Sunrise Realty Trust, Inc. Price & Performance (SUNS)

Good morning, and thank you all for joining Sunrise Realty Trust earnings call for the quarter and fiscal year ended December 31, 2024. I'm joined this morning by Leonard Tanabom, our Executive Chairman Brian Cedrus, our Chief Executive Officer and Brandon Hatzel, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our February 12, 2025, press release and is posted on the Investor Relations portion of our website at sunriserealtytrust.com along with our fourth quarter and fiscal year twenty twenty four earnings release and investor presentation. Today's conference call includes forward looking statements in projections that reflect the company's current views with respect to, among other things, market developments, our investment pipeline, anticipated portfolio yield, financial performance and projections in 2025 and beyond, these statements are subject to inherent uncertainties in predicting future results Please refer to Sunrise Realty Trust's most recent periodic filings with the SEC including our annual report on Form 10 ks filed earlier this morning, certain conditions and significant factors that could cause actual results to differ materially from these forward looking statements and projections.

During today's conference call, management will refer to non GAAP financial measures including distributable earnings. Please see our fourth quarter and fiscal year earnings release uploaded to our website for reconciliations of this non GAAP financial measure with the most directly comparable GAAP measures, The format for today's call is as follows. Len will provide a general business and capital markets overview, Next, Brian will cover our view on the state of the commercial real estate lending markets discuss our existing portfolio and provide an outlook for our investment pipeline. Then Brandon will provide an update on our financial position. After that, we'll open the line for Q and A. With that, I will now turn the call over to our Executive Chairman, Leonard Tannebaum. Good morning, and welcome to our fourth quarter and fiscal year twenty twenty four earnings conference As we finished 2024, and began 2025, We have continued the strong momentum since our public listing in July, For the quarter ended 12/31/2024, SUNS generated distributable earnings of $0.3 per diluted average share of common stock. When declaring SUNS quarterly dividend, distributable earnings is the primary metric the Board of Directors considers. As such, the Board of Directors has declared a $0.3 dividend per share for the quarter ended 03/31/2025.

Looking ahead, we are focused on paying a dividend that is consistent with the earnings power of the business over the medium term. As we continue to invest our capital, and use leverage provided by our senior and unsecured credit lines. We believe the $0.3 dividend should be on or close to our first quarter distributable distributable earnings. As a reminder, SUNS is an important part of TCG real estate platform. The platform consists of a number of funds focused on sourcing, underwriting and investing in commercial real estate loans. The affiliation with this platform provides Sunrise with a scalable infrastructure, debt and equity capital markets expertise, and the ability to pursue larger transactions than it could currently pursue on its own. During the fiscal year ending 12/31/2024, the TCG real estate platform originated $538,000,000 of loans, of which SUNS committed $220,000,000 and funded $162,000,000 As of 12/31/2024, $133,000,000 of principal remained outstanding. As of March 1, the TCG real estate platform with SUNS committing $75,000,000 of that total. With market dynamics in the Southern U. S. Creating opportunities for commercial real estate lenders, direct origination platform continues to source attractive deals and the TCG real estate platform currently has an active pipeline of 1,400,000,000.0 includes two signed term sheets Currently, in documentation.

Subsequent to year end, we successfully completed an offering for SUNS. Raising approximately $77,000,000 of gross proceeds. We believe that this equity raise was an important step in scaling the company has allowed us to capture a greater share of this attractive commercial real estate vintage gain additional research analyst coverage significantly increase liquidity and increased the potential of accessing more attractive financing sources to continue our growth. In conjunction with the equity raise, our manager, has agreed to waive at least $1,000,000 of future fees to mitigate the earnings drag as we deploy equity and debt capital. We expect the manager to waive all management fees, and all incentive fees the first quarter of this year. We are excited about the opportunity ahead of us and look forward to meeting many investors and analysts in the upcoming months. With that, I'll turn the call over to our CEO, Brian. Thank you, Lynn, and good morning. We continue to remain excited about the current opportunity to provide credit to sponsors of transitional commercial real estate projects located within our target markets. With short term interest rates forecasted to remain elevated for a longer period of time, than previously expected, we believe that the need for real estate credit will remain elevated.

Therefore, we believe that DISH will continue to present attractive opportunities for us to help solve borrowers' near term financing needs at attractive loan to valuation.

Against the backdrop of many lenders continuing to remain pre op with legacy portfolio positions and commercial banks remaining conservative their leverage levels we believe that it is an ideal time to be on offense. Selecting high quality assets located in growing markets and backed by highly qualified sponsors.

Turning to our portfolio. In the fourth quarter of twenty twenty four, Sun successfully closed on $75,000,000 of commitments. Which include $30,000,000 in a senior loan for a condominium development in Fort Lauderdale, Florida $32,000,000 in a senior loan for a luxury hotel in Austin, Texas and $13,000,000 in a supported loan for a Class A multifamily asset in Miami, Florida. From year end through March 1, SUNS committed $75,000,000 to two transactions originated by the TCG real estate platform. One was a $44,000,000 commitment to a senior loan for Shell Plaza in the River District in New Orleans and the other was a $31,000,000 commitment on a residential asset in Florida. These investments reflect our broader strategy of partnering with top tier sponsors who share our vision for creating and investing in high quality real estate in key Southern U. S. Markets. Additionally, subsequent to year end, we were repaid on our loan to a mixed use property in Houston, Texas. The loan was closed in January 2024 reaching a peak commitment by SUNS of $35,500,000 and generating a strong risk adjusted return for our investors. As of March 1, the SUNS portfolio has $259,000,000 of commitments $162,000,000 funded, Many of the unfunded commitments relate to construction loans.

Which will continue to fund throughout this year and into 2026. These loans were structured with attractive rates and floors Currently, 83% of our loan commitments are in Florida and Texas, which are two of the largest markets in The U. S. In addition to these states, we are also pursuing opportunities in other Southern states like Georgia, South Carolina, and Tennessee and we recently closed the deal We believe that the Stuttons portfolio is well positioned from an interest rate perspective as 85% of our current portfolio's outstanding principal is floating rate, with floors of on a weighted average 4.2% Given these floors in place across our loan book, our credit line with an approximate floor of 2.6% presents a potential opportunity to expand Sunnys' net interest margin. We continue to remain bullish on the opportunities in front of us as we look to source and close attractive commercial real estate credit opportunities within the Southern United States, as demand from borrowers continues to exceed available capital. We believe this market dynamic will continue to afford us the opportunity to carefully curate an attractive loan portfolio. We expect in the near to medium term our portfolio composition will remain similar to our current composition.

With an emphasis on well located residential and mixed use assets backed by experienced and well capitalized sponsors. Unlike most mortgage REITs, our portfolio consists entirely of new vintage assets. All loans are current and performing. As Len described earlier, the TCG real estate platform pipeline remains strong. With approximately $1,500,000,000 in in active deals under review. From inception through 03/01/2025, we along with our affiliated funds on the TCG real estate platform and our syndicate partners, have successfully closed approximately $650,000,000 with SUNS committing approximately $295,000,000 We believe that the current market environment will continue to create attractive entry points for SUNS to invest capital over the coming quarters. As elevated interest rates should lead to a slower market recovery and a need for transitional capital. To further bolster our senior leadership sourcing and execution capabilities, I'm pleased to announce the addition of Alfa Trivalino to the TC real estate platform and the Sun's investment team. Joining us as a Managing Director, Albert brings over three decades of real estate credit and equity investing experience. Most recently, Albert was a Managing Director and Head of U. S. Real Estate Finance at CDPQ. And prior to that worked with me at related fund management for over eight years.

We are excited to have him round out our investment team and help position us to take advantage of the attractive lending environment. Looking ahead, we remain focused on constructing a portfolio of new vintage assets by leveraging our local market expertise, our strong relationships across the Southern United States, and our ability to provide sponsors with appropriately leveraged loans [indiscernible] their short to medium term needs. With that, I will now turn the call over to Brandon Hetzel, Our Chief Financial Officer, Thank you, Brian. For the quarter ended December 31, we generated net interest income of $3,400,000 dollars and distributable earnings of $2,000,000 or $0.3 per basic weighted average common share. And had GAAP net income of 1,900,000.0 or $0.27 per basic weighted average common share.

We believe that providing distributable earnings is helpful to shareholders assessing the overall performance of the Sunrise business. Distributable earnings represents net income computed in accordance with GAAP excluding non cash items such as stock compensation expense, unrealized gains or losses and the provision for current expected credit losses. Ended the fourth quarter and fiscal year of 2024 with $190,900,000 of current commitments and $132,600,000 of principal outstanding, spread across nine loans. As of 03/01/2025, our portfolio consisted of $259,300,000 of current commitments and $162,100,000 of principal outstanding across 10 loans with a weighted average portfolio yield to maturity of 12.4%. I'd also like to note that as of December 31, 2024, our CECL reserve approximately $40,000 or three basis points for our loans at carrying value. As of 12/31/2024, we had total assets of $317,500,000 and our total shareholder equity was $114,100,000 or a book value of $16.29 per share. When we include the equity raise completed in January 2025, our pro form a book value would have been approximately $13.09 $3 As Lynn mentioned earlier, the Board of Directors has declared a $0.3 dividend per share for the quarter ended 03/31/2025. The dividend will be paid on 04/15/2025 to shareholders of record as of March 31, 2025.

With that, I will now turn it back over to the operator to start the Q and A. Thank you. Our first question comes from the line of Randy Binner with B. Riley Securities. Your line is open.

Hey, good morning. Thanks.

Just had one on just on debt, the debt profile and maybe I think some timing issues or questions really. And so the way we're well, I guess the first part of the question was the interest expense was lower than we've modeled in the fourth quarter, but there was a lot of change happening in the company. So if there are any notable timing issues of how the actual interest expense came through I'd like to to hear what that is. It'd be helpful for modeling. And then then kind of looking forward, I think that the revolver has been pulled down for $75,000,000 but the East West line had outstanding balance and then was subsequently paid down. But I just want to make sure we're thinking of the the pieces of the debt structure correctly with that last part of the question?

Sure. So the reason you're interested in it might have been a little higher in your models is the investments were deployed a little later in December later in the quarter. And so we didn't get into leverage until mid to mid December. And so we did have the East West Bank line drawn at year end, which was partially repaid at year end and then fully repaid after the Okay. So East West is paid and then and then the revolver is pulled down for the full 75 I mean, just think of it is it reasonable to think the $75,000,000 would just kind of stay pulled down and then East West would kind of grow with the origination ramp. Is that is that No, $150,000,000 revolver was repaid right after year end as well.

Okay.

So then it would be you'd go back to East West first, I guess?

As you seek more debt, correct? Yes, that's correct. [indiscernible] Now otherwise, it was well covered. So that was just our one question. Sure.

Thank you. Our next question comes from the line of Stephen Laws with Raymond James.

Your line is open.

Hi, good morning. Brian, I wanted to touch on the pipeline It looks like the portfolio mix to date is like 85% senior loans. Can you talk about what the mix looks like in your pipeline of senior versus attractiveness between the two? And along the same lines as you think about funding up the portfolio into the the third quarter? Or do you have any kind of thoughts kind of as you see investment pace and pipeline of deploying [indiscernible] Brian, answer the first part. Yes, sure. Hey, Steve. Thanks for the questions, Brian.

So in terms of the mix between senior and subordinate I would say that the expectation is we're obviously going to stay a significant portion of our book will be senior versus subordinate. We think that represents Certainly for the time being, the best the best opportunity set for us to deploy really attractive capital at lower leverage levels.

I say that because we still see for the types of transitional assets that we are looking to finance, we see the senior lenders continuing to pull back. And so it's created a real opportunity for us to provide that whole loan. That being said, I think strategically opportunistically, as we find interesting sub debt tranches that we can participate in, we're going to do so, particularly since we're seeing a lot of senior lenders also reaching out to us to potentially team because they're just not getting there on the higher leverage. But I do think certainly from a go forward basis, I would expect that our majority substantial majority of our book will be on the senior side.

And the second part, Steve, Len Tannebaum speaking.

Let's address your question to pipeline conversion and when are we going to be fully deployed. And so it's a little bit of a nuance [indiscernible] which is why I want to explain it to everybody. When we determine we're fully deployed, we may not be fully [indiscernible] Many of our loans are construction loans. In fact, we've got some terrific ones that are starting draw midyear So actually differently than any other company that I've done what I've been Chairman of, This one has a lot of visibility into 2026. Which is very exciting. So when we would start referring to deploy it, we may not see the full earnings impact from that full deployment till 2026. So we're very I'm actually very personally excited about 2026 and what we've already done we already have on our books. 2025 really depends on the pace of draw partially and pace of closings. So it's a combination of things which 2025 a little bit harder to predict 2026 is actually easier to predict for us right now than 2025.

That's helpful and appreciate the color there.

And Brian, thanks for your comments on the the mix. One follow-up, if I may. I really wanted to circle back to your comments on the loan floors versus the financing line floors. I think that's unique situation. I mean, am I thinking about it correct? I think you said the loan floors at 420. We're sitting at SOFR of 433. Your line floor is sub-three. So really either way interest rates move, you should get some benefit. If they move higher, you've got floating rate equity funded investments. If they move lower, the loans are floored out, but your financing costs continue to get cheaper. Am I thinking about that correct or any additional color to add there?

Yes. Correct.

You got it right.

Awesome. I appreciate you verifying that.

Thank you, Okay.

Our next question comes from the line of Jade Ramani with KBW. Your line is open.

Just to start off with on the dividend, Is the idea to have said it conservatively and hopefully you said you expect first quarter earnings to be around $0.3 so that's right on top of the dividend. I know your return targets are a little higher. So is the idea to gradually out earn the dividend and eventually increase it? So let's just you have to really I read a forward looking statement that we've spent a lot of time on. Which is the first quarter dividend will be at or near the earnings which we'll talk to you at we can further talk about that after, but that's the forward looking statement that I think I made So you have to read it really for what it is literally You'll also see a more detailed statement in the 10 ks, so please refer to the 10 ks where That same statement is probably also more heft to it than a speech. As for do we expect to ramp it over time? Yes, I think that I'm like as I just said, I'm really excited about 2026. I don't know the pace of earnings growth in 2025.

But we know that it gets there. We just have to see what that pace is. So over I think $0.3 was the right number given what our visibility is, which is very high. Right? These loans are very high visibility income loans. So that we feel very the Board felt very comfortable with the $0.3 dividend. Yes, it should grow over time. I just don't know what pace it grows. So what attributes drive the improved visibility in 2026 over this year? So the main one is when we started a year ago, I stepped up, TCG stepped up and backstopped a lot of loans. And these are terrific construction loans. And they were done at the best vintage, I think, which was last year. This year is a little bit tighter, already. We're seeing that. So I think we got peak vintage last [indiscernible] but it's not as good as last year. My personal opinion. And so those loans though are delayed fundings with and protected by minimum multiples So those loans will start really funding mid year. And fund all the way into 2026, even loans another one that we're even looking at today is it starts a little bit now and then starts in November and I'm excited about that one too.

So it's all of these types of loans generate a great twenty twenty six-twenty twenty into 2027 scenario. For fundings. So you're going to see us very committed and then those draws will happen over time. And so that's why the visibility is really delayed a little bit.

Okay. That makes sense.

And then just turning to originations, could you put any parameters around what you expect Sunrise to commit to and fund, if you could just aggregate both of those say in the next one to two quarters.

I mean, I think we put that we have some signed term sheets that we are we're working on. So it's we definitely have deals that we're going to do. Some of that is even so I can't we're not going to forward forecast because that means we're going to forward forecast every quarter.

But let me bring up something that may help. Down the road, some of our deals will be back levered. Some of our deals will go under senior credit line. And some of our deals will be and not that many of our deals, I think we're forecasting 20% to 33% will be missed, but some amount will be actual mezz loans.

So So sometimes you'll may see us take down a deal [indiscernible] real numbers, so it's called $100,000,000 and back leverage right now is getting very cheap. The banks are competing for back leverage. We're seeing a very active back leverage environment. For note on note financing And so we're excited about that because we're generating whole loans and if we can back lever them appropriately, we get to nice double digit return on the note. That we're holding. So that you may see us take down $100,000,000 and let me show $100,000,000 on our balance sheet, right, Brandon?

Right.

And at the same time, right, we've laid off $75,000,000 to an eNote. Or I mean that I'm not giving you exact numbers, these aren't exact deals. I'm just giving you hypothetical things. So this also makes it very difficult to tell you whether what we originated, how we originated that in dollars amounts. So you just kept the wait for each quarter for that. To say, we have a very active pipeline and we're excited about this pipeline execution.

Thanks a lot.

Thank you. Thank you. Thank you. We stand by for our next question Our next question comes from the line of Gaurav Mehta Thank you. Good morning.

Your comments around management and incentive fee.

I think in your prepared remarks, you said you don't expect you expect to waive all the management incentive fee in 1Q. Is that right? Yes. We're not taking any management fee and any incentive fee in the first quarter.

And [indiscernible] a little bit of additional fee waiver will spill into the second quarter potentially.

And so that 1Q waiver that goes towards the $1,000,000 waiver you talked about Yes.

Okay. Second question on I wanted to ask you on your credit line. So the $200,000,000 total capacity What sort of criteria that you guys need to go from like $50,000,000 to $28,000,000 Could you just repeat that question please?

I think your total capacity on your East West line is $200,000,000 and as dollars and so I was just wondering like what are some of the criteria that you guys need to meet to go from like $50,000,000 to $200,000,000 Nothing. I mean, we're you'll see us expand that line over the course of the next quarter or two.

I mean, there's a lot of good interest from the banks. We're excited about that. You'll see it. I believe you're going to see us expand that line towards the $200,000,000 But remember, if our goal here with $180,000,000 ish of equity. 40% equity, 60% debt. Or if you think about the model that we're we're shooting for, which is you had $200,000,000 of equities, just to make the numbers round, dollars 200,000,000 of equity, dollars 200,000,000 of debt, dollars 200,000,000 of senior $100,000,000 drawn right? We just need the $200,000,000 So I'm I don't think senior leverage is going to be the hold up. As I've said, I think in the last call, I'm I'll say on this one, right, I do want to do an unsecured raise this year. I'm excited to do that. I like unsecured with no covenants. I did many unsecured rates raises in my previous business that I sold Oaktree. So we are going to start working on that after this call and for the rest of the year and hopefully draw on the $75,000,000 line that we do have in place. So that when the unsecured raise does come in, it doesn't have cash drag.

Right? It just replaces that line. And so I think that's the goal and the next thing we're working on.

Okay. Thank you. That's all I have.

Thank you.

Ladies and gentlemen, at this time, I would now like to turn the call back over to CEO, Brian Cedrus, for closing remarks.

Thank you all for joining our call today. Appreciate it and we look forward to talking to you again in the near future.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.