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Sunrise Realty Trust, Inc. (SUNS)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 GAAP net income was $3.36M ($0.25 basic EPS), and Distributable Earnings were $4.09M ($0.31 per share), covering the $0.30 dividend paid on July 15; YoY Distributable EPS rose to $0.31 vs $0.23 in Q2 2024 .
  • Consensus EPS and revenue were modest misses: EPS $0.25 vs $0.287* and revenue $5.20M vs $5.51M*; management cited slower Q2 transaction activity from tariff-related uncertainty and intensified competition in near-stabilized assets, with volume picking up into Q3 .
  • Strategic capital progress: added $90M of commitments to the senior secured revolver, bringing facility commitments to $140M at SOFR + 2.75% (2.63% floor), and reiterated plan to access unsecured markets in Q4 to support pipeline conversion .
  • Pipeline momentum: five signed term sheets totaling ~$275M (first mortgages) as of Aug 1; portfolio commitments grew to $360.2M (13 loans), with 86% floating-rate and average SOFR floor of 4.1%, positioning net interest margin to expand if rates decline .

What Went Well and What Went Wrong

What Went Well

  • Dividend coverage and earnings quality: Distributable Earnings of $0.31/share covered the $0.30 dividend; management highlighted robust transitional lending focus and deal pipeline .
  • Balance sheet and funding traction: Revolver commitments increased to $140M at attractive terms, supporting growth and flexibility; unsecured issuance targeted for Q4 .
  • Portfolio yield and structure: Weighted average portfolio yield to maturity ~12.2%, with floating-rate loans (86%) and floors (avg 4.1%) that protect NIM as rates glide lower .
    • Quote: “We now have $140,000,000 of commitments under our senior secured credit facility… at 2.75% over SOFR with a 2.63% floor” .
    • Quote: “We believe this part of the market still provides the strongest risk adjusted returns” (focus on transitional assets) .

What Went Wrong

  • Earnings vs Street: EPS and revenue missed consensus (EPS miss ~$$0.037*, revenue miss ~$$0.308M*), driven by reduced Q2 transaction activity amid tariff uncertainty and competitive pressure in near-stabilized segments .
  • CECL reserve increased: CECL reserve rose to ~$626K (25 bps of loans at carrying value) from ~$158K (7 bps) in Q1, reflecting risk adjustments amid macro volatility .
  • Closing cadence slipped: At least one loan slipped from Q2 into subsequent periods; management stressed variable closing timelines (1–8 months) and decision discipline around conditions precedent .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Net Interest Income ($USD Millions)$3.445 $4.600 $5.700
GAAP Net Income ($USD Millions)$1.854 $3.099 $3.358
Diluted EPS ($USD)$0.27 $0.27 $0.25
Distributable Earnings per Share ($USD)$0.30 $0.31 $0.31
Dividend per Share ($USD)$0.42 $0.30 $0.30
Basic Weighted Avg Shares (Millions)6.801 11.208 13.236
Q2 YoY ComparisonQ2 2024Q2 2025
GAAP Net Income ($USD Millions)$1.514 $3.358
Distributable EPS ($USD)$0.23 $0.31

KPIs and Portfolio

KPIQ1 2025Q2 2025
Portfolio Commitments ($USD Millions)$352.1 $360.2
Funded Principal Outstanding ($USD Millions)$233.4 $251.0
Loans (Count)12 13
Floating-Rate (% of Principal)88% 86%
Avg SOFR Floor (%)4.1% 4.1%
Portfolio Yield to Maturity (%)12.1% 12.2%
CECL Reserve ($USD)$158,000 (7 bps) $626,000 (25 bps)
Book Value per Share ($USD)$13.77 $13.73

Q2 2025 vs S&P Global Consensus

MetricActualConsensus*Surprise*
Revenue ($USD Millions)$5.201*$5.509*-$0.308*
Primary EPS ($USD)$0.25*$0.287*-$0.037*

Values with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Distributable EPSQ2 2025“At or close to $0.30” per share (guided in Q1 release) Delivered $0.31 Maintained
Dividend per ShareQ2 2025Board anticipated Q2 dividend declaration mid-June; target level $0.30 aligned with earnings Paid $0.30 on July 15 Maintained
Dividend per ShareQ3 2025Anticipated declaration “on or about 09/15/2025” Declared $0.30 for Q3 (payable Oct 15) Maintained
Leverage TargetOngoingTarget ~1.5x at scale (credit facility + unsecured) Reiterated; unsecured issuance targeted Q4 2025 Maintained
Senior Secured Revolver2025Accordion toward $200M (Q1 remarks) Commitments increased to $140M at SOFR+2.75%, 2.63% floor Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24 and Q1’25)Current Period (Q2’25)Trend
Tariffs/MacroQ1: Banks reentered then pulled back; monitoring tariff impacts on construction budgets; cautious underwriting Q2: Activity slowed in Q2 due to tariffs; picked up into Q3 Improving activity post-Q2
Competition & YieldQ1: Attractive risk-adjusted returns in transitional assets Q2: More competitors reentering; near-stabilized multifamily tight spreads (CLOs back); transitional still attractive Mixed; tighter for stabilized, robust for transitional
Capital Markets & FacilityQ4: Momentum; Q1: line expected to accordion to $200M Added $90M commitments; facility now $140M; plan unsecured raise in Q4 Strengthening funding capacity
Rate Floors & NIMQ1: Avg floors ~4.1% vs line floor ~2.6% Q2: New deal floors ~3.0–3.75%, still favorable vs 2.6% line; scope for NIM expansion as rates decline Positive NIM outlook
Geographic FocusQ1: FL/TX core; expanding to LA, GA, Carolinas, VA, TN Q2: Opportunistic Utah syndication; core Southern states remain focus Diversifying opportunistically
Pipeline & OriginationsQ4/Q1: $352.1M commitments; 2 term sheets $100M Q2: 5 signed term sheets totaling ~$275M; one deal slipped quarter Larger, higher-quality pipeline
Portfolio Health & CECLQ1: All loans current; CECL ~$158K (7 bps) Q2: CECL ~$626K (25 bps); loans current; 86% floating Higher reserves amid macro

Management Commentary

  • CEO market backdrop: “We’re seeing more transaction volume and increased demand… focus remains largely on financing transitional assets where we see less competition and stronger returns.”
  • Executive Chairman on funding: “Added $90,000,000 of additional commitments… We now have $140,000,000… at 2.75% over SOFR with a 2.63% floor.”
  • CFO results: “Net interest income of 5,700,000 and distributable earnings of $4,100,000 or $0.31… GAAP net income of $3,400,000 or $0.25… CECL reserve ~626,000 (25 bps)… book value $13.73.”
  • Strategy/returns: “We continue to see less competition [in transitional assets]… strongest risk adjusted returns.”

Q&A Highlights

  • Pipeline yields: Five first-mortgage term sheets with spreads “currently above the current blended portfolio rate,” implying potential yield uplift upon closing .
  • Closing timelines: Deals can take 1–8 months; one loan slipped from Q2; conditions precedent drive discipline .
  • Florida condos: “Affordable” price points broaden buyers; business plans on track; monitoring absorption/moderation .
  • Leverage and unsecured: Target ~1.5x leverage at scale; $75M unsecured line undrawn; intent to issue unsecured debt in Q4 subject to markets .
  • Competition dynamics: Near-stabilized multifamily competition tightening due to CLO market revival; SUNS prioritizes transitional credits .
  • NIM outlook: Loan floors (~4.1% current; new deals ~3–3.75%) comfortably above line floor (2.6%), enabling margin capture if rates decline .

Estimates Context

  • Q2 2025 vs consensus: EPS $0.25 vs $0.287* (miss), revenue $5.20M vs $5.51M* (miss). Fewer estimates (EPS n=3; revenue n=2) reflect coverage depth for an emerging mortgage REIT*. Near-term, models may temper origination timing and NII trajectory given Q2’s tariff-driven activity pause and tighter near-stabilized spreads, while Q3+ may incorporate the larger pipeline and facility capacity .
    Values with * retrieved from S&P Global.

Key Takeaways for Investors

  • Earnings quality and coverage: $0.31 Distributable EPS covered the $0.30 dividend; sustained dividend at $0.30 for Q3 underscores stability .
  • Near-term catalysts: Facility expanded to $140M and unsecured issuance targeted for Q4 could fund pipeline conversion and lift NII/NIM .
  • Rate path leverage: Floors vs line floor set up NIM expansion if short rates drift lower; watch incremental funding of construction loans over 6–18 months .
  • Pipeline execution: Five term sheets (~$275M) with above-blended spreads; closing cadence is the swing factor for H2 earnings trajectory .
  • Risk watch: CECL reserve increased to 25 bps and competition intensified in near-stabilized segments; continued emphasis on transitional structures, guarantees, and rebalancing should mitigate risk .
  • Geographic balance: Core Southern focus remains, with opportunistic diversification (e.g., Utah) when risk/return is compelling .
  • Actionable: Position for a funding/closing inflection in H2; monitor unsecured pricing, pipeline conversions, and NIM capture as rate floors vs line floors drive spread dynamics .

Notes:

  • Non-GAAP: Distributable Earnings reconcile GAAP net income by adding stock-based comp and CECL provisions, and differ from peer methodologies; investors should cross-check the reconciliation tables provided .
  • All consensus figures marked with * are retrieved from S&P Global.