Sunrise Realty Trust - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 GAAP net income was $1.85M ($0.27 basic EPS) and Distributable Earnings were $2.05M ($0.30 per share), with net interest income of $3.44M; sequentially stronger than Q3 on both GAAP EPS ($0.27 vs $0.26) and DE/share ($0.30 vs $0.27).
• The Board declared a $0.30 per share dividend for Q1 2025, with management indicating DE should be “on or close” to that level due to fee waivers and pipeline deployment; the prior quarter dividend was $0.42 (Q4 2024) and Q3 2024 partial dividend $0.21 reflecting ramp timing.
• SUNS committed $75M in Q4 and an additional $74.8–75M subsequent to quarter-end through March 1, expanding funded principal to $162.1M across 10 loans, with a 12.4% weighted average yield to maturity; portfolio is 85% floating-rate with 4.2% average floors, supporting NIM resiliency versus a credit line floor ~2.6%.
• Near-term earnings ramp depends on construction loan draw schedules; management highlighted stronger visibility into 2026 earnings, fee waivers in Q1 (and potentially Q2), and intent to expand the East West line toward $200M and pursue unsecured debt later in 2025—key potential stock catalysts.

What Went Well and What Went Wrong

What Went Well

• “SUNS successfully committed to $75.0 million in deals, and subsequent to quarter-end through March 1, we committed to another $74.8 million in deals,” demonstrating origination momentum and pipeline conversion.
• NIM protection from floors: “loan floors ~4.2%” versus financing line floor “~2.6%,” implying margin support regardless of rate direction; management confirmed this dynamic.
• Equity raise (~$77M gross) completed post-year-end with first-quarter fee waivers, increasing liquidity and mitigating earnings drag during deployment; management expects to waive all management/incentive fees in Q1.

What Went Wrong

• Interest expense modeled by analysts came in lower due to late-quarter deployment and leverage timing, complicating comparability and forecasting; revolver and East West balances were repaid after year-end.
• Dividend reset from $0.42 (Q4) to $0.30 (Q1), reflecting deployment cadence and conservative posture; management aims to align dividend with DE near-term, with growth tied to 2025–2026 draw schedules.
• Limited YoY comparability: portfolio is “new vintage” (first loan January 2024), constraining traditional YoY quarterly trend analysis; emphasis shifts to sequential progress and pipeline quality.

Transcript

Operator (participant)

Hello, and welcome to Sunrise Realty Trust Fourth Quarter and Full Year 2024 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I would now like to turn the conference over to Chief Legal Officer Gabriel Katz. You may begin.

Gabriel Katz (Secretary and CLO)

Good morning and thank you all for joining Sunrise Realty Trust's Earnings Call for the quarter and fiscal year ended December 31st 2024. 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 February 12th 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 2024 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 annual report on Form 10-K 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 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. Brandon will provide an update on our financial position. After that, we'll open the line for Q&A. With that, I will now turn the call over to our Executive Chairman, Leonard Tannenbaum.

Leonard Tannenbaum (Founder)

Thank you, Gabe. Good morning and welcome to our Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. As we finished 2024 and began 2025, we've continued the strong momentum since our public listing in July. For the quarter ended December 31st 2024, Sunrise generated distributable earnings of $0.30 per weighted 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 $0.30 dividend per share for the quarter ended March 31st 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 $0.30 dividend should be on or close to our first quarter distributable earnings.

As a reminder, SUNS is an important part of the 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 SUNS 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 December 31st 2024, the TCG Real Estate Platform originated $538 million of loans, of which SUNS committed $220 million and funded $162 million. As of December 31st 2024, $133 million of principal remained outstanding. As of March 1st, the TCG Real Estate Platform has originated $115 million of loans this year with SUNS committing $75 million of that total.

With market dynamics in the southern U.S. Creating opportunities for commercial real estate lenders, our direct origination platform continues to source attractive deals, and the TCG Real Estate Platform currently has an active pipeline of $1.4 billion, which includes two signed term sheets currently in documentation.

Subsequent to year-end, we successfully completed an offering for SUNS, raising approximately $77 million of gross proceeds. We believe that this equity raise was an important step in scaling the company, as it allowed us to capture a greater share of this attractive commercial real estate vintage, gain additional research analyst coverage, significantly increase liquidity, and increase 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 million 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 in 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.

Brian Sedrish (CEO)

Thank you, Len 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 this will continue to present attractive opportunities for us to help solve borrowers' near-term financing needs at attractive loan-to-value ratios.

Against the backdrop of many lenders continuing to remain preoccupied with legacy portfolio positions and commercial banks remaining conservative in 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 2024, SUNS successfully closed on $75 million of commitments, which include $30 million in a senior loan for a condominium development in Fort Lauderdale, Florida, $32 million in a senior loan for a luxury hotel in Austin, Texas and $13 million in a subordinate loan for a Class A multifamily asset in Miami, Florida.

From year-end through March 1st, SUNS committed $75 million to two transactions originated by the TCG Real Estate Platform. One was a $44 million commitment to a senior loan for Shell Plaza in the River District in New Orleans, and the other was a $31 million 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 $35.5 million and generating a strong risk-adjusted return for our investors. As of March 1st, the SUNS portfolio has $259 million of commitments, with $162 million 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, which should benefit our future earnings. 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 a deal in Louisiana.

We believe that the SUNS' 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 SUNS net interest margin.

We continue to remain bullish on the opportunity set 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 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.

As Len described earlier, the TCG Real Estate Platform pipeline remains strong, with approximately $1.5 billion in active deals under review. From inception through March 1st 2025, we, along with our affiliated funds on the TCG Real Estate Platform and our syndicate partners have successfully closed approximately $650 million, with SUNS committing approximately $295 million. 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's sourcing and execution capabilities, I'm pleased to announce the addition of Alfred Trivilino to the TCG Real Estate Platform and the Sunrise Realty Trust investment team. Joining us as a Managing Director, Alfred brings over three decades of real estate credit and equity investing experience.

Most recently, Alfred 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 that meet their short to medium-term needs. 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 December 31st 2024, we generated net interest income of $3.4 million and distributable earnings of $2 million, or $0.30 per basic weighted average common share, and had GAAP net income of $1.9 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 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. We ended the fourth quarter and fiscal year of 2024 with $190.9 million of current commitments and $132.6 million of principal outstanding spread across nine loans.

As of March 1st, 2025, our portfolio consisted of $259.3 million of current commitments and $162.1 million of principal outstanding across ten loans, with a weighted average portfolio yield to maturity of 12.4%. I'd also like to note that as of December 31st, 2024, our CECL reserve is approximately $40,000, or three basis points for our loans at carrying value.

As of December 31st 2024, we had total assets of $317.5 million, and our total shareholder equity was $114.1 million, or a book value of $16.29 per share. When we include the equity raise completed in January 2025, our pro forma book value would have been approximately $13.93. As Len mentioned earlier, the Board of Directors has declared a $0.30 dividend per share for the quarter ended March 31st 2025. The dividend will be paid on April 15th 2025, to shareholders of record as of March 31st 2025. With that, I will now turn it back over to the operator to start the Q&A.

Operator (participant)

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Randy Binner with B. Riley Securities. Your line is open.

Randy Binner (Managing Director of Financial Equity Research)

Hey, good morning. Thanks. I just had one on just on the debt profile and maybe, I think, some timing issues or questions, really. The way we're—well, I guess the first part of the question was, you know, the interest expense was lower than we modeled in the fourth quarter, but there was a lot of change happening in the company.

If there were any notable timing issues on how the actual interest expense came through, I'd like to hear what that is. It'd be helpful for modeling. You know, kind of looking forward, I think that the revolver has been pulled down for $75 million, but the East West Bank line had outstanding balance and then was subsequently paid down. I just want to make sure we're thinking of the pieces of the debt structure correctly with that last part of the question.

Leonard Tannenbaum (Founder)

Sure. I believe the reason your interest rates might have been a little higher in your models is the investments were deployed a little later in December, later in the quarter, and we did not get into leverage until mid-December. 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 equity raise in January.

Randy Binner (Managing Director of Financial Equity Research)

Okay. So East West is paid, and then the revolver is pulled down for the full $75. I mean, should I think of it—is it reasonable to think the $75 would just kind of stay pulled down and then East West would kind of grow with the origination ramp? Is that—is that the way to think of it?

Leonard Tannenbaum (Founder)

No, the $75 million revolver was repaid right after year-end as well.

Randy Binner (Managing Director of Financial Equity Research)

Oh, okay. Then it would be you'd go back to East West Bank first, I guess.

Leonard Tannenbaum (Founder)

Correct.

Randy Binner (Managing Director of Financial Equity Research)

As you seek more debt, correct?

Leonard Tannenbaum (Founder)

Yes, that's correct.

Randy Binner (Managing Director of Financial Equity Research)

Okay. Good. Okay. That's super helpful. Thanks. No, otherwise, you know, it was well covered. So that was just our one question. Thank you.

Leonard Tannenbaum (Founder)

Sure.

Operator (participant)

Thank you. Please stand by for our next question. Our next question comes from the line of Stephen Laws with Raymond James. Your line is open.

Stephen Laws (Managing Director)

Hi, good morning. You know, Brian, I wanted to touch on the pipeline. You know, it looks like the portfolio mix to date is like 85% senior loans. Can you talk about, you know, what the mix looks like in your pipeline of senior versus mezz, kind of what you view as a relative attractiveness between the two, you know, and along the same lines as you think about funding up the portfolio and deploying the new capital? You know, is it reasonable to think you can be fully deployed by the third quarter, or do you have any kind of thoughts, kind of as you see the investment pace and pipeline of deploying that capital?

Leonard Tannenbaum (Founder)

Brian, answer the first part and I'll—

Brian Sedrish (CEO)

Yeah, sure. Sure. Hey, Steve, thanks for the questions, Brian. In terms of the mix between senior and subordinate, I would say that, you know, 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 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. It has created a real opportunity for us to provide that whole loan.

That being said, you know, 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. I do think, I do think, and certainly from a go-forward basis, I would expect that our majority, substantial majority of our book will be on the senior side.

Leonard Tannenbaum (Founder)

The second part, Steve, Len Tannenbaum speaking, let's address your question to pipeline conversion and when are we going to be fully deployed. It is a little bit of a nuanced answer, which is why I want to explain it to everybody. When we determine we are fully deployed, we may not be fully drawn. Many of our loans are construction loans. In fact, we have some terrific ones that are starting to draw mid-year. Actually, differently than any other company that I have been chairman of this one has a lot of visibility into 2026, which is very exciting.

When we start with fully deployed, we may not see the full earnings impact from that full deployment until 2026. I am actually very personally excited about 2026 and what we have already done and we already have on our books. 2025 really depends on that pace of draw partially and pace of closings. It is a combination of things which makes 2025 a little bit harder to predict. 2026 is actually easier to predict for us right now than 2025.

Stephen Laws (Managing Director)

That's helpful, Len. Appreciate the color there. Brian, thanks for your comments on 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 a unique situation. I mean, am I thinking about it correct? I think you said the loan floor is at 4.20. You know, we're sitting at SOFR of 4.33. Your line floor is sub three. You know, so really either way interest rates move, you should get some benefit. If they move higher, you've got the 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?

Brian Sedrish (CEO)

Yes, correct. You got it right.

Stephen Laws (Managing Director)

Awesome. I appreciate you verifying that. Thanks, Brian.

Brian Sedrish (CEO)

Sure.

Stephen Laws (Managing Director)

Take care.

Operator (participant)

Thank you. Please stand by for our next question. Our next question comes from the line of Jade Rahmani with KBW. Your line is open.

Jade Rahmani (Managing Director)

Just to start off with on the dividend, is the idea to have set it, you know, conservatively and hopefully, you know, you said you expect first quarter earnings to be around $0.30, so that's right on top of the dividend. You know, I know your return targets, you know, are a little higher. So is the idea to gradually, you know, out-earn the dividend and eventually increase it?

Brian Sedrish (CEO)

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, you know, we'll have to talk to you—we can further talk about that after, but that's the forward-looking statement that I think I made. You have to read it really for what it is, literally.

You'll also see a more detailed statement in the 10-K, so please refer to the 10-K where that same statement has probably had a little more heft to it than a speech. As for do we expect to ramp it over time? Yeah, I think that, 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. I think $0.30 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 $0.30 dividend. Yes, it should grow over time. I just do not know what pace it grows.

Jade Rahmani (Managing Director)

What attributes drive the improved visibility in 2026 over this year?

Brian Sedrish (CEO)

The main one is when we started a year ago, I stepped up, TCG stepped up and backstopped a lot of loans. These are terrific construction loans. 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. I think we got peak vintage last year and still very good vintage this year, but it's not as good as last year, my personal opinion.

Those loans, though, are delayed fundings and protected by minimum multiples. 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. I'm excited about that one too.

All of these types of loans generate a great 2026 into 2027 scenario for fundings. You're going to see us very committed, and then those draws will happen over time. That's why the visibility is really delayed a little bit.

Jade Rahmani (Managing Director)

Okay. That makes sense. And then just turning to originations, you know, could you put any parameters around what you expect SUNS to commit to and fund if you could disaggregate both of those, say, in the next, you know, one to two quarters?

Brian Sedrish (CEO)

I mean, I think we put that we have some signed term sheets that we are working on. We definitely have deals that we're going to do. Some of that is even—I can't—we're not going to forward forecast because that means we're going to forward forecast every quarter. 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 on our senior credit line. Some of our deals will be—and not that many of our deals, I think we're forecasting 20-33% will be mezz, but some amount will be actual mezz loans. Sometimes you may see us take down a deal that's 100—let's just—it's not the real numbers, but let's call it $100 million.

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. We're excited about that because we're generating whole loans. If we can back lever them appropriately, we get some nice double-digit returns on the note that we're holding.

You may see us take down $100 million. We may show $100 million on our balance sheet, right, Brandon? Right. At the same time, we've laid off $75 million to an -note. I mean, I'm not giving you exact numbers. These aren't exact deals. I'm just giving you hypothetical, you know, things. This also makes it very difficult to tell you whether what we originated, how we originated it in dollar amounts. You just have to wait for each quarter for that. We have a very active pipeline and we're excited about this pipeline execution.

Jade Rahmani (Managing Director)

Thanks a lot.

Brian Sedrish (CEO)

Thank you.

Operator (participant)

Thank you. Please stand by for our next question. Our next question comes from the line of Gaurav Mehta with Alliance Global Partners. Your line is open.

Gaurav Mehta (Managing Director, Senior Equity Research Analyst, and Real Estate and Financials)

Thank you. Good morning. Hi.

Good morning. [crosstalk]

I wanted to clarify your comments around management and incentive fee. I think in your prepared remarks, you said you do not expect—you expect to waive all the management and incentive fee in 1Q. Is that right?

Brian Sedrish (CEO)

Yes. We're not taking any management fee and any incentive fee in the first quarter. [crosstalk]

Potentially a little bit of additional fee waiver will spill into the second quarter, potentially.

Gaurav Mehta (Managing Director, Senior Equity Research Analyst, and Real Estate and Financials)

That one queue waiver, that goes towards the $1 million waiver that you talked about?

Brian Sedrish (CEO)

Yes.

Gaurav Mehta (Managing Director, Senior Equity Research Analyst, and Real Estate and Financials)

Okay. Second question on I wanted to ask you on your credit line. The $200 million total capacity, what's some of the criteria that you guys need to go from like $50 to $200 million?

Brian Sedrish (CEO)

Question? Could you just repeat that question, please?

Gaurav Mehta (Managing Director, Senior Equity Research Analyst, and Real Estate and Financials)

I think your total capacity on your East West Bank line is $200 million. I was just wondering, you know, what are some of the criteria that you guys need to meet to go from like $50 to $200 million?

Brian Sedrish (CEO)

Oh, nothing. I mean, 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 million. Remember, if our goal here with $180 million-ish of equity, right, Brandon?

Brandon Hetzel (CFO)

Yes.

Brian Sedrish (CEO)

Is to be 40% equity, 60% debt. If you think about the model that we're shooting for, which is if you had $200 million of equity, just to make the numbers round, $200 million of equity, $200 million of sub debt, $200 million of senior, $100 million drawn, right? We just need the $200 million. I don't think senior leverage is going to be the hold-up.

As I said, I think in the last call, and I'll say again on this one, 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 raises in my previous business that I sold Oaktree.

We are going to start working on that, you know, after this call and for the rest of the year and hopefully draw on the $75 million line that we do have in place so that when the unsecured raise does come in, it does not have cash drag, right? It just replaces that line. I think that is the goal and the next thing we are working on.

Gaurav Mehta (Managing Director, Senior Equity Research Analyst, and Real Estate and Financials)

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

Brian Sedrish (CEO)

Thank you.

Operator (participant)

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

Brian Sedrish (CEO)

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

Operator (participant)

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