Sculptor Diversified Real Estate Income Trust Inc.

08/14/2025 | Press release | Distributed by Public on 08/14/2025 04:09

Quarterly Report for Quarter Ending JUNE 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References herein to "Sculptor Diversified Real Estate Income Trust," "SDREIT," the "Company," "we," "us," or "our" refer to Sculptor Diversified Real Estate Income Trust, Inc., a Maryland corporation, and its subsidiaries including Sculptor Diversified REIT Operating Partnership LP, a Delaware limited partnership, which we refer to herein as the "Operating Partnership" unless the context specifically requires otherwise.
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes to our unaudited condensed consolidated financial statements, which are included in Item 1 of this Quarterly Report, as well as the information contained in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC").
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of forward-looking terminology such as "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, or the negatives thereof. These may include our financial projections and estimates and their underlying assumptions, statements about plans, objectives and expectations with respect to future operations, statements with respect to acquisitions, statements regarding future performance and statements regarding identified but not yet closed acquisitions. Such forward-looking statements are inherently uncertain and there are or may be important factors that could cause actual outcomes or results to differ materially from those indicated in such statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
Overview
Sculptor Diversified Real Estate Income Trust invests primarily in stabilized income-generating commercial real estate across a variety of both traditional and non-traditional sectors in the U.S. and Europe, and to a lesser extent, invests in real estate related securities. The Company is the sole general partner and a limited partner of Sculptor Diversified REIT Operating Partnership LP (the "Operating Partnership"), and we own substantially all of our assets through the Operating Partnership.
The Company was formed on February 11, 2022 ("Inception") as a Maryland corporation and has operated and elected to be treated as a real estate investment trust ("REIT") for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2023. We generally are not subject to U.S. federal income taxes on our taxable income to the extent we annually distribute all of our net taxable income to shareholders and maintain our qualification as a REIT.
The Company and the Operating Partnership are externally managed by our adviser, Sculptor Advisors LLC (in its capacity as our adviser, the "Adviser"), a Delaware limited liability company and a registered investment adviser. Our Adviser is an affiliate of Sculptor Capital Management, Inc. (together with its affiliates, "Sculptor"). Sculptor Diversified REIT Special Limited Partner LP (the "Special Limited Partner"), an affiliate of the Adviser, owns a special limited partner interest in the Operating Partnership.
The Company's board of directors has at all times oversight and policy-making authority over us, including responsibility for governance, financial controls, compliance and disclosure. Pursuant to an advisory agreement, the Company has delegated to the Adviser the authority to source, evaluate and monitor our investment opportunities and make decisions related to the acquisition, management, financing and disposition of our assets, in accordance with our investment objectives, guidelines, policies and limitations, subject to oversight by our board of directors.
As of June 30, 2025, the Company, through its wholly-owned subsidiary, CapGrow Holdings Member, LLC (the "CapGrow Member"), owns a 93.20% controlling interest in CapGrow Holdings JV LLC (the "CapGrow JV", and together with CapGrow Member, "CapGrow"), which owns a portfolio of primarily single-family homes (the "CapGrow Portfolio") leased to and operated by care providers that serve individuals with intellectual and developmental disabilities. In addition, the Company, through a 90.0% owned joint venture (such join venture, the "Denton JV"), owns a 240-unit, 792-bed student housing property ("University Courtyard") located in Denton, Texas.
On February 23, 2024, CapGrow, CapGrow's founder and CapGrow Neptune Investor LLC, an affiliate of Sculptor, formed a joint-venture, CapGrow Neptune JV LLC (the "Neptune JV"), and closed on the acquisition of a portfolio of 33 single-family residences and intermediate care facilities located in California and Minnesota (the "Neptune Portfolio").
On March 18, 2025, the Company, through an 85.10% owned joint venture (such joint venture, the "Parking JV"), closed on the acquisition of two parking garage properties located in Rochester, New York, totaling 564,990 square feet and containing 2,250 stalls. Concurrent with the acquisition, leases were entered into with a national parking operator for both garages.
From time to time, the Company acquires, originates, or enters into interests in real estate debt, such as commercial mortgage backed securities ("CMBS"), loans, and/or preferred equity investments. As of June 30, 2025, investments in real estate debt consists of an investment in preferred equity in a real estate company that owns 65 net-leased veterinary hospitals and clinics (the "Veterinary Real Estate Company"), an investment in a junior mortgage loan collateralized by a casino and hotel property and investments in CMBS.
See "Investment Portfolio" below for additional information on these investments.
Current Market Conditions and Related Risks and Opportunities
The Company's business is materially affected by conditions in the financial markets and economic conditions in the U.S. and to a lesser extent, elsewhere in the world (including as a result the 2024 U.S. presidential and congressional elections and resulting uncertainties regarding actual and potential shifts in U.S. and foreign, trade, economic, tax and other policies, including with respect to treaties and tariffs). High interest rates and a reduction in the availability of financing, especially from banks, has led to greater spreads between the prices sought by sellers and buyers, which may adversely affect the value of our real estate assets. However, given that we are seeking to raise and invest substantial equity capital, we believe that market stresses could lead to attractive acquisition opportunities. While higher interest rates make financing more expensive, CapGrow has the benefit of having previously locked in all of its mortgage loans at favorable fixed interest rates, which represented approximately 72% of our total debt obligations. Also, we have a five-year interest rate protection agreement which caps University Courtyard's mortgage at a fixed interest rate of 3.56% through November 2028. The only variable rate loan that is indexed to SOFR is CapGrow's revolving credit facility, which had a balance of $33.5 million as of June 30, 2025. A 100 basis point increase or decrease in SOFR would have resulted in an increase or decrease in interest expense of approximately $0.1 million during the six months ended June 30, 2025. See "Liquidity and Capital Resources - Capital Resources" below. With respect to the Veterinary Real Estate Company, the Veterinary Real Estate Company has a senior loan facility with a variable rate loan that is indexed to SOFR. In general, higher interest expenses will increase CapGrow's and the Veterinary Real Estate Company's financing costs associated with existing and newly acquired homes and facilities and are also likely to adversely affect the financial performance of CapGrow's and the Veterinary Real Estate Company's tenants, which could adversely affect our results of operation and financial condition. The senior loan ahead of our junior mortgage loan collateralized by the casino and hotel property is a variable rate loan. An increase in interest rates may limit the cash flow available to pay our junior mortgage loan.
High interest rates will also increase the federal government's interest payments and contribute to growing federal deficits, which deficits may lead to efforts to cut federal spending. Such efforts could result in lower Medicaid expenditures, on which CapGrow's lessees and tenants rely. In addition, inflation, which has been pronounced over the last 2.5 years, may result in higher general and administrative expenses for our Company and for our tenants. Insurance costs in certain markets have increased more than inflation due to property locations in high risk markets, increased claims due to natural disasters, higher property replacement costs, and fewer insurers serving high risk markets. Further, state and local governments may also look to increase real estate taxes and other related fees in order to offset lower revenues from other sources. While CapGrow's and the Veterinary Real Estate Company's leases are triple net or modified net, high insurance costs and real estate taxes may result in higher overall occupancy expenses for tenants, as well as for the Company's assets for which the Company is responsible to pay these costs.
Changes in the presidential administration in the U.S. may result in changes, reductions, or cancellation of government programs and fundings which may directly or indirectly impact CapGrow's tenants and lessees. Changes in the financing programs previously available through Freddie Mac for CapGrow may impact the availability and cost of future financings and refinancings. Government programs and fundings for universities and their students may also be changed, reduced, or cancelled which may directly or indirectly affect University Courtyard's tenants.
Investing in commercial real estate assets also involves certain risks, including but not limited to tenants' inability to pay rent (whether due to property-specific factors, company-specific factors, sector-level issues, or broader macroeconomic
conditions), increases in interest rates and lack of availability of financing, tenant turnover and vacancies and changes in supply of or demand for similar properties in a given market. Any negative changes in these factors could affect the Company's performance and our ability to meet our obligations and make distributions to shareholders.
Q2 2025 Highlights
Operating Results
•We declared monthly distributions totaling $6.4 million for the three months ended June 30, 2025. During the three months ended June 30, 2025, our investments produced operating earnings and distributions that contributed to our total return. The details of the annualized distribution rate and total returns are shown in the following table:
Class F Class FF Class E Class AA Class A Class I-S
First issuance date 12/27/2022 5/1/2023 12/1/2023 2/1/2024 8/1/2024 2/1/2025
Annualized Distribution Rate(1)
6.97% 6.59% 6.88 % 6.57 % 7.14 % 7.17 %
Year-to-Date Total Return, without upfront selling commissions(2)
3.61% 3.36% 4.36 % 3.50 % 3.91 % 2.89 %
Year-to-Date Total Return, assuming maximum upfront selling commissions(2)(3)
1.54% 1.28% 4.36 % 1.42 % 1.84 % 0.84 %
Inception-to-Date Total Return, without upfront selling commissions(2)
9.48% 7.46% 7.42 % 5.38 % 4.02 % 2.89 %
Inception-to-Date Total Return, assuming maximum upfront selling commissions(2)(3)
8.60% 6.47% 7.42 % 3.89 % 1.95 % 0.84 %
____________________________________________________________________________
(1)
The annualized distribution rate is calculated as the June distribution annualized and divided by the prior month's net asset value, which is inclusive of all fees and expenses.
(2) Total return is calculated as the change in NAV per share during the respective periods plus any distributions per share declared in the period and assumes any distributions are reinvested in accordance with our distribution reinvestment plan. Total return for periods greater than one year are annualized. Class E shares are not subject to any upfront selling commissions.
(3) There were no selling commissions charged in respect of the Class F, Class A, Class I-S, and E shares.
Investments
•We acquired 44 vacant homes through CapGrow at an aggregate purchase price of $19.1 million during the three months ended June 30, 2025, which were leased to tenants following their acquisition.
•We sold 11 CapGrow homes for aggregate net proceeds of $3.8 million during the three months ended June 30, 2025.
•We closed on a $17.0 million junior mortgage loan collateralized by a casino and hotel property located in Las Vegas, Nevada that accrues interest at a rate of SOFR + 7.50% with a SOFR floor of 3.00%..
Capital and Financing Activities
•During the three months ended June 30, 2025, we raised an aggregate of $34.2 million of gross proceeds from the sale of our common shares, including proceeds from our distribution reinvestment plan, and repurchased common shares for $0.2 million.
•CapGrow incurred net additional borrowings of $11.9 million from the revolving credit facility to partly fund CapGrow's asset acquisitions during the three months ended June 30, 2025.
•CapGrow repaid $3.6 million of its mortgage loans as part of its scheduled debt service payments and asset sales during the three months ended June 30, 2025.
Subsequent Event Highlights
•Subsequent to June 30, 2025, we raised aggregate gross proceeds of $14.6 millionfrom the sale of our common shares.
Investment Portfolio
Summary of Portfolio
Investments in Real Estate
The following table provides a summary of our investments in real estate as of June 30, 2025:
Property Type
Number of Properties(1)
Sq. Feet / Units/ Beds / Homes
Occupancy Rate(2)
Average Effective Annualized Base Rent
Per Leased Square
Foot/Unit/Key(3)
Gross Asset Value ($ in thousands) (4)
Segment Revenue ($ in thousands) (5)
Percentage of Total Segment Revenue
Residential (Business)(6)
N/A 1,122 units 97% $ 31,528 $ 516,871 $ 19,955 83 %
Student Housing 1 792 beds 94% $ 8,261 70,800 3,746 16 %
Commercial Properties 2 564,990 sq ft 100% $ 0.18 8,700 340 1 %
Total
3 $ 596,371 $ 24,041 100 %
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(1) Single family homes are accounted for in the number of units and are not reflected in the number of properties.
(2) For single family rental properties, occupancy is defined as the percentage of occupied homes as of June 30, 2025. For student housing, occupancy is defined as the percentage of occupied beds as of June 30, 2025. There are leases in place with a national parking operator for both parking garages as of June 30, 2025.
(3) Average effective annualized base rent represents the annualized base rent for the three months ended June 30, 2025 per leased unit, bed, or square foot, and excludes tenant recoveries, straight line rent, variable rent, and above-market and below-market lease amortization.
(4) Based on fair value as of June 30, 2025.
(5) Segment revenue is presented for the six months ended June 30, 2025.
(6) Under the business combination, CapGrow was acquired as a business. CapGrow owns primarily single family homes across the United States with a total square footage of 2.6 million.
The following table provides additional information regarding our portfolio of real estate as of June 30, 2025:
Segment and Investment
Number of Properties Location Acquisition Date(s)
Ownership Interest(1)
Purchase Price ($ in thousands) Sq. Feet / Units/ Beds / Homes / Square Feet
Business:
CapGrow(2)(3)
N/A Various January, July and October 2023 and December 2024 93.20 % $ 455,000 1,122 units
Student Housing:
University Courtyard 1 Texas October 2023 90.00 % 58,000 792 beds
Commercial properties:
Rochester garages 2 New York March 2025 85.10 % 8,500 564,990 sq ft
Total
3 $ 521,500
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(1) Ownership interest as June 30, 2025. Certain of the joint venture agreements entered into by us provide the other partner a profits interest based on certain internal rate of return hurdles being achieved. Such investments are consolidated by us and any interests due to the other partner will be reported within non-controlling interests in consolidated joint ventures on our condensed consolidated balance sheets.
(2) As of June 30, 2025, the Company owned a 93.20% effective equity interest in CapGrow JV.
(3) Purchase price represents the total enterprise value at the initial acquisition date of January 4, 2023.
Lease Expirations
The following table details the expiring leases at our real estate properties by annualized base rent and square footage as of June 30, 2025 (amounts and square feet data in thousands). The table below excludes our student housing and parking garage properties as substantially all of their leases expire in or within 12 months:
Year
Number of Expiring Leases
Annualized Base Rent(1)
% of Total Annualized Base Rent Expiring Square Feet
% of Total Square Feet Expiring
2025 (six months) 41 $ 875 3 % 80 3 %
2026 155 4,457 13 % 387 15 %
2027 486 12,901 38 % 976 39 %
2028 73 3,065 9 % 177 7 %
2029 110 3,160 9 % 220 9 %
2030 156 4,360 13 % 338 14 %
2031 25 1,594 5 % 99 4 %
2032 16 2,449 7 % 139 6 %
2033 3 93 - % 8 - %
2034 14 850 2 % 52 2 %
Thereafter 4 341 1 % 25 1 %
Total 1,083 $ 34,145 100% 2,501 100%
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(1)Annualized base rent represents the amount of lease revenue that our portfolio would have generated in monthly contractual rent under existing leases as of June 30, 2025 multiplied by 12. The Company had not entered into any tenant concessions or rent abatements as of June 30, 2025. Amount excludes tenant recoveries, straight-line rent, and above-market and below-market lease amortization
Tenant Concentration in CapGrow
While CapGrow currently leases properties to 46 different care providers, there are two that each represent more than 5% of the Company's total rental income, and collectively, the leases on the properties with these tenants contributed approximately 46% of the Company's rental income for the six months ended June 30, 2025. National Mentor Holdings, Inc., a Delaware corporation doing business as "Sevita," is the largest home-based care provider serving individuals with intellectual and developmental disabilities in the country. As of June 30, 2025, there are 45 separate subsidiaries of Sevita that have leased 500 of CapGrow's properties, none of which contain cross-default provisions within the leases. Such leases in the aggregate represent approximately 38% of the Company's rental income for the six months ended June 30, 2025, and 33% of the Company's total assets as of June 30, 2025. Although Sevita is not a party to these leases, Sevita has entered into separate guarantees with respect to leases by its subsidiaries for 430 of CapGrow's properties, which represents approximately 32% of the Company's rental income for the six months ended June 30, 2025, and 29% of the Company's total assets as of June 30, 2025. Accordingly, Sevita has guaranteed a significant concentration of our revenue. Sufficiently adverse developments with respect to the business of such subsidiaries and/or Sevita that result in them not being able to honor their lease obligations, or such that Sevita could not honor its many separate guarantees, would likely have a greater adverse impact on our results of operation and financial condition than would otherwise be the case without this concentration of risk.
Sevita's audited financial statements for its fiscal years ended September 30, 2024 and 2023 are available at Exhibit 99.1 to our Annual Report on Form 10-K for the year ended December 31, 2024. We rely on certain third parties (including Sevita) to provide us with accurate financial statements and other financial information necessary for our financial reporting and compliance obligations. We did not independently verify the financial information provided to us by Sevita. There is a risk that we may not receive such financial information from these third parties in a timely manner, or at all, in the next fiscal
year. Any failure by these third parties to provide required accurate financial information could delay our ability to meet our financial reporting obligations, hinder our decision-making processes, and impair our ability to provide accurate and timely disclosures to our investors. In such circumstances, we may also be unable to accurately assess our financial position or results of operations, which could result in negative consequences for our business, including potential regulatory actions or harm to our reputation.
Generally, there are individual leases on each owned property, so the risk of an individual lease expiring or otherwise being terminated would not have a significant impact on CapGrow's business or the overall revenues earned by the Company. Additionally, CapGrow has experienced a very strong lease renewal rate with its tenants renewing 82% of expiring leases cumulatively from 2012 through June 2025. When assessing the financial position of a tenant, the Company is focused on the ability of the tenant to make rental payments underlying the lease. For existing tenants, this includes their track record of making timely payments, their source of funding (e.g., Medicaid), and to a lesser extent, information that can be gleaned from a review of their financial statements. Much of the tenant credit risk is mitigated since the payor stream is principally derived through Medicaid waivers. We believe that Medicaid's involvement in the payor stream has contributed to a long-term and consistent collection record of rent payments, with CapGrow experiencing no defaults by any of our four largest tenants. Moreover, even if a default occurred, CapGrow's experience suggests that states would generally find a new provider for those in our homes rather than displace the residents.
Investments in Real Estate Debt
The following table details our investments in real estate debt as of June 30, 2025 (in thousands):
June 30, 2025
Coupon Maturity Date
Face Amount(1)
Cost Basis(1)
Fair Value
Preferred equity
12.25%(2)
N/A(3)
$ 35,596 $ 35,596 $ 35,596
Junior mortgage loan
SOFR + 7.50% (4)
May 5, 2030 17,000 17,000 17,000
CMBS - floating 1M SOFR + 2.941% January 2030 8,000 7,980 7,966
$ 60,596 $ 60,576 $ 60,562
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(1)Investment in preferred equity includes original stated balance of $35.0 million plus paid-in-kind interest as of June 30, 2025.
(2)Interest accrues monthly with a current pay rate of 7.00% and a deferred interest rate of 5.25% through March 2030, after which the current pay rate increases to 12.00% and the deferred interest rate remains at 5.25% until the preferred units are fully redeemed, including accrued interest.
(3)The Company's preferred equity investment does not contain a stated maturity date. The Company has the right to cause the issuer to market and sell assets sufficient to redeem all remaining preferred units, including accrued interest, beginning in March 2031.
(4) Interest accrues monthly at a rate of SOFR+ 7.50% with a SOFR floor of 3.00%.
Results of Operations
Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024
The following table sets forth information regarding the condensed consolidated results of operations for the three months ended June 30, 2025 and 2024(amounts in thousands):
Three Months Ended
June 30,
2025 2024 Change
Revenues
Rental revenue
$ 11,401 $ 10,739 $ 662
Other revenue
424 272 152
Total revenues
11,825 11,011 814
Expenses
Three Months Ended
June 30,
2025 2024 Change
Property operating expenses
1,247 1,041 206
Management fees
465 318 147
Performance participation allocation
623 (285) 908
General and administrative
2,343 2,127 216
Depreciation and amortization
4,931 6,344 (1,413)
Total expenses
9,609 9,545 64
Operating income
2,216 1,466 750
Other income (expense):
Interest expense, net
(3,229) (3,013) (216)
Impairment of investments in real estate (1,160) (580) (580)
Income from investments in real estate debt, net 1,783 - 1,783
Income (loss) from an unconsolidated entity 29 18 11
Unrealized gain (loss) on derivative instruments (275) (61) (214)
Gain on sale of real estate 218 34 184
Total other income (expense)
(2,634) (3,602) 968
Net income (loss)
$ (418) $ (2,136) $ 1,718
Net (loss) income attributable to non-controlling interest in the consolidated subsidiaries 26 67
Net (loss) income attributable to non-controlling interest in the Operating Partnership
(4) 16
Net loss attributable to SDREIT stockholders
$ (396) $ (2,053)
Net loss per common share - basic and diluted $ (0.01) $ (0.09)
Weighted-average common shares outstanding - basic and diluted 35,373,992 23,225,630
Rental Revenue
Rental revenue from property operations increased by $0.7 million from $10.7 million during the three months ended June 30, 2024 to $11.4 million during the three months ended June 30, 2025, which was primarily due to rental income of $0.3 million generated from the parking garages acquired in March 2025 and higher rental income generated from both CapGrow and Denton.
Other Revenue
Other revenue increased by $0.2 million from $0.3 million during the three months ended June 30, 2024 to $0.4 million during the three months ended June 30, 2025, which was primarily due to an increase in lease termination income income and late fee income at CapGrow.
Property Operating Expenses
Property operating expenses increased by $0.2 million from $1.0 million during the three months ended June 30, 2024 to $1.2 million during the three months ended June 30, 2025 primarily due to the acquisition of the parking garages in March 2025 and increases in real estate taxes and repairs and maintenance expenses at CapGrow.
Management Fees
Management fees increased by $0.1 million from $0.3 million during the three months ended June 30, 2024 to $0.5 million for the three months ended June 30, 2025. The increase was due to the higher net asset value of the Company, which was primarily driven by additional equity raised.
Performance Participation Allocation
During the three months ended June 30, 2025, we accrued $0.6 million of performance participation allocation as a result of meeting the performance metrics that would result in such participation allocation as of June 30, 2025. During the three months ended June 30, 2024, we reversed the accrued performance participation allocation of $0.3 million accrued during the three months ended March 31, 2024.
General and Administrative Expenses
General and administrative expenses increased by $0.2 million from $2.1 million during the three months ended June 30, 2024 to $2.3 million for the three months ended June 30, 2025, which was primarily due to higher professional fees at CapGrow.
Depreciation and Amortization
Depreciation and amortization decreased by $1.4 million from $6.3 million during the three months ended June 30, 2024 to $4.9 million for the three months ended June 30, 2025 due primarily to the in-place lease intangibles we acquired as part of the acquisition of University Courtyard being fully amortized in June 2024. This was partially offset by a slight increase in depreciation expense.
Interest Expenses, net
Interest expenses, net increased by $0.2 million from $3.0 million during the three months ended June 30, 2024 to $3.2 million for the three months ended June 30, 2025 primarily due to a prepayment penalty and higher interest expense at CapGrow due to the increased borrowing on its revolving line of credit for property acquisitions.
Impairment of Investments in Real Estate
Impairment of investments in real estate increased $0.6 million from $0.6 million during the three months ended June 30, 2024 to $1.2 million for the three months ended June 30, 2025. These impairments relate to the write down of impaired vacant assets, held for sale assets, and assets sold. It is part of CapGrow's normal business operations to sell a property when a tenant vacates and no immediate replacement tenant is expected, at which time impairment is evaluated.
Income from Investments in Real Estate Debt, net
During the three months ended June 30, 2025, we recognized income from our investment in real estate debt of $1.8 million due to the investments in (i) CMBS in December 2024, (ii) the preferred equity of a private real estate company in March 2025 and (iii) a junior mortgage loan collateralized by a casino and hotel property in May 2025.
Unrealized Gain (Loss) on Derivative Instruments
Unrealized gain (loss) on derivative instruments for the three months ended June 30, 2025 and 2024 pertained to University Courtyard's fair value adjustments relating to its interest rate cap.
Gain on Sale of Real Estate
Gain on sale of real estate increased $0.2 million from $34 thousand during the three months ended June 30, 2024 to $0.2 million for the three months ended June 30, 2025 as CapGrow sold several of its properties at a gain during the three months ended June 30, 2025 as compared to one property sold at a gain during the three months ended June 30, 2024.
Six months ended June 30, 2025 Compared to the Six months ended June 30, 2024
The following table sets forth information regarding the condensed consolidated results of operations for the six months ended June 30, 2025 and 2024 (amounts in thousands):
Six Months Ended
June 30,
2025 2024 Change
Revenues
Rental revenue
$ 23,218 $ 21,690 $ 1,528
Other revenue
823 $ 556 267
Total revenues
24,041 22,246 1,795
Expenses
Property operating expenses
2,354 2,023 331
Management fees
898 620 278
Performance participation allocation
623 - 623
General and administrative
4,828 4,250 578
Depreciation and amortization
10,092 12,906 (2,814)
Total expenses
18,795 19,799 (1,004)
Operating income
5,246 2,447 2,799
Other income (expense):
Interest expense, net
(6,250) (6,051) (199)
Impairment of investments in real estate (1,913) (1,022) (891)
Income from investments in real estate debt, net 2,599 - 2,599
Income (loss) from an unconsolidated entity 59 10 49
Unrealized gain (loss) on derivative instruments (656) 138 (794)
Gain on sale of real estate 236 34 202
Total other income (expense)
$ (5,925) (6,891) 966
Net income (loss)
$ (679) $ (4,444) $ 3,765
Net (loss) income attributable to non-controlling interest in the consolidated subsidiaries 29 61
Net (loss) income attributable to non-controlling interest in the Operating Partnership
(5) 29
Net loss attributable to SDREIT stockholders
$ (655) $ (4,354)
Net loss per common share - basic and diluted $ (0.02) $ (0.19)
Weighted-average common shares outstanding - basic and diluted 33,569,498 22,770,531
Rental Revenue
Rental revenue from property operations increased by $1.5 million from $21.7 million million during the six months ended June 30, 2024 to $23.2 million during the six months ended June 30, 2025, which was primarily due to accelerated amortization of below-market lease intangibles as a result of several leases being terminated in the current period and increased rental income generated from new properties acquired at CapGrow. Additionally, included in the six months ended June 30, 2025 was $0.3 million of rental income generated from the parking garages acquired in March 2025.
Other Revenue
Other revenue increased by $0.3 million from $0.6 million during the six months ended June 30, 2024 to $0.8 million during the six months ended June 30, 2025, which was primarily due to an increase in lease termination income and late fee income at CapGrow.
Property Operating Expenses
Property operating expenses increased by $0.3 million from $2.0 million during the six months ended June 30, 2024 to $2.4 million during the six months ended June 30, 2025 primarily due to the acquisition of the parking garages in March 2025 and the increases in real estate taxes and repairs and maintenance expenses at CapGrow.
Management Fees
Management fees increased by $0.3 million from $0.6 million during the six months ended June 30, 2024 to $0.9 million for the six months ended June 30, 2025. The increase was due to the higher net asset value of the Company, which was primarily driven by additional equity raised.
Performance Participation Allocation
During the six months ended June 30, 2025, we accrued performance participation allocation of $0.6 million. There was no such performance participation allocation during the six months ended June 30, 2024 as a result of the performance metrics that would result in such participation allocation not being met as of June 30, 2024.
General and Administrative Expenses
General and administrative expenses increased by $0.6 million from $4.3 million during the six months ended June 30, 2024 to $4.8 million for the six months ended June 30, 2025, which was primarily due to CapGrow's increases in (i) payroll, primarily due to increased headcount, and (ii) professional fees.
Depreciation and Amortization
Depreciation and amortization decreased by $2.8 million from $12.9 million during the six months ended June 30, 2024 to $10.1 million for the six months ended June 30, 2025 due primarily to the in-place lease intangibles we acquired as part of the acquisition of University Courtyard being fully amortized in June 2024. This was partially offset by the depreciation associated with the parking garages we acquired in March 2025 and an increase in depreciation and amortization expense at CapGrow due to new property acquisitions and increased leasing activities.
Interest Expense, net
Interest expense, net increased by $0.2 million from $6.1 million during the three months ended June 30, 2024 to $6.3 million for the three months ended June 30, 2025 primarily due to a prepayment penalty and higher interest expense at CapGrow due to the increased borrowing on its revolving line of credit for property acquisitions.
Impairment of Investments in Real Estate
Impairment of investments in real estate increased $0.9 million from $1.0 million during the six months ended June 30, 2024 to $1.9 million for the six months ended June 30, 2025. These impairments relate to the write down of impaired vacant assets, held for sale assets, and assets sold. It is part of CapGrow's normal business operations to sell a property when a tenant vacates and no immediate replacement tenant is expected, at which time impairment is evaluated.
Income from Investments in Real Estate Debt, net
During the six months ended June 30, 2025, we recognized income from our investment in real estate debt of $2.6 million due to the investments in (i) CMBS in December 2024, (ii) the preferred equity of a private real estate company in March 2025 and (iii) a junior mortgage loan collateralized by a casino and hotel property in May 2025.
Unrealized Gain (Loss) on Derivative Instruments
Unrealized gain (loss) on derivative instruments for the six months ended June 30, 2025 and 2024 pertained to University Courtyard's fair value adjustments relating to its interest rate cap.
Gain on Sale of Real Estate
Gain on sale of real estate increased $0.2 million from $34 thousand during the six months ended June 30, 2024 to $0.2 million for the six months ended June 30, 2025 as CapGrow sold several of its properties at a gain during the six months ended June 30, 2025 as compared to one property sold at a gain during the six months ended June 30, 2024.
Funds from Operations, Adjusted Funds from Operations and Funds Available for Distribution
Funds from operations ("FFO") is an operating measure defined by the National Association of Real Estate Investment Trusts ("NAREIT") that is broadly used in the REIT industry. FFO, as defined by NAREIT and presented below, is calculated as net income or loss (computed in accordance with GAAP), excluding (i) depreciation and amortization, (ii) impairment of investments in real estate, (iii) net gains or losses from sales of real estate, and (iv) similar adjustments for non-controlling interests and unconsolidated entities. We believe FFO is a meaningful non-GAAP supplemental measure of our operating results. Our condensed consolidated financial statements are presented using historical cost accounting which, among other things, requires depreciation of real estate investments to be calculated on a straight-line basis. As a result, our operating results imply that the value of our real estate investments have decreased over time. However, we believe that the value of our real estate investments will fluctuate over time based on market conditions and, as such, depreciation under historical cost accounting may be less informative as a measure of our performance.
We also believe that adjusted FFO ("AFFO") is an additional meaningful non-GAAP supplemental measure of our operating results. AFFO further adjusts FFO to reflect the performance of our portfolio by adjusting for items we believe are not directly attributable to our operations. Our adjustments to FFO to arrive at AFFO include removing the impact of (i) straight-line rental income and expense, (ii) deferred income amortization, (iii) amortization of above- and below-market lease intangibles, (iv) amortization of mortgage premium/discount, (v) unrealized gains or losses from changes in the fair value of real estate debt and other financial instruments, (vi) gains and losses resulting from foreign currency translations, (vii) non-cash performance participation allocation paid in shares or Operating Partnership units, even if repurchased by us, (viii) amortization of restricted stock awards, (ix) non-cash interest expense on affiliate line of credit paid in shares or Operating Partnership units, even if subsequently repurchased by us, (x) organizational costs, (xi) amortization of deferred financing costs, (xii) transaction fees, and (xiii) similar adjustments for non-controlling interests and unconsolidated entities.
We also believe that funds available for distribution ("FAD") is an additional meaningful non-GAAP supplemental measure of our operating results. FAD provides useful information for considering our operating results and certain other items relative to the amount of our distributions. Further, FAD is a metric, among others, that is considered by our board of directors and executive officers when determining the amount of our dividend to stockholders, and we believe is therefore meaningful to stockholders. FAD is calculated as AFFO adjusted for (i) management fees paid in shares or Operating Partnership units, even if subsequently repurchased by us, (ii) realized losses (gains) on financial instruments, (iii) recurring tenant improvements, leasing commissions, and other capital expenditures, (iv) distribution fees paid during the period, and (v) similar adjustments for non-controlling interests and unconsolidated entities. FAD is not indicative of cash available to fund our cash needs and does not represent cash flows from operating activities in accordance with GAAP, as FAD is adjusted for distribution fees and recurring tenant improvements, leasing commission, and other capital expenditures, which are not considered when determining cash flows from operations. Furthermore, FAD excludes (i) adjustments for working capital items and (ii) amortization of discounts and premiums on investments in real estate debt. Cash flows from operating activities in accordance with GAAP would generally be adjusted for such items.
FFO, AFFO, and FAD should not be considered more relevant or accurate than GAAP net income (loss) in evaluating our operating performance. In addition, FFO, AFFO, and FAD should not be considered as alternatives to net income (loss) as
indications of our performance or as alternatives to cash flows from operating activities as indications of our liquidity, but rather should be reviewed in conjunction with these and other GAAP measurements. Further, FFO, AFFO, and FAD are not intended to be used as liquidity measures indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. In addition, our methodology for calculating AFFO and FAD may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures, and accordingly, our reported AFFO and FAD may not be comparable to the AFFO and FAD reported by other companies.
The following table presents a reconciliation of net income (loss) attributable to SDREIT shareholders to FFO, AFFO and FAD attributable to SDREIT shareholders for the respective periods below (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2025 2024 2025 2024
Net income (loss) attributable to SDREIT shareholders
$ (396) $ (2,053) $ (655) $ (4,354)
Adjustments to arrive at FFO:
Depreciation and amortization
4,931 6,344 10,092 12,906
Gain on sale of real estate (218) (34) (236) (34)
Impairment on investments in real estate 1,160 580 1,913 1,022
Amount attributable to non-controlling interests in the consolidated subsidiary for above adjustments
(440) (1,614) (881) (2,326)
Unconsolidated entities depreciation and noncontrolling interests adjustments 3 6 6 9
FFO attributable to SDREIT shareholders
$ 5,040 $ 3,229 $ 10,239 $ 7,223
Adjustments to arrive at AFFO:
Straight-line rental income and expense
(100) (126) (211) (285)
Amortization of below-market lease intangibles
(1,151) (1,034) (3,007) (2,300)
Amortization of discount on mortgage and other loans payable
69 69 137 139
Amortization of deferred financing fees - property level 67 77 148 124
Amortization of restricted stock awards
61 4 122 91
Organizational costs and transaction costs
39 60 308 172
Origination fees (255) - (605) -
Non-cash performance participation allocation 623 (285) 623 -
Unrealized (gains) losses from changes in the fair value of investments in real estate debt and other financial instruments 308 61 674 (138)
Paid-in-kind interest (468) - (596) -
Amount attributable to unconsolidated entities for above adjustments 1 3 1 3
Amount attributable to non-controlling interests for above adjustments
15 59 147 494
AFFO attributable to SDREIT shareholders $ 4,249 $ 2,117 $ 7,980 $ 5,523
Recurring tenant improvements and other capital expenditures (27) - (30) -
Management fee 465 318 898 620
Stockholder distribution fees paid (135) (90) (257) (171)
FAD Attributable to SDREIT Shareholders $ 4,552 $ 2,345 $ 8,591 $ 5,972
Net Asset Value
We calculate NAV per share in accordance with the valuation guidelines that have been approved by our board of directors. Our total NAV presented in the following tables includes the NAV of our Class F, Class FF, Class E, Class AA, Class A and Class I-S common shares, as well as the partnership interests of the Operating Partnership held by parties other than us, which, in aggregate, was reduced by the noncontrolling interests in our consolidated subsidiaries.
We calculate NAV per share for each share class monthly. Our NAV for each class of shares is based on the net asset values of our investments (including investments in real estate debt and other securities and real estate businesses, such as CapGrow), the addition of any other assets (such as cash on hand), and the deduction of any liabilities, including the allocation/accrual of any performance participation to the Special Limited Partner, and will also include the deduction of management fees and certain organization and offering expenses (which are class-specific expenses) and any distribution fees applicable to such class of shares. Please refer to Item 9. "Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters-Net Asset Value Calculation and Valuation Guidelines" in our Form 10 for further details on how our NAV is determined.
The following table provides a breakdown of the major components of our NAV as of June 30, 2025 (amounts in thousands, except per share/unit data):
Components of NAV
June 30, 2025
Investments in real estate (including goodwill)
$ 596,371
Investment in an unconsolidated joint venture 2,114
Investments in real estate debt 60,732
Cash and cash equivalents
23,803
Restricted cash
13,883
Receivables 923
Other assets 3,173
Mortgages and other loans payable, net
(268,927)
Accounts payable and other liabilities
(16,778)
Management fee payable (315)
Accrued participation allocation (623)
Due to related parties (38)
Noncontrolling interests in the consolidated subsidiaries (27,932)
Net Asset Value
$ 386,386
Number of outstanding shares/units
36,329,350
NAV and NAV Per Share Calculation
The following table provides a breakdown of our total NAV and NAV per share/unit by class as of June 30, 2025 (amounts in thousands, except per share/unit data):
NAV per share
Class F Shares Class FF Shares Class E Shares Class AA Shares Class A Shares Class I-S Shares Operating Partnership Units Total
NAV
$ 209,348 $ 65,638 $ 42,411 $ 48,987 $ 17,771 $ 511 $ 1,720 $ 386,386
Number of outstanding shares/ units
19,607,441 6,241,937 3,921,217 4,645,736 1,704,696 49,253 159,070 36,329,350
NAV Per Share/Unit
$ 10.6769 $ 10.5157 $ 10.8159 $ 10.5446 $ 10.4246 $ 10.3824 $ 10.8159 $ 10.6357
The following table details the discount rate and the weighted-average capitalization rate by property type, which are the key assumptions from the valuations as of June 30, 2025:
Property Type
Discount Rate
Exit Capitalization Rate
Residential (Business) 8.0% 7.0%
Student Housing 8.5% 6.3%
Commercial Properties 12.5% 10.0%
These weighted averages of key assumptions are calculated by the Adviser using information from the appraisals that are provided by the independent valuation advisor and reviewed by our Adviser. A change in these assumptions would impact the calculation of the value of our property investments. For example, assuming all other factors remain unchanged, the changes listed below would result in the following effects on our investment values at June 30, 2025:
Input Hypothetical Change Residential (Business) Student Housing Commercial Properties
Discount Rate 0.25% decrease 1.2% 1.1% 1.1%
Discount Rate 0.25% increase (1.4)% (1.1)% (2.3)%
Exit Capitalization Rate (weighted average) 0.25% decrease 3.6% 4.4% 1.1%
Exit Capitalization Rate (weighted average) 0.25% increase (3.4)% (4.0)% (1.1)%
The following table details the weighted average contractual rates for the Company's borrowings compared to the weighted average market rates, which are key assumptions from the debt valuations as of June 30, 2025:
Debt Type Contracted Interest Rates Market Interest Rate
Fixed rate debt (weighted average) 4.51% 6.37%
Variable rate debt (weighted average)(1)
SOFR + 3.14% SOFR + 2.89%
___________________________________________________
(1) - Includes University Courtyard's debt obligation without consideration of the effect of the interest rate cap.
These weighted averages of key assumptions are calculated by the Adviser using information from debt valuations that are provided by the independent valuation advisor who values our debt and are reviewed by the Adviser. A change in these assumptions would impact the calculation of the value of the debt owed by CapGrow and University Courtyard. Examples of changes in market mortgage interest rates, assuming no other changes to our June 30, 2025 debt balances, would have the following effects on the value of our debt balances.
Input Hypothetical Change Residential (Business) Student Housing
Mortgage Interest Rates (weighted average) 0.25% Decrease 0.5% 0.3%
Mortgage Interest Rates (weighted average) 0.25% Increase (0.5)% (0.3)%
The following table reconciles shareholders' equity per our condensed consolidated balance sheet to our NAV as of June 30, 2025 (amounts in thousands):
June 30, 2025
Shareholders' equity
$ 304,911
Redeemable non-controlling interest in SDREIT Operating Partnership 1,720
Total SDREIT stockholders' equity and SDREIT Operating Partnership partners' capital under GAAP $ 306,631
Adjustments:
Accrued organizational and offering costs 2,576
Accumulated depreciation and amortization under GAAP 39,012
Straight line rent receivable (1,634)
Unrealized net real estate appreciation 39,800
Unvested dividends reinvestment 1
NAV
$ 386,386
The following details the adjustments to reconcile GAAP shareholders' equity to our NAV:
•The Adviser agreed to advance certain organization and offering costs on our behalf through March 31, 2024. Such costs will be reimbursed to the Adviser on a pro-rata basis over a 60-month period beginning March 31, 2024. Under GAAP, organization costs are expensed as incurred. For purposes of calculating NAV, such costs will be recognized as paid over the 60-month reimbursement period.
•We depreciate our investments in real estate and amortize certain other assets and liabilities (i.e., above- and below-market leases, in-place lease costs and deferred commissions) in accordance with GAAP. Such depreciation and amortization is not recorded for purposes of calculating our NAV.
•Our investments in real estate are presented at their depreciated cost basis in our GAAP condensed consolidated financial statements. Additionally, our mortgage loans and revolving credit facility (collectively, our "Debt") are presented at their amortized cost basis in our GAAP condensed consolidated financial statements. As such, any increases or decreases in the fair market value of our investments in real estate or our Debt are not included in our GAAP results. For purposes of calculating our NAV, our investments in real estate and our Debt are recorded at fair value.
•We recognize rental revenue on a straight-line basis under GAAP. Such straight-line rent adjustments are excluded for purposes of calculating NAV.
•We accrue dividends on unvested restricted stock in accordance with GAAP. For purposes of calculating our NAV, we exclude these accrued unvested dividends until the vesting period associated to the underlying restricted stock expires.
Distributions
Distributions are authorized at the discretion of our board of directors, in accordance with our earnings, cash flows and general financial condition. Our board of directors' discretion is directed, in substantial part, by its obligation to cause us to comply with the REIT requirements. To qualify as a REIT, we are required to pay distributions sufficient to satisfy the requirements for qualification as a REIT for tax purposes. We intend to distribute sufficient income so that we satisfy the requirements for qualification as a REIT. In order to qualify as a REIT, we are required to distribute 90% of our annual REIT taxable income, determined without regard to the dividends-paid deduction and excluding net capital gains, to our stockholders. We intend to declare monthly distributions as authorized by our board of directors (or a committee of the board of directors) and to pay such distributions on a monthly basis. Our distribution policy is set by our board of directors and is subject to change based on available cash flows. Distributions are made on all classes of our common stock at the same time. We normally expect that the accrual of ongoing fees on a class-specific basis will result in different amounts of distributions being paid with respect to certain classes of shares.
Beginning March 31, 2023, we declared monthly distributions for each class of our common shares, which are generally paid 12 days after month-end. We have paid distributions consecutively each month since such time. Each class of our common shares received the same aggregate gross distribution per share, which was $0.0621 per share for the month ended June 30, 2025. The net distribution varies for each class based on the applicable distribution fee, which is deducted from the monthly distribution per share and paid directly to the applicable distributor. On October 1, 2023, Class FF shares became subject to an annual distribution fee of 0.50% per annum. Class AA shares are subject to an annual distribution fee of 0.50% per annum since issuance.
The following table details the total net distributions for each of our share class from inception through record date June 30, 2025:
Declaration Date
Class F Shares Class FF Shares Class E Shares Class AA Shares Class A Shares Class I-S Shares
Inception through December 31, 2023 $ 0.6143 $ 0.4832 $ 0.0633 $ - $ - $ -
January 31, 2024 0.0627 0.0582 0.0627 - - -
February 29, 2024 0.0631 0.0589 0.0631 0.0588 - -
March 31, 2024 0.0629 0.0584 0.0629 0.0584 - -
April 30, 2024 0.0627 0.0583 0.0627 0.0583 - -
May 31, 2024 0.0628 0.0583 0.0628 0.0583 - -
June 30, 2024 0.0627 0.0583 0.0627 0.0583 - -
July 31, 2024 0.0624 0.0579 0.0624 0.0579 - -
August 30, 2024 0.0640 0.0594 0.0640 0.0594 0.0640 -
September 30, 2024 0.0637 0.0593 0.0637 0.0593 0.0637 -
October 31, 2024 0.0633 0.0587 0.0633 0.0587 0.0633 -
November 30, 2024 0.0635 0.0591 0.0635 0.0591 0.0635 -
December 31, 2024 0.0624 0.0579 0.0624 0.0579 0.0624 -
January 31, 2025 0.0620 0.0575 0.0620 0.0575 0.0620 -
February 28, 2025 0.0620 0.0580 0.0620 0.0580 0.0620 0.0620
March 31, 2025 0.0617 0.0573 0.0617 0.0572 0.0617 0.0617
April 30, 2025 0.0615 0.0572 0.0615 0.0572 0.0615 0.0615
May 31, 2025 0.0618 0.0574 0.0618 0.0573 0.0618 0.0618
June 30, 2025 0.0621 0.0578 0.0621 0.0578 0.0621 0.0621
Total
$ 1.7416 $ 1.5311 $ 1.1906 $ 0.9894 $ 0.6880 $ 0.3091
The following tables detail our distributions declared for the six months ended June 30, 2025 (amounts in thousands):
Six Months Ended June 30, 2025 Six Months Ended June 30, 2024
Amount Percentage Amount Percentage
Distributions
Payable in cash
$ 9,715 79 % $ 6,891 81 %
Reinvested in shares
2,525 21 % 1,599 19 %
Total distributions
$ 12,240 100 % $ 8,490 100 %
Sources of Distributions
Cash flows from operating activities
$ 10,642 87 % $ 8,490 100 %
DRIP(1)
1,598 13 % - - %
Total Sources of distribution
$ 12,240 100 % $ 8,490 100 %
Cash flows from operating activities
$ 10,245 $ 9,125
Funds from operations(2)
$ 10,239 $ 7,223
Adjusted funds from operations(2)
$ 7,980 $ 5,523
___________________________________________________
(1) Stockholders may elect to have their distributions reinvested in shares of our common stock through our distribution repurchase plan ("DRIP").
(2)See "Funds from Operations, Adjusted Funds from Operations and Funds Available for Distribution" above for a description of Funds from Operations and Adjusted Funds from Operations, for reconciliations of these amounts to GAAP net loss attributable to SDREIT shareholders and for considerations on how to review these metrics.
Subsequent to June 30, 2025, we declared $1.8 million of distributions in cash and $0.5 million of distributions in shares under our distribution reinvestment plan.
There is no assurance we will pay distributions in any particular amount, if at all. We may fund any distributions from sources other than cash flow from operations, including, without limitation, the sale of or repayment of our assets, borrowings or offering proceeds, and we have no limits on the amounts we may pay from such sources.
Liquidity and Capital Resources
Liquidity
We believe we have sufficient liquidity to operate our business, with $23.8 million of immediate liquidity as of June 30, 2025, which is comprised of cash and cash equivalents. Aside from cash flows from operations, we obtain incremental liquidity through the sale of our common shares. We may incur indebtedness secured by our real estate and real estate debt investments, borrow money through unsecured financings, or incur other forms of indebtedness. We may also generate incremental liquidity through the sale of our real estate and real estate debt investments.
Our primary liquidity needs are to fund our investments, make distributions to our shareholders, repurchase common shares pursuant to our share repurchase plan, pay operating expenses, fund capital expenditures, and repay indebtedness. Our operating expenses include, among other things, the management fee we pay to the Adviser and the performance participation allocation that the Operating Partnership pays to the Special Limited Partner, both of which will impact our liquidity to the extent the Adviser or the Special Limited Partner elect to receive such payments in cash, or subsequently redeem shares or OP units previously issued to them.
Our cash needs for acquisitions and other capital investments are expected to be funded primarily from the sale of common shares and through the incurrence or assumption of debt. Other potential future sources of capital include proceeds from the sale of assets. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures.
Capital Resources
As of June 30, 2025, our indebtedness included loans secured by our properties, our credit facility and a financing obligation. The following table is a summary of our indebtedness as of June 30, 2025 (amount in thousands):
Indebtedness
Weighted Average Interest Rate
Weighted Average Maturity Date(1)
Maximum Facility Size Principal Balance Outstanding
Mortgages and other loans payable(2)
4.42% April 2031 N/A $ 219,229
Revolving credit facility(3)
7.84% February 2027 $ 50,000 33,545
Financing obligations(4)
23,199
Discount and deferred financing costs, net
(3,369)
Total indebtedness
$ 272,604
______________________________________
(1) For loans where the Company, at its sole discretion, has extension options, the maximum maturity date has been assumed.
(2) Mortgages and other loans payable bear varying fixed rates and maturities ranging from October 2025 through January 2039. There were no extension options for any of our loans.
(3) The revolving credit facility bears interest equal to Term SOFR plus 3.50% per annum and matures in February 2027. The weighted average interest rate for the revolving credit facility for the three months ended June 30, 2025 was 7.81%.
(4) This financing obligation is related to the sale and leaseback transaction of University Courtyard, which is accounted for as a failed and leaseback transaction because the lease is classified as a finance lease. Accordingly, the underlying land is still included in the investments in real estate in the condensed consolidated balance sheets and the proceeds from the sale are accounted for as a financing obligation. The rental payment under the lease will be allocated between interest expense and principal repayment of the financing obligation using the effective interest method and amortize over the 99-yeaar lease term. The total principal payments will not exceed the difference between the gross proceeds from the sale of $23.2 million and the initial carrying value of the land of $4.1 million, resulting in maximum principal payments of $19.1 million.
In March 2023, we commenced the offering of our shares through a continuous private placement offering pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act, and Regulation D promulgated thereunder, and other exemptions of similar import in the laws of the states and other jurisdictions where the offering is being made. Our Class A, Class AA, Class D, Class F (issuer direct sales to institutional investors), Class I, Class S, and Class I-S shares are generally available for issuance in our private offering. Class F and Class FF shares were available for issuance through a third-party distribution partner through January 1, 2024, and existing investors in such classes had the ability to invest in such classes in an amount up to such investor's initial investment in such class until January 1, 2025. Class E shares are only expected to be held by Sculptor, its personnel, and affiliates.
As of June 30, 2025, we have received net proceeds of $235.3 million, including proceeds from our distribution reinvestment plan, from issuing an aggregate of 5,614,670 Class F common shares, 6,454,200 Class FF common shares, 4,645,736 Class AA common shares, 1,704,696 Class A common shares, 49,253 Class I-S common shares and 3,542,165 Class E common shares in the private offering. This is in addition to the $150.2 million raised from the sale of 15,023,153 Class F common shares (including reinvestment of distributions) in private transactions that preceded this offering. Additionally, we issued an aggregate $3.4 million, or 379,052 of Class E common shares, inclusive of shares issued to our independent directors under the terms of the independent director compensation plan, to our Advisor as payment of management fees, and to an employee of Sculptor who purchased such shares.
As of June 30, 2025, we have repurchased Class F common shares and Class FF common shares of 1,030,382 and 212,264, respectively, totaling $13.2 million.
Cash Flows
Six Months Ended June 30, 2025 and 2024 (amounts in thousands):
Six Months Ended
June 30, 		Difference
2025 2024
Cash flows provided by operating activities
$ 10,245 9,125 $ 1,120
Cash flows used in investing activities
(81,239) (3,674) (77,565)
Cash flows provided by financing activities
53,840 6,600 47,240
Net change in cash and cash equivalents and restricted cash $ (17,154) $ 12,051 $ (29,205)
Cash flows provided by operating activities increased by approximately $1.1 million during the six months ended June 30, 2025 as compared to the six months ended June 30, 2024, primarily due to improved operating results, partially offset by the timing of settlement of certain payables and receivables.
Cash flows used in investing activities increased by approximately $77.6 million during the six months ended June 30, 2025 as compared to the six months ended June 30, 2024, primarily due to the investments in real estate debt and acquisition of the parking garages and single-family properties through CapGrow during the current period.
Cash flows provided by financing activities increased by approximately $47.2 million during the six months ended June 30, 2025 as compared to the six months ended June 30, 2024, primarily due to more proceeds from stock issuances, partially offset by the repurchases of our common stock and increased distributions to stockholders.
Critical Accounting Estimates
A complete discussion of our critical accounting estimates is included in our Annual Report. There have been no changes in such estimates.
Recent Accounting Pronouncements
See Note 2, "Summary of Significant Accounting Policies" to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for a discussion concerning recent accounting pronouncements.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Commitments and Contingencies
The following table aggregates our contractual obligations and commitments with payments due subsequent to June 30, 2025 (amounts in thousands):
Total Less than 1 year 1-3 years 3-5 years More than 5 years
Indebtedness(1)
$ 271,913 $ 2,064 $ 53,766 $ 37,061 $ 179,022
Organization and offering costs(2)
2,576 344 1,374 858 -
Total
$ 274,489 $ 2,408 $ 55,140 $ 37,919 $ 179,022
______________________________________________
(1) Loan maturities are based on the contractual maturity dates.
(2)Amount owed to our Adviser as of June 30, 2025.
Sculptor Diversified Real Estate Income Trust Inc. published this content on August 14, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on August 14, 2025 at 10:09 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]