ACRES Commercial Realty Corp. (ACR)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References in this quarterly report to "we," "us" or the "Company" refer to ACRES Commercial Realty Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Special Note Regarding Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "continue," "expect," "intend," "anticipate," "estimate," "believe," "look forward" or other similar words or terms. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include:

• changes in our industry, interest rates, the debt securities markets, real estate markets or the general economy;

• increased rates of default and/or decreased recovery rates on our investments;

• the performance and financial condition of our borrowers;

• our ability to consummate the proposed Merger (as defined below) and achieve the expected cost savings or other benefits therefrom;

•if we fail to consummate the proposed Merger, our dependence on our Manager and ability to find a suitable replacement in a timely manner, or at all, if our Manager or we were to terminate the management agreement;

• the cost and availability of our financings, which depend in part on our asset quality, the nature of our relationships with our lenders and other capital providers, our business prospects and outlook and general market conditions;

• the availability and attractiveness of terms of additional debt repurchases;

• availability, terms and deployment of short-term and long-term capital;

• events giving rise to increases in our current expected credit loss reserve, including the impact of the current economic environment;

• availability of, and ability to retain, qualified personnel;

• changes in our business strategy;

• the degree and nature of our competition;

• the resolution of our non-performing and sub-performing assets;

• our ability to comply with financial covenants in our debt instruments;

• the adequacy of our cash reserves and working capital;

• the timing of cash flows, if any, from our investments;

• unanticipated increases in financial and other costs, including a rise in interest rates;

• our ability to maintain compliance with over-collateralization and interest coverage tests in our collateralized loan obligations (“CLOs”);

• environmental and/or safety requirements;

• our ability to satisfy complex rules in order for us to qualify as a real estate investment trust (“REIT”), for federal income tax purposes and qualify for our exemption under the Investment Company Act of 1940, as amended, and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules;

• legislative and regulatory changes (including changes to laws governing the taxation of REITs or the exemptions from registration as an investment company); and

• the factors described in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, including those set forth under the sections captioned “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” as applicable.

We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

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Overview

We are a Maryland corporation and an externally-managed real estate investment trust ("REIT") that is primarily focused on originating, holding and managing commercial real estate ("CRE") mortgage loans and equity investments in commercial real estate properties through direct ownership and joint ventures. Our manager is ACRES Capital, LLC (our "Manager"), a subsidiary of ACRES Capital Corp. ("ACC," and collectively with our Manager, "ACRES"), a private commercial real estate lender exclusively dedicated to nationwide middle market CRE lending with a focus on multifamily, student housing, hospitality, office and industrial properties in top United States ("U.S.") markets. Our Manager draws upon the management team of ACRES and its collective investment experience to provide its services. Our longer-term objective is to provide our stockholders with total returns over time, including quarterly distributions and capital appreciation, while seeking to manage the risks associated with our investment strategies, as well as to maximize long-term stockholder value by maintaining stability through our available liquidity and diversified CRE loan portfolio.

Currently, markets are grappling with trade tensions, geopolitical tensions, the risk of increased tariffs, inflation and labor volatility. These market pressures have caused continued disruption in many market segments, including the financial services, real estate and credit markets and these disruptions have affected the availability and the cost of capital. The increase in the cost of capital is expected to cause dislocations in various investment and financing markets in which we participate as we and other market participants adjust to the new financing environment.

Since September 2024, the U.S. Federal Reserve lowered the Federal Funds rate by 1.75% in six rate cuts reaching its lowest levels since 2022. Lowering rates and decreasing costs may encourage consumer spending and accelerate corporate profit growth, which may positively impact the credit profile of the collateral underlying our loans and positively impact our borrowers' ability to sell or refinance in the current market; however, lower rates would also correlate to decreases in our net income. There is also no certainty with respect to the direction, timing, or pace of change for future interest rates.

The multifamily real estate market continues to be a competitive market, and as a result of investors' continued confidence in that asset class, the market for those assets continues to experience spread compression on newly originated deals. Furthermore, the office property market continues to experience high vacancies, slower leasing activity and current tenants reevaluating their needs for physical office space due to remote-work trends across the country. These factors, coupled with inflation, higher interest rates and dislocations in market liquidity, have converged to create higher levels of uncertainty surrounding property values, which in turn, also negatively impact borrowers' ability and willingness to financially support and standby their investments in their office properties, their abilities to sell or refinance their positions in the current market and ultimately our financial results.

In response, we continue to manage corporate liquidity actively and responsibly, manage our CRE assets through a solutions-based approach with our borrowers and manage our daily operations in light of changing macroeconomic circumstances. Our Manager also continuously monitors for new capital opportunities and selectively executes on agreements that are expected to enhance our returns.

As previously reported, on April 29, 2026, we entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which we will acquire ACC in an all-stock transaction (the “Merger”). As a result of the Merger, among other things, we will acquire our Manager, and transition from an externally-managed REIT to an internally-managed REIT (the “Internalization”).

We originate transitional floating-rate CRE loans with a target size between $10.0 million and $100.0 million. During the three months ended March 31, 2026, we originated nine new CRE floating-rate whole loans, purchased one new CRE floating-rate whole loan and purchased a participation in an existing CRE floating-rate whole loan, with total commitments of $495.6 million and funded $13.6 million of loan commitments. These increases were offset by loan payoffs and sales during the three months ended March 31, 2026 in the amount of $110.6 million and unfunded commitments of $24.2 million, producing a net increase to the portfolio of $374.4 million. During the year ended December 31, 2025, we originated 14 new CRE floating-rate whole loans, with total commitments of $733.0 million, one new $15.0 million CRE mezzanine loan, one new $9.3 million CRE preferred equity investment and net funded commitments of $3.1 million. Loan payoffs and sales during the year ended December 31, 2025 were $418.9 million, producing a net increase to the portfolio of $341.5 million.

Our CRE loan portfolio, which had carrying values of $2.2 billion and $1.8 billion at March 31, 2026 and December 31, 2025, respectively, comprised:

•
First mortgage loans, which we refer to as whole loans. These loans are typically secured by first liens on CRE property, including the following property types: multifamily, student housing, hospitality, office, self-storage, mixed-use and retail. All but four of our CRE whole loans were current on contractual payments at March 31, 2026.

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•
Mezzanine debt that is senior to borrower’s equity but is subordinated to other third-party debt. These loans are subordinated CRE loans, usually secured by a pledge of the borrower’s equity ownership in the entity that owns the property or by a second lien mortgage on the property. At both March 31, 2026 and December 31, 2025, no individual mezzanine loans were included in CRE loans held for investment on our consolidated balance sheet.

•
Preferred equity investments that are subordinate to first mortgage loans and mezzanine debt. These investments may be subject to more credit risk than subordinated debt but provide the potential for higher returns upon a liquidation of the underlying property and are typically structured to provide some credit enhancement differentiating it from the common equity in such investments. At March 31, 2026 and December 31, 2025, we had one preferred equity investment included in CRE loans held for investment with a carrying value of $9.5 million and $9.2 million, respectively. We also hold the first mortgage CRE whole loan on the underlying collateral for this investment.

We generate our income primarily from the spread between the revenues we receive from our assets and the cost to finance our ownership of those assets, including corporate debt.

While the CRE whole loans included in the CRE loan portfolio are substantially composed of floating-rate loans benchmarked to the one-month Term Secured Overnight Financing Rate ("Term SOFR"), asset yields are protected through the use of benchmark floors and minimum interest periods t

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included in “Item 8. Financial Statements and Supplementary Data” of this annual report on Form 10-K.

We have omitted discussion of the earliest of the three years covered by our consolidated financial statements presented in this report as that disclosure is included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission ("SEC") on March 17, 2025. You are encouraged to reference the discussion and analysis of our results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2024 in "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" within that report.

Overview

We are a Maryland corporation and an externally-managed real estate investment trust ("REIT") that is primarily focused on originating, holding and managing commercial real estate ("CRE") mortgage loans and equity investments in commercial real estate properties through direct ownership and joint ventures. Our manager is ACRES Capital, LLC (our "Manager"), a subsidiary of ACRES Capital Corp. (collectively, "ACRES"), a private commercial real estate lender exclusively dedicated to nationwide middle market CRE lending with a focus on multifamily, student housing, hospitality, office and industrial properties in top United States ("U.S.") markets. Our Manager draws upon the management team of ACRES and its collective investment experience to provide its services. Our longer-term objective is to provide our stockholders with total returns over time, including quarterly distributions and capital appreciation, while seeking to manage the risks associated with our investment strategies, as well as to maximize long-term stockholder value by maintaining stability through our available liquidity and diversified CRE loan portfolio.

Currently, markets are grappling with trade tensions, geopolitical tensions, the risk of increased tariffs, inflation and labor volatility. These market pressures have caused continued disruption in many market segments, including the financial services, real estate and credit markets and these disruptions have affected the availability and the cost of capital. The increase in the cost of capital is expected to cause dislocations in various investment and financing markets in which we participate as we and other market participants adjust to the new financing environment.

Since September 2024, the U.S. Federal Reserve lowered the Federal Funds rate by 1.75% in six rate cuts reaching its lowest levels since 2022. Lowering rates and decreasing costs may encourage consumer spending and accelerate corporate profit growth, which may positively impact the credit profile of the collateral underlying our loans and positively impact our borrowers' ability to sell or refinance in the current market; however, lower rates would also correlate to decreases in our net income. There is also no certainty with respect to the timing and pace of potential future decreases or if such decreases will continue to occur.

The multifamily real estate market continues to be a competitive market, and as a result of investors' continued confidence in that asset class, the market for those assets continues to experience spread compression on newly originated deals. Furthermore, the office property market continues to experience high vacancies, slower leasing activity and current tenants reevaluating their needs for physical office space due to remote-work trends across the country. These factors, coupled with inflation, higher interest rates and dislocations in market liquidity, have converged to create higher levels of uncertainty surrounding property values, which in turn, also negatively impact borrowers' ability and willingness to financially support and standby their investments in their office properties, their abilities to sell or refinance their positions in the current market and ultimately our financial results.

In response, we continue to manage corporate liquidity actively and responsibly, manage our CRE assets through a solutions-based approach with our borrowers and manage our daily operations in light of changing macroeconomic circumstances. Our Manager also continuously monitors for new capital opportunities and selectively executes on agreements that are expected to enhance our returns.

We originate transitional floating-rate CRE loans with a target size between $10.0 million and $100.0 million. During the year ended December 31, 2025, we originated 14 new CRE floating-rate whole loans, with total commitments of $733.0 million, one new $15.0 million CRE mezzanine loan, one new $9.3 million CRE preferred equity investment and net funded commitments of $3.1 million. Loan payoffs and sales during the year ended December 31, 2025 were $418.9 million, producing a net increase to the portfolio of $341.5 million. During the year ended December 31, 2024, we selectively originated one floating-rate CRE loan, with a total commitment of $47.9 million. Loan payoffs during the year ended December 31, 2024 were $377.6 million, along with loan foreclosures of $37.7 million, partially offset by net funded commitments of $5.9 million, producing a net decrease to the portfolio of $361.5 million.

Our CRE loan portfolio, which had carrying values of $1.8 billion and $1.5 billion at December 31, 2025 and 2024, respectively, comprised:

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•
First mortgage loans, which we refer to as whole loans. These loans are typically secured by first liens on CRE property, including the following property types: multifamily, student housing, hospitality, office, self-storage, mixed-use and retail. All but three of our CRE whole loans were current on contractual payments at December 31, 2025.

•
Mezzanine debt that is senior to borrower’s equity but is subordinated to other third-party debt. These loans are subordinated CRE loans, usually secured by a pledge of the borrower’s equity ownership in the entity that owns the property or by a second lien mortgage on the property. At December 31, 2025, no individual mezzanine loans were included in CRE loans held for investment on our consolidated balance sheet. At December 31, 2024, we had one individual mezzanine loan included in CRE loans held for investment on our consolidated balance sheet that had no carrying value.

•
Preferred equity investments that are subordinate to first mortgage loans and mezzanine debt. These investments may be subject to more credit risk than subordinated debt but provide the potential for higher returns upon a liquidation of the underlying property and are typically structured to provide some credit enhancement differentiating it from the common equity in such investments. At December 31, 2025, we had one preferred equity investment included in CRE loans held for investment with a carrying value of $9.2 million. We also hold the first mortgage CRE whole loan on the underlying collateral for this investment. At December 31, 2024, we had no preferred equity investments included in CRE loans held for investment.

We generate our income primarily from the spread between the revenues we receive from our assets and the cost to finance our ownership of those assets, including corporate debt.

While the CRE whole loans included in the CRE loan portfolio are substantially composed of floating-rate loans benchmarked to the one-month Term Secured Overnight Financing Rate ("Term SOFR"), asset yields are protected through the use of benchmark floors and minimum interest periods that typically range from 12 to 18 months at the time of a loan’s origination. Our benchmark floors provide asset yield protection when the benchmark rate falls below an in-place benchmark floor. Our net investment returns are enhanced by a decline in the cost of our floating-rate liabilities that do not have benchmark floors. Our net investment returns will be negatively impacted by the rising cost of our floating-rate liabilities that do not have floors until the benchmark rate is above the benchmark floor, at which point our floating-rate loans and floating-rate liabilities will be match-funded, effectively locking in our net interest margin until the benchmark floor rate is activated again or the floating-rate loan is paid off or refinanced.

In a business environment where benchmark rates are increasing significantly, cash flows of the CRE assets underlying our loans may not be sufficient to pay debt service on our loans, which could result in non-performance or default. We partially mitigate this risk by generally requiring our borrowers to purchase interest rate cap agreements with non-affiliated, well-capitalized third parties and by selectively requiring our borrowers to have and maintain debt service reserves. These interest rate caps generally mature prior to the maturity date of the loan and the borrowers are required to pay to extend them. In certain cases, the sponsors will need to fund additional equity into the properties to cover these costs as the property may not generate sufficient cash flow to pay these costs. At December 31, 2025, 76.5% of the par value of our CRE loan portfolio had interest rate caps or funded debt service reserves in place. Our interest rate caps have a weighted-average maturity of 15 months.

At December 31, 2025, our par-value $1.8 billion floating rate CRE loan portfolio had a weighted average benchmark floor of 1.78%. At December 31, 2024, our par-value $1.5 billion floating rate CRE loan portfolio, which included one whole loan without a benchmark floor, had a weighted average benchmark floor of 0.97%. With the current trend of decreasing benchmark rates, we have seen the coupons on all of our floating-rate assets and debt decrease accordingly. Because we have equity invested in each floating-rate loan, and because in all instances the benchmark interest rates are above our loan floors, the decrease in interest rates resulted in a decrease in our net interest income. See "Interest Rate Risk" in "Item 7A: Quantitative and Qualitative Disclosures About Market Risk."

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Our portfolio comprises loans with a diverse array of collateral types and locations. Multifamily continues to comprise the majority of our portfolio, with 81.9% of our portfolio allocated to multifamily at December 31, 2025 and 77.4% at December 31, 2024. The following charts show our portfolio allocation at carrying value by property type at December 31, 2025 and 2024:

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Our properties are located throughout the U.S., with two and one National Council of Real Estate Investment Fiduciaries (“NCREIF”) regions, the Southwest and Southeast at December 31, 2025 and Southwest at December 31, 2024, in excess of 20% of the total portfolio carrying value. The following charts shows our portfolio allocation by property type at December 31, 2025 and 2024:

From time to time, we may acquire real estate property through direct equity investments or as a result of our lending activities. During the year ended December 31, 2025, we acquired one property via foreclosure valued at $75.8 million that was contributed to a joint venture with an unrelated third-party. During the year ended December 31, 2024, we acquired one property via deed-in-lieu of foreclosure and one property via foreclosure, valued at $20.3 million and $30.9 million, respectively, each of which was immediately contributed to joint ventures with unrelated third-parties. Each of these investments is reported as investments in an unconsolidated entity on our consolidated balance sheet at December 31, 2025.

Additionally, we acquired two properties via foreclosure during the year ended December 31, 2024 that are held as investments in real estate. These properties had values of $17.5 million and $9.4 million, at the time of foreclosure. In December 2024, we sold an office property located in the Northeast region for $20.0 million and generated a net gain on the sale of $7.5 million. During the year

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ended December 31, 2025, we sold two properties consisting of one student housing project in the Southeast region for $106.8 million that generated a net gain of $13.1 million and an office complex located in the Southwest region for $16.5 million that generated a net loss of $1.5 million.

At December 31, 2025, the net carrying value of our net real estate-related assets and liabilities was $123.8 million on six properties owned, three of which are included in investments in real estate and three of which are included in properties held for sale on our consolidated balance sheets.

We use leverage to enhance our returns. The cost of borrowings to finance our investments is a significant part of our expenses. Our net interest income depends on our ability to control these expenses relative to our revenue. Our CRE loans may initially be financed with term facilities, such as CRE loan warehouse financing facilities, in anticipation of their ultimate securitization. We ultimately seek to finance our CRE loans through the use of non-recourse long-term, match-funded CRE debt securitizations.

At December 31, 2025 and 2024, our financing arrangements were as follows (dollars in thousands):

(1)
Represents an asset-specific borrowing.

(2)
Our CRE - term reinvestment financing facility provides for a two-year reinvestment period that allows us to reinvest CRE loan payoffs and principal paydown proceeds into the reinvestment facility and pending certain eligibility criteria are met.

(3)
In March 2025, we exercised the optional redemption on ACR 2021-FL1 and ACR 2021-FL2 in conjunction with the closing of the CRE term reinvestment facility.

We reevaluate our current expected credit losses ("CECL") allowance quarterly, incorporating our current expectations of macroeconomic factors considered in the determination of our CECL reserves. At December 31, 2025, the CECL allowance on our CRE loan portfolio was $20.4 million, or 1.1% of our $1.8 billion loan portfolio. During the year ended December 31, 2025, we recorded a reversal of credit losses primarily driven by net improvements in the modeled credit risk of our loan portfolio as well as loan payoffs. These reversals were offset by a general decline in projected macroeconomic factors. We also recorded a charge-off of $4.7 million for one mezzanine loan that was fully reserved for in 2022.

At December 31, 2024, the CECL allowance on our CRE loan portfolio was $32.8 million, or 2.2% of our $1.5 billion loan portfolio. During the year ended December 31, 2024, we recorded a net provision for credit losses primarily driven by a general worsening of macroeconomic factors over the year as well as an increase in modeled credit risk in our portfolio offset by loan payoffs. We also recorded a charge-off of $700,000 for one CRE whole loan held for sale.

Additionally, the decline in our CECL reserves from our highest reserve balance at June 30, 2020 of $61.1 million, or 3.4% of the par balance of our CRE loan portfolio, to our current reserve balance at December 31, 2025 of $20.4 million, or 1.1% of the par balance of our CRE loan portfolio, has been due to the following: the successful resolution of our individually evaluated loans with specific reserves, the overall newer vintage of our CRE loan portfolio (with only 4.1% of the portfolio, at December 31, 2025, being originated prior to the fourth quarter of 2020) as well as the increased percentage allocation of our CRE loan portfolio to multifamily

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loans over time. Multifamily loans have historically had the lowest credit losses of any asset class, and our percentage allocation of our CRE loan portfolio to multifamily at carrying value has grown from 58.4% at June 30, 2020 to 81.9% at December 31, 2025.

Common stock book value was $30.01 per share at December 31, 2025, an increase of $1.14 per share or 4% from December 31, 2024.

Results of Operations

Our net income allocable to common shares for the year ended December 31, 2025 was $239,000, or $0.03 per share-basic ($0.03 per share-diluted), as compared to net income allocable to common shares of $9.1 million, or $1.19 per share-basic ($1.15 per share-diluted), for the year ended December 31, 2024.

Net Interest Income

The following table analyzes the change in interest income and interest expense for the comparative years ended December 31, 2025 and 2024 by changes in volume and changes in rates. The changes attributable to the combined changes in volume and rate have been allocated proportionately, based on absolute values, to the changes due to volume and changes due to rates (dollars in thousands, except amounts in footnotes):

(1)
Percent change is calculated as the net change divided by the respective interest income or interest expense for the year ended December 31, 2024.

(2)
Includes a decrease in fee income of $2.4 million recognized on our CRE whole loans that was due to changes in volume.

(3)
Net change pertains to amortization expense and is reflected in the change in volume.

Net Change in Interest Income for the Comparative Years Ended December 31, 2025 and 2024:

Aggregate interest income decreased by $38.1 million for the comparative years ended December 31, 2025 and 2024. We attribute the change to the following:

CRE whole loans. The decrease of $38.7 million for the comparative years ended December 31, 2025 and 2024 was primarily attributable to a decrease in (i) the daily average par value of our CRE portfolio resulting from loan payoffs and foreclosures and (ii) the benchmark rate over the comparative periods.

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CRE mezzanine loans. The increase of $1.7 million for the comparative years ended December 31, 2025 and 2024 was primarily attributable to the origination of a mezzanine loan in March 2025.

CRE preferred equity loan. The increase of $249,000 for the comparative years ended December 31, 2025 and 2024 was primarily attributable to the origination of a preferred equity loan in September 2025.

Other. The decrease of $1.4 million for the comparative years ended December 31, 2025 and 2024 was primarily attributable to a decrease in (i) restricted cash in our CRE securitizations and (ii) yields on our interest earning money market accounts.

Net Change in Interest Expense for the Comparative Years Ended December 31, 2025 and 2024:

Aggregate interest expense decreased by $30.2 million for the comparative years ended December 31, 2025 and 2024. We attribute the change to the following:

Securitized borrowings. The net decrease of $66.1 million for the comparative years ended December 31, 2025 and 2024 was primarily attributable to the redemptions of our ACR 2021-FL1 and ACR 2021-FL2 securitizations and a decrease in the benchmark rate over the comparative periods.

Senior secured financing facility. The decrease of $651,000 for the comparative years ended December 31, 2025 and 2024 was primarily attributable to a decrease in the benchmark rate over the comparative periods.

CRE - term warehouse financing facilities. The decrease of $3.9 million for the comparative years ended December 31, 2025 and 2024 was primarily attributable to a decrease in the benchmark rate over the comparative periods and paydowns on our borrowings.

CRE - term reinvestment financing facility. The increase of $40.9 million for the comparative years ended December 31, 2025 and 2024 was primarily attributable to the formation of our new CRE term reinvestment financing facility.

Unsecured junior subordinated debentures. The decrease of $499,000 for the comparative years ended December 31, 2025 and 2024 was attributable to a decrease in benchmark rates over the comparative periods.

Average Net Yield and Average Cost of Funds:

The following table presents the average net yield and average cost of funds for the years ended December 31, 2025 and 2024 (dollars in thousands, except amounts in footnotes):

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(1)
Average net yield includes net amortization/accretion and fee income and is computed based on average amortized cost.

(2)
Includes fee income of $4.2 million and $6.6 million recognized on our floating-rate CRE whole loans for the years ended December 31, 2025 and 2024, respectively.

(3)
Includes amortization expense of $4.8 million and $5.3 million for the years ended December 31, 2025 and 2024, respectively, on our interest-bearing liabilities collateralized by CRE whole loans.

(4)
Includes amortization expense of $717,000 and $674,000 for the years ended December 31, 2025 and 2024, respectively.

(5)
Includes net amortization expense of $1.6 million for each of the years ended December 31, 2025 and 2024 on 20 terminated interest rate swap agreements that were in net loss positions at the time of termination. The remaining net losses, reported in accumulated other comprehensive loss on the consolidated balance sheets, will be accreted over the remaining life of the debt.

Real Estate Income and Other Revenue

The following table sets forth information relating to our real estate income and other revenue for the comparative years ended December 31, 2025 and 2024 (dollars in thousands):

Aggregate real estate income and other revenue increased by $4.4 million for the comparative years ended December 31, 2025 and 2024. The increase year over year is attributed to: (i) incremental increase in revenues from the asset acquisitions in the third quarter of 2024 of a multifamily property and an office property through foreclosures, (ii) increased revenues from a hotel property that had increased average daily rates for the comparative periods and (iii) an increase in revenue related to a student housing property that completed construction and became operational in August 2024. This was partially offset by a decrease in revenues from a hotel property that had decreased average daily rates for the comparative periods.

Operating Expenses

Year Ended December 31, 2025 as compared to the Year Ended December 31, 2024

The following table sets forth information relating to our operating expenses for the years presented (dollars in thousands):

Aggregate operating expenses decreased by $8.4 million for the comparative years ended December 31, 2025 and 2024. We attribute the changes to the following:

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General and administrative. General and administrative expenses increased by $613,000 for the comparative years ended December 31, 2025 and 2024. The following table summarizes the information relating to our general and administrative expenses for the years presented (dollars in thousands):

The increase in general and administrative expense for the comparative years ended December 31, 2025 and 2024 was primarily attributable to (i) increased professional services related to construction consulting fees paid to third parties and legal expenses related to an amendment to our term reinvestment financing facility, partially offset by a decline in trustee fees related to our securitizations and (ii) an increase in operating expenses related to new office space, partially offset by a decrease in dues and subscriptions related to a decrease in total costs relating to ratings fees.

Real estate expenses. The increase of $4.4 million for the comparative years ended December 31, 2025 and 2024 was primarily related to (i) an increase in expenses related to a student housing property that completed construction and became operational in August 2024, (ii) asset acquisitions in the third quarter of 2024 of a multifamily property and an office property each through deed-in-lieu of foreclosure and (iii) an increase in expenses at a hotel property that had an incremental increase in operating expenses. This was partially offset by (i) a sale of an office property in December 2024 that had no operations in 2025 and (ii) an incremental decrease in operating expenses related to a hotel property with lower occupancy.

Equity compensation - related party. The decrease of $810,000 for the comparative years ended December 31, 2025 and 2024 was primarily related to the vesting of restricted shares, which decreased the monthly equity compensation expense.

(Reversal of) provision for credit losses, net. The decrease of $12.5 million for the comparative years ended December 31, 2025 and 2024 was primarily driven by net improvements in the modeled credit risk of our CRE loan portfolio as well as payoffs, offset by a general decline in projected macroeconomic factors during the periods. We also recorded a $4.7 million charge-off as of December 31, 2025. Please refer to the "Financing Receivables" section for more information on our provision for credit losses.

Other Income (Expense)

Year Ended December 31, 2025 as compared to Year Ended December 31, 2024

The following table sets forth information relating to our other income (expense) incurred for the years presented (dollars in thousands):

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Aggregate other income (expense) decreased $5.8 million for the comparative years ended December 31, 2025 and 2024. We attribute the change to the following:

Equity in losses of unconsolidated subsidiaries. The decrease of $815,000 for the comparative years ended December 31, 2025 and 2024 was primarily related to two unconsolidated entity formations after June 30, 2024, and an additional unconsolidated entity formation in March 2025. These unconsolidated entities had losses for the year ended December 31, 2025.

Gain on conversion of real estate. The decrease of $8.6 million for the comparative years ended December 31, 2025 and 2024 was primarily attributed to the completion of two foreclosures that generated non-recurring unrealized gains of $5.8 million, in the first quarter of 2024, and $2.8 million, in the third quarter of 2024, as the fair value of both properties exceeded the amortized cost basis of the loans at the time of foreclosure. There were no gains on conversion of real estate during the year ended December 31, 2025.

Gain on sale of real estate. The increase of $4.2 million for the comparative years ended December 31, 2025 and 2024 was primarily attributed to the sale of a property generating a one time gain of $13.1 million which was offset by a one time loss of $1.5 million on a sale of a property in December 2025, compared to the sale of an office property in the Northeast region during the year ended December 31, 2024 that generated a non-recurring gain of $7.5 million.

Other Income. The decrease of $475,000 during the comparative years ended December 31, 2025 and 2024 is primarily attributed to the reversal of a representations and warranty reserve related to a discontinued residential lending business that occurred in 2024.

Financial Condition

Summary

Our total assets were $2.2 billion at December 31, 2025 as compared to $1.9 billion at December 31, 2024.

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Investment Portfolio

The tables below summarize the amortized cost and net carrying amount of our investment portfolio, classified by asset type, at December 31, 2025 and 2024 as follows (dollars in thousands, except amounts in footnotes):

(1)
Net carrying amount includes an allowance for credit losses of $20.4 million and $32.8 million at December 31, 2025 and 2024, respectively.

(2)
Includes real estate related right of use assets of $19.0 million and $19.3 million, intangible assets of $6.2 million and $7.0 million and lease liabilities of $45.3 million and $44.6 million at December 31, 2025 and 2024, respectively. Also includes other liabilities of $12,000 at December 31, 2024.

(3)
Includes properties held for sale-related liabilities of $3.1 million and $3.2 million at December 31, 2025 and 2024, respectively. Additionally, includes real estate related right of use assets of $5.4 million, intangible assets of $2.7 million, and mortgages payable of $20.2 million and $79.6 million at December 31, 2025 and 2024, respectively.

(4)
Includes one mezzanine loan with a coupon rate of 10% that is non-accrual at December 31, 2024.

(5)
There are no stated rates associated with these investments.

CRE loans. During the year ended December 31, 2025, we originated 14 CRE floating-rate whole loans, with total commitments of $733.0 million, one $15.0 CRE mezzanine loan, one new $9.3 million CRE preferred equity investment and net funded commitments of $3.1 million. We received $418.9 million in proceeds from loan payoffs and sales, producing a net increase of $336.8 million in the par balance of the portfolio.

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The following is a summary of our loans (dollars in thousands, except amounts in footnotes):

(1)
Amounts include unamortized loan origination fees of $6.6 million and $1.3 million and deferred amendment fees of $852,000 and $985,000 at December 31, 2025 and 2024, respectively.

(2)
References to ("1M Term SOFR") are one-month Term SOFR. Weighted-average one-month benchmark rates were 3.83% and 4.58% at December 31, 2025 and 2024, respectively. Additionally, weighted-average benchmark rate floors were 1.78% and 0.97% at December 31, 2025 and 2024, respectively.

(3)
Maturity dates exclude contractual extension options, subject to the satisfaction of certain terms that may be available to the borrowers.

(4)
Maturity dates exclude two and one whole loans, with amortized costs of $37.9 million and $5.6 million, in maturity default at December 31, 2025 and 2024, respectively.

(5)
Substantially all loans are pledged as collateral under various borrowings at December 31, 2025 and 2024.

(6)
CRE whole loans had $88.6 million and $94.0 million in unfunded loan commitments at December 31, 2025 and 2024, respectively. These unfunded loan commitments are advanced as the borrowers formally request additional funding and meet certain benchmarks, as permitted under the loan agreement, and any necessary approvals have been obtained.

(7)
Includes four mezzanine loans of $17.8 million, at amortized cost, with three having fixed interest rates of 15.0% and one having a fixed interest rate of 20.0% at December 31, 2025. Includes two mezzanine loans of $3.5 million, at amortized cost, that have fixed interest rates of 15.0% at December 31, 2024. Because we are also the first mortgage lender on these loans, we consider the first mortgage and mezzanine loans together as one whole loan.

(8)
We had one preferred equity investment associated with a CRE whole loan at December 31, 2025. We had no preferred equity investments associated with CRE whole loans at December 31, 2024. Our preferred equity investment has a fixed interest rate of 10%, of which 4.0% interest is deferred until maturity.

At December 31, 2025, 24.2%, 20.6% and 14.0% of our CRE loan portfolio based on carrying value was concentrated in the Southwest, Southeast and Pacific regions, respectively, as defined by NCREIF. At December 31, 2024, 25.0%, 19.2% and 16.5% of our CRE loan portfolio based on carrying value was concentrated in the Southwest, Mountain and Southeast regions, respectively. At December 31, 2025 and 2024, no single loan or investment represented more than 10% of our total assets. For the year ended December 31, 2025, one investment group generated 14.0% of our revenue, while for the year ended December 31, 2024, no single investment group generated over 10% of our total revenue.

Investments in unconsolidated entities. Our investments in unconsolidated entities at December 31, 2025 comprised a 100% interest in the common shares of Resource Capital Trust I ("RCT I") and RCC Trust II ("RCT II"), with a carrying value of $1.5 million in the aggregate, or 3.0% of each trust, our investment in 65 E. Wacker Joint Venture, LLC (the "Wacker JV"), representing a 90% interest in a joint venture formed for the purpose of converting an office property in the East North Central region to multifamily units with a carrying value of $27.7 million, our investment in 7720 McCallum JV, LLC (the "McCallum JV"), representing a 50% interest in a joint venture for a multifamily unit property in the Southwest region with no carrying value, and our investment in Pacmulti Affiliates, LLC (the "Pacmulti JV"), representing a 50% interest in a joint venture for a multifamily unit property in the Mid-Atlantic region with no carrying value. Our investments in unconsolidated entities at December 31, 2024 comprised our investments in RCT I and RCT II, Wacker JV and the McCallum JV.

We record our investments in RCT I’s and RCT II’s common shares as investments in unconsolidated entities using the cost method. We record our investment in the Wacker JV, the McCallum JV and the Pacmulti JV as equity method investments.

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Investments in real estate and properties held for sale. At December 31, 2025, we held investments in six real estate properties, three of which are included in investments in real estate and three of which are included in properties held for sale on the consolidated balance sheets.

During the year ended December 31, 2025, we sold our interest in a student housing project for $106.8 million and generated a one-time gain on the sale of real estate for $13.1 million. Additionally, we sold an office complex for $16.5 million and generated a one time loss on the sale of real estate for $1.5 million.

The following table summarizes the book value of our investments in real estate and related intangible assets at December 31, 2025 (in thousands, except amounts in the footnotes):

(1)
Investments in real estate includes $15.2 million of land, which is not depreciable. Also includes $3.7 million of construction in progress, which is also not depreciable until placed in service.

(2)
Primarily comprised of an $18.4 million right of use asset, associated with the ground lease disclosed in footnote (6) below accounted for as an operating lease. Amortization is booked to real estate expenses on the consolidated statements of operations. Additionally we have an operating lease with a value of $322,000 at December 31, 2025 associated with a parking lease.

(3)
Refer to Note 9 in the Notes to the Consolidated Financial Statements for additional information on our remaining operating leases.

(4)
Primarily comprised of a franchise intangible of $3.5 million, a management contract intangible of $2.6 million, in-place lease intangible of $7,000 and a customer list intangible of $87,000.

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(5)
At December 31, 2025, properties held for sale included a hotel acquired via deed-in-lieu of foreclosure in November 2020, an office property acquired via deed-in-lieu of foreclosure in June 2023 and a student housing property acquired in April 2022.

(6)
Primarily comprised of a $44.7 million ground lease with a remaining term of 91 years. Lease expense for the year ended December 31, 2025 was $2.8 million.

(7)
Comprised an operating lease liability.

(8)
Excludes items of working capital, either acquired or assumed.

Financing Receivables

The following table shows the activity in the allowance for credit losses for the years ended December 31, 2025 and 2024 (in thousands):

During the year ended December 31, 2025, we recorded reversals of expected credit losses of $7.7 million, primarily attributable to net improvements in the modeled credit risk of our loan portfolio as well as loan payoffs. These reversals were offset by a general decline in projected macroeconomic factors. We also recorded a charge-off of $4.7 million for one mezzanine loan that was previously fully reserved.

During the year ended December 31, 2024, we recorded a net provision for expected credit losses of $4.8 million, primarily driven by a general decline of macroeconomic factors over the year as well as an increase in modeled credit risk in our portfolio offset by loan payoffs. We also recorded a charge-off of $700,000 for one CRE whole loan held for sale.

At December 31, 2025, we did not individually evaluate any loans.

During fiscal year 2025 and at December 31, 2024, we individually evaluated the following loan for which a resolution was reached:

•
One office mezzanine loan in the Northeast region with a principal balance of $4.7 million at December 31, 2024. We fully reserved this loan in the fourth quarter of 2022. The loan entered payment default in February 2023 and was placed on nonaccrual status. In December 2025, the third party lender of the related senior loan foreclosed on the asset. We charged off the $4.7 million specific reserve.

During fiscal year 2024, we individually evaluated one additional loan for which a resolution was reached:

•
A multifamily loan in the Southeast region, with a principal balance of $9.3 million for which foreclosure was determined to be probable. In August 2024, we foreclosed on the loan.

Credit quality indicators

Commercial Real Estate Loans

CRE loans are collateralized by a diversified mix of real estate properties and are assessed for credit quality based on the collective evaluation of several factors, including but not limited to: collateral performance relative to underwritten plan, time since origination, current implied and/or re-underwritten loan-to-collateral value ("LTV") ratios, loan structure and exit plan. Depending on the loan’s performance against these various factors, loans are rated on a scale from 1 to 5, with loans rated 1 representing loans with the highest credit quality and loans rated 5 representing the loans with the lowest credit quality. Loans are typically rated a 2 at origination. The factors evaluated provide general criteria to monitor credit migration in our loan portfolio; as such, a loan’s rating may improve or worsen, depending on new information received.

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The criteria set forth below should be used as general guidelines and, therefore, not every loan will have all of the characteristics described in each category below.

All CRE loans are evaluated for any credit deterioration by debt asset management and certain finance personnel on at least a quarterly basis. Mezzanine loans and preferred equity investments may have experienced greater credit risks due to their nature as subordinated investments.

For the purpose of calculating the quarterly provision for credit losses under CECL, we pool CRE loans based on the underlying collateral property type and utilize a probability of default and loss given default methodology for approximately one year after which we immediately revert to a historical mean loss ratio.

Credit risk profiles of CRE loans at amortized cost were as follows (in thousands, except amounts in the footnotes):

(1)
The total amortized cost of CRE loans excluded accrued interest receivable of $27.2 million and $14.6 million at December 31, 2025 and 2024, respectively.

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Credit risk profiles of CRE loans by origination year at amortized cost were as follows (in thousands, except amounts in footnotes):

(1)
Includes two novated CRE whole loans that resulted from loan workouts.

(2)
Includes two novated CRE whole loans that resulted from loan workouts.

(3)
The total amortized cost of CRE loans excluded accrued interest receivable of $27.2 million and $14.6 million at December 31, 2025 and 2024, respectively.

(4)
Acquired CRE whole loans are grouped within each loan’s year of origination.

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Loan Portfolio Aging Analysis

The following table presents the CRE loan portfolio aging analysis as of the dates indicated for CRE loans at amortized cost (in thousands, except amounts in footnotes):

(1)
Includes one CRE loan with an amortized cost of $32.3 million in maturity default at December 31, 2025.

(2)
The total amortized cost of CRE loans excluded accrued interest receivable of $27.2 million and $14.6 million at December 31, 2025 and 2024, respectively.

(3)
Fully reserved at December 31, 2024.

At December 31, 2025 and 2024, we had three and two CRE whole loans, with total amortized costs of $59.1 million and $76.4 million, respectively, in payment default. At December 31, 2024, we had one mezzanine loan, with a total amortized cost of $4.7 million, in payment default.

During the year ended December 31, 2025, we did not recognize interest income on CRE whole loans that were placed on nonaccrual status. During the year ended December 31, 2024, we recognized interest income of $472,000 on two CRE whole loans that were placed on nonaccrual status. During the year ended December 31, 2024, we recognized interest income of $389,000 on one CRE whole loan that was placed on nonaccrual status as part of a modification that took place during the year ended December 31, 2023. We recognize interest income on a cash basis from the net operating cash flows from the underlying property.

Loan Modifications

We are required to disclose modifications where we determined the borrower is experiencing financial difficulty and modified the agreement to: (i) forgive principal, (ii) reduce the interest rate, (iii) cause an other-than-insignificant payment delay, (iv) extend the loan term, or (v) any combination thereof.

During the year ended December 31, 2025, we did not enter into any loan modifications for borrowers that were experiencing financial difficulty.

During the year ended December 31, 2024, we entered into the following three loan modifications that required disclosure:

•
A multifamily whole loan with an amortized cost of $54.9 million, representing 3.0% of the total amortized cost of the portfolio, was modified to: (i) extend its maturity from June 2025 to June 2026, (ii) reduce its current pay interest rate from one-month Term SOFR plus a spread of 3.70% to one-month Term SOFR plus a spread of 1.70%, and (iii) defer interest of 2.00% that will be due at payoff. In connection with the modification, the borrower funded additional capital into the project for interest reserves to cover debt service. In October 2025, the loan was novated and replaced with a new obligor. In connection with the novation, the new loan: (i) matures November 2028, (ii) pays a current pay rate of one-month Term SOFR plus a spread of 0.70%, (iii) defers interest of 3.00% that will be due at payoff, and (iv) has a mezzanine commitment up to $1.9 million, of which $86,000 was funded at December 31, 2025. The loan has a fixed rate of 15.00% that accrues and will be due at payoff in November 2028.

•
A multifamily whole loan with an amortized cost of $45.5 million, representing 2.5% of the total amortized cost of the portfolio, was modified to: (i) reduce its current pay interest rate from one-month Term SOFR plus a spread of 3.31% to a 5.00% fixed rate and (ii) defer the unpaid interest that will be due at loan payoff. In connection with the modification, the borrower funded additional capital into the project for interest reserves to cover debt service. At December 31, 2025, the loan was in maturity default.

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•
A multifamily whole loan with an amortized cost of $70.8 million, representing 3.9% of the total amortized cost of the portfolio, was modified to: (i) extend its maturity from January 2025 to January 2026 and (ii) provide for 2.00% per annum of the interest rate to be deferred until payoff. We also entered into a mezzanine loan with a total commitment of $6.0 million. The mezzanine loan has a fixed rate of 15.00% that accrues and will be due at payoff. In connection with the modification, the borrower renewed the interest rate cap. In March 2025, the loan was novated when we foreclosed on the mezzanine loan. In connection with the novation, the new loan: (i) matures May 2030, (ii) pays a current pay fixed rate of 5.00%, and (iii) has a mezzanine loan commitment of up to $13.5 million, of which $12.1 million was funded at December 31, 2025.

These loans were performing in accordance with the modified contractual terms as of December 31, 2025. At December 31, 2025, two of these loans, with a total amortized cost of $125.7 million, had a risk rating of "4" and the other loan, with an amortized cost of $45.5 million, had a risk rating of "3".

Restricted Cash

At December 31, 2025 and 2024, we had restricted cash of $2.2 million and $890,000, respectively, held in escrow for deposits or tax payments at our real estate properties or pledged with minimum reserve balance requirements. The increase of $1.3 million was primarily attributable to an increase in restricted cash held in escrow for tax payments and security deposits.

Accrued Interest Receivable

The following table summarizes our accrued interest receivable at December 31, 2025 and 2024 (in thousands):

The increase of $12.6 million in accrued interest receivable was primarily attributable to net production in our CRE loan portfolio and accrued deferred interest on modified loans, offset by loan payoffs.

Other Assets

The following table summarizes our other assets at December 31, 2025 and 2024 (in thousands):

The increase of $160,000 in other assets was primarily attributable to increases in other receivables, other assets and various prepaid assets held at our real estate properties.

Deferred Tax Assets

At both December 31, 2025 and 2024, our net deferred tax asset was zero, resulting from a full valuation allowance of $20.3 million and $20.6 million, respectively, on our gross deferred tax assets as we believed it was more likely than not that some or all of the deferred tax assets would not be realized. We will continue to evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing forecasted taxable income using both historical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and the availability of tax planning strategies.

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Derivative Instruments

Historically, we sought to mitigate the potential impact on net income (loss) of adverse fluctuations in interest rates incurred on our borrowings by entering into hedging agreements. We classified our interest rate hedges as cash flow hedges, which are hedges that eliminate the risk of changes in the cash flows of a financial asset or liability.

We terminated all of our interest rate swap positions associated with our prior financed CMBS portfolio in April 2020. At termination, we realized a loss of $11.8 million. At December 31, 2025 and 2024, we had losses of $1.6 million and $3.3 million, respectively, recorded in accumulated other comprehensive loss, which will be amortized into earnings over the remaining life of the debt. During the years ended December 31, 2025 and 2024, we recorded amortization expense, reported in interest expense on the consolidated statements of operations, of $1.7 million in each year.

At December 31, 2025, we had realized all of the gain attributable to two terminated interest rate swaps in accumulated other comprehensive loss on the consolidated balance sheets. At December 31, 2024, $73,000 was attributable to two terminated interest rate swaps in accumulated other comprehensive loss on the consolidated balance sheets, to be accreted into earnings over the remaining life of the debt. During the years ended December 31, 2025 and 2024, we recorded accretion income, reported in interest expense on the consolidated statements of operations, of $73,000 and $92,000, respectively, to accrete the accumulated other comprehensive income on the terminated swap agreements.

The following table presents the effect of derivative instruments on our consolidated statements of operations for the years presented (in thousands):

(1)
Negative values indicate a decrease to the associated consolidated statement of operations line items.

Financing Arrangements

Borrowings under our financing arrangements are guaranteed by us or one or more of our subsidiaries. The following table sets forth certain information with respect to our borrowings (dollars in thousands, except amounts in footnotes):

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(1)
Includes $2.8 million of deferred debt issuance costs at December 31, 2025.

(2)
Includes $1.5 million and $2.2 million of deferred debt issuance costs at December 31, 2025 and 2024, respectively.

(3)
Outstanding borrowings include accrued interest payable at December 31, 2024.

(4)
Includes $352,000 and $988,000 of deferred debt issuance costs at December 31, 2025 and 2024, respectively.

(5)
Includes $546,000 and $539,000 of deferred debt issuance costs at December 31, 2025 and 2024, respectively.

(6)
There were no deferred debt issuance costs at December 31, 2025. Includes $52,000 of deferred debt issuance costs at December 31, 2024.

(7)
Outstanding borrowings are collateralized by a student housing construction project. Value of collateral and number of positions as collateral related to Oceanview Life and Annuity Company also applies to Florida Pace Funding Agency.

(8)
Includes $101,000 of deferred debt issuance costs at December 31, 2024.

(9)
Includes $405,000 of deferred debt issuance costs at December 31, 2024.

We were in compliance with all covenants in the respective agreements at December 31, 2025 and 2024.

CRE - Term Reinvestment Financing Facility

In March 2025, an indirect wholly-owned subsidiary of ours entered into a master repurchase agreement (the “JPMorgan Chase 2025 Facility”) with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”) to finance existing CRE loans and the origination of CRE loans. The JPMorgan Chase 2025 Facility has a maximum facility amount of $939.9 million, provides match term funding, charges interest of one-month benchmark plus a 1.75% spread and matures as of the latest maturity date of any purchased asset. The JPMorgan Chase 2025 Facility includes a two-year reinvestment period enabling the reinvestment of principal proceeds from asset repayments into qualifying replacement assets. The reinvestment period for the JPMorgan Chase 2025 Facility ends in March 2027.

In connection with the JPMorgan Chase 2025 Facility, we provided "bad act" guaranties pursuant to a guarantee agreement (the "2025 JPMorgan Chase Guarantee") where we are liable for 100% of the repurchase price of the purchase assets and JPMorgan Chase’s losses, costs and expenses only upon the occurrence of certain customary bad acts. The JPMorgan Chase 2025 Guarantee includes certain financial covenants required of us, including required liquidity, required capital, ratios of total indebtedness to equity and EBITDA requirements. The JPMorgan Chase 2025 Facility also includes minimum interest coverage requirements and maximum look through LTV requirements. Also, ACRES Realty Funding, Inc. ("ACRES RF"), the direct owner of the wholly-owned subsidiary borrower, executed a pledge agreement with JPMorgan Chase pursuant to which it pledged and granted to JPMorgan Chase a continuing security interest in any and all of its right, title and interest in and to the wholly-owned subsidiary, including all distributions, proceeds, payments, income and profits from its interests in the wholly-owned subsidiary.

The JPMorgan Chase 2025 Facility specifies events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement, including but not limited to: payment defaults; bankruptcy or insolvency proceedings; a change of control of the ACRES SPE 2025-1, LLC, ("Seller SPE") or of us; breaches of covenants and/or certain representations and warranties; and a judgment in an amount greater than $250,000 against the Seller SPE or ACRES RF or $10.0 million against us. The remedies for such events of default are also customary for this type of financing arrangement and include the acceleration of the principal amount outstanding under the JPMorgan Chase 2025 Facility and the liquidation by JPMorgan Chase of purchased assets then subject to the JPMorgan Chase 2025 Facility. In October 2025, the JPMorgan Chase 2025 Facility was amended to allow ACRES Mortgage Fund Levered II, LLC ("AMF Levered II, LLC"), a wholly owned subsidiary of ACRES Mortgage Fund, Ltd., to purchase a non-controlling interest in the Seller SPE. At December 31, 2025, AMF Levered II, LLC owned a $125.0 million non-controlling interest, or 43.2%, of the Seller SPE and assumed a proportionate share of risk in the portfolio.

Senior Secured Financing Facility

On July 31, 2020, our indirect, wholly owned subsidiary ("Holdings"), along with its direct wholly owned subsidiary (the "Borrower"), entered into a $250.0 million Loan and Servicing Agreement (the “MassMutual Loan Agreement”) with Massachusetts Mutual Life Insurance Company ("MassMutual") and the other lenders party thereto (the "Lenders"). The asset-based revolving loan facility (the "MassMutual Facility") provided under the MassMutual Loan Agreement has been used to finance our core CRE lending business.

In December 2022, Holdings, the Borrower and the Lenders entered into an Amended and Restated Loan and Servicing Agreement (the "Amended and Restated Loan and Servicing Agreement"), which amends and restates the MassMutual Loan Agreement, and reflects a senior secured term loan facility, not to exceed $500.0 million, composed of individual loan series issued upon mutual agreement of the Borrower and Lenders. Each loan series will be available for three months after the closing date agreed upon by the Borrower and Lenders (“Commitment Period”), subject to the maximum dollar amount agreed upon for that series. The Commitment Period is subject to immediate termination upon the occurrence of an event of default. Each loan series will have a final maturity of five years from the issuance date for the loan series unless an additional time is mutually agreed upon by the Lenders and Borrower. The advance rate on portfolio assets will be mutually agreed upon by the Lenders and Borrower. Each loan series will have its own mutually agreed upon interest rate equal to one-month Term SOFR plus the applicable spread.

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In connection with the Amended and Restated Loan and Servicing Agreement, several indirect, wholly owned subsidiaries of ours entered into a Guaranty (the "MassMutual Guaranty") in favor of the secured parties under the Amended and Restated Loan and Servicing Agreement. Pursuant to the MassMutual Guaranty, we fully guaranteed all payments and performance of Holdings and the Borrower under the Amended and Restated Loan and Servicing Agreement.

The Amended and Restated Loan and Servicing Agreement contains events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement. The remedies for such events of default are also customary for this type of transaction and include declaring the final maturity date to have occurred and advances due and liquidation of the assets securing the series.

Pursuant to the Amended and Restated Loan Agreement, the Borrower’s obligations under the MassMutual Loan Agreement are secured by the Borrower’s assets and Holdings’ equity interests in the Borrower, including all distributions, proceeds and profits from Holdings’ interests in the Borrower.

CRE - Term Warehouse Financing Facilities

In October 2018, an indirect, wholly-owned subsidiary of ours entered into a master repurchase agreement (the "JPMorgan Chase Facility") with JP Morgan Chase to finance the origination of CRE loans. As amended, the JPMorgan Chase Facility has a maximum facility amount of $250.0 million, charges interest of one-month Term SOFR plus market spreads and matures in July 2026.

In May 2020, we entered into an amendment to the JPMorgan Chase Guarantee that revised its minimum equity financial covenant as of February 29, 2020. In October 2020, we entered into an amendment to the JPMorgan Chase Guarantee that revised a covenant definition so that credit losses are determined in accordance with a risk rating-based methodology. In September and October 2021, the JPMorgan Chase Facility was amended twice, resulting in (i) the extension of the JPMorgan Chase Facility’s maturity date to October 2024, (ii) an update to our tangible net worth requirement and minimum liquidity covenant as set forth in the guarantee agreement and (iii) a modification of market terms regarding the replacement of LIBOR upon determination of a benchmark transition event. In November 2022, the JPMorgan Chase Facility was amended for the following (i) EBITDA to interest expense ratio, (ii) maximum ratio of total indebtedness to its total equity, and (iii) minimum unencumbered liquidity requirement, each through September 2023. In July 2023, the JPMorgan Chase Facility was amended to extend the maturity date to July 2026, as well as to extend the amendments to (i) EBITDA to interest expense ratio, (ii) maximum ratio of total indebtedness to its total equity and (iii) minimum unencumbered liquidity requirement, each through December 2024. In March 2025, we entered into Amendment No. 6 to Guarantee, by and between the Company and JPMorgan Chase, which makes certain amendments and modifications to the Guarantee, dated October 26, 2018 between the Company and JPMorgan Chase, as amended (the "JPM Guarantee") including but not limited to amending (capitalized terms each as defined in the JPM Guarantee) (i) minimum unencumbered Liquidity requirement, (ii) the ratio of Total Indebtedness to Total Equity, (iii) ratio of Adjusted Total Indebtedness to Total Equity, and (iv) EBITDA to Interest Expense ratio. In August 2025, we entered into Amendment No. 7 to Guarantee, by and between us and JPMorgan Chase, which makes certain amendments and modifications to the Guarantee, dated October 26, 2018 between us and JPMorgan Chase, as amended (the "JPM Guarantee") to amend the terms of the debt service coverage period.

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In November 2021, an indirect, wholly-owned subsidiary of ours entered into a Master Repurchase and Securities Contract Agreement (the "Morgan Stanley Facility") with Morgan Stanley Mortgage Capital Holdings LLC ("Morgan Stanley") to finance the origination of CRE loans. Each repurchase transaction will specify its own terms, such as identification of the assets subject to the transaction, sale price, repurchase price and rate. In January 2022, such subsidiary entered into the First Amendment to Master Repurchase and Securities Contract Agreement (the "Morgan Stanley Amendment") with Morgan Stanley, which amended the Morgan Stanley Facility to add market terms regarding the replacement of LIBOR upon determination of a benchmark transition event. In November 2022, the Morgan Stanley Facility was amended for the following (i) EBITDA to interest expense ratio, (ii) maximum ratio of total indebtedness to its total equity, and (iii) minimum unencumbered liquidity requirement, each through March 2024. In November 2023, the Morgan Stanley Facility was amended to extend the amendments to (i) EBITDA to interest expense ratio, (ii) maximum ratio of total indebtedness to its total equity and (iii) minimum unencumbered liquidity requirement, each through the quarter ending December 2024. In November 2024, this facility was amended to, among other things, amend the EBITDA to Interest Expense ratio through the quarter ending December 2025 and extend the Morgan Stanley Facility to November 2025. The Morgan Stanley Facility has a maximum facility amount of $250.0 million, charges interest of one-month benchmark plus market spreads and matures in November 2025. We also have the right to request an extension for an additional one-year period. In March 2025, we entered into Amendment No. 4 to Guaranty, by and between the Company and Morgan Stanley, which makes certain amendments and modifications to the Guaranty, dated November 3, 2021 between the Company and Morgan Stanley, as amended (the "MS Guaranty") including but not limited to (capitalized terms each as defined in the MS Guarantee) (i) minimum unencumbered Liquidity requirement, (ii) ratio of Total Indebtedness to Total Equity, (iii) ratio of Adjusted Total Indebtedness to Total Equity, and (iv) EBITDA to Interest Expense ratio. In November 2025, we entered into Amendment No. 3 to the Morgan Stanley Facility extending its maturity to November 2026 and entered into Amendment No.4 to the Morgan Stanley Facility to increase the facility amount to $400.0 million, as increased from time to time, provided the amount shall be automatically reduced to $250.0 million on the earlier of May 2026 or when we send a request for a reduction in the facility amount. Provided certain conditions are met, prior to May 2026, we can request that the facility amount be increased to $500.0 million. As of December 31, 2025, we have exercised our right to increase the Morgan Stanley Facility amount to its full capacity.

Mortgage Payable

In April 2022, Chapel Drive West, LLC, a wholly owned subsidiary of CS – ACRES FSU Student Venture, LLC (the "FSU Student Venture") entered into a Loan Agreement (the "Mortgage") with Readycap Commercial, LLC ("Readycap") to finance the acquisition of a student housing complex. The Mortgage is interest only and had a maximum principal balance of $20.4 million, of which, $18.7 million was advanced in the initial funding. The Mortgage charges interest of one-month Term SOFR plus a spread of 3.80%. The Mortgage was amended to mature in April 2026, subject to a one-year extension option.

The Mortgage contains events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement. The remedies for such events of default are also customary for this type of transaction.

In January 2023, Chapel Drive East, LLC, a wholly owned subsidiary of the FSU Student Venture, entered into a loan agreement (the "Construction Loan Agreement") with Oceanview Life and Annuity Company ("Oceanview") to finance the construction of a student housing complex (the "Construction Loan"). The Construction Loan was interest only and has a maximum principal balance of $48.0 million. The Construction Loan charged one-month Term SOFR plus a spread of 6.00%. In February 2025, the Construction Loan was amended to bifurcate the first one-year extension option into two separate extension options and periods: a seven month extension period ended September 2025 and a five month extension ending February 2026. The Construction Loan had a maturity of September 2025.

In addition to the Construction Loan, Chapel Drive East, LLC entered into a financing agreement with Florida Pace Funding Agency to fund energy efficient building improvements and had a maximum principal balance of $15.5 million. This agreement charged fixed interest of 7.26% and matured in July 2053.

In September 2025, the Construction Loan and the financing agreement with Florida Pace Funding Agency were paid off in connection with the sale of the student housing complex.

Securitizations

ACR 2021-FL1

In May 2021, we closed ACR 2021-FL1, an $802.6 million CRE debt securitization transaction that provided financing for CRE loans. In March 2025, we exercised the optional redemption on ACR 2021-FL1 in conjunction with the closing of the JPMorgan Chase 2025 Facility.

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ACR 2021-FL2

In December 2021, we closed ACR 2021-FL2, a $700.0 million CRE debt securitization transaction that provided financing for CRE loans. In March 2025, we exercised the optional redemption on ACR 2021-FL2 in conjunction with the closing of the JPMorgan Chase 2025 Facility.

ACR 2026-FL4

In February 2026, we closed ACRES Commercial Realty 2026-FL4 Issuer, LLC ("ACR 2026-FL4"), a CRE debt securitization transaction that can finance up to $1.0 billion of CRE loans. ACR 2026-FL4 issued a total of $879.5 million of non-recourse, floating-rate notes to third parties at par. Additionally, we retained 100% of the Class F notes, Class G notes and Income notes. ACR 2026-FL4 includes a 180-day ramp up acquisition period that allows it to acquire CRE loans using unused proceeds from the issuance of the non-recourse floating-rate notes. Additionally, ACR 2026-FL4 includes a reinvestment period, which ends in August 2028, that allows it to acquire CRE loans for reinvestment into the securitization using uninvested principal proceeds.

At closing, the offered notes issued to investors consisted of the following classes: (i) $589.7.0 million of Class A notes bearing interest at one-month SOFR plus 1.45%, increasing to 1.70% in August 2031; (ii) $104.2 million of Class A-S notes bearing interest at one-month SOFR plus 1.70%, increasing to 1.95% in August 2031; (iii) $72.4 million of Class B notes bearing interest at one-month SOFR plus 1.95%, increasing to 2.45% in August 2031; (iv) $58.5 million of Class C notes bearing interest at one-month SOFR plus 2.25%, increasing to 2.75% in August 2031; (v) $36.9 million of Class D notes bearing interest at one-month SOFR plus 2.85%, increasing to 3.35% in August 2031 and (vi) $17.8 million of Class E notes bearing interest at one-month SOFR plus 3.60%, increasing to 4.10% in August 2031.

All of the notes issued mature in August 2044, although we have the right to call the notes beginning on the payment date in August 2028 and thereafter.

Corporate Debt

5.75% Senior Unsecured Notes Due 2026

On August 16, 2021, we issued $150.0 million of our 5.75% senior unsecured notes due 2026 (the "5.75% Senior Unsecured Notes") pursuant to our Indenture, dated August 16, 2021 (the "Base Indenture"), between Wells Fargo, now Computershare Trust Company, N.A. ("CTC"), as trustee (the "Trustee"), and us as supplemented by the First Supplemental Indenture, dated August 16, 2021, between Wells Fargo, now CTC, and us (the "Supplemental Indenture" and, together with the Base Indenture, the "Indenture"). Prior to May 15, 2026, we may at our option redeem the 5.75% Senior Unsecured Notes, in whole or in part, at a redemption price equal to the sum of (i) 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date, and (ii) a make-whole premium. On or after May 15, 2026, we may at our option redeem the 5.75% Senior Unsecured Notes, at any time, in whole or in part, on not less than 15 days nor more than 60 days’ prior notice, at a redemption price equal to 100% of the principal amount of the 5.75% Senior Unsecured Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date.

The Indenture contains restrictive covenants that, among other things, require us to maintain certain financial ratios. The foregoing limitations are subject to exceptions as set forth in the Supplemental Indenture. At December 31, 2025, we were in compliance with these covenants. The Indenture provides for customary events of default that include, among other things (subject in certain cases to customary grace and cure periods): (i) non-payment of principal or interest, (ii) breach of certain covenants contained in the Indenture or the 5.75% Senior Unsecured Notes, (iii) an event of default or acceleration of certain other indebtedness of ours or a subsidiary in which we have invested at least $75.0 million in capital within the applicable grace period and (iv) certain events of bankruptcy or insolvency. Generally, if an event of default occurs (subject to certain exceptions), CTC or the holders of at least 25% in aggregate principal amount of the then outstanding 5.75% Senior Unsecured Notes may declare all of the notes to be due and payable.

Unsecured Junior Subordinated Debentures

During 2006, we formed RCT I and RCT II for the sole purpose of issuing and selling capital securities representing preferred beneficial interests. RCT I and RCT II are not consolidated into our consolidated financial statements because we are not deemed to be the primary beneficiary of these entities. In connection with the issuance and sale of the capital securities, we issued junior subordinated debentures to RCT I and RCT II of $25.8 million each, representing our maximum exposure to loss. The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II were included in borrowings and were amortized into interest expense on the consolidated statements of operations using the effective yield method over a ten year period.

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There were no unamortized debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II outstanding at December 31, 2025 and 2024. The interest rates for RCT I and RCT II, at December 31, 2025, were 7.90% and 8.05%, respectively. The interest rates for RCT I and RCT II, at December 31, 2024, were 8.54% and 8.80%, respectively.

The rights of holders of common securities of RCT I and RCT II are subordinate to the rights of the holders of capital securities only in the event of a default; otherwise, the common securities’ economic and voting rights are pari passu with the capital securities. The capital and common securities of RCT I and RCT II are subject to mandatory redemption upon the maturity or call of the junior subordinated debentures held by each. Unless earlier dissolved, RCT I will dissolve in May 2041 and RCT II will dissolve in September 2041. The junior subordinated debentures are the sole assets of RCT I and RCT II, which mature in June 2036 and October 2036, respectively, and may currently be called at par.

Equity

Total equity as of December 31, 2025 was $550.6 million compared to total equity of $449.7 million as of December 31, 2024. The increase in equity was primarily attributable to an increase in non-controlling interests in the year ended December 31, 2025.

Our preferred equity is composed of the following at December 31, 2025:

•
4.8 million shares of 8.625% fixed to floating rate Series C cumulative redeemable preferred stock with a $25.00 per share liquidation preference ("Series C Preferred Stock"). The Series C Preferred Stock has no maturity date and we are not required to redeem them at any time. However, we may redeem them at our election, in whole or in apart, on or after July 30, 2024. Effective July 30, 2024, the Series C Preferred Stock converted from its fixed rate of 8.625% to a floating rate equal to three-month Term SOFR plus a spread of 5.927%, but at no time shall the floating rate be less than 8.625%. Dividends are payable quarterly in arrears.

•
4.5 million shares of fixed 7.875% Series D cumulative redeemable preferred stock with a $25.00 per share liquidation preference ("Series D Preferred Stock"). The Series D Preferred Stock has no maturity and we are not required to redeem them at any time. However, we may redeem them at our election, in whole or in apart, on or after May 21, 2026. Dividends are payable quarterly in arrears.

Balance Sheet - Book Value Reconciliation

The following table rolls forward our common stock book value for the three months and year ended December 31, 2025 (in thousands, except per share data and amounts in footnotes):

(1)
Per share calculations exclude unvested restricted stock, as disclosed on our consolidated balance sheets, of 328,586 shares at both December 31, 2025 and September 30, 2025, and 574,538 shares at December 31, 2024, and include warrants to purchase up to 391,995 shares of common stock at December 31, 2024. In July 2025, the warrants were exercised in exchange for shares, which resulted in 391,380 being added to the outstanding share count. The denominators for the calculation were 6,558,865, 7,051,955 and 7,451,461 at December 31, 2025, September 30, 2025, and December 31, 2024, respectively.

(2)
The per share amounts are calculated with the denominator referenced in footnote (1) at December 31, 2025. We calculated net (loss) income per common share-diluted of $(0.43) and $0.03 using the weighted average diluted shares outstanding during the three and twelve months ended December 31, 2025, respectively.

(3)
In November 2021, our Board authorized and approved the continued use of our existing share repurchase program to repurchase up to $20.0 million of our outstanding common stock. From November 2023 through October 2025, our Board authorized and approved the repurchase of an additional $32.5 million of outstanding shares of both common and preferred stock. Because we repurchased our common stock at significant discounts to book value, these repurchases were accretive to per share book value since the inception of the program. In December 2025, the authorized amount was fully utilized.

(4)
We calculated common stock book value as total stockholders’ equity of $420.8 million less preferred stock equity of $224.0 million at December 31, 2025.

Management Agreement Equity

Our monthly base management fee, as defined in our Management Agreement, is equal to 1/12th of the amount of our equity multiplied by 1.50% and is calculated and paid monthly in arrears.

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The following table summarizes the calculation of equity, as defined in the Management Agreement (in thousands):

(1)
Deducts underwriting discounts and commissions and other expenses and costs relating to such issuances.

(2)
Excludes non-cash equity compensation expense incurred to date.

Earnings Available for Distribution

Earnings Available for Distribution ("EAD") is a non-GAAP financial measure intended to supplement our financial results computed in accordance with accounting principles generally accepted in the United States of America ("GAAP"), and we believe EAD serves as a useful indicator for investors in evaluating our performance and ability to pay dividends.

EAD excludes the effects of certain transactions and adjustments in accordance with GAAP that we believe are not necessarily indicative of our current CRE loan portfolio and other CRE-related investments and operations. EAD excludes income (loss) from all non-core assets such as commercial finance, residential mortgage lending, certain legacy CRE loans and other non-CRE assets designated as assets held for sale at the initial measurement date of December 31, 2016.

EAD, for reporting purposes, is defined as GAAP net income (loss) allocable to common shares, excluding (i) non-cash equity compensation expense, (ii) unrealized gains and losses, (iii) non-cash provisions for credit losses, (iv) non-cash impairments on securities, (v) non-cash amortization of discounts or premiums associated with borrowings, (vi) net income or loss from a limited partnership interest owned at the initial measurement date, (vii) net income or loss from non-core assets, (viii) real estate depreciation and amortization, (ix) foreign currency gains or losses and (x) income or loss from discontinued operations. EAD may also be adjusted periodically to exclude certain one-time events pursuant to changes in GAAP and certain non-cash items.

Although pursuant to the Management Agreement we calculate incentive compensation using EAD that excludes incentive compensation payable to our Manager, we include incentive compensation payable to our Manager in calculating EAD for reporting purposes.

The following table provides a reconciliation from GAAP net (loss) income allocable to common shares to EAD allocable to common shares for the periods presented (in thousands, except per share data):

(1)
Amount presented is net of the amount allocable to the non-controlling interest.

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(2)
Non-core assets are investments and securities owned by us at the initial measurement date in (i) commercial finance, (ii) residential mortgage lending, (iii) legacy CRE loans designated as held for sale and (iv) other non-CRE assets included in assets held for sale.

For the year ended December 31, 2025, EAD in accordance with the Management Agreement, which excludes incentive compensation payable, was a loss of $1.9 million, or a loss of $0.26 per common share outstanding. There was no incentive compensation payable incurred by us for the year ended December 31, 2025.

Incentive Compensation Hurdle

With respect to each fiscal quarter commencing with the quarter ended December 31, 2022, an incentive management fee calculated and payable in arrears in an amount, not less than zero, equal to:

(i)
for the first full calendar quarter ended December 31, 2022, the product of (a) 20% and (b) the excess of (i) our EAD (as defined in the Management Agreement) for such calendar quarter, over (ii) the product of (A) our book value equity (as defined in the Management Agreement) as of the end of such calendar quarter, and (B) 7% per annum;

(ii)
for each of the second, third and fourth full calendar quarters following the calendar quarter ended December 31, 2022, the excess of (1) the product of (a) 20% and (b) the excess of (i) our EAD (as defined in the Management Agreement) for the calendar quarter(s) following September 30, 2022, over (ii) the product of (A) our book value equity (as defined in the Management Agreement) in the calendar quarter(s) following September 30, 2022, and (B) 7% per annum, over (2) the sum of any incentive compensation paid to our Manager with respect to the prior calendar quarter(s) following September 30, 2022 (other than the most recent calendar quarter); and

(iii)
for each calendar quarter thereafter, the excess of (1) the product of (a) 20% and (b) the excess of (i) our EAD (as defined in the Management Agreement) for the previous 12-month period, over (ii) the product of (A) our book value equity (as defined in the Management Agreement) in the previous 12-month period, and (B) 7% per annum, over (2) the sum of any incentive compensation paid to our Manager with respect to the first three calendar quarters of such previous 12-month period; provided, however, that no incentive compensation shall be payable with respect to any calendar quarter unless EAD (as defined in the Management Agreement) for the 12 most recently completed calendar quarters (or such lesser number of completed calendar quarters from September 30, 2022) in the aggregate is greater than zero.

The following table summarizes the calculation of the Incentive Compensation Hurdle for the three months ended December 31, 2025 (dollars in thousands, except per share data):

(1)
Calculated on a daily weighted average basis for the 12-month period ended December 31, 2025.

(2)
Calculated as book value equity at December 31, 2025 multiplied by 1.75% (7% per annum).

(3)
The amount by which EAD (as defined in the Management Agreement) exceeds the Incentive Compensation Hurdle is multiplied by 20% to arrive at incentive compensation for the quarter.

For the year ended December 31, 2025, there was no incentive compensation payable to the Manager.

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments, repay borrowings and provide for other general business needs, including payment of our base management fee and incentive compensation. Our ability to meet our on-going liquidity needs is subject to our ability to generate cash from operating activities, which was a net source of $4.1 million for the year ended December 31, 2025, and our ability to maintain and/or obtain additional debt financing and equity capital together with the funds referred to below.

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At December 31, 2025, our liquidity consisted of $83.8 million of unrestricted cash and cash equivalents, and $24.1 million of potential proceeds from unlevered, financeable CRE loans.

During the year ended December 31, 2025, our principal sources of liquidity were: (i) gross financing proceeds of $907.6 million from the initiation of our term reinvestment financing facility; (ii) warehouse financing proceeds of $551.8 million on loan originations; (iii) $125.0 million in proceeds from an investment made by a non-controlling interest in our SPE 2025-1 entity; (iv) gross proceeds of $106.8 million from the sale of an investment in real estate; (v) proceeds of $77.5 million on CRE loan sales; (vi) net proceeds of $53.1 million from repayments on our CRE portfolio; and (vii) gross proceeds of $16.5 million on the sale of a property held for sale.

These sources of liquidity were offset by the liquidation of our two CRE securitizations, paydowns on our term warehouse facilities, deployments in CRE loan portfolio and real estate investments, repurchases of common stock, distributions on our preferred stock and ongoing operating expenses and substantially resulted in the $83.8 million of unrestricted cash we held at December 31, 2025.

The outstanding balance of our loan to ACRES Capital Corp., the parent of our Manager, was $10.4 million and $10.7 million at December 31, 2025 and 2024, respectively. The note bears interest at 3.00% per annum, payable monthly, and matures in July 2026, subject to two one-year extensions, at ACRES Capital Corp.’s option, and amortizes at a rate of $25,000 per month.

In March 2025, we amended and restated our loan to ACRES Capital Corp. to: (i) be issued by ACRES Holdings, LLC, (ii) provide for a six month option for ACRES Holdings, LLC to draw an additional balance of $7.0 million, and (iii) if such option is exercised, (a) to extend the maturity to July 31, 2031, (b) increase the interest rate to 5% and (c) increase the monthly amortization to $50,000. The option was not exercised and expired as of September 30, 2025.

At December 31, 2025, $9.7 million of interest receivable is current and the remaining $17.5 million of interest receivable is deferred, which we deem fully collectible.

Cash Flows

For the year ended December 31, 2025, our restricted and unrestricted cash and cash equivalents balance increased $28.4 million, to $86.0 million. The cash movements can be summarized by the following:

Cash flows from operating activities. For the year ended December 31, 2025, operating activities increased our cash balances by $4.1 million. Though positive, cash inflows from operating activities are down as we work with our borrowers to structure loan repayment terms that allow our borrowers to successfully complete their underwritten plans and that allow us to ultimately maximize our investment. Some of these structures have deferred loan components that impact our current cash position. We expect to be repaid these deferred amounts as our borrowers create value in the underlying collateral through the execution and completion of their project plans and exit our loans through sales or refinance transactions.

Cash flows from investing activities. For the year ended December 31, 2025, investing activities decreased our cash balances by $224.2 million, primarily driven by deployments in CRE whole loans, CRE mezzanine loan, CRE preferred equity, funding of existing commitments on CRE whole loans, deployments in our investment in real estate and investments in unconsolidated entities with underlying real estate collateral, partially offset by repayments of CRE loans and proceeds from sales of CRE loans and proceeds from the sales of investments in real estate.

Cash flows from financing activities. For the year ended December 31, 2025, financing activities increased our cash balances by $248.5 million, primarily driven by proceeds from our CRE term reinvestment financing facility, CRE term warehouse financing facilities and proceeds from the sale of equity interests in our consolidated subsidiary, partially offset by repayments on our CRE securitization notes, CRE term warehouse financing facilities and CRE term reinvestment financing facility, mortgages payable, distributions on our preferred stock, and repurchases of our common stock.

Financing Availability

We utilize a variety of financing arrangements to finance certain assets. We generally utilize the following types of financing arrangements:

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1.
CRE - Term Reinvestment Financing Facility: Our term reinvestment financing facility allows us to borrow effectively against loans that we own. Under this agreement, we transfer loans to a counterparty and agree to repurchase the same loans from the counterparty at a price equal to the transfer price plus interest. The counterparty retains the sole discretion over whether to purchase the loan from us. The facility includes a two-year reinvestment period enabling the reinvestment of principal proceeds from asset repayments into qualifying assets, provided that the proceeds are reinvested within 90 days of the payoff. We can also acquire and finance the future funding participations of the portfolio collateral, subject to the discretion of the counterparty.

2.
Senior Secured Financing Facility: Our senior secured financing facility allows us to borrow against loans and real estate investments that we own. This facility has an individual floating rate loan series structure that has a three month commitment period after the financing is approved by the lender, subject to the maximum dollar amount agreed upon for the series. Each floating rate loan series will have mutually agreed upon terms including (i) total commitment, including the capacity to fund future funding commitments, where applicable; (ii) advance rate on portfolio assets; (iii) interest rate composed of one-month Term SOFR plus a market rate spread; and (iv) maturity date of five years from the issuance date for the loan series unless an additional time is mutually agreed upon by the parties. The facility has a maximum portfolio LTV of 85% and contains customary events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement.

3.
CRE - Term Warehouse Financing Facilities: Term warehouse financing facilities effectively allow us to borrow against loans that we own. Under these agreements, we transfer loans to a counterparty and agree to purchase the same loans from the counterparty at a price equal to the transfer price plus interest. The counterparty retains the sole discretion over both whether to purchase the loan from us and, subject to certain conditions, the collateral value of such loan for purposes of determining whether we are required to pay margin to the counterparty. Generally, if the lender determines (subject to certain conditions) that the value of the collateral in a repurchase transaction has decreased by more than a defined minimum amount, we would be required to repay any amounts borrowed in excess of the product of (i) the revised collateral or market value multiplied by (ii) the applicable advance rate. During the term of these agreements, we receive the principal and interest on the related loans and pay interest to the counterparty.

4.
Securitizations: We seek non-recourse long-term financing from securitizations of our investments in CRE loans. The securitizations generally involve a senior portion of our loan but may involve the entire loan. Securitization generally involves transferring notes to a special purpose vehicle (or the issuing entity), which then issues one or more classes of non-recourse notes pursuant to the terms of an indenture. The notes are secured by the pool of assets. In exchange for the transfer of assets to the issuing entity, we receive cash proceeds from the sale of non-recourse notes. Securitizations of our portfolio investments might magnify our exposure to losses on those portfolio investments because the retained subordinate interest in any particular overall loan would be subordinate to the loan components sold and we would, therefore, absorb all losses sustained with respect to the overall loan before the owners of the senior notes experience any losses with respect to the loan in question.

5.
Mortgage payable: We have entered into a loan agreement to finance the acquisition of a student housing complex. This loan is interest only and has a maximum principal balance, most of which was advanced in the initial funding. The loan agreement contains events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement. The remedies for such events of default are also customary for this type of transaction.

In March 2025, we exercised the optional redemption of both ACR 2021-FL1 and ACR 2021-FL2. We also entered into a master repurchase agreement with JPMorgan Chase to finance existing CRE loans as well as the origination of new CRE loans. In connection with the financing, from the proceeds of the new financing facility we repaid (i) all of the outstanding senior notes at the ACR 2021-FL1 and ACR 2021-FL2 securitizations, (ii) all of the outstanding borrowings on the existing JPMorgan Chase facility and (iii) one borrowing from the Morgan Stanley facility. We recognized a charge of $1.5 million upon the redemption of the ACR 2021-FL1 and ACR 2021-FL2 securitizations from the recognition of unamortized deferred debt issuance costs associated with those securitizations.

We were in compliance with all of our covenants at December 31, 2025 in accordance with the terms provided in agreements with our lenders.

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At December 31, 2025, we had financing arrangements as summarized below (in thousands, except amounts in footnotes):

(1)
Excludes deferred debt issuance costs of $2.8 million.

(2)
Excludes deferred debt issuance costs of $1.5 million.

(3)
Excludes deferred debt issuance costs of $898,000.

The following table summarizes the average principal outstanding during the three months ended December 31, 2025 and 2024 and the principal outstanding on our financing arrangements at December 31, 2025 and 2024 (in thousands, except amounts in footnotes):

(1)
Principal outstanding excludes deferred debt issuance costs of $2.8 million at December 31, 2025.

(2)
Principal outstanding excludes deferred debt issuance costs of $1.5 million and $2.2 million at December 31, 2025 and 2024, respectively.

(3)
Principal outstanding excludes accrued interest payable of $435,000 at December 31, 2024 and deferred debt issuance costs of $898,000 and $1.5 million at December 31, 2025 and 2024, respectively.

The following table summarizes the maximum month-end principal outstanding on our financing arrangements during the periods presented (in thousands):

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Historically, we have financed the acquisition of our investments through collateralized loan obligations ("CLO") and securitizations that essentially match the maturity and repricing dates of these financing vehicles with the maturities and repricing dates of our investments. In the past, we have derived substantial operating cash from our equity investments in our CLOs and securitizations, which will cease if the CLOs and securitizations fail to meet certain tests. Through the time of the optional redemption of our securitizations in March 2025, we did not experience difficulty in maintaining our existing CLO and securitization financing and passed all of the critical tests required by these financings. Our securitizations collectively had a balance of $865.1 million at December 31, 2024.

The following table sets forth the coverage test summary for our financing facility for the periods presented (in thousands):

(1)
Look through LTV cushion represents the amount by which the collateral held by the counterparty exceeds the minimum amount required.

(2)
Interest coverage includes annualized amounts based on the most recent distribution period.

(3)
Interest coverage cushion represents the amount by which annualized interest income expected exceeds the annualized amount payable on the CRE term reinvestment financing facility.

Our leverage ratio, defined as the ratio of borrowings to total equity, may vary as a result of the various funding strategies we use. At December 31, 2025 and 2024, our leverage ratio under GAAP was 2.8 and 3.0 times, respectively. The leverage ratio decreased during the period primarily due to the increase in total equity, offset by an increase in borrowings.

Contractual Obligations and Commitments

(1)
Excludes $1.8 million of accrued interest payable.

(2)
Excludes $224,000 of accrued interest payable.

(3)
Excludes $1.1 million of accrued interest payable.

(4)
Excludes $84,000 of accrued interest payable.

(5)
Excludes $8.6 million of interest expense payable through maturity in August 2026.

(6)
Excludes $21.0 million and $22.1 million of estimated interest expense payable through maturity, in June 2036 and October 2036, respectively.

(7)
Lease liabilities include a ground rent lease for a hotel property with a remaining term of 91 years and an annual growth rate of 3%.

(8)
These unfunded loan commitments are advanced as the borrowers formally request additional funding and meet certain benchmarks, as permitted under the loan agreements, and any necessary approvals have been obtained. At December 31, 2025, we had unfunded commitments on 29 CRE whole loans.

(9)
Base management fees presented are based on an estimate of base management fees payable to our Manager over the next 12 months. Our Management Agreement also provides for an incentive compensation arrangement that is based on operating performance. The incentive compensation is not a fixed and determinable amount, and therefore it is not included in this table.

Net Operating Losses and Loss Carryforwards

The following table sets forth the net operating losses and loss carryforwards for the periods presented (in millions):

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At December 31, 2025, we had $32.1 million of cumulative net operating losses ("NOL") to carry forward to future years. NOL can generally be carried forward to offset both ordinary taxable income and capital gains in future years. The Tax Cuts and Jobs Act ("TCJA") along with revisions made by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act reduced the deduction for NOLs generated post 2017 to 80% of taxable income and granted an indefinite carryforward period. Additionally, we have cumulative total net capital losses of $115.9 million, which expired at December 31, 2025, if not utilized on our tax return to be filed in October 2026.

We also have tax assets in our taxable REIT subsidiaries ("TRS"). These tax assets are analyzed and disclosed quarterly in our financial statements. At December 31, 2025, our TRSs had $62.0 million of NOLs comprising: $39.8 million of pre-TCJA NOLs, some of which are set to expire beginning in 2044 and $22.2 million of NOLs with an indefinite carryforward period. Additionally, our TRS had cumulative total net capital losses of $20.8 million, which are set to expire at December 31, 2029.

Distributions

We did not pay distributions on our common shares during the year ended December 31, 2025, as we were able to utilize NOL carryforwards and net capital loss carryforwards to offset our REIT taxable income. This enabled us to grow book value and our investable equity base. Our Board is responsible for the establishment and evaluation of a plan for the prudent resumption of the payment of common share distributions. No assurance, however, can be given as to the amounts or timing of future distributions as such distributions are subject to our earnings, financial condition, capital requirements and such other factors as our Board deems relevant.

We intend to continue to make regular quarterly distributions to holders of our preferred stock.

U.S. federal income tax law generally requires that a REIT distribute at least 90% of its REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating and debt service requirements on our repurchase agreements and other debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets or borrow funds to make cash distributions, or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.

Off-Balance Sheet Arrangements

General

At December 31, 2025, we did not maintain any relationships with unconsolidated entities or financial partnerships that were established for the purpose of facilitating off-balance sheet arrangements or contractually narrow or limited purposes, although we do have interests in unconsolidated entities that were not established for those purposes. At December 31, 2025, we had not guaranteed obligations of any unconsolidated entities or entered into any commitment or letter of intent to provide additional funding to any such entities, other than those discussed in the "Guarantees and Indemnifications" section below.

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Unfunded Commitments

In the ordinary course of business, we make commitments to borrowers whose loans are in our CRE loan portfolio to provide additional loan funding in the future. Disbursement of funds pursuant to these commitments is subject to the borrower meeting pre-specified criteria. These commitments are subject to the same underwriting requirements and ongoing portfolio maintenance as are the on-balance sheet financial investments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Whole loans had $88.6 million and $94.0 million in unfunded loan commitments at December 31, 2025 and 2024, respectively. Unfunded commitments are not considered in the CECL reserve if they are unconditionally cancellable.

Guarantees and Indemnifications

In the ordinary course of business, we may provide guarantees and indemnifications that contingently obligate us to make payments to the guaranteed or indemnified party based on changes in the value of an asset, liability or equity security of the guaranteed or indemnified party. As such, we may be obligated to make payments to a guaranteed party based on another entity’s failure to perform or achieve specified performance criteria, or we may have an indirect guarantee of the indebtedness of others.

In September 2025, we entered into guaranties related to a $62 million construction loan and an $11 million bridge loan made to a borrower that is held by a joint venture in which we have a 90% membership interest. Pursuant to the Guaranty of Completion, executed September 2025, by the individual principals of the partnership and us (collectively, the “Guarantors”) for the benefit of DL RCF I Loan Holdings, LLC and DL RCF I Loan Holdings (Evergreen), LLC (collectively, the “Lender”), the Guarantors guarantee to the Lender, the Borrower’s obligation to commence, construct, develop and complete the construction project in a good and workmanlike manner in accordance with the terms and conditions of the Loan Agreement, dated September 12, 2025 by and among the Borrower, DL RCF I Loan Holdings, LLC (the “Agent”) and the Lender (the “Loan Agreement”) and to perform all other work contemplated or required to be completed pursuant to the loan documentation through final completion.

In September 2025, the Guarantors also entered into a Guaranty of Retail Space to guarantee the payment and performance of all of the obligations for the payment of debt and the performance of the obligations under the Loan Agreement and a Guaranty of Recourse Obligations to guarantee the payment and performance of certain liabilities (“bad boy”) and payment obligations set forth in the Loan Agreement and agree to be liable for the guaranteed obligations as a primary obligor. Also in September 2025, the Guarantors entered into the Guaranty of Interest and Carry Costs to guarantee the payment and performance of the Borrower’s obligation to timely pay all Carry Costs and Debt Service and its obligation to make deposits into the Carry Cost Account (each as defined in the agreement) in accordance with the Loan Agreement, and all interest due to the Bridge Lender (defined below) and/or preferred return due pursuant to the Master Tenant Operating Agreement. The Guarantors also unconditionally covenant and agree to be liable for these guaranteed obligations as a primary obligor. Additionally, the Guarantors with the Borrower also entered into an Environmental Indemnity Agreement jointly and severally in favor of the Lender and Agent whereby the Guarantors serving as Indemnitors provided environmental representations and warranties, covenants and indemnification.

In connection with the $10.9 million bridge loan from Hoyne Savings Bank (“Bridge Lender”) to Borrower, we entered into the Repayment and Completion Guaranty in September 2025, in favor of Bridge Lender subject to the Bridge Loan Agreement between Borrower and Bridge Lender (the “Bridge Loan Agreement”) to guarantee the prompt payment of all indebtedness under the Bridge Loan Agreement and the prompt performance of all other covenants, obligations and agreements of Borrower under the Bridge Loan Agreement, including but not limited to, construction of the improvements and completion before the completion date and material compliance with all environmental covenants and indemnities set forth in the Bridge Loan Agreement.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared by management in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires that we make estimates and assumptions that may affect the value of our assets or liabilities and disclosure of contingent assets and liabilities at the date of our financial statements and our financial results. We believe that certain of our policies are critical because they require us to make difficult, subjective and complex judgments about matters that are inherently uncertain. The critical policies summarized below relate to allowance for credit losses, investments in real estate, revenue recognition and variable interest entities (“VIEs”). We have reviewed these accounting policies with our Board and believe that all of the decisions and assessments upon which our financial statements are based were reasonable at the time made based upon information available to us at the time.

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Allowance for Credit Losses

We maintain an allowance for credit losses on our loans held for investment. CRE loans that are held for investment are carried at cost, net of unamortized acquisition premiums or discounts, loan fees and origination costs as applicable. Effective January 1, 2020, we determine our allowance for credit losses, consistent with GAAP, by measuring CECL on the loan portfolio on a quarterly basis. We utilize a probability of default and loss given default methodology over a reasonable and supportable forecast period after which we revert to the historical mean loss ratio, utilizing a blended approach sourced from our own historical losses and the market losses from an engaged third-party’s database, to be applied for the remaining estimable period. The CECL model requires us to make significant judgments, including: (i) the selection of a reasonable and supportable forecast period, (ii) the selection and weighting of appropriate macroeconomic forecast scenarios, (iii) the determination of the risk characteristics in which to pool financial assets, and (iv) the appropriate historical loss data to use in the model. Unfunded commitments are not considered in the CECL reserve if they are unconditionally cancellable by us.

We measure the loan portfolio’s credit losses by grouping loans based on similar risk characteristics under CECL, which is typically based on the loan’s collateral type. We regularly evaluate the risk characteristics of our loan portfolio to determine whether a different pooling methodology is more accurate. Further, if we determine that foreclosure of a loan’s collateral is probable or repayment of the loan is expected through sale or operation of the collateral and the borrower is experiencing financial difficulty, expected credit losses are measured as the difference between the current fair value of the collateral and the amortized cost of the loan. Fair value may be determined based on (i) the present value of estimated cash flows; (ii) the market price, if available; or (iii) the fair value of the collateral less estimated disposition costs.

While a loan exhibiting credit quality deterioration may remain on accrual status, the loan is placed on nonaccrual status at such time as (i) management believes that scheduled debt service payments will not be met within the coming 12 months; (ii) the loan becomes 90 days past due; (iii) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the credit deterioration; or (iv) the net realizable value of the loan’s underlying collateral approximates our carrying value for such loan. While on nonaccrual status, we recognize interest income only when an actual payment is received if a credit analysis supports the borrower’s principal repayment capacity. When a loan is placed on nonaccrual, previously accrued interest is reversed from interest income.

We utilize the contractual life of our loans to estimate the period over which we measure expected credit losses. Estimates for prepayments and extensions are incorporated into the inputs for our CECL model. Modifications to loan terms, such as a modification in connection with a troubled debt restructuring ("TDR"), where a concession is granted to a borrower experiencing financial difficulty, may result in the extension of the loan’s life and an increase in the allowance for credit losses.

In order to calculate the historical mean loss ratio applied to the loan portfolio, we utilize historical losses from our full underwriting history, along with the market loss history of a selected population of loans from a third-party’s database that are similar to our loan types, loan sizes, durations, interest rate structure and general LTV profiles. We may make adjustments to the historical loss history for qualitative or environmental factors if we believe there is evidence that the estimate for expected credit losses should be increased or decreased.

We record write-offs against the allowance for credit losses if we deem that all or a portion of a loan’s balance is uncollectible. If we receive cash in excess of some or all of the amounts we previously wrote off, we record a recovery to increase the allowance for credit losses.

As part of the evaluation of the loan portfolio, we assess the performance of each loan and assign a risk rating based on the collective evaluation of several factors, including but not limited to: collateral performance relative to underwritten plan, time since origination, current implied and/or re-underwritten LTV ratios, risk inherent in the loan structure and exit plan. Loans are rated “1” through “5,” from least risk to greatest risk, in connection with this review.

Investments in Real Estate

We acquire investments in real estate through direct equity investments and as a result of our lending activities (i.e. through foreclosure or the receipt of the deed-in-lieu of foreclosure on a property). Acquired investments in real estate assets are recorded initially at fair value in accordance with U.S. GAAP. We allocate the purchase price of our acquired assets and assumed liabilities based on the relative fair values of the assets acquired and liabilities assumed.

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We evaluate whether property obtained as a result of our lending activities should be identified as held for sale. If a property is determined to be held for sale, all of the acquired assets and assumed liabilities will be recorded in property held for sale on the consolidated balance sheets and recorded at the lower of cost or fair value. Once a property is classified as held for sale, depreciation expense is no longer recorded.

Investments in real estate are carried net of accumulated depreciation. We depreciate real property, building and tenant improvements and furniture, fixtures, and equipment using the straight-line method over the estimated useful lives of the assets. We amortize any acquired intangible assets using the straight-line method over the estimated useful lives of the intangible assets. We amortize the value allocated to lease right of use assets and related in-place lease liabilities, when determined to be operating leases, using the straight-line method over the remaining lease term. The value allocated to any associated above or below market lease intangible asset or liability is amortized to lease expense over the remaining lease term.

Ordinary repairs and maintenance are expensed as incurred. Costs related to the improvement of the real property are capitalized and depreciated over their useful lives. Costs related to the development and construction of real property are capitalized to construction in progress during the period beginning with the commencement of development and ending with the completion of construction.

We depreciate investments in real estate and amortize intangible assets over the estimated useful lives of the assets as follows:

Revenue Recognition

Interest income from our loan portfolio is recognized over the life of each loan using the effective interest method and is recorded on the accrual basis. Premiums and discounts are amortized or accreted into income using the effective yield method. If a loan with a premium or discount is prepaid, we immediately recognize the unamortized portion as a decrease or increase to interest income. In addition, we defer loan origination and extension fees and loan origination costs and recognize them over the life of the related loan with interest income using the straight-line method, which approximates the effective yield method. Income recognition is suspended for loans at the earlier of the date at which payments become 90 days past due or when, in our opinion, a full recovery of principal and income becomes doubtful. When the ultimate collectability of the principal is in doubt, all payments received are applied to principal under the cost recovery method. When the ultimate collectability of the principal is not in doubt, contractual interest is recorded as interest income when received, under the cash method, until an accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.

Through our investments in real estate, we earn revenue associated with rental operations and hospitality operations, which are presented in real estate income on the consolidated statements of operations.

Rental operating revenue consists of fixed contractual base rent arising from tenant leases at our office properties under operating leases. Revenue is recognized on a straight-line basis over the non-cancelable terms of the related leases. For leases that have fixed and measurable rent escalations, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded in our consolidated balance sheets. We move to cash basis operating lease income recognition in the period in which collectability of all lease payments is no longer considered probable. At such time, any uncollectible receivable balance will be written off.

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Hospitality operating revenue consists of amounts derived from hotel operations, including room sales and other hotel revenues. We recognize hospitality operating revenue when guest rooms are occupied, services have been provided or fees have been earned. Revenues are recorded net of any sales, occupancy or other taxes collected from customers on behalf of third parties. The following provides additional detail on room revenue and other operating revenue:

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Room revenue is recognized when our hotel satisfies its performance obligation of providing a hotel room. The hotel reservation defines the terms of the agreement including an agreed-upon rate and length of stay. Payment is typically due and paid in full at the end of the stay with some customers prepaying for their rooms prior to the stay. Payments received from a customer prior to arrival are recorded as an advance deposit and are recognized as revenue at the time of occupancy.

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Other operating revenue is recognized at the time when the goods or services are provided to the customer or when the performance obligation is satisfied. Payment is due at the time that goods or services are rendered or billed.

Variable Interest Entities

We consolidate entities that are VIEs where we have determined that we are the primary beneficiary of such entities. Once it is determined that we hold a variable interest in a VIE, management performs a qualitative analysis to determine (i) if we have the power to direct the matters that most significantly impact the VIE’s financial performance; and (ii) if we have the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive the benefits of the VIE that could potentially be significant to the VIE. If our variable interest possesses both of these characteristics, we are deemed to be the primary beneficiary and would be required to consolidate the VIE. This assessment must be done on an ongoing basis.

At December 31, 2025, we determined that there are no VIEs to be consolidated.

Recent Accounting Standards

Accounting Standards Adopted in 2025

In December 2023, the Financial Accounting Standards Board ("FASB") issued guidance to improve the transparency of income tax disclosures. This guidance is effective for fiscal years beginning after December 15, 2024 and is to be adopted on a prospective basis with the option to apply retrospectively. We have adopted this guidance, which did not have a material impact to our consolidated financial statements or financial statement disclosures. See Note 20 - Income Taxes for further information.

Accounting Standards to be Adopted in Future Periods

In November 2024, the FASB issued guidance to improve transparency on certain costs and expenses. This guidance is effective for fiscal years beginning after December 15, 2026 and is to be adopted on a prospective basis with the option to apply retrospectively. We are in the process of evaluating the impact of this guidance, however, we do not expect a material impact to our consolidated financial statements.

Inflation

Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more than inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our consolidated financial statements are prepared in accordance with GAAP and our distributions are determined by our Board based primarily on our maintaining our REIT qualification; in each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.