%"],["Oregon","","","580,000","","","","0","%","","Oregon","","","820,000","","","","0","%"],["Connecticut","","","\u2014","","","","-","%","","Connecticut","","","5,450,000","","","","2","%"],["Total","","$","404,721,554","","","","100","%","","Total","","$","355,745,305","","","","100","%"]]
[[/GREPCENT_TABLE]]

(1) The principal balance of the loans not secured by real estate collateral are included in the jurisdiction representing the principal place of business.

Refer to footnote 3 to our consolidated financial statements for the year ended December 31, 2024 titled “Loans Held for Investment, net” for more information on CECL.

Recent Accounting Pronouncements

Refer to footnote 2 to our consolidated financial statements for the year ended December 31, 2024, titled “Significant Accounting Policies” for information on recent accounting pronouncements.

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