Sunrise Realty Trust - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered GAAP net income of $3.10M ($0.27 per share) and Distributable Earnings (DE) of $3.46M ($0.31 per share); EPS and “revenue” modestly beat S&P Global consensus, and DE covered the $0.30 dividend paid on April 15.*
• Management maintained prior guidance that Q2 distributable earnings should be at or close to $0.30 per share; they expect an earnings ramp in 2H25–2026 as construction loans accelerate funding and benefit from loan rate floors vs. credit line floors.
• Portfolio scaled to $352.1M of commitments with $233.4M funded across 12 loans; net interest income grew to $4.6M and book value per share ended Q1 at $13.77, mid-point of the preannounced range.
• Near-term catalysts: completion of the $1M fee waiver (remaining ~$0.14M expected in Q2), potential expansion of the bank line toward $200M, and a contemplated unsecured raise in Q4 2025 to fund growth while exploiting attractive credit spreads and floors.

What Went Well and What Went Wrong

What Went Well

• “All loans are current and performing” with a new-vintage portfolio built in favorable vintages; Q1 DE of $0.31 was mid-range of the April 22 preannouncement, and book value per share landed at $13.77, in the middle of the guided range.
• SUNS originated $213M at the platform level with $148M committed and $110M funded for SUNS; Q1 net interest income rose to $4.6M and portfolio yield to maturity stood at 12.1%.
• Competitive advantage from loan floors: 88% floating with weighted average floor of 4.1% vs. credit line floor ~2.6%, positioning NIM favorably if rates decline; Dallas loan floor at 3.9% cited explicitly.

What Went Wrong

• Macro uncertainty and administration tariff policy prompted caution: management expects construction activity to slow and is extending absorption schedules, which can delay funding and earnings recognition.
• Bank line expansion pace slower than hoped; while management still “expects” the accordion to $200M over coming quarters, they could not add banks in Q1 as initially anticipated.
• Pipeline commentary suggests variability: active pipeline cited at ~$800M in Q1 vs. ~$1.4B in prior presentation, reflecting evolving deal selection and market volatility (management emphasized quality over quantity).

Transcript

Operator (participant)

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to Welcome Everyone to the Sunrise Realty Trust Q1 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press Star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press Star one again. Thank you. I would now like to turn the call over to Gabriel Katz, Chief Legal Officer. Please go ahead.

Gabriel Katz (Chief Legal Officer)

Good morning, and thank you all for joining Sunrise Realty Trust's Earnings Call for the quarter ended March 31, 2025. I'm joined this morning by Leonard Tannenbaum, our Executive Chairman, Brian Sedrish, our Chief Executive Officer, and Brandon Hetzel, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our April 15, 2025 press release and is posted on the investor relations portion of our website at sunriserealtytrust.com, along with our first quarter 2025 earnings release and investor presentation. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, market developments, our investment pipeline, anticipated portfolio yield, and 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 quarterly report on Form 10-Q filed earlier this morning for 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 first quarter earnings release uploaded to our website for reconciliations of the non-GAAP financial measures 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 lines for Q&A. With that, I will now turn the call over to our Executive Chairman, Leonard Tannenbaum.

Leonard Tannenbaum (Executive Chairman)

Thank you, Gabe. Good morning and Welcome to Our First Quarter 2025 Earnings Conference Call. As we are getting closer to our one-year anniversary of trading on the NASDAQ, I am pleased with all of the progress that SUNS has made. For the quarter ended March 31, 2025, SUNS generated distributable earnings of $0.31 per basic weighted average share of common stock, which was in the middle of the distributable earnings range that we pre-announced on April 22, 2025. At the same time, SUNS pre-announced that it expected book value per share to be $13.60-$13.90 per share. As of March 31, 2025, book value per share came in the middle of that range at $13.77 a share. As discussed last quarter, we provided guidance that our $0.30 dividend for the March quarter would be on or close to our first and second quarter distributable earnings.

The guidance we provided last quarter remains unchanged as it pertains to the second quarter. Looking ahead, we are excited for the potential earnings growth in the second half of 2025 and the full year 2026, given that the construction loans in our current portfolio should accelerate funding over the next 6-18 months. These loans were structured with attractive rates and floors, which should benefit our future earnings as they are funded. Lastly, I'm pleased to announce that we now have five analysts covering SUNS, up from one analyst in 2024. We appreciate the added communication that our analyst community provides for investors and SUNS. I will now turn it over to Brian to discuss the market and our portfolio.

Brian Sedrish (CEO)

Thank you, Len and good morning. We continue to remain excited about our current portfolio, as well as the opportunity to continue providing credit to sponsors of transitional commercial real estate projects located within the southern United States. Earlier in the year, banks re-entered the market, providing an additional supply of capital, yet that has recently changed given the overall market volatility. Banks have again pulled back and are focused on more liquid loans, which has allowed alternative lenders like SUNS to continue meeting borrowers' transitional capital needs. We continue to 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.

While the current administration's tariff policy has introduced broad uncertainty across the real estate markets, and particularly within the commercial real estate sector, after a thorough review of the construction loans within our existing portfolio, the team does not anticipate any material impacts to project budgets or timelines at this time. We will continue to monitor this as the administration's policies evolve. More generally, the team does expect that new construction activity will be more limited in the near term, as sponsors and their potential lenders re-underwrite their budgets in order to account for potential cost volatility and supply chain disruptions stemming from the evolving trade environment. We expect that the continued uncertainty will create attractive opportunities to provide near-term financing solutions as the financial markets remain volatile and many conventional lenders remain conservative in their approach to providing loans to borrowers of transitional real estate projects.

Turning to our portfolio, during the quarter ended March 31, 2025, the TCG Real Estate Platform originated $213 million in loans, of which SUNS committed $148 million and funded $110 million of new and existing loans. As of March 31, 2025, the SUNS portfolio had $352 million of commitments, with $233 million funded. In the first quarter of 2025, SUNS successfully closed on $168 million of loan commitments, which include $20 million additional commitment in an existing senior loan to Panther National in Palm Beach Gardens, Florida, $44 million in a senior loan for Shell Plaza in New Orleans, Louisiana, $31 million in a senior loan for a residential asset in Aventura, Florida, $47 million in a senior loan for a residential asset in Dallas, Texas, and $26 million in a subordinate loan for a residential asset in Miami, Florida.

Currently, the TCG Real Estate Platform has two signed non-binding term sheets in documentation totaling $100 million, and we expect SUNS to be allocated a portion of these investments. We believe that the SUNS portfolio is well positioned from an interest rate perspective, as 88% of our current portfolio's outstanding principal is floating rate, with a weighted average floor of 4.1%. Given the floors in place across our loan book, our credit line, with an approximate floor of 2.6%, presents a potential opportunity to expand SUNS' net interest margin. We expect that 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.

We continue to remain bullish on the opportunity set in front of us and believe we have the team in place to execute on our strategy. TCG Real Estate's eight-person investment team has originators, underwriters, as well as in-house construction and portfolio management professionals who all focus on curating and maintaining an attractive loan portfolio and generating strong risk-adjusted returns for our investors. With that, I will now turn the call over to Brandon Hetzel, our Chief Financial Officer.

Brandon Hetzel (CFO)

Thank you, Brian. For the quarter ended March 31, 2025, we generated net interest income of $4.6 million and distributable earnings of $3.5 million, or $0.31 per basic weighted average common share, and had GAAP net income of $3.1 million, or $0.27 per basic weighted average common share. We believe that providing distributable earnings is helpful to shareholders in assessing the overall performance of Sunrise Realty Trust's 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. For the quarter ended March 31, 2025, the Board of Directors declared a $0.30 dividend per share. The dividend was paid on April 15, 2025, to shareholders of record as of March 31, 2025. We anticipate that the Board of Directors will declare the second quarter dividend on or about June 15, 2025.

We ended the first quarter of 2025 with $352.1 million of current commitments and $233.4 million of principal outstanding spread across 12 loans. As of May 1, 2025, our portfolio consisted of $352.1 million of current commitments and $239.3 million of principal outstanding across 12 loans, with a weighted average portfolio yield to maturity of 12.1%. I'd also like to note that as of March 31, 2025, our CECL reserve is approximately $158,000, or seven basis points for our loans at carrying value. As of March 31, 2025, we had total assets of $234.4 million, and our total shareholder equity was $184.8 million, or a book value of $13.77 per share. With that, I will now turn it back over to the operator to start the Q&A.

Operator (participant)

At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Gaurav Mehta with Alliance Global Partners. Your line is open.

Gaurav Mehta (Managing Director and Senior Equity Research Analyst)

Thank you. Good morning. I wanted to ask you on your loan pipeline. I think in your presentation, you highlighted $800 million of active pipeline, which is different than $1.4 billion that was in the last presentation. Just wanted to get some more color on what changed in the pipeline and what you were seeing in the market.

Brian Sedrish (CEO)

Sure. Yeah. Thanks for the question. I mean, as you know, the pipeline's always evolving. Deals come in and come out. We've seen since then some more interesting deals that we think are more actionable. Other deals moved to the sidelines. It is constantly evolving. I think the overarching theme is that we see the pipeline being very strong right now. The opportunity set for us is primarily as a result of what we're seeing, which is some lenders pulling back. I think that's having basically a reinforcing effect, a knock-on effect of existing owners of real estate seeing that they need to figure out a solution for their incumbent lenders to take them out. There's just less of an interest to continue to kick the can down the road, if you will. That has created a bunch of opportunities for us. Obviously, as I said, they're always coming in and out. We did announce, as you heard, we have two deals that are in non-binding term sheet mode, and we continue to pursue several others that we're excited about.

Gaurav Mehta (Managing Director and Senior Equity Research Analyst)

Okay. Second question I wanted to ask you was on the Dallas loan that you guys announced in March of 2025. The rate on that loan seems to be lower than the overall yield for the portfolio. I just wanted to learn more about that project?

Brian Sedrish (CEO)

Yeah, sure. So a couple of comments. One, that loan is in line with how we think about portfolio construction. We're going to go after some deals that have higher rates of return, some deals that we think, in this case, this particular deal is an existing multifamily asset cash flowing in Dallas, as you point out. We also have taken that deal down from a whole loan perspective and create the opportunity we expect to back lever that at some point in the future, likely depending upon where the opportunity set as we see it. I think it keeps in line with our objective is still the same from a yield perspective overall portfolio-wise, as we've indicated. Importantly, we'll constantly throttle up and throttle down based upon certain opportunities that we see that are interesting that present really good risk-adjusted returns. One other point I'll just make is that on these types of deals, what we're seeing is there's a lot of lender activity to get attractive financing at deals that are near or at stabilization. Again, it goes back to my comment about the ability to back lever.

Leonard Tannenbaum (Executive Chairman)

The other really interesting thing about this one, as Len Tannenbaum speaking, is that the floor on this loan is substantially higher than the floor on our credit lines. There is an opportunity if interest rates decline to capture additional yield.

Gaurav Mehta (Managing Director and Senior Equity Research Analyst)

Okay. Lastly, are you guys expecting any more management fee waiver this year?

Leonard Tannenbaum (Executive Chairman)

The total management fee waiver was $1 million that we promised on the offering to help smooth the earnings and help with the earnings of the company. I think there's some additional waiver into the second quarter, Brandon.

Brandon Hetzel (CFO)

There is. You'll see in footnote 12 of the Q, we waived approximately $570,000 of base management fee and about $300,000 of incentive fee per the quarter.

Gaurav Mehta (Managing Director and Senior Equity Research Analyst)

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

Brian Sedrish (CEO)

Thank you very much.

Operator (participant)

Your next question comes from the line of Randy Binner with B. Riley. Your line is open.

Randy Binner (Managing Director)

Hey there. Thanks. Yeah, actually, just a couple of clarification questions on the last set there from Gaurav. Just understood on the waiver of the management fee for the reported quarter here, the first quarter, but it goes back to its standard level for the second quarter and forward, correct?

Leonard Tannenbaum (Executive Chairman)

We promised to waive $1 million in fees. So far, we've waived $800,000 something.

Brian Sedrish (CEO)

Approximately $860,000.

Leonard Tannenbaum (Executive Chairman)

You can expect us to fulfill our commitment on a million. We'd probably waive $140,000 the next quarter.

Randy Binner (Managing Director)

Understood. Thank you. On the Dallas, Texas residential loan that was discussed, I apologize if I missed it, but did you quantify what the floor was on that project?

Leonard Tannenbaum (Executive Chairman)

No. Is it on there?

Brandon Hetzel (CFO)

Yes. In footnote 3 of the Q, you'll see the floor for that loan is 3.9%.

Randy Binner (Managing Director)

Okay. Thanks. We got a lot of earnings on it. I haven't gotten through the Q footnotes yet, so I appreciate that.

Leonard Tannenbaum (Executive Chairman)

I didn't realize it was in there. Brandon's pointing it out, but 3.9 is substantially higher than the 2.6 on our credit line.

Randy Binner (Managing Director)

Got it. Okay. Yeah, that is attractive. Understood. Is there any—I mean, it sounds like construction activity might slow down a little bit, which is understandable, but just geographies, you're still liking where you are. I mean, are there other areas that you would see expanding to, or is there still plenty of opportunity in Florida and Texas? I mean, you have one in Louisiana, but is there kind of an expansion of the aperture on geography, or are you still very comfortable in these states?

Brian Sedrish (CEO)

Hey, Randy. It's Brian. The answer is we're definitely still very comfortable within our target states. Clearly, there's a lot of activity that remains in those states, and we're seeing a good amount of deal flow from Florida and Texas. That being said, as we have said in past calls and we're fully focused on, is, as you say, opening the aperture and expanding the overall portfolio to some of our other target markets in the south. As you know, we did a deal in Louisiana. We are looking at a multitude of deals in Atlanta, in parts of the Carolinas, Virginia. There's definitely some other states that we're spending a good deal of time on. I didn't mention, but we certainly are spending time in Tennessee as well. Our focus is absolutely to increase that portfolio diversification.

That being said, I think we'll continue to remain focused in Florida and Texas because that's really where we're seeing a tremendous amount of opportunities.

Randy Binner (Managing Director)

Okay. Thanks for that. That's all I had. Appreciate it.

Brian Sedrish (CEO)

Thank you.

Operator (participant)

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

Jade Rahmani (Managing Director)

Thank you very much. In terms of the residential housing market, we are seeing a good amount of softness post the tariff announcements, and it's causing some concerns. Florida is one of the markets where supply is elevated. I wanted to get your updated views on the Florida residential market and with respect to the existing construction projects, if there's any risk you see in terms of the for-sale condo projects?

Brian Sedrish (CEO)

Sure. Thanks for the question, Itzel, Brian. Yeah, I mean, listen, we're seeing the same things or reading about the same things. There was obviously just an article recently about the Miami market and the knock-on effects potentially of tariffs. We are right now within our existing book. Sales that we've seen have been holding up relatively well. We are certainly focused on whether or not absorption is going to slow and monitoring that, of course. I think that any new deals that we're looking at now, we're naturally extending out the absorption schedules and, as a result, creating a more robust overall capitalization, carrying costs, interest reserves, etc., as we analyze whether those deals make sense or not. It's likely going to mean that several deals are not going to make sense. We're just being more cautious.

The book right now and the deals we're looking at, so far, we're seeing some good activity. That being said, it's a little bit too early to see the overall effects just yet.

Randy Binner (Managing Director)

Okay. Thanks for that. I think it's wait and see is what my overall takeaway. You're not seeing any signs of weakness as yet, but it's a bit early to make any judgment. In terms of capital, where things stand right now on leverage, which is very low, capital availability with respect to funding existing commitments and making new loans, can you touch on how you're thinking about it? Any plans for the year? Things have become quite choppy in the capital markets, but they still are open. I wanted to get your thoughts on that. Thank you.

Leonard Tannenbaum (Executive Chairman)

Right now, we have enough capital to definitely execute on our business plan, first from a relatively undrawn, unsecured line of $75 million. Second, we fully expect the bank line, which is an accordion to $200 million, to fill out over the course of the next couple of quarters. You should see those announcements. We have plenty of availability to fund the business plan and to continue to grow. That's the good news. As I think I've telegraphed to the street and maybe I'll do it again, our full intention is to do an unsecured raise in the fourth quarter of the year or September through the fourth quarter of the year through December. We'll see where the markets are. We'll see where interest rates are. My hope is that we get a good one done. We saw FBRC's raise recently.We're monitoring the market with our capital partners.

Jade Rahmani (Managing Director)

Thanks very much.

Brian Sedrish (CEO)

Thank you.

Operator (participant)

Your next question comes from the line of Tyler Batory with Oppenheimer. Your line is open.

Tyler Batory (Executive Director and Senior Analyst)

Thanks. Good morning, everyone. My first question, in the prepared remarks and then when you pre-announced as well, you highlighted that TCG had signed two term sheets for $100 million. Can you just unpack a little bit more what might be allocated to SUNS, what factors go into that allocation decision, and then just the timeline in terms of getting that across the finish line?

Leonard Tannenbaum (Executive Chairman)

Great question. TCG allocates it to SUNS, to our private REIT SRT, and to a side pocket if should there be overflow from those two vehicles. We do not know yet what allocates to SUNS or SRT yet. We try to make those decisions on capital availability closer to the time the deal closes. Some of the reasons where we are out of control, actually, it is not in our control on one of these deals closing, for example, is there are conditions precedent for us to close deals. We want certain things to happen before those deals are closed, and those things have to happen, and it is not in our control for them to happen. One example could be they are subject to a certain tax that has to come off the tax rolls so that the debt yield is higher.

That is the case in one of them, for example. Not to go into super weeds in the details, but there are sometimes conditions precedent to those loans. Same thing, by the way, with Jade's former question, which I sort of missed on funding. These residential loans and multifamily loans are constantly subject to rebalance. These guys have come into balance with the new absorption schedules should absorption slow. We immediately pick up on it and ask them to fund additional equity to provide us cushion. By the same token, we have a lot of construction loans, and we are not going to fund the construction loans, even dollar one, unless we rebalance into whatever the current environment is.

For the unfunded construction loans, we're going to take a look at them before we fund them and say, "Hey, where is the world and where are the absorption schedules? And does the escrows and all of that account for that?" The other really great thing about real estate, which as a direct lending background, I didn't fully appreciate, is these are personal guarantees, and we make sure they have liquidity and balance sheet for these personal guarantees, both on completion guarantees or funding guarantees, bad boy guarantees, etc. This isn't just the asset itself. Guarantees behind the asset, sometimes LCs or letters of credit supporting that. There's a lot of cushion in the way Brian and team structures these deals that allows us to adjust depending on the market environment.

Tyler Batory (Executive Director and Senior Analyst)

Great detail. I appreciate that. Maybe more a housekeeping question on the debt side of things. In terms of the bank line, filling that out to $200 million, just talk a little bit more about timeline, steps that need to be taken to get there, and then as you start to expand it, any possibility that the terms change as well?

Leonard Tannenbaum (Executive Chairman)

We do not expect the terms to change, right? We have an accordion up to $200 million. We expect the general terms of it to stay the same. There may be additional restrictions in debt leverage or stuff like that. As you add banks to things, they always want a couple more hooks. The basic economic terms will stay the same, or we expect them to stay the same, I should say. Look, it is a little bit slower than I would have thought. I would have hoped on this call to say, "Okay, we have the following additional banks in the credit line." I am not able to say that because that is not true. We do expect that to continue to happen. Hopefully by next quarter's call, we are talking about the additional banks into the credit line and the expanded credit line for SUNS.

Tyler Batory (Executive Director and Senior Analyst)

Okay. Okay. I mean, my last question just on the dividends. I mean, still expecting Q2 to be pretty much in line with distributable EPS and kind of how you're thinking about what's the right payment level, if you will, for the rest of the year?

Gabriel Katz (Chief Legal Officer)

Two comments that we made. I'll just point to the two comments. One, we gave guidance similar to Q1 that Q2's $0.30 dividend will be at or close to that level in terms of earnings, or at least that's what our current expectation is. The one really interesting thing that I think I said was I'm really excited about the next 6-18 months of funding these construction loans, which will give us some earnings power into the second half of the year and into next year.

Brian Sedrish (CEO)

Just to clarify what I said. Just to clarify. Just to clarify that the Q2 earnings will be at or around the Q1 dividend of $0.30. The board of directors will declare the Q2 dividend on or around June 15th.

Leonard Tannenbaum (Executive Chairman)

That's what I said.

Tyler Batory (Executive Director and Senior Analyst)

Okay. Okay. All right. That makes sense. Okay. That's all from me. Thank you.

Brian Sedrish (CEO)

Thank you.

Operator (participant)

This concludes our question and answer session. I would like to turn the conference back over to CEO Brian Sedrish for closing remarks.

Brian Sedrish (CEO)

Great. Thank you, operator, and thank you all for joining us today. We are excited about the opportunities ahead, and we look forward to sharing our progress with you over the coming quarters. Have a good day. Take care.

Operator (participant)

Ladies and gentlemen, that concludes today's call. You can now disconnect. Thank you and have a great day.