Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is based on the unaudited consolidated financial statements as of September 30, 2026 and December 31, 2025, and for the quarter and nine months ended September 30, 2026. Amounts as of December 31, 2025 included in the unaudited consolidated balance sheets have been derived from the audited consolidated financial statements as of that date. This information should be read in conjunction with the accompanying unaudited consolidated financial statements and the notes thereto, as well as the audited consolidated financial statements, notes and management's discussion and analysis included in our Annual Report on Form 10-K for the year ended December 31, 2025 (our "Form 10-K"). Capitalized terms used in this Item 2 have the same meaning as in the accompanying unaudited financial statements unless otherwise defined herein.

Statement Regarding Forward Looking Information

In this quarterly report for the quarterly period ended September 30, 2026 (this "Form 10-Q"), references to "Company," "we," "us," or "our business" refer to CNL Strategic Residential Credit, Inc. and its subsidiaries; references to the "Advisor" refer to CNL Residential Credit Manager, LLC, an affiliate of CNL Financial Group, LLC; references to the "Sub-Advisor" refer to Balbec Capital Management, L.P., an affiliate of Balbec Capital, L.P.

Certain statements in this Form 10-Q contain forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995. Some of the statements in this Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this Form 10-Q may include statements as to:

	•	our future operating results;
	•	our business prospects and the prospects of the assets in which we may invest;
	•	the impact of the investments that we expect to make;
	•	our ability to raise sufficient capital to execute our investment strategy;
	•	our ability to source adequate investment opportunities to efficiently deploy capital;
	•	our expected financing arrangements;
	•	the effect of global and national economic and market conditions generally upon our operating results, including, but not limited to, changes with respect to inflation, interest rate changes and supply chain disruptions, and changes in government rules, tax policy, government agencies, regulations and fiscal and trade policies;
	•	the adequacy of our cash resources, financing sources and working capital;
	•	the timing and amount of cash flows, distributions and dividends, if any, from our investments;
	•	our contractual arrangements and relationships with third parties;
	•	actual and potential conflicts of interest with the Advisor, the Sub-Advisor or any of their respective affiliates;
	•	the dependence of our future success on the general economy and its effect on the assets in which we may invest;
	•	our use of financial leverage;
	•	the ability of the Advisor and the Sub-Advisor to locate suitable investments for us and to manage and administer our investments;
	•	the ability of the Advisor, the Sub-Advisor or their respective affiliates to attract and retain highly talented professionals;
	•	our ability to structure investments in a tax-efficient manner and the effect of changes to tax legislation and our tax position; and
	•	the tax status of the assets in which we may invest.

Our forward-looking statements are not guarantees of our future performance and shareholders are cautioned not to place undue reliance on any forward-looking statements. While we believe our forward-looking statements are reasonable, such statements are inherently susceptible to uncertainty and changes in circumstances. As with any projection or forecast, forward-looking statements are necessarily dependent on assumptions, data and/or methods that may be incorrect or imprecise, and may not be realized. Our forward-looking statements are based on our current expectations and a variety of risks, uncertainties and other factors, many of which are beyond our ability to control or accurately predict.

Important factors that could cause our actual results to vary materially from those expressed or implied in our forward-looking statements include, but are not limited to, the factors listed and described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Risk Factors" sections of the Company's documents filed from time to time with the U.S. Securities and Exchange Commission, including, but not limited to, our Form 10-K and this Form 10-Q.

All written and oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by these cautionary statements. Forward-looking statements speak only as of the date on which they are made; we undertake no obligation to, and expressly disclaim any obligation to, update or revise forward-looking statements to reflect new information, changed assumptions, the occurrence of subsequent events, or changes to future operating results over time unless otherwise required by law.

Overview

We are a real estate finance company. Our investment strategy is to acquire, finance and manage a diversified portfolio of primarily U.S. performing and re-performing whole mortgage loans, MSRs and RMBS. We have structured some of our investments in MSRs through other entities for which the returns are based on underlying MSR cash flows. Our overall objective is to generate attractive risk-adjusted returns with high current income for our stockholders, through cash distributions and capital appreciation, across interest rate and credit cycles. Our specific investment objectives are to construct a diversified residential credit portfolio that will enable us to:

◦

provide current income in the form of regular, stable cash distributions to achieve an attractive distribution rate;

◦

preserve and protect invested capital by focusing on residential credit assets that are primarily amortizing and thus provide current cash-flow; and

◦

mitigate downside risk through conservative loan-to-value ("LTV") ratios and effectively manage any interest rate and credit sensitivities.

We cannot assure investors that we will achieve our investment objectives.

We intend to elect and qualify to be taxed as a REIT under the Internal Revenue Code commencing with our taxable year ending December 31, 2026.

Our board of directors will at all times have ultimate oversight and policy-making authority over us, including responsibility for governance, financial controls, compliance and disclosure. Pursuant to the Advisory Agreement and the Sub-Advisory Agreement, however, we have delegated to the Advisor, and the Advisor in turn has delegated to the Sub-Advisor, subject to the oversight of 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, strategy and guidelines, policies and limitations, subject to oversight by our board of directors.

Liquidity and Capital Resources

General

Our primary use of cash will be for (i) acquisition of residential mortgage loans, MSRs, RMBS, and other residential debt investments, (ii) the cost of operations (including the management fee and the total return incentive fee), (iii) debt service of any borrowings, (iv) periodic repurchases, including under our share repurchase plan, and (v) cash distributions (if any) to the holders of our shares to the extent authorized by our board of directors and declared by us.

In light of the current economic environment, impacted by high interest rates, inflationary pressures, energy price volatility due to the conflict in the Middle East and the impact of natural disasters and geopolitical events on the global economy, we are closely monitoring overall liquidity levels to be in a position to enact changes to ensure adequate liquidity going forward.

As of September 30, 2026 and December 31, 2025, we had cash of $9,667,739 and $203,272, respectively.

Sources of Liquidity and Capital Resources

Offerings. We received $40,114,700 in net proceeds during the nine months ended September 30, 2026 from the Private Offering. We received $200,000 in net proceeds during the nine months ended September 30, 2025, to capitalize the Company with investments of $100,000 by the Advisor and $100,000 by an affiliate of the Sub-Advisor.

Investments. We received $35,626,762 in proceeds from securities sold under the Repurchase Agreement during the nine months ended September 30, 2026.

Borrowings. We borrowed and repaid $6,700,000 during the nine months ended September 30, 2026 under the Line of Credit.

Uses of Liquidity and Capital Resources

Investments. We purchased $59,179,586 and $9,223,645 of residential mortgage loans and mortgage servicing rights investments, respectively, during the nine months ended September 30, 2026.

Principal Payments. We paid $1,324,386 in principal payments on the Repurchase Agreement during the nine months ended September 30, 2026.

Deferred Financing Costs. We paid $533,426 in deferred financing costs during the nine months ended September 30, 2026.

Distributions. In order to qualify as a REIT, we are required to make distributions, other than capital gain distributions, to our stockholders each year in the amount of at least 90% of our taxable income. We may make distributions in the form of cash or other property, including distributions of our own securities. While we generally expect to pay distributions from cash flows provided by operating activities, we have and may continue to cover periodic shortfalls between distributions paid and cash flows from operating activities from other sources, such as from cash flows provided by financing activities, a component of which could include borrowings, whether collateralized by our assets or unsecured, or proceeds of our distribution reinvestment plan ("Other Sources").

The following table represents total cash distributions declared, distributions reinvested and cash distributions per share for the quarter and nine months ended September 30, 2026:

				​		Distributions Paid (1)
Periods		Cash Distributions per Share				Total Cash Distributions Declared				Reinvested via Distribution Reinvestment Plan				Cash Distributions net of Reinvestment Proceeds
2026 Quarters				​				​				​				​
First		$	0.33333			$	328,077			$	-			$	328,077
Second			0.50000				509,577				9,875				499,702
Third			0.50000				609,692				77,715				531,977
Total		$	1.33333			$	1,447,346			$	87,590			$	1,359,756

FOOTNOTES:

⁽¹⁾ Represents the amount of cash used to fund distributions and the amount of distributions paid which were reinvested in additional shares through our distribution reinvestment plan.

The following table outlines sources used, as determined on a GAAP basis, to pay total gross distributions (which are paid in cash or reinvested in shares of our common stock through our Distribution Reinvestment Plan) for the periods indicated below:

		As of
		Quarter Ended								Nine Months Ended
		September 30, 2026								September 30, 2026
		Amount				Percentage				Amount				Percentage
Distributions:				​				​				​				​
Paid in Cash		$	531,977				87.3	%		$	1,359,756				93.9	%
Reinvested in shares (1)			77,715				12.7	%			87,590				6.1	%
Total Distributions		$	609,692				100.0	%		$	1,447,346				100.0	%
				​				​				​				​
Sources of Distributions:(2)				​				​				​				​
Operating cash flows (3)		$	564,781				92.6	%		$	(406,511	)			(28.1	)%
Indebtedness			-				0.0	%			-				0.0	%
Offering proceeds			44,911				7.4	%			1,853,857				128.1	%
Total sources of distributions		$	609,692				100.0	%		$	1,447,346				100.0	%

FOOTNOTES:

⁽¹⁾ Represents the amount of cash used to fund distributions and the amount of distributions paid which were reinvested in additional shares through our Reinvestment Plan.

⁽²⁾ For the nine months ended September 30, 2026, our net income attributable to common stockholders was $747,560, while total cash distributions declared for the period was $1,447,346. For the nine months ended September 30, 2026, approximately 0% of total distributions declared to stockholders were considered to be funded with cash provided by operating activities as calculated for GAAP purposes and approximately 100% of total distributions declared to stockholders were considered to be funded with Other Sources.

⁽³⁾ Cash flows from operating activities calculated in accordance with GAAP are not necessarily indicative of the amount of cash available to pay distributions.

Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto.

The following table summarizes our operating results for the quarter and nine months ended September 30, 2026 and 2025:

Net Interest Income

The following table summarizes our net interest income for the quarter and nine months ended September 30, 2026 and 2025:

For the quarter and nine months ended September 30, 2026, we generated $1,366,462 and $2,380,850, respectively, in interest income driven by purchases of residential mortgage loans during January through September 2026. As of September 30, 2026, the weighted average interest rate of residential mortgage loans was 6.03%. We utilized the Repurchase Agreement primarily to purchase additional residential mortgage loans during February through September 2026. As of September 30, 2026, the weighted average interest rate for the repurchase agreement was 5.80% (SOFR + 1.65% - 2.15%). For the quarter and nine months ended September 30, 2025, operations had not yet commenced, which resulted in minimal net interest income.

Other Income/(Loss), net

The following table summarizes our other income/(loss), net for the quarter and nine months ended September 30, 2026 and 2025:

For the quarter and nine months ended September 30, 2026, we recognized $744,177 and $107,383, respectively, in unrealized loss on residential mortgage loans, mortgage servicing rights investments and derivatives. See additional discussion below. For the quarter and nine months ended September 30, 2026, we generated $319,254 and $877,414, respectively, of income driven by purchases of mortgage servicing rights investments in January and September 2026. For the quarter and nine months ended September 30, 2025, operations had not yet commenced, which resulted in no other income/loss, net.

The following table summarizes components of unrealized gain on residential mortgage loans, mortgage servicing rights investments and derivatives for the quarter and nine months ended September 30, 2026 and 2025:

Unrealized gains and losses on our portfolio are based on the current fair value of our investments as determined by our board of directors based on inputs from the Sub-Advisor and our independent valuation firm and consistent with our valuation policy.

During the quarter and nine months ended September 30, 2026, we recognized a net change in unrealized loss of $744,177 and $107,383, respectively. The residential loan portfolio and the mortgage servicing rights investments are a natural hedge to each other and move in the opposite direction in value in response to changes in interest rates. As such, during the nine months ended September 30, 2026, our investment in the residential loan portfolio had $4,159,376 in unrealized loss while our investment in the mortgage servicing rights investments had $1,083,279 in unrealized gain, primarily due to changes in interest rates. The majority of the gross unrealized gain on interest rate futures of $2,968,714 was a result of the increase in the value of the interest rate futures, primarily due to the market rate being higher than the agreed upon rates in these contracts.

For the quarter and nine months ended September 30, 2025, operations had not yet commenced, which resulted in no unrealized (loss) gain, net.

Net Operating Expenses

The following table summarizes our operating expenses for the quarter and nine months ended September 30, 2026 and 2025:

We consider the following expense categories to be relatively fixed in the near term: general and administrative services and director fees and expenses. Variable operating expenses include professional services, investment expenses, base management fees and total return incentive fees. We expect these variable operating expenses to increase in connection with the growth in our asset base (investment expenses, total return incentive fees and base management fees), the number of stockholders and open accounts (custodian fees) and the complexity of our investment processes and capital structure (professional services). Expense support was recorded to cover expenses and cash distributions limited to operating expenses less investment expenses during the quarter and nine months ended September 30, 2026 in accordance with the Expense Support and Conditional Reimbursement Agreement.

For the quarter and nine months ended September 30, 2025, operations had not yet commenced, which resulted in minimal net operating expenses.

Our Portfolio

As of September 30, 2026, our portfolio consisted of approximately $91,291,335 of residential mortgage loans and other target assets.

The following table sets forth additional information regarding our portfolio, including the manner in which our equity capital was allocated among investment types, as of September 30, 2026:

Residential Mortgage Loans

The following table sets forth additional information on the residential mortgage loans in our portfolio as of September 30, 2026:

Number of loans			260
Unpaid principal balance ("UPB") (1)		$	92,240,090
Interest-bearing balance		$	91,771,042
Deferred balance (2)		$	469,048
Loan attributes:				​
Weighted average interest rate			6.03	%
Weighted average loan age (months)			36.9
Weighted average FICO score			715
Weighted average loan-to-value ("LTV") (3)			70.5	%
Weighted average home value		$	929,744
Delinquency performance:				​
Current			93.1	%
30 days delinquent			0.4	%
60 days delinquent			0.2	%
90+ days delinquent			2.9	%
Foreclosure			3.4	%

FOOTNOTES:

⁽¹⁾ As of September 30, 2026, our loan portfolio consisted of fixed rate mortgage loans (100%).

⁽²⁾ Represents amounts that have been deferred in connection with a loan modification on which interest does not accrue. These amounts generally become payable at the time of maturity.

⁽³⁾ UPB as of September 30, 2026, divided by market value of collateral and weighted by the UPB of the loan.

The following chart illustrates additional characteristics of our residential mortgage loans in our portfolio that we owned directly as of September 30, 2026, based on the geographic region (percentages are based on the aggregate unpaid principal balance of such loans):

Mortgage Servicing Rights Investments

The following table sets forth additional information on the underlying residential mortgage loans associated with mortgage servicing rights investments in our portfolio as of September 30, 2026:

Number of loans			3,157
UPB (1)		$	607,412,973
Loan attributes:				​
Weighted average interest rate			4.19	%
Weighted average loan age (months)			58.9
Weighted average FICO score			758
Weighted average LTV (2)			60.3	%
Weighted average home value		$	564,456
Delinquency performance:				​
Current			98.8	%
30 days delinquent			0.9	%
60 days delinquent			0.1	%
90+ days delinquent			0.2	%
Foreclosure			0.0	%

FOOTNOTES:

⁽¹⁾ As of September 30, 2026, our loan portfolio consisted of fixed rate (99.6%) and adjustable rate (0.4%) mortgage loans.

⁽²⁾ UPB as of September 30, 2026, divided by market value of collateral and weighted by the UPB of the loan.

The following chart illustrates additional characteristics of the residential mortgage loans underlying the mortgage servicing rights investments in our portfolio that we owned directly as of September 30, 2026, based on the geographic region (percentages are based on the aggregate unpaid principal balance of such loans):

Hedging Activities

As of September 30, 2026, we had not entered into any derivatives or other financial instruments with the exception of interest rate futures. With respect to any potential financings, general increases in interest rates over time may cause the interest expense associated with our borrowings to increase, and the value of our debt investments to decline. We may seek to stabilize our financing costs as well as any potential decline in our assets by entering into derivatives, swaps or other financial products in an attempt to hedge our interest rate risk. In the event we pursue any assets outside of the U.S., we may have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar. We may, in the future, enter into derivatives or other financial instruments in an attempt to hedge any such foreign currency exchange risk. It is difficult to predict the impact hedging activities may have on our results of operations.

Seasonality

We do not anticipate that seasonality will have a significant effect on our results of operations.

Critical Accounting Policies and Use of Estimates

Our most critical accounting policies involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. We believe that all of the decisions and assessments upon which our financial statements are based are reasonable at the time made and based upon information available to us at that time. Our critical accounting policies and accounting estimates will be expanded over time as we continue to implement our business and operating strategy. Our significant accounting policies are described in Part I-Item 1. "Financial Statements- Notes to Consolidated Financial Statements (unaudited)-Note 2. Summary of Significant Accounting Policies."