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

MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References herein to "BlackRock Monticello Debt Real Estate Investment Trust.," "Company," "we," "us," or "our" refer to BlackRock Monticello Debt Real Estate Investment Trust and its subsidiaries unless the context specifically requires otherwise.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. 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 under Item 1A. "Risk Factors" in our Registration Statement on Form 10, (as amended, the "Registration Statement") filed with U.S. Securities and Exchange Commission (the "SEC").

Forward-Looking Statements

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:

In addition, words such as "may," "will," "should," "target," "project," "estimate," "continue," "anticipate," "believe," "expect" or "intend" or the negatives thereof or other variations thereon or comparable terminology indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in "Item 1A. Risk Factors" section of Post-Effective Amendment No. 1 to the Registration Statement filed with the SEC and elsewhere in this Form 10-Q. Other factors that could cause actual results to differ materially include:

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These forward-looking statements apply only as of the date of this Form 10-Q. Moreover, we assume no duty and do not undertake to update the forward-looking statements.

Overview

We are a Maryland statutory trust formed on November 7, 2024. Our investment strategy is to originate, acquire, finance, manage and dispose of a portfolio consisting primarily of real estate loan investments, including senior mortgage loans, subordinated debt and other similar investments (the "Loan Portfolio"). Our real estate loans are expected to be secured by properties located in the United States and include, without limitation multifamily, seniors housing and other commercial real estate assets. To a lesser extent, we invest in publicly traded real estate-related debt or securities, private real estate-related debt, and other securities, including collateralized loan obligations ("CLOs") and/or cash and cash equivalent investments (collectively, the "Liquid Investments Portfolio"). Our sponsors are BlackRock, Inc. ("BlackRock") and MONTICELLOAM, LLC ("Monticello") (each, a "Sponsor", and together, the "Sponsors"). BlackRock Financial Management, Inc. (the "BlackRock Advisor"), an affiliate of BlackRock, and MONTICELLOAM, LLC (in its capacity as investment adviser to the Company, the "Monticello Advisor"), serve as our external advisors (each, an "Advisor" and together, the "Advisors").

We are an externally advised, perpetual-life REIT formed to pursue the following investment objectives:

We may not achieve our investment objectives. See "Item 1A. Risk Factors" in the Registration Statement filed with the SEC.

We are structured as a non-listed, perpetual-life REIT, and therefore our securities are not listed on a national securities exchange and, as of the date of this Form 10-Q, there is no plan to list our securities on a national securities exchange. We are organized as a holding company and conduct our business primarily through our various subsidiaries. We intend to elect and qualify to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended, commencing with our taxable year ending December 31, 2025.

Our board of trustees 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 Agreements (as defined herein), however, we have delegated to the Advisors 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 trustees.

We are not aware of any material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from acquiring properties or real estate-related securities, other than those referred to in this Form 10-Q.

Q2 2025 Highlights

Capital Activity

Investing Activity

Financing Activity

Results of Operations

The following table sets forth information regarding our Condensed Consolidated Results of Operations for the three and six months ended June 30, 2025. The Company did not start substantial operations until Q2 2025. The Company was formed on November 7, 2024 and there were no operations during the three and six months ended June 30, 2024.

Revenues

During the three and six months ended June 30, 2025, revenues totaled approximately $0.7 million consisting of interest income on our real estate loan investments. Other income pertained to investment income from money market interest.

Expenses

Interest and fees on debt obligations

During the three and six months ended June 30, 2025, interest and fees on debt obligations was approximately $0.6 million representing interest expense and other minimum utilization fees on our debt obligations.

General and administrative

During the three and six months ended June 30, 2025, the Company incurred approximately $0.2 million of general and administrative costs related to professional and trustee fees.

Accounting Policies

See Note 2 in the condensed consolidated financial statements included in this Form 10-Q for a discussion of accounting policies and recent accounting developments expected to impact the Company.

Income Taxes

The Company intends to elect to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, commencing with its taxable year ending December 31, 2025. Provided that we make a timely election and qualify as a REIT, we will not be subject to federal income tax with respect to the portion of our income that meets certain criteria and is distributed annually to shareholders. We intend to operate in a manner that allows us to meet the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. We will monitor the business and transactions that may potentially impact our REIT status. If we were to fail to meet these requirements, we could be subject to federal income tax on our taxable income at regular corporate rates. We would not be able to deduct distributions paid to shareholders in any year in which the Company fails to qualify as a REIT. We would also be disqualified for the four taxable years following the year during which qualification was lost unless we were entitled to relief under specific statutory provisions.

The Company has formed, and may form in the future, one or more subsidiaries to function as taxable REIT subsidiaries ("TRS") and will file TRS elections, together with such subsidiaries, with the U.S. Internal Revenue Service. In general, a TRS may perform additional services for the Company's tenants and generally may engage in any real estate or non-real estate-related business other than management or operation of a lodging facility or a health care facility. The TRS will be subject to taxation at the federal, state, local and non-U.S. levels, as applicable, at the regular corporate tax rates. The Company will account for applicable income taxes by utilizing the asset and liability method. As such, the Company will record deferred tax assets and liabilities for the future tax consequences resulting from the difference between the carrying value of existing assets and liabilities and their respective tax basis. A valuation allowance for deferred tax assets will be provided if the Company believes all or some portion of the deferred tax asset may not be realized.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet our cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make new investments where appropriate, pay distributions to our shareholders and other general business needs. We closely monitor our liquidity position and believe that we have sufficient current liquidity and access to additional liquidity to meet our financial obligations for at least the next 12 months.

The BlackRock Advisor and Monticello Capital Partners, LLC, an affiliate of the Monticello Advisor (the "Monticello Investor"), have each agreed to purchase from us an aggregate amount of not less than $50 million, in the case of the BlackRock Advisor, and $3.25 million in the case of the Monticello Investor, in each case, in Class E shares of the Company, at a price per share equal to the Company's most recently determined NAV of its Class E shares, or if a NAV has yet to be calculated, then $25.00. As of June 30, 2025, the remaining capital commitment of the BlackRock Advisor was $46.75 million. We expect to generate cash primarily from (i) the net proceeds of our continuous private offering, (ii) cash flows from our operations, (iii) any financing arrangements we may enter into in the future and (iv) any future offerings of our equity or debt securities.

Our primary uses of cash will be for (i) origination or acquisition of commercial mortgage loans and other commercial debt investments, commercial mortgage-backed securities and other commercial real estate-related debt investments in accordance with our investment guidelines, (ii) the cost of operations (including the management fee and performance fee), (iii) debt service of any borrowings, (iv) periodic repurchases, including under our share purchase plan (as described herein), and (v) cash distributions (if any) to the holders of our shares to the extent authorized by our board of trustees and declared by us.

The Company will seek to enter into bank debt, credit facility, and / or other financing arrangements on at least customary and market terms; however, such incurrence would be subject to prevailing market conditions, the Company's liquidity requirements, contractual and regulatory restrictions and other factors.

As of June 30, 2025, the Company has entered into a Repurchase Agreement where the Company has pledged loans as collateral. Under the Repurchase Agreement the Company is permitted to borrow as much as $150 million based on the value of the loans pledged as collateral and the maximum advance rates attributed to each loan by the lender. The Company also entered into a revolving credit agreement (as it may be amended from time to time, the "JPM Credit Agreement") with JP Morgan Chase Bank, N.A., as lender with an aggregate borrowing capacity of $43.9 million secured by outstanding commitments of the BlackRock Advisor. As of June 30, 2025, the Company has $122.3 million in outstanding debt. See Note 4.

Our primary sources of liquidity include cash and cash equivalents and available borrowings under our debt facilities. The following table summarizes amounts available under these sources as of June 30, 2025 ($ in thousands):

Subsequent to June 30, 2025, the Company executed several financing transactions as described below. See Note 14 for additional details.

Cash Flows - For the Six Months Ended June 30, 2025

We experienced a $1.3 million net increase in cash and cash equivalents during the six months ended June 30, 2025, reflecting cash used in operating activities of ($0.04) million, cash used in investing activities of ($127.5) million, and cash provided by financing activities of $128.8 million.

Net cash used in operating activities of ($0.04) million was primarily driven by an increase in general and administrative costs and interest expense on debt obligations, offset by interest income on our real estate loan investment portfolio.

Net cash used in investing activities of ($127.5) million was driven by origination of $106.7 million of mortgage loans and the purchase of $20.8 million of participation interests in mortgage and mezzanine loans originated by affiliates of the Monticello Advisor.

Net cash provided by financing activities of $128.8 million was comprised of $37 million of borrowings pursuant to the JPM Credit Agreement, $85.3 million of borrowings pursuant to the Repurchase Agreement, and $6.5 million of proceeds from the issuance of Class E shares to our Advisors.

Distribution Policy

Any distributions we make will be at the discretion of our board of trustees, considering factors such as our earnings, cash flow, capital needs and general financial condition. As a result, our distribution rates and payment frequency may vary from time to time.

Our board of trustees' discretion as to the payment of distributions will be directed, in substantial part, by its determination to cause us to comply with the REIT requirements. To maintain our qualification as a REIT, we generally are required to make aggregate annual distributions to our shareholders of at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains.

We intend to declare monthly distributions for each class of common shares then-outstanding, which will be paid in the subsequent month and will be the same gross distribution per share for each class. The net distribution may vary for each class based on the applicable shareholder servicing fee, which is deducted from the gross distribution per share.

On July 31, 2025, we declared a dividend of $0.1927 per share, which will be paid on or around August 21, 2025 to shareholders of record as of July 31, 2025.

Net Asset Value

Our NAV presented in the following table includes the NAV of our outstanding classes of common shares. As of June 30, 2025 only Class E common shares were outstanding. The following table provides a breakdown of the major components of our NAV as of June 30, 2025 ($ in thousands):

Our NAV for each class of common shares is calculated by our fund administrator (the "Administrator") with the assistance of the Advisors based on the valuations of our investments, the addition of any other assets (such as cash on hand), and the deduction of any liabilities, including, as applicable with respect to any particular class of shares, the accrual of any management fees and performance fees to the Advisors, and will also include the deduction of any ongoing shareholder servicing fees specifically applicable to such class of common shares. The Advisors review and approve the NAV.

Valuation Guidelines and the Valuation Committee

Our board of trustees, including a majority of our independent trustees, has adopted valuation guidelines that contain a comprehensive set of methodologies to be used by the Advisors and the Independent Valuation Advisor (as defined herein) in connection with estimating the values of our assets and liabilities for purposes of our NAV calculation. These guidelines are designed to seek to produce a fair and accurate estimate of the price that would be received for our investments in an arm's-length transaction between a willing buyer and a willing seller in possession of all material information about our investments. Periodically, our board of trustees, including a majority of our independent trustees, and the Valuation Committee (as defined herein) will review the appropriateness of our valuation procedures. From time to time, our board of trustees, including a majority of our independent trustees, may adopt changes to the valuation guidelines if it (1) determines that such changes are likely to result in a more accurate reflection of NAV or a more efficient or less costly procedure for the determination of NAV without having a material adverse effect on the accuracy of such determination or (2) otherwise reasonably believes a change is appropriate for the determination of NAV.

The Advisors have formed a Valuation Committee (the "Valuation Committee"), which reviews and approves the proposed estimates of fair values of the Company's Loan Portfolio investments, and debt facility liabilities, that are prepared by the Independent Valuation Advisor as well as the fair values of the Liquid Investments Portfolio prepared by the Advisors, in each case, prior to their use by the Administrator and the Advisors in determining our NAV. The Valuation Committee is comprised of a total of four voting members, two of whom are designated by each Advisor. The Valuation Committee has adopted a charter and procedures that are consistent with our valuation guidelines that are discussed below.

The calculation of our NAV is intended to be a calculation of the fair value of our assets less our outstanding liabilities as described below and will likely differ from the book value of our equity reflected in our condensed consolidated financial statements, which will be prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").

To calculate our NAV for the purpose of establishing a purchase and repurchase price for our common shares, we have adopted valuation guidelines to assist in the calculation of the fair values of our assets and liabilities in accordance with our valuation guidelines. Because these

fair value calculations involve significant professional judgment in the application of both observable and unobservable attributes, the calculated fair value of assets may differ from their actual realizable value or future fair value. While we believe these NAV calculation methodologies are consistent with standard industry practices, there is no rule or regulation that requires we calculate NAV in a certain way. As a result, other REITs may use different methodologies or assumptions to determine NAV. In addition, NAV is not a measure used under U.S. GAAP and the valuations of and certain adjustments made to our assets and liabilities used in the determination of NAV may differ from U.S. GAAP. Shareholders should not consider NAV to be equivalent to shareholders' equity or any other U.S. GAAP measure.

Our board of trustees is involved in the periodic valuation of our assets and liabilities and will periodically receive and review such information about the valuation of our assets and liabilities as it deems necessary to exercise its oversight responsibility. In addition, our board of trustees has delegated to the Advisors the responsibility for monitoring significant events that may materially affect the values of our investments and for determining whether the values of the applicable investments should be reevaluated prior to the next regularly scheduled valuation in light of such significant events.

Independent Valuation Advisor

We have engaged an Independent Valuation Advisor (the "Independent Valuation Advisor"), which was approved by our board of trustees, including a majority of our independent trustees. Valuations of the investments that comprise the Loan Portfolio and the Company's debt facility liabilities will be determined by the Advisors (through the Valuation Committee) based on valuations prepared by the Independent Valuation Advisor. The Independent Valuation Advisor is engaged in the business of rendering opinions regarding the value of real estate-related investments and related liabilities and is not affiliated with us or the Advisors.

The Advisors, with the approval of our board of trustees, including a majority of independent trustees, may engage additional independent valuation advisors in the future as our portfolio grows and diversifies. While the Independent Valuation Advisor will provide estimated fair value for our investments held in the Loan Portfolio and the Company's debt facility liabilities each month in accordance with the Company's valuation guidelines, it is not responsible for, and does not calculate, our NAV.

The Independent Valuation Advisor may be replaced at any time, in accordance with agreed-upon notice requirements, by a majority vote of our board of trustees, including a majority of our independent trustees. The Independent Valuation Advisor will discharge its responsibilities in accordance with our valuation guidelines.

We pay fees to the Independent Valuation Advisor in accordance with the valuation services agreement. The compensation paid to the Independent Valuation Advisor is not based on the estimated values of our assets and liabilities or any confirmation thereof.

The Independent Valuation Advisor and its affiliates have provided and is expected to continue to provide real estate appraisal, appraisal management and valuation advisory services to BlackRock, Monticello and their affiliates and have received, and are expected to continue to receive, fees in connection with such services. The Independent Valuation Advisor and its affiliates will from time to time perform other commercial real estate and financial advisory services for BlackRock, Monticello and their affiliates, or in transactions related to collateral that is a component of the subjects of the valuations being performed for us, or otherwise, so long as such other services do not adversely affect the independence of the Independent Valuation Advisor as certified in the applicable valuation report.

Loan Portfolio Valuation

The fair values of the investments comprising our Loan Portfolio will be determined by the Advisors (through the Valuation Committee), based on valuations prepared by the Independent Valuation Advisor, on a monthly basis. Newly originated or acquired loan investments will initially be valued at cost in the month that they are closed, which is expected to represent fair value at that time. For each month after the initial month in which a loan investment is closed, the fair value of such investment will be determined by the Advisors (through the Valuation Committee), based on valuations prepared by the Independent Valuation Advisor.

Valuations of real estate loan investments reflect changes in interest rates, spreads, collateral value, loan tests (including loan impairment testing) and metrics, risk ratings, and anticipated liquidation timing and proceeds, among others. The fair values are determined by discounting the future contractual cash flows to the present value using a current market interest rate or spread. The market rate is determined through consideration of the interest rates for debt of comparable quality and maturity, and, where applicable, the value of the underlying real estate investment.

Valuation of Collateral

For real estate loan investments, an appraisal will be completed by an independent appraisal firm prior to the closing of each transaction. Appraised values of property collateral are based on comparable sales, occupancy, leasing rates and expirations, discounted cash flows and anticipated liquidation timing and proceeds, among other factors. The Advisors or the Valuation Committee may choose to obtain an updated third-party appraisal subsequent to the loan closing date if a material event occurs and impacts the collateral.

Evaluated pricing not available

If evaluated pricing is not readily available at the time of the investment (or are otherwise not reliable for a particular investment), the Advisors will initially value the investment at the acquisition price. Each such investment will then be valued by the Advisors monthly as determined in good faith, in certain cases as provided to the Advisors by third-party valuation agents. Due to the inherent uncertainty of these estimates, estimates of fair value may differ from the values that would have been used had a ready market for these investments existed and the differences could be material. Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information, bid/ask information, or broker-dealer quotations).

Valuation of Liabilities

Our NAV calculation includes the fair values of our debt facility liabilities, each as determined by the Advisors (through the Valuation Committee), based on valuations prepared by the Independent Valuation Advisor, on a monthly basis. New debt facility liabilities will initially be valued at par, which is expected to represent fair value at that time. Each month thereafter, the Advisors (through the Valuation Committee), based on valuations prepared by the Independent Valuation Advisor, will prepare the debt facility liability valuations. Any changes to the fair value of debt facility liabilities are expected to reflect changes including interest rates, spreads, and key loan metrics and tests utilizing the collateral value and cash flows, including the estimated liquidation timing and proceeds. The fair value of any financing liabilities will generally be measured using the valuations guidelines discussed above.

In addition to debt facility liabilities, we expect that our liabilities will include the management fees and performance fees payable to the Advisors, upfront sales commissions and shareholder servicing fees payable to the Dealer Manager, accounts payable, accrued operating expenses and other liabilities. All liabilities will be valued using widely accepted methodologies specific to each type of liability. Liabilities related to shareholder servicing fees will be allocable to the applicable classes and will only be included in the NAV calculation for that class. Liabilities related to the management fee and performance fee will be allocable to only such classes to which the management fee and performance fee relate.

For purposes of calculating our NAV, neither (1) organization and offering expenses paid by the Advisors through the first anniversary of the initial closing of the Company's continuous, blind pool Private Offering (the "Initial Retail Closing"), nor (2) certain operating expenses paid by the Advisors, incurred by us during the period through the first anniversary of the Initial Retail Closing, are recognized as expenses or as a component of equity and reflected in our NAV until we reimburse the Advisors for these costs.