Certain statements contained in this Form 10 of Sculptor Diversified Real Estate Income Trust, Inc. (referred to herein as the “Company,” “we” or “us”) other than historical facts may be considered forward-looking statements. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “could,” “intend,” “anticipate,” “plan,” “estimate,” “believe,” “potential,” “continue,” or other similar words. Specifically, we consider, among others, statements concerning future operating results and cash flows, our ability to meet future obligations, and the amount and timing of any future distributions to stockholders to be forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the SEC. We make no representations or warranties (express or implied) about the accuracy of any such forward-looking statements contained in this Form 10, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Any such forward-looking statements are subject to unknown risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, provide distributions to stockholders, and maintain the value of our real estate properties, may be significantly hindered.

The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

Sculptor Diversified Real Estate Income Trust, Inc. is a Maryland corporation formed on February 11, 2022 for the principal purpose of investing in stabilized income-generating commercial real estate across a variety of both traditional and non-traditional sectors in the United States and Europe. These assets may include multifamily, industrial, net lease, retail and office assets, as well as others, including, without limitation, healthcare, student housing, senior living, lodging, data centers, manufactured housing and self-storage properties. Where applicable in this Form 10, Sculptor Diversified Real Estate Income Trust, Inc. is referred to as the “REIT” or “SDREIT” and, together with its consolidated subsidiaries, including Sculptor Diversified REIT Operating Partnership LP, a Delaware limited partnership, which we refer to herein as the “Operating Partnership” or “SDREIT OP”, as the “Company,” “we” or “us”. We 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., our sponsor (together with its affiliates, “Sculptor”).

In March 2023, we commenced a private offering of shares of our common stock pursuant to the exemption from registration provided by Section 4(a)(2) of the U.S. Securities Act of 1933, as amended (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.

We filed this Form 10 to register shares of our Class S common stock pursuant to Section 12(g) of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”). As a result of our voluntary registration of our common stock pursuant to the Exchange Act, we are subject to the requirements of the Exchange Act and the rules promulgated thereunder. In particular, we are required to file Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and Current Reports on Form 8-K and otherwise comply with the disclosure obligations of the Exchange Act applicable to issuers filing registration statements to register a class of securities pursuant to Section 12(g) of the Exchange Act. We voluntarily registered shares of our common stock pursuant to Section 12(g) of the Exchange Act to provide our stockholders with access to public disclosure regarding our business and operations of the type required in the reports filed under the Exchange Act.

We are a non-listed, perpetual life real estate investment trust (“REIT”). We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ending December 31, 2023, and we intend to continue to operate in such a manner. Our principal executive offices are located at 9 West 57^th Street, 40^th Floor, New York, New York 10019, and the telephone number of our principal executive offices is 212-790-0000.

Founded in February 1994, Sculptor is a leading alternative asset manager serving a diverse global investor base with investment solutions across core capabilities in multi-strategy, credit, and real estate. As of July 1, 2024, Sculptor manages approximately $31.8 billion of client assets and has a global presence with offices in New York, London, Hong Kong, and Shanghai.

Founded in 2003, Sculptor Real Estate has raised $8.3 billion investor capital as of July 1, 2024. As of June 30, 2024, Sculptor Real Estate has completed over 200 transactions across 30 diverse real estate asset classes, representing over $23.5 billion of total enterprise value. Sculptor Real Estate seeks to invest in value-based real estate and real estate related securities throughout the capital structure and has significant experience investing both in the U.S. and internationally, across traditional and non-traditional asset classes and along the debt and equity spectrum.

On July 23, 2023, Sculptor and Rithm Capital Corp. (“Rithm”) entered into a definitive agreement under which Rithm would acquire Sculptor. On November 17, 2023, Sculptor and Rithm completed the transactions contemplated by the definitive agreement, as amended, and as a result Sculptor became a wholly owned subsidiary of Rithm. Founded in 2013, Rithm is a New York based diversified manager of assets and investments with leading origination and servicing capabilities focused on the real estate and financial services sectors.

Rithm has publicly stated that Sculptor’s investment and leadership teams will continue in their roles and it anticipates continuing to operate Sculptor’s business consistent with past practice. We intend to continue to operate as a NAV-based perpetual life REIT externally advised by Sculptor Advisors LLC and primarily focused on investing in stabilized income-generating commercial real estate across a variety of both traditional and non-traditional sectors in the United States and Europe.

Pursuant to the advisory agreement between us and our Adviser (the “Advisory Agreement”), our Adviser has contractual and fiduciary responsibilities to us and our stockholders and is responsible for sourcing, evaluating and monitoring our investment opportunities and making 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. Our Adviser will also oversee our other service providers. See Item 7, “Certain Relationships and Related Transactions, and Director Independence—The Advisory Agreement.”

We believe our potential competitive strengths are Sculptor Real Estate’s broad and deep relationship network, extensive skills and industry experience, proven deal-sourcing capabilities across a wide variety of real estate related asset classes and operating businesses and team continuity since the inception of our business.

Breadth of Experience. Throughout Sculptor Real Estate’s history, it has invested in 30 different real estate asset classes and has shifted its focus between traditional and non-traditional asset classes based on where it has found the most compelling opportunities at different points in time. It was this strategy that led Sculptor Real Estate to generate above-market returns during the Global Financial Crisis by finding compelling investments in less correlated, non-traditional real estate asset classes, such as cellular towers and Native American gaming. Similarly, after a rebound in market conditions following the Global Financial Crisis, this same strategy led Sculptor Real Estate to target less correlated, real estate related asset classes, such as drive-to ski, golf and marinas.

Discipline. Sculptor Real Estate invests in a disciplined manner, focusing only on high-conviction opportunities and avoiding momentum-driven strategies. This discipline was evident in both the run-up to the Global Financial Crisis as well as the similarly euphoric investment environment preceding the COVID-19 pandemic, as Sculptor Real Estate invested patiently and defensively during both periods, focusing largely on lowly levered, less correlated non-traditional asset classes. Given this discipline, following the onset of the respective crises, Sculptor Real Estate had significant remaining capital available in its then-active funds to pursue the more compelling distressed opportunities that became available at a time when many other market participants were primarily focused on addressing legacy issues within their portfolios.

Extensive Network. Sculptor Real Estate has a diverse network of strategic partners, including advisors, directors, operators, consultants and capital providers, across each of the real estate related asset classes in which it has invested, and is constantly exploring new sectors.

Operational Expertise. Since inception, Sculptor Real Estate has focused on certain investment strategies that leverage Sculptor Real Estate’s operational expertise, which has allowed Sculptor Real Estate to differentiate itself from other capital providers and to secure proprietary deal flow. Historically, this has included a wide range of investment strategies, including homebuilding, cell towers, cold storage, logistics, senior care, Native American casinos, distributed gaming, stadium and exhibition, outdoor leisure and various others. We expect to benefit from the continued application of, and differentiation provided by, the operating expertise that the Sculptor Real Estate platform has developed.

Team Continuity. The senior members of Sculptor Real Estate’s team have been working together since Sculptor Real Estate’s first fund, which launched in 2005, enhancing consistency in sourcing, underwriting, structuring, diligence and, most importantly, returns. Sculptor Real Estate has historically been able to attract and retain top talent by providing exceptional development opportunities by allowing team members to take responsibility over certain asset classes or product types. The historic increase in the size of Sculptor Real Estate’s funds has been driven by the growth of its team and its capabilities, not vice versa.

Sculptor Platform. We will seek to leverage the full breadth of Sculptor’s investment platform, which we believe will provide a competitive advantage over other managers that do not enjoy similar benefits from having a deep relationship with a diverse global asset management platform. Sculptor’s 100+ investment professionals and their comprehensive network of business contacts with leading financial institutions and major multinational corporations have proven valuable in sourcing, evaluating and managing investments throughout its history. Moreover, Sculptor has been able to quickly identify and capitalize on differentiated investment trends and opportunities across multiple sectors on account of its extensive capital markets presence; knowledge-sharing and collaboration of credit, private investment, public markets and real estate investment disciplines; risk management abilities; public company infrastructure and controls; and Sculptor’s “One Firm” culture.

Our investment objectives are to invest in assets that will enable us to:

We cannot assure investors that we will achieve our investment objectives. In particular, we note that the NAV of non-traded REITs may be subject to volatility related to the values of their underlying assets.

Through its affiliation with Sculptor Real Estate, our Adviser will acquire, manage and sell properties in our portfolio on our behalf, subject to the supervision and oversight of our board of directors. Founded in 2003, Sculptor Real Estate has raised $8.2 billion in investor capital as of July 1, 2024. As of June 30, 2024, Sculptor Real Estate has completed over 200 transactions across 30 diverse real estate asset classes, representing over $23.5 billion of total enterprise value.

Our investment strategy is to invest in income-oriented commercial real estate across a variety of both traditional and non-traditional sectors in the United States and Europe. We expect to invest primarily in equity interests, but also anticipate investing in debt and hybrid investment structures. To a lesser extent, we also plan to invest in real estate related securities to provide a source of liquidity for our share repurchase plan, cash management and other purposes.

Our investment strategy is expected to capitalize on Sculptor Real Estate’s experience investing across 30 different real estate related asset classes to identify and acquire our target investments at attractive pricing. These asset classes may include traditional sectors (office, hotel, industrial, multifamily and retail) as well as non-traditional real estate related asset classes, including, without limitation, cellular towers, gaming, healthcare, leisure-related sectors, student housing, senior housing, and manufactured housing.

We believe that our real estate related securities will help maintain sufficient liquidity to satisfy monthly repurchase requests under our share repurchase plan and manage cash before investing subscription proceeds into properties while also seeking attractive investment returns. Our real estate related securities strategy is designed to generate current income. We expect to work with other groups within the Sculptor organization, including the Equities, Corporate Credit, and Structured Credit groups, to assist in this portion of the portfolio.

We believe that our structure as a perpetual-life REIT will allow us to acquire and manage our investment portfolio in a more active and flexible manner.

Subject to limitations in our corporate governance guidelines, we may enter into one or more joint ventures, tenant-in-common investments or other co-ownership arrangements for the acquisition, development or improvement of properties with third parties or affiliates of our Adviser, including present and future real estate limited partnerships and REITs sponsored by affiliates of our Adviser. We also may acquire interests in or securities issued by these joint ventures, tenant-in-common investments or other joint venture arrangements or other Sculptor-sponsored programs.

Our board of directors, including our independent directors, will review our investment portfolio not less than quarterly. In addition, our board of directors has adopted investment guidelines which set forth, among other things, guidelines for investing in our targeted property types and certain investment policies restricting certain types of investments, which we describe in more detail below. Under our corporate governance guidelines, our board of directors, including our independent directors, will review the investment guidelines on an annual basis or more frequently as it deems appropriate. Changes to our investment guidelines must be approved by our board of directors, including a majority of our independent directors. Our board of directors may revise our investment guidelines without the concurrence of our stockholders.

Our investment guidelines delegate to our Adviser authority to execute acquisitions and dispositions of investments in real estate and real estate related securities, in each case so long as such acquisitions and dispositions are consistent

with our investment guidelines and our corporate governance guidelines. Our board of directors will at all times have oversight over our investments and may change from time to time the scope of authority delegated to our Adviser with respect to acquisition and disposition transactions. In addition, under our investment guidelines our board of directors is required to approve any acquisition of a single property or portfolio of properties with a purchase price exceeding 10% of our most recent month-end total asset value (as measured under generally accepted accounting principles) plus the net proceeds expected in good faith to be raised in our private offering over the next 12 months.

We will seek to invest:

Notwithstanding the foregoing, the actual percentage of our portfolio that is invested in each investment type may from time to time be outside the levels provided above due to factors such as a large inflow of capital over a short period of time, our Adviser’s assessment of the relative attractiveness of opportunities, or an increase in anticipated cash requirements or repurchase requests and subject to any limitations or requirements relating to our intention to be treated as a REIT for U.S. federal income tax purposes. Certain investments, such as preferred equity investments, could be characterized as either real estate or real estate debt depending on the terms and characteristics of such investments.

Our Adviser will have the authority to implement our investment strategy, subject to the oversight of our board of directors.

Sculptor Real Estate believes that the combination of its long-tenured team, its deep experience investing across a wide variety of both traditional and non-traditional real estate related asset classes, and its integration with the broader Sculptor organization uniquely position it to find compelling investment opportunities across real estate cycles. Specifically, given Sculptor Real Estate’s expertise in certain more operationally intensive real estate related asset classes, it has developed a reputation as a “go-to” capital provider for both non-traditional real estate and more complex situations. This dynamic has manifested itself both during times when capital markets have been frothy, when Sculptor Real Estate has been able to identify compelling opportunities in sectors that were not experiencing the same level of overheating as more traditional real estate asset classes, as well as during times of broader market dislocation, when Sculptor Real Estate was able to benefit from a dearth of competing capital providers in less traditional asset classes to source attractive investments.

Further, Sculptor Real Estate’s Executive Managing Directors have an average tenure of 18 years at Sculptor during which they have developed deep relationships across sectors and geographies with various types of counterparties who provide access to investment opportunities, including operating partners, developers, debt and equity brokers, investment bankers, borrowers and other commercial real estate owners and operators.

Finally, Sculptor Real Estate benefits from the relationships and expertise of the broader Sculptor organization, which it has utilized to assist in sourcing, underwriting, performing due diligence and financing a range of transactions since its inception in 2003.

The Sculptor Real Estate personnel who perform investment management services for us pursuant to the Advisory Agreement will conduct due diligence on each property that our Adviser proposes to purchase on our behalf, including these four primary types:

Our property investments will consist primarily of stabilized, income-generating commercial real estate focused on a range of asset types. These may include multifamily, industrial, net lease, retail and office assets, as well as others, including, without limitation, healthcare, student housing, senior living, lodging, data centers, manufactured housing and self-storage properties.

On January 4, 2023, we acquired a 62% controlling indirect interest in CapGrow Holdings JV, LLC (“CapGrow”) at a total enterprise value of approximately $455 million. Debt of approximately $221 million was assumed in the transaction which resulted in an approximate cash outlay of $141 million by SDREIT to acquire this interest. Our purchase of CapGrow was effected through our acquisition of a 67% managing-member interest in CapGrow Holdings Member LLC (“CapGrow Managing Member”), which at the time of acquisition had a 92% managing-member interest in CapGrow, which indirectly owns 100% of the real estate portfolio used in the CapGrow business (the “Initial Sale”). This interest was acquired from Sculptor RE Holdings XVII LLC (“Seller”), which is an affiliate of our Adviser and which retained a 33% interest in CapGrow Managing Member effective at the date of the Initial Sale through July 5, 2023, the date the first purchase option was exercised by us, as described further below.

We have the right to buy the remaining interests in CapGrow Managing Member from Seller by January 3, 2025 at a price (i) for the first 12 months following the Initial Sale, that is based on a 6.5% capitalization rate on net operating income excluding corporate general and administrative expenses (“pre-corporate G&A NOI”) calculated at the time of the subsequent purchase; and (ii) for the second year following the Initial Sale, that is equal to a 6.0% capitalization rate on pre-corporate G&A NOI calculated at the time of purchase. As the managing member of CapGrow Managing Member, we have near absolute control over CapGrow, including the ability at all times on or after the Initial Sale to force a sale of CapGrow Managing Member or its interest in CapGrow or 100% of CapGrow itself. However, if we have not exercised our option to acquire the full 100% ownership interest in CapGrow Managing Member within 24 months of the Initial Sale (i.e., by January 3, 2025), then Seller can also force a sale of CapGrow Managing Member or its interest in CapGrow or 100% of CapGrow.

Our purchase of an indirect interest in CapGrow occurred prior to the date on which our board was expanded to include independent directors. Entering into transactions with related parties increases the risk of transacting on terms that are less favorable to us than those that would be available from a third party. That risk is heightened when the transaction occurs without the consideration of independent directors. However, the purchase price was supported by two third-party bids (one from March 2022 and the other from July 2022) and by a valuation report by a third-party valuation firm engaged on behalf of Seller. Additionally, the purchase was approved by The State of Oregon, by and through the Oregon Investment Council on Behalf of the Oregon Public Employees Retirement Fund (“Founding Investor”), and Sculptor Capital LP, which were our sole stockholders at the time of the acquisition. The transaction was also recommended by our external adviser after completing its internal procedures with respect to related-party transactions, including the approval of its conflicts committee.

On June 21, 2023, our affiliate transaction committee approved the Company’s purchase of additional ownership interests in one or more transactions (no more than once monthly) until January 3, 2024 in CapGrow Managing Member from Seller on the previously negotiated terms as fair and reasonable to the Company. On July 5, 2023, the Company acquired additional indirect equity interests in CapGrow for $18 million, thereby increasing its indirect controlling interests in CapGrow to 69.22%. Consistent with our corporate governance guidelines, the affiliate

transaction committee determined that although the price to the Company is in excess of the cost of the asset to Seller, substantial justification exists for such excess and such excess is reasonable because (1) the Seller had owned its interest in CapGrow since February 27, 2015 and the CapGrow business and real estate assets had increased in value during the Seller’s ownership period (as supported by the third-party bids, valuation report and the Founding Investor approval referenced above), (2) our shareholders have benefited from the returns from our investment in CapGrow to date and (3) we run the risk of a forced sale of our interest in CapGrow if we do not acquire all of the remaining interests in CapGrow Managing Member by January 3, 2025 (as described above), which sale could be on terms that we view as unattractive.

On October 2, 2023, the Company, with the previous approval of our affiliate transaction committee, acquired additional indirect equity interests in CapGrow for $25 million, thereby increasing its indirect controlling interests in CapGrow to 79.64%. As of June 30, 2024, the Company owns a 79.93% indirect controlling interests in CapGrow.

As of June 30, 2024, CapGrow owns a portfolio of 1,059 primarily single-family homes leased to and operated by care providers that serve individuals with intellectual and developmental disabilities. The homes in the CapGrow portfolio are leased to 40 different care providers in 39 states, providing housing for over 4,000 adults as of June 30, 2024. The leases are on a triple-net or modified triple-net basis, meaning that the lessee is generally responsible for property taxes, property insurance and maintenance in addition to rent and utilities. Typical lease terms are between five and ten years. CapGrow’s leases also provide that all care-related liability is to be borne by the care provider/lessee. The care providers/lessees typically receive funding from Medicaid.

While CapGrow currently leases properties to 40 different care providers, there are four that each represent more than 5% of CapGrow’s annual rent, and collectively, the leases on the properties with these tenants contribute over 70% of the Company’s annual rental income for the six months ended June 30, 2024. 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. There are 44 separate subsidiaries of Sevita that have leased 511 of CapGrow’s properties and there are no cross-default provisions among these leases. Such leases in aggregate represent approximately 49% of the Company’s rental income for the six months ended June 30, 2024, and 48% of the Company's total assets as of June 30, 2024. Although Sevita is not a party to these leases, Sevita has entered into separate guarantees with respect to leases by its subsidiaries for 421 of CapGrow’s properties, which represents approximately 41% of the Company’s rental income for the six months ended June 30, 2024, and 38% of the Company’s total assets as of June 30, 2024. 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 that result in Sevita not being able to 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 risk. Sevita’s audited financial statements for its fiscal years ended September 30, 2023 and 2022 are available at Exhibit 99.1 to this registration statement. We rely on certain third parties (including Sevita) to provide us with financial statements and other financial information necessary for our financial reporting and compliance obligations. 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 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 83% of expiring leases cumulatively from 2012 through June 2024. 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.

Under our supervision, Mr. Matthew Pettinelli, the founder and Chief Executive Officer of CapGrow, manages the day-to-day business and affairs of CapGrow and, through his wholly owned affiliate, Attollo Venture LLC (“Attollo”), retains an 8% indirect interest in CapGrow as of June 30, 2024. A CapGrow subsidiary employs eleven people (including Mr. Pettinelli) to run the business.

Attollo receives a promote on distributions of CapGrow equal to (i) 12% after CapGrow Managing Member has received an internal rate of return of 10% and (ii) 20% after CapGrow Managing Member has received an internal rate of return of 15%. Every five years (unless deferred at Atollos’ election), the promote is calculated based on CapGrow’s total enterprise value and paid in the form of equity in CapGrow. We may issue our Class I shares or other equity to certain other members of CapGrow management in order to reward strong performance.

In order to retain its promote, Attollo is generally obligated to maintain at least a $5 million equity stake in CapGrow, which requirement stays in place even in the event of a sale of CapGrow through any of the purchase options described above. Starting January 4, 2026, Attollo may redeem a portion of its CapGrow equity for units in our Operating Partnership, which units may be converted into our Class I shares and participate in our share repurchase plan.

As of June 30, 2024, CapGrow has approximately $224 million of debt primarily across 12 existing loan facilities and a revolving credit facility, representing a 47% loan-to-total-equity-value ratio based on the gross asset value of the CapGrow portfolio. As of June 30, 2024, over 90% of CapGrow’s debt is fixed-rate with a weighted-average maturity date of December 2030 and a weighted-average interest rate of 4.51%.

On October 27, 2023, the Company, together with a third party joint venture partner (such joint venture, the “Denton JV”), closed on the acquisition of University Courtyard, a 240-unit, 792-bed student housing property located in Denton, Texas. As of June 30, 2024, the Company owns a 90% equity interest in the Denton JV.

On February 23, 2024, CapGrow, CapGrow’s founder and CapGrow Neptune Investor LLC (“Neptune Investor ”), an affiliate of Sculptor, entered into a joint venture arrangement (the “Neptune JV”).

Pursuant to the terms of the Neptune JV limited liability company agreement (the “Neptune JV Agreement”), CapGrow and CapGrow’s founder each contributed approximately $1.9 million for a 5% membership interest and Neptune Investor contributed approximately $34.2 million for a 90% membership interest. On February 23, 2024, the Neptune JV acquired a portfolio of 33 homes predominately located in California in a sale-leaseback transaction for an approximate purchase price of $102.0 million, including closing costs. The acquisition was financed partly in cash and net proceeds from a $66.0 million, 5-year fixed rate mortgage loan. Pursuant to the terms of the Neptune JV Agreement, CapGrow has the right to receive an additional profit interest based on meeting certain internal rate of return hurdles and reimbursement of certain overhead costs. Neptune Investor holds the controlling interests in Neptune JV and as such, the Company accounts for this investment as an unconsolidated joint venture and reports under the equity method of accounting.

In accordance with the Company’s corporate governance guidelines, our affiliate transaction committee reviewed and approved the Neptune Transaction as fair and reasonable to the Company.

Our corporate governance guidelines place numerous limitations on us with respect to the manner in which we may invest our funds:

In addition, our corporate governance guidelines include other investment limitations in connection with transactions with affiliated entities or persons. See Item 7, “Certain Relationships and Related Transactions, and Director Independence—Certain Conflict Resolution Measures.” Our corporate governance guidelines also include restrictions on roll-up transactions, which are described under Item 11, “Description of Registrant’s Securities to be Registered—Restrictions on Roll-Up Transactions.” Our corporate governance guidelines can be amended by our board of directors with the approval of a majority of our independent directors.

Our target leverage ratio after our ramp-up period is approximately 55% of our gross real estate assets (measured using the greater of fair market value and purchase price, including equity in our securities portfolio), inclusive of property-level and entity-level debt and cash, but excluding debt on our securities portfolio. There is, however, no limit on the amount we may borrow with respect to any individual property or portfolio.

We have also placed limits in our corporate governance guidelines prohibiting us from borrowing more than 300% of our net assets, which approximates borrowing 75% of the cost of our investments. We may exceed this limit if a majority of our independent directors approves each borrowing in excess of the limit.

Financing a portion of the purchase price of our assets will allow us to broaden our portfolio by increasing the funds available for investment. Financing a portion of the purchase price is not free from risk, however. Using debt requires us to pay interest and principal, referred to as “debt service,” all of which decrease the amount of cash available for distribution to our stockholders or other purposes. We may also be unable to refinance the debt at maturity on favorable or equivalent terms, if at all, exposing us to the potential risk of loss with respect to assets pledged as collateral for loans. Certain of our debt may be floating rate and the effective interest rates on such debt will increase when the relevant interest benchmark (e.g., SOFR) increases.

We rely on our Adviser to present investment opportunities to us. Our Adviser and its affiliates also manage other programs that invest in real estate and real estate related securities. Our Adviser is not contractually obligated to present any particular opportunities to us before presenting them to other programs and managed accounts it advises.

On the other hand, affiliates of our Adviser are contractually obligated to present certain opportunities to other managed programs or accounts before they are presented to us, and our Adviser or its affiliates may enter into similar arrangements with other programs it manages in the future. As a result, we will not participate in every investment opportunity that falls within our investment objectives.

With respect to other investment funds, programs, REITs, entities and separate accounts formed, advised or managed by Sculptor (collectively, “Other Sculptor Accounts”) with investment objectives or guidelines that overlap with ours but that do not have priority over us, investment opportunities are allocated among us and one or more Other Sculptor Accounts in accordance with Sculptor’s policies and procedures on a basis that our Adviser and its affiliates believe to be fair and equitable over time in their sole discretion, which may be subject to one or more of the following considerations: (i) any applicable investment objectives or focus of ours and such Other Sculptor Accounts (which, for us, includes our primary objective of providing attractive current income in the form of regular, stable cash distributions), (ii) any investment limitations, parameters or contractual provisions of ours and such Other Sculptor Accounts, (iii) the sector, geography/location, expected return profile, expected distribution rates, anticipated cash flows, expected stability or volatility of cash flows, leverage profile, risk profile and other features of the applicable investment opportunity and its impact on portfolio concentration and diversification, (iv) maintaining structuring and financing flexibility, (v) legal, tax, accounting and regulatory considerations, (vi) any other requirements or considerations set forth in the governing documents of any Other Sculptor Account and (vii) other considerations deemed relevant by our Adviser and its affiliates (including, without limitation, maintaining our qualification as a REIT and our ability to avoid registration as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”)).

Despite these conflicts and priority arrangements, we generally expect our Adviser to offer real estate investment opportunities to Other Sculptor Accounts when those opportunities involve either debt or equity investments that (i) have an opportunistic or value-add risk profile (e.g., may involve acquiring, developing or lending on vacant or partially vacant properties or repositioning assets in whole or in part from one use to another) or (ii) have a shorter-term investment horizon consistent with the finite-life nature of the other real estate programs managed by our Adviser. On the other hand, subject to our Adviser’s contractual obligations and other investment considerations set forth above, we generally expect our Adviser to offer us the opportunity to invest in “stabilized” assets with a longer-term holding period consistent with our program’s perpetual life. However, there will likely be exceptions to these general expectations, and Other Sculptor Accounts may be offered “stabilized” and longer-term investments before we are.

Our Adviser could also consider other factors when making allocation decisions among programs, such as a program’s portfolio composition, objectives, guidelines, restrictions (including those imposed by law or regulation), strategy, capacity and liquidity. Our Adviser has adopted investment allocation policies and procedures in order to guide its allocation decisions. These policies and procedures may be amended without our input and without notice to us.

We may acquire properties through one or more joint ventures with affiliates of our Adviser or with non-affiliated third parties. Under our corporate governance guidelines, any joint venture with an affiliate of our Adviser must be approved by a majority of our directors (including a majority of our independent directors) not otherwise interested in the transaction as being fair and reasonable to us. In many cases, we may not control the management of joint ventures in which we invest, but we may have the right to approve major decisions of the joint venture. We will not participate in joint ventures in which we do not have or share control to the extent that we believe such participation would potentially require us to register as an investment company under the Investment Company Act. This may prevent us from receiving an allocation with respect to certain investment opportunities that are suitable for both us and one or more Other Sculptor Accounts, including ones with similar investment objectives and strategies as us.

We intend to qualify as a REIT for U.S. federal income tax purposes beginning with our taxable year ending December 31, 2023. In general, a REIT is a company that:

A non-listed REIT is a REIT whose shares are not listed for trading on a stock exchange or other securities market. We use the term “perpetual-life REIT” to describe an investment vehicle of indefinite duration, whose shares of common stock are intended to be sold by the REIT monthly on a continuous basis at a price generally equal to the prior month’s NAV per share. In our perpetual-life structure, the investor may request that we repurchase their shares on a monthly basis, but we are not obligated to repurchase any shares and may choose to repurchase only some, or even none, of the shares that have been requested to be repurchased in any particular month in our discretion. Although we may consider a liquidity event at any time in the future, we are not obligated by our charter or otherwise to effect a liquidity event at any time.

We plan to own all or substantially all of our assets through the Operating Partnership. We are the sole general partner of the Operating Partnership. Sculptor Diversified REIT Special Limited Partner LP (the “Special Limited Partner”), a Delaware limited partnership and an affiliate of Sculptor, owns a special limited partner interest in the Operating Partnership. The use of our Operating Partnership to hold all of our assets is referred to as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”). Using an UPREIT structure may give us an advantage in acquiring properties from persons who want to defer recognizing gain for U.S. federal income tax purposes.

The following chart shows our current ownership structure and our relationships with Sculptor Capital Management, Inc. (which acts as our sponsor), Sculptor Advisors LLC (which acts as our Adviser) and the Special Limited Partner.

 

We operate under the direction of our board of directors. We currently have seven directors, four of whom are independent of us, our Adviser, Sculptor and its affiliates. Our independent directors are responsible for reviewing the performance of our Adviser and approving the compensation paid to our Adviser and its affiliates. Our directors are elected annually by our stockholders. The names and biographical information of our directors are provided under Item 5, “Directors and Executive Officers.”

We pay our Adviser and its affiliates the fees and expense reimbursements described below in connection with performing services for us. In addition, income of the Operating Partnership is allocated to the Special Limited Partner for its performance participation interest.

In calculating the management fee, we use our NAV before giving effect to accruals for the management fee, performance participation allocation, distribution fees (if any), or distributions payable on our shares. In calculating distribution fees, we will use our NAV before giving effect to accruals for the distribution fee or distributions payable on our shares.

Under our Advisory Agreement and corporate governance guidelines, our Total Operating Expenses will be limited during any four fiscal quarters (following our first acquisition in January 2023) to the greater of (a) 2.0% of our Average Invested Assets or (b) 25.0% of our Net Income. This limit may be exceeded only if our independent directors have made a finding that a higher level of expenses is justified and such finding is recorded in the minutes of a meeting of the independent directors. For purposes of these limits:

See Item 7, “Certain Relationships and Related Transactions—The Advisory Agreement—Management Fee, Performance Participation and Expense Reimbursements.”

The following example illustrates how we would calculate our Special Limited Partner’s performance participation allocation at the end of the year based on the assumptions set forth in rows A through E of the table below. All amounts are with respect to the Class F and FF units outstanding at the end of the year. Other classes of units bear different hurdle rates and performance participation rates. Actual results may differ materially from the following example. Please refer to Note 9, “Related Party Transactions” to our consolidated financial statements for a discussion on the actual amounts recognized by the Company.

Sculptor Diversified Real Estate Income Trust, Inc. is externally managed and currently has no employees, other than eleven employees of CapGrow Partners, LLC who operate the CapGrow business. Aside from the CapGrow employees, employees of our Adviser perform substantially all of the services related to our asset management, accounting, investor relations, and other administrative activities.

See Item 7, “Certain Relationships and Related Transactions, and Director Independence” for a summary of the fees paid to the Adviser and its affiliates during the six months ended June 30, 2023 and the period from February 11, 2022 (inception date) through December 31, 2022.

As an owner of real estate, our operations are subject, in certain instances, to supervision and regulation by U.S. and other governmental authorities, and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which include, among other things: (i) federal and state securities laws and regulations; (ii) federal, state and local tax laws and regulations, (iii) state and local laws relating to real property; and (iv) federal, state and local environmental laws, ordinances, and regulations.

Compliance with the federal, state and local laws described above has not had a material adverse effect on our business, assets, results of operations, financial condition and ability to pay distributions, and we do not believe that our existing portfolio will require us to incur material expenditures to comply with these laws and regulations.

We intend to engage primarily in the business of investing in real estate and to conduct our operations so that neither we nor any of our subsidiaries is required to register as an investment company under the Investment Company Act. Under the Investment Company Act, in relevant part, a company is an “investment company” if:

We intend to acquire real estate and real estate related securities directly, primarily by acquiring fee interests in real property. We may also invest in real property indirectly through investments in joint venture entities, including joint venture entities in which we do not own a controlling interest. We anticipate that most of our assets will be held in our wholly and majority-owned subsidiaries, each formed to hold a particular asset. A smaller portion of our assets are anticipated to be real estate debt.

We intend to conduct our operations so that we and most of our wholly and majority-owned subsidiaries will comply with the 40% test. We will continuously monitor our holdings on an ongoing basis to determine compliance with this test. We expect that most, if not all, of our wholly owned and majority-owned subsidiaries will not be relying on exemptions under either Section 3(c)(1) or 3(c)(7) of the Investment Company Act. Consequently, interests in these subsidiaries (which are expected to constitute a substantial majority of our assets) generally will not constitute “investment securities.” Accordingly, we believe that we and most, if not all, of our wholly and majority-owned subsidiaries will not be considered investment companies under Section 3(a)(1)(C) of the Investment Company Act.

In addition, we believe that neither we nor any of our wholly or majority-owned subsidiaries will be considered an investment company under Section 3(a)(1)(A) of the Investment Company Act because they will not engage primarily or hold themselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, we and our subsidiaries will be primarily engaged in non-investment company businesses related to real estate. Consequently, we and our subsidiaries expect to be able to conduct their respective operations such that none of them will be required to register as an investment company under the Investment Company Act.

We will determine whether an entity is a majority-owned subsidiary of our Company. The Investment Company Act defines a majority-owned subsidiary of a person as a company 50% or more of the outstanding voting securities of which are owned by such person, or by another company which is a majority-owned subsidiary of such person. The Investment Company Act defines voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company. We treat entities in which we own at least a majority of the outstanding voting securities as majority-owned subsidiaries for purposes of the 40% test. We have not requested that the SEC or its staff approve our treatment of any entity as a majority-owned subsidiary, and neither has done so. If the SEC or its staff was to disagree with our treatment of one or more subsidiary entities as majority-owned subsidiaries, we would need to adjust our strategy and our assets in order to continue to pass the 40% test. Any adjustment in our strategy could have a material adverse effect on us.

If we or any of our wholly or majority-owned subsidiaries would ever fall within one of the definitions of “investment company,” we intend to rely on the exemption provided by Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” The SEC staff has taken the position that this exemption, in addition to prohibiting the issuance of certain types of securities, generally requires that at least 55% of an entity’s assets must be comprised of mortgages and other liens on and interests in real estate, also known as “qualifying assets,” and at least another 25% of the entity’s assets must be comprised of additional qualifying assets or a broader

category of assets that we refer to as “real estate related assets” under the Investment Company Act (and no more than 20% of the entity’s assets may be comprised of miscellaneous assets).

We will classify our assets for purposes of our 3(c)(5)(C) exemption based upon no-action positions taken by the SEC staff and interpretive guidance provided by the SEC and its staff. These no-action positions are based on specific factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than 20 years ago. No assurance can be given that the SEC or its staff will concur with our classification of our assets. In addition, the SEC or its staff may, in the future, issue further guidance that may require us to re-classify our assets for purposes of the Investment Company Act. If we were required to re-classify our assets, we might not be in compliance with the exemption from the definition of an investment company provided by Section 3(c)(5)(C) of the Investment Company Act.

For purposes of determining whether we satisfy the 55%/25% test, based on the no-action letters issued by the SEC staff, we intend to classify our fee interests in real property, held by us directly or through our wholly owned subsidiaries or controlled subsidiaries as qualifying assets. In addition, based on no-action letters issued by the SEC staff, we will treat our investments in joint ventures, which in turn invest in qualifying assets such as real property, as qualifying assets only if we have sufficient control over the joint venture; otherwise, they will be classified as real estate related assets. We will not participate in joint ventures in which we do not have or share control to the extent that we believe such participation would potentially threaten our status as a non-investment company exempt from the Investment Company Act. This may prevent us from receiving an allocation with respect to certain investment opportunities that are suitable for both us and one or more Other Sculptor Accounts. We expect that no less than 55% of our assets will consist of investments in real property, including any joint ventures that we control.

Qualifying for an exemption from registration under the Investment Company Act will limit our ability to make certain investments. For example, these restrictions may limit our and our subsidiaries’ ability to invest directly in CMBS that represent less than the entire ownership in a pool of mortgage loans, debt and equity tranches of securitizations and certain asset-backed securities, non-controlling equity interests in real estate companies or in assets not related to real estate, however, we and our subsidiaries may invest in such securities to a certain extent.

Although we intend to monitor our portfolio, there can be no assurance that we will be able to maintain this exemption from registration.

A change in the value of any of our assets could negatively affect our ability to maintain our exemption from regulation under the Investment Company Act. To maintain compliance with the Section 3(c)(5)(C) exemption, we might be unable to sell assets we would otherwise want to sell and might need to sell assets we would otherwise wish to retain. In addition, we might have to acquire additional assets that we might not otherwise have acquired or might have to forego opportunities to acquire assets that we would otherwise want to acquire and would be important to our investment strategy.

To the extent that the SEC or its staff provide more specific guidance regarding any of the matters bearing upon the definition of investment company and the exemptions to that definition, we may be required to adjust our strategy accordingly. On August 31, 2011, the SEC issued a concept release and request for comments regarding the Section 3(c)(5)(C) exemption (Release No. IC-29778) in which it contemplated the possibility of issuing new rules or providing new interpretations of the exemption that might, among other things, define the phrase “liens on and other interests in real estate” or consider sources of income in determining a company’s “primary business.” Any additional guidance from the SEC or its staff could provide additional flexibility to us, or it could further inhibit our ability to pursue the strategies we have chosen.

If we are required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings), management, operations, transactions with affiliated persons (as defined in the Investment Company Act) and portfolio composition, including disclosure requirements and restrictions with respect to diversification and industry concentration and other matters. Compliance with the Investment Company Act would, accordingly, limit our ability to make certain investments and require us to significantly restructure our business plan.

We will be and we will remain an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the date of an initial public offering pursuant to an effective registration statement under the Securities Act, (ii) in

which we have total annual gross revenue of at least $1.235 billion, or (iii) in which we are deemed to be a large accelerated filer, which means the market value of our shares that is held by non-affiliates exceeds $700 million as of the date of our most recently completed second fiscal quarter, and (b) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. For so long as we remain an “emerging growth company”, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).

In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. This means that an emerging growth company can delay adopting certain accounting standards until such standards are otherwise applicable to private companies. We have elected to opt out of this transition period, and will therefore comply with new or revised accounting standards on the applicable dates on which the adoption of these standards is required for non-emerging growth companies. This election is irrevocable.

As an owner of real estate, we are subject to various environmental laws of federal, state, and local governments. Compliance with existing laws has not had a material adverse effect on our financial condition or results of operations, and management does not believe it will have such an impact in the future. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties we currently own, or on properties that may be acquired in the future.

As we purchase properties to build our portfolio, we are in competition with other potential buyers for the same properties, which may result in an increase in the amount we must pay to acquire a property or may require us to locate another property that meets our investment criteria. Such other potential buyers may include other listed and non-listed REITs, real estate operating companies, pension funds, insurance companies, investment funds and companies, partnerships and developers. These potential buyers may have substantially greater financial resources and experience than we do. At the time we elect to dispose of our properties, we may be in competition with sellers of similar properties to locate suitable purchasers.

Our current business consists of acquiring, managing, investing in and disposing of real estate assets. We currently operate in two segments: Residential (Business) and Student Housing. The first, Residential (Business), is associated with the CapGrow portfolio. The CapGrow portfolio engages in activities related to acquiring, renovating, developing, leasing and operating single-family homes as rental properties. The CapGrow portfolio is geographically dispersed, and management evaluates operating performance on a total portfolio basis. The aggregation of individual homes constitutes the total portfolio. Decisions regarding acquisitions and dispositions of homes are made at the individual home level with a focus on accretion in high-growth locations where there is greater scale and density.

The second reportable segment, Student Housing, is associated with the Denton JV. The Denton JV owns University Courtyard, a 240-unit, 792-bed student housing property located in Denton, Texas. Decisions regarding the allocation of resources is made at the property level.

In March 2023, we commenced an offering of Class F and Class FF shares of our common stock 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. Except for certain direct sales of Class F shares to institutional investors, Class F and FF shares of our common stock are now only available to investors who had invested in such class prior to January 1, 2024 and only in limited amounts through January 1, 2025. Commencing October 1, 2023, Class A, Class AA, Class D, Class I and Class S shares became available for issuance in the offering. All shares will be sold at the then-current transaction price for the applicable class of shares, which will generally be our prior month’s NAV per share for such class as of the last calendar day of such month, plus applicable upfront selling commissions. In cases where we believe there

has been a material change (positive or negative) to our NAV per share since the end of the prior month, we may offer shares at a price that we believe reflects the NAV per share of such stock more appropriately than the prior month’s NAV per share, including by updating a previously disclosed transaction price. See Item 9, “Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters—Net Asset Value Calculation and Valuation Guidelines” for more information on the calculation of our NAV per share.

The share classes have different upfront selling commissions and different class-specific expenses, such as management fees, distribution fees, performance participation allocations and organization and offering expenses. See Item 11, “Description of Registrant’s Securities to be Registered—Common Stock” for more information on our share classes.

On December 22, 2022, we issued 15,000,000 Class F shares to Founding Investor at a purchase price of $10.00 per share, or $150,000,000 in the aggregate. Founding Investor may not seek the repurchase of its shares under the share repurchase plan before January 1, 2026 (except as noted below). In addition, Founding Investor has agreed to vote its shares in a “neutral” manner for a period of time except as noted below. “Neutral” voting means that Founding Investor will vote its shares in the same proportion as other stockholders. For example, if there are 100,000 shares of voting common stock cast by investors other than Founding Investor, and if those shares vote 50% FOR and 40% AGAINST with 10% abstaining on a proposal, then Founding Investor will vote its shares 50% FOR and 40% AGAINST the proposal, while abstaining with respect to 10% of its shares. There are exceptions to Founding Investor’s obligation to vote in a neutral manner, namely:

If we were to sell Class F shares to another investor and were to offer such investor more favorable rights than those given to Founding Investor, we would be obligated to offer those same rights to Founding Investor. Based on certain representations made by Founding Investor, we granted Founding Investor an exemption from the ownership limits set forth in our charter.

Founding Investor’s ownership in our shares does not result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code. Founding Investor is a “qualified trust,” and no beneficiary holds an actuarial interest in Founding Investor in excess of 1%. Accordingly, for purposes of Section 856(h), Founding Investor is entitled to look-thru treatment, which means the stock held by Founding Investor is treated as held directly by its beneficiaries in proportion to their actuarial interests in Founding Investor and not treated as held by Founding Investor.

See Item 11, “Description of Registrant’s Securities to be Registered – Common Stock – Class F and Class FF Shares – Issuance of Class F Shares to Founding Investor.”

We have adopted a distribution reinvestment plan whereby stockholders will have their cash distributions automatically reinvested in additional shares of our common stock unless they elect to receive their distributions in cash. If stockholders participate in our distribution reinvestment plan, the cash distributions attributable to the class of shares that they own will be automatically invested in additional shares of the same class. The purchase price for

shares purchased under our distribution reinvestment plan will be equal to the most recently disclosed transaction price for such shares at the time of the record date of the distribution. Stockholders will not pay upfront selling commissions when purchasing shares under our distribution reinvestment plan, but distribution fees will apply depending upon the class of shares purchased. Participants may terminate their participation in the distribution reinvestment plan with ten business days’ prior written notice to us. See Item 11, “Description of Registrant’s Securities to be Registered—Distribution Reinvestment Plan” for more information regarding the reinvestment of distributions investors may receive from us.

Stockholders may request on a monthly basis that we repurchase all or any portion of their shares pursuant to our share repurchase plan. However, we are not obligated to repurchase any shares and may choose to repurchase only some, or even none, of the shares that have been requested to be repurchased in any particular month in our discretion. In addition, our ability to fulfill repurchase requests is subject to a number of limitations. As a result, share repurchases may not be available each month. Under our share repurchase plan, to the extent we choose to repurchase shares in any particular month, we will only repurchase shares as of the opening of the last calendar day of that month (each such date, a “Repurchase Date”). Repurchases will be made at the transaction price in effect on the Repurchase Date, except that shares that have not been outstanding for at least one year will be repurchased at 95% of the transaction price (an “Early Repurchase Deduction”). The end of the one-year holding period will be measured as of the subscription closing date immediately following the prospective repurchase date. Additionally, stockholders who have received shares of our common stock in exchange for their Operating Partnership units may include the period of time such stockholder held such Operating Partnership units for purposes of calculating the holding period for such shares of our common stock. The Early Repurchase Deduction may only be waived in the case of repurchase requests arising from the death or qualified disability of the holder and in other limited circumstances. To have their shares repurchased, a stockholder’s repurchase request and required documentation must be received in good order by 4:00 p.m. (Eastern time) on the second to last business day of the applicable month. Settlements of share repurchases will be made within three business days of the Repurchase Date. The Early Repurchase Deduction will not apply to shares acquired through our distribution reinvestment plan. Investors may withdraw their repurchase requests by notifying the transfer agent before 4:00 p.m. (Eastern time) on the last business day of the applicable month.

The total amount of aggregate repurchases of shares of our common stock will be limited during each calendar month to 2% of the aggregate NAV of all classes as of the last calendar day of the previous quarter and in each calendar quarter will be limited to 5% of the aggregate NAV of all classes of shares as of the last calendar day of the previous calendar quarter; provided, however, that every month and quarter each class of our common stock will be allocated capacity within such aggregate limit to allow stockholders in such class to either (a) redeem shares equal to at least 2% of the aggregate NAV of such share class as of the last calendar day of the previous quarter, or, if more limiting, (b) redeem shares over the course of a given quarter equal to at least 5% of the aggregate NAV of such share class as of the last calendar day of the previous quarter (collectively referred to herein as the “2% and 5% limits”). In the event that we redeem some but not all of the shares submitted for repurchase during any month, shares repurchased at the end of the month will be repurchased on a pro rata basis. Repurchases and pro rata treatment, if necessary, will first be applied within the class-specific allocated capacity and then applied on an aggregate basis to the extent there is remaining capacity. For purposes of calculating the 2% and 5% limits, the repurchase price will be deemed to be the price before any Early Repurchase Deduction. Certain non-U.S. investor access funds primarily created to hold shares of our common stock are expected to participate in the share repurchase plan on the same terms as other holders of common stock. All unsatisfied repurchase requests must be resubmitted after the start of the next month or quarter, or upon the recommencement of the share repurchase plan program, as applicable.

Our approach to portfolio construction is to maintain a portfolio consisting predominantly of income-generating, stabilized real estate and to a lesser extent in real estate related securities, cash, cash equivalents and other short-term investments. Real estate and real estate debt investments cannot generally be readily liquidated without impacting our ability to realize full value upon their disposition or settlement. Real estate related securities are designed as a feature of our investment program to provide current income and contribute to our overall net returns and, alongside our credit facilities, operating cash flow and offering proceeds, as an additional source of liquidity for our share repurchase plan, cash management and other purposes. We may fund repurchase requests from sources other than cash flow from operations, including, without limitation, the sale of our assets, borrowings or offering proceeds, and we have no limits on the amounts we may pay from such sources. Should repurchase requests, in our judgment, place

an undue burden on our liquidity, adversely affect our operations or risk having an adverse impact on the Company, or should we otherwise determine that investing our liquid assets in real estate or other investments rather than repurchasing our shares is in the best interests of the Company, then we may choose to repurchase fewer shares than have been requested to be repurchased, or none at all. Further, our board of directors may make exceptions to, modify, suspend or terminate our share repurchase plan if it deems in its reasonable judgment such action to be in our best interest. If the transaction price for the applicable month is not made available by the tenth business day prior to the last business day of the month (or is changed after such date), then no repurchase requests will be accepted for such month and stockholders who wish to have their shares repurchased the following month must resubmit their repurchase requests. See Item 11, “Description of Registrant’s Securities to be Registered—Share Repurchases—Repurchase Limitations.”

The Registrant has omitted a discussion of risk factors because as a smaller reporting company, it is not required to provide such information.

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 the consolidated financial statements and notes thereto appearing elsewhere in this Registration Statement on Form 10. In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed above in the section entitled “Cautionary Note Regarding Forward Looking Statements.”

The Company 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 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 will not be 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., our sponsor (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 Advisor 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.

On February 23, 2024, CapGrow, CapGrow's Founder and CapGrow Neptune Investor LLC (“Neptune Investor”), an affiliate of Sculptor, formed a joint-venture, CapGrow Neptune JV LLC (the “Neptune JV”), and closed on the acquisition of Newport, a portfolio of 33 single-family residences and intermediate care facilities located in California and Minnesota (the “Newport Portfolio”). The Company accounts for this investment under the equity method of accounting. The Company owns an indirect equity interest of 4.00% in the Newport Portfolio as of June 30, 2024.

In addition, as of June 30, 2024, the Company owns (a) a 86.40% indirect controlling interest in CapGrow Holdings Member, LLC (the “CapGrow Member” or the “Predecessor”), which holds an interest in CapGrow Holdings JV LLC (the “CapGrow JV,” and together with CapGrow Member, “CapGrow”), that 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, and (b) a 90% equity interest in a joint venture (the “Denton JV”) that owns University Courtyard, a 240-unit, 792-bed student housing property located in Denton, Texas. See “Investment Portfolio” below for additional information on these investments.

As of June 30, 2024, we have received net proceeds of $88.1 million, including proceeds from our distribution reinvestment plan, from selling an aggregate of 1,042,500 Class F common shares, 6,188,300 Class FF common shares and 1,076,927 Class AA common shares in our ongoing private offering. This is in addition to the $150.2 million raised from the sale of 15,021,598 Class F common shares in private transactions that preceded our ongoing private offering. The Operating Partnership has primarily used the net proceeds to make investments in real

estate as further described below under “Investment Portfolio.” We intend to continue selling shares on a monthly basis. To the extent we are able to raise significant equity proceeds, our dependence on CapGrow and its largest tenants will decrease. See “Investment Portfolio – Real Estate Investments” below.

We will be and we will remain an “emerging growth company” as defined in the JOBS Act until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the date of an initial public offering pursuant to an effective registration statement under the Securities Act, (ii) in which we have total annual gross revenue of at least $1.235 billion, or (iii) in which we are deemed to be a large accelerated filer, which means the market value of our shares that is held by non-affiliates exceeds $700 million as of the date of our most recently completed second fiscal quarter, and (b) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. For so long as we remain an “emerging growth company” we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to opt out of this transition period and will therefore comply with new or revised accounting standards on the applicable dates on which the adoption of these standards is required for non-emerging growth companies.

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. 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 79% of our total debt obligations as of June 30, 2024. Also, we were able to secure a five-year interest rate protection agreement which caps University Courtyard’s mortgage at a fixed interest rate of 3.56%. The only variable rate loan that is indexed to SOFR is CapGrow’s revolving credit facility, which had a balance of $12.1 million as of June 30, 2024. A 100 basis point increase or decrease in SOFR would have resulted in an increase or decrease in interest expense of $0.1 million during the six months ended June 30, 2024. See “- Capital Resources” below. In general, higher interest rates will increase CapGrow’s financing costs associated with newly acquired homes and are also likely to adversely affect the financial performance of our tenants, which could adversely affect our results of operation and financial condition.

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 and higher property replacement costs. 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 leases are triple net or modified net, high insurance costs and real estate taxes may result in higher overall occupancy expenses for 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.

The following table provides a summary of our portfolio as of June 30, 2024:

The following table details the expiring leases at our real estate properties by annualized base rent and square footage as of June 30, 2024 (amounts and square feet data in thousands). The table below excludes our student housing property as substantially all of its leases expire within 12 months:

While CapGrow currently leases properties to 40 different care providers, there are four that each represent more than 5% of CapGrow’s annual rent, and collectively, the leases on the properties with these tenants contribute over 70% of the Company’s annual rental income for the six months ended June 30, 2024. 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. There are 44 separate subsidiaries of Sevita that have leased 511 of CapGrow’s properties and there are no cross-default provisions among these leases. Such leases in the aggregate represent approximately 49% of the Company’s rental income for the period ended June 30, 2024, and 48% of the Company's total assets as of June 30, 2024. Although Sevita is not a party to these leases, Sevita has entered into separate guarantees with respect to leases by its subsidiaries for 421 of CapGrow’s properties, which represents approximately 41% of the Company’s rental income and 38% of the Company’s total assets as of June 30, 2024. 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 that result in Sevita not being able to 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 risk. Sevita’s audited financial statements for its fiscal years ended September 30, 2023 and 2022 are available at Exhibit 99.1 to this registration statement. We rely on certain third parties (including Sevita) to provide us with financial statements and other financial information necessary for our financial reporting and compliance obligations. 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 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 83% of expiring leases cumulatively from 2012 through June 2024. 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.

Since the Company had no significant assets or operations prior to January 1, 2023, the Company concluded that CapGrow Member is the Predecessor and the Company is the Successor and each are defined as such. Except for the three months ended June 30, 2024 and 2023, the Company has made the distinctions in the condensed consolidated financial statements and certain note presentations, as follows:

The Successor and Predecessor accounts have been presented based upon the transaction date of January 4, 2023 which resulted in a change of control and application of purchase accounting as required by Accounting Standard Codification (“ASC”) 805. As a result of the foregoing, the condensed consolidated financial statements of the Predecessor and the Successor are not comparable and are separated by a black line.

The Predecessor condensed consolidated financial statements for the periods from January 1 through January 3, 2023 should be read in conjunction with the audited Predecessor condensed consolidated financial statements.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

The following table sets forth information regarding the condensed consolidated results of operations for the three months ended June 30, 2024, and three months ended June 30, 2023, respectively (amounts in thousands):

Rental revenue from property operations increased by $1.7 million from $9.0 million during the three months ended June 30, 2023 to $10.7 million during the three months ended June 30, 2024, which was primarily due to the acquisition of University Courtyard in October 2023, which contributed $1.6 million of rental revenue during the three months ended June 30, 2024. Additionally, rental revenue increased due to the additional asset acquisitions at CapGrow. During the three months ended June 30, 2024 and 2023, the Company acquired three and one properties, respectively, and sold five and fourteen properties, respectively.

Other revenue amounting to $0.3 million during the three months ended June 30, 2024 was primarily related to the acquisition of University Courtyard while other revenue amounting to $0.3 million during the three months ended June 30, 2023 was due to the lease termination income earned by CapGrow.

Property operating expenses increased by $0.9 million from approximately $0.1 million during the three months ended June 30, 2023 to approximately $1.0 million during the three months ended June 30, 2024 as a result of the acquisition of University Courtyard, which contributed property operating expenses amounting to $0.8 million.

Performance participation allocation decreased by $0.6 million from $0.3 million during the three months ended June 30, 2023 to a credit balance of $0.3 million as of June 30, 2024. For the three months ended June 30, 2024, the total returns did not exceed the hurdle rate for the period. Performance participation allocation is calculated and accrued pursuant to the terms of the limited partnership agreement of the Operating Partnership and upon achieving the total returns for the period that exceed the hurdle rate, the Special Limited Partner (a non-controlling interest holder in the Operating Partnership) is entitled to this allocation that will remain as payable until year-end when the final profit and loss allocation is performed.

Management fees increased by $0.1 million from $0.2 million during the three months ended June 30, 2023 to $0.3 million for the three months ended June 30, 2024 due to the increase in the adjusted net asset value of the Company, which was the basis of the management fee.

General and administrative property increased by $0.5 million from $1.6 million during the three months ended June 30, 2023 to $2.1 million during the three months ended June 30, 2024 due to an increase in professional fees related to audit and tax services as well as the acquisition of University Courtyard.

Depreciation and amortization expenses increased by $2.3 million from $4.1 million during the three months ended June 30, 2023 to $6.3 million during the three months ended June 30, 2024 as a result of the acquisition of University Courtyard, which contributed depreciation and amortization expense of $2.2 million.

Impairment of investments in real estate amounting $0.6 million during the three months ended June 30, 2024 was due to the write down of one impaired vacant asset, three held for sale assets and four assets sold. Impairment of investments in real estate amounting to $0.9 million during the three months ended June 30, 2023 was due to the write down of one held for sale asset and fourteen assets sold. These held for sale assets were under contract or marketed at a price lower than the book value, which occurs as part of normal business operations when a tenant vacates a property and no immediate replacement tenant is expected by the time of closing.

Interest expense, net increased by $0.4 million from $2.6 million during the three months ended June 30, 2023 to $3.0 million during the three months ended June 30, 2024 due to the financing used to acquire University Courtyard, which contributed an additional interest expense of $0.5 million, partially offset by the interest income earned from our money market funds.

Gain on sale of real estate for the three months ended June 30, 2024 pertained to one property sold.

The following table sets forth information regarding the consolidated results of operations for the 2024 Successor Interim Period, 2023 Successor Interim Period and 2023 Predecessor Interim Period, respectively (amounts in thousands):

Rental revenue from property operations increased by $4.1 million from $17.6 million during the 2023 Successor Interim Period to $21.7 million during the 2024 Successor Interim Period, which was primarily due to the acquisition of University Courtyard in 2023, which contributed $3.2 million of rental revenue during the 2024 Successor Interim Period. Additionally, rental revenue increased due to the assets acquired at CapGrow. During the 2024 Successor Interim Period and 2023 Successor Interim Period, the Company acquired 10 and 11 properties, respectively, and sold 10 and 30 properties, respectively.

As of June 30, 2024, the total number of properties owned and leased were 1,059 properties and 1,052 properties, respectively. The average monthly rent charges for all of our assets that were acquired prior to January 1, 2022 and continue to be leased to tenants were $2,440 and $2,407 during the 2024 Successor Interim Period and 2023 Successor Interim Period respectively.

General and administrative expenses increased by $1.3 million from $2.8 million during the 2023 Successor Interim Period to $4.1 million during the 2024 Successor Interim Period due to an increase in professional fees related to audit and tax services as well as other general and administrative costs relating to the acquisition of University Courtyard.

Organization and transaction costs amounting to $0.2 million for the 2024 Successor Interim Period were related to the incremental costs associated with the Company’s organization and offering activities. During the 2023 Successor

Interim Period, organization and transaction costs were $1.9 million which pertained to the $0.9 million of costs related to the acquisition of CapGrow which was accounted for under the business combination as well as the costs associated with the Company’s organization and offering activities.

Property operating expenses increased by $1.7 million from approximately $0.3 million during the 2023 Successor Interim Period to approximately $2.0 million during the 2024 Successor Interim Period primarily due to the acquisition of University Courtyard in October 2023, which contributed property operating expenses amounting to $1.6 million.

Management fees increased by $0.2 million from $0.4 million during the 2023 Successor Interim Period to $0.6 million for the 2024 Successor Interim Period due to the increase in the adjusted net asset value of the Company which was the basis of the management fee.

Performance participation allocation decreased by $0.7 million from the 2023 Successor Interim Period to the 2024 Successor Interim Period as the total returns did not exceed the hurdle rate in 2024 Successor Interim Period. Performance participation allocation is calculated and accrued pursuant to the terms of the limited partnership agreement of the Operating Partnership and upon achieving the total returns for the period that exceed the hurdle rate, the Special Limited Partner (a non-controlling interest holder in the Operating Partnership) is entitled to this allocation that will remain as payable until year-end when the final profit and loss allocation is performed.

Depreciation and amortization expenses increased by $4.9 million from $8.0 million during the 2023 Successor Interim Period to $12.9 million during the 2024 Successor Interim Period as a result of the acquisition of University Courtyard, which contributed depreciation and amortization expense of $4.5 million.

Interest expense, net increased by $0.8 million from $5.2 million during the 2023 Successor Interim Period to $6.1 million during the 2024 Successor Interim Period due to the financing used to acquire University Courtyard, which contributed an additional interest expense of $0.9 million, partially offset by the interest income earned from our money market funds.

Impairment of investments in real estate amounting $1.0 million during the 2024 Successor Interim Period was due to the write down of one impaired vacant asset, three held for sale assets and nine assets sold. Impairment of investments in real estate amounting $2.4 million during the 2023 Successor Interim Period was due to one held for sale asset and 23 assets sold. These held for sale assets were under contract or marketed at a price lower than the book value, which occurs as part of normal business operations when a tenant vacates a property and no immediate replacement tenant is expected by the time of closing.

Unrealized gain on derivative for the 2024 Successor Interim Period pertained to University Courtyard's fair value adjustments relating to its interest rate cap.

Gain on sale of real estate for the 2024 Successor Interim Period pertained to one property sold.

The following table sets forth information regarding the consolidated results of operations for the 2023 Successor Period, the 2023 Predecessor Period, and the 2022 Predecessor Period, respectively (amounts in thousands):

Rental revenue from property operations increased by $8.9 million from $28.8 million during the 2022 Predecessor Period to $37.6 million during the 2023 Successor Period, which was primarily due to CapGrow’s asset acquisitions with in-place leases ($2.2 million), straight-lining of rent following the business combination of CapGrow ($0.5 million), net amortization of below- and above-market lease intangibles ($5.0 million) and the incremental rental revenue derived from the acquisition of University Courtyard in October 2023 ($1.2 million).

During the 2022 Predecessor Period, the total number of properties increased from 949 properties as of December 31, 2021 to 1,056 properties as of December 31, 2022, of which 1,032 properties were leased to tenants. As of December 31, 2023, the total number of properties owned and leased were 1,059 properties and 1,046 properties, respectively. The average monthly rent charges for all of our assets that were acquired prior to January 1, 2022 and continue to be leased to tenants were $2,301 and $2,259 during the 2023 Successor Period and 2022 Predecessor Period, respectively.

Other revenue from property operations remained at $1.2 million during the 2022 Predecessor Period and 2023 Successor Period. The increase in other revenue amounting to $0.1 million was attributable to the acquisition of University Courtyard in October 2023, which was partially offset by the decrease in termination income at CapGrow.

General and administrative expenses increased by $4.1 million from $2.7 million during the 2022 Predecessor Period to $6.9 million for the 2023 Successor Period, which was primarily due to increases in professional fees, payroll, director fees, and amortization of share-based compensation. Increase in professional fees was attributable to accrual for annual audit, tax preparation, valuation, transfer agent and fund administrative services. Payroll increased due to staff hiring. The increase in directors’ fee is due to the election of new independent directors in February 2023 and the commencement of their service thereafter. The increase in share-based compensation is attributable to the amortization of one-time grant and equity retainers that were granted in March and April 2023, respectively.

Organization and transaction costs amounted to $2.5 million during the 2023 Successor Period were pertaining to the $1.6 million incremental costs associated with the Company’s organization and offering activities and $0.9 million of costs related to the acquisition of CapGrow which was accounted for under the business combination with the Company.

Property operating expenses during the 2023 Successor Period increased primarily due the acquisition of University Courtyard in October 2023, which contributed property operating expenses amounting to $0.5 million, partially offset by lower repairs and real estate taxes ($0.1 million) at CapGrow as a result of fewer vacant units held.

Management fees were $0.9 million during the 2023 Successor Period, which we began accruing upon the acquisition of CapGrow. There were no management fees during the 2022 Predecessor Period.

Performance participation allocation was $1.6 million during the 2023 Successor Period, which was calculated and accrued pursuant to the terms of the limited partnership agreement of the Operating Partnership and upon achieving the total returns for the period that exceeded the hurdle rate, entitling the Special Limited Partner (a non-controlling interest holder in the Operating Partnership) to this allocation that will remain as payable until year-end when the final profit and loss allocation is performed.

Depreciation and amortization expenses increased by $9.7 million from $8.5 million during the 2022 Predecessor Period to $18.3 million for the 2023 Successor Period, which was due to the higher depreciable cost basis as a result of a step up in basis in connection with the business combination of the Company and CapGrow and its subsequent asset acquisitions. Additionally, the increase in depreciation and amortization expense was attributable to the acquisition of University Courtyard in October 2023, which recorded a depreciation and amortization expense amounting to $1.7 million during the 2023 Successor Period.

Interest expense, net increased by $0.8 million from $9.6 million during the 2022 Predecessor Period to $10.4 million for the 2023 Successor Period, which was due to the increased borrowings from our revolving credit facility which was primarily used to finance CapGrow’s asset acquisitions and financing used to acquire University Courtyard, partially offset by the interest income earned from our money market funds ($0.9 million).

Impairment of investments in real estate was $4.0 million for the 2023 Successor Period due to the write-down of five impaired vacant assets and 34 held for sale assets, 33 of which were sold during the 2023 Successor Period. These held for sale assets were under contract or marketed at a price lower than the book value, which occurs as part of the normal business operations when a tenant vacates a property and no immediate replacement tenant is expected by the time of closing.

Gain on sale of real estate was $2.4 million during the 2022 Predecessor Period and was due to 33 assets that were sold in 2022.

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 EE and AA common shares, which was reduced by the noncontrolling interests in our consolidated subsidiaries.

The following table provides a breakdown of the major components of our NAV as of June 30, 2024 and December 31, 2023, respectively (amounts in thousands, except per share/unit data):

The following table provides a breakdown of our total NAV and NAV per share/unit by class as of June 30, 2024 (amounts in thousands, except per share/unit data):

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, 2024:

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, 2024:

The following table details the contracted weighted average fixed rate mortgage rates on CapGrow’s properties compared to the weighted average market rates, which are key assumptions from the debt valuations as of June 30, 2024:

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, 2024 debt balances, would have the following effects on the value of our debt balances.