SUNS - NASDAQ

Good morning and welcome to Sunrise Realty Trust's Second Quarter Business Update Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct the question-and-answer session and instructions will be given at that time. As a reminder, this call is being recorded. I would now like to turn the call over to Anna Kim, Chief Legal Officer. Please go ahead.

Good morning, and thank you all for joining Sunrise Realty Trust's inaugural conference call. 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 July 17, 2024 press release and is posted on the Investor Relations portion of Sunrise Realty Trust's website at sunriserealtytrust.com along with our second quarter 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, future market developments, anticipated portfolio yield, and financial performance and projections in 2024 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 for certain conditions and significant factors that could cause actual results to differ materially from these forward-looking statements and projections. The format for today's call is as follows. Len will provide introductory remarks and Brian will cover our portfolio and market opportunities. Then, Brandon will provide an update on our financial position. After that, we'll open up the lines for Q&A. With that, I will now turn the call over to our Executive Chairman, Leonard Tannenbaum.

Thank you, Anna. Good morning and welcome to Sunrise Realty Trust's first conference call. I would like to thank everyone for joining us today. As Sunrise Realty Trust was listed in the third quarter, we will not be discussing second quarter 2024 results. Instead, on this call, we will provide an overview of Sunrise Realty Trust's portfolio and future prospects. Sunrise Realty Trust is an institutional lender that originates and funds loans to commercial real estate in the Southern United States and trades under the ticker S-U-N-S on the NASDAQ exchange. The SUNS portfolio, which is predominantly residential, contains only new vintage assets, with the first asset closed in January of 2024. This is unique to the public markets as we have a portfolio with no legacy issues and a niche focus on one of the highest growth areas within the United States. Looking ahead, the broader real estate platform which SUNS is a part of, has a robust pipeline of approximately $1 billion as of August 5th, 2024. And as a result, we believe SUNS is well positioned to capitalize on market opportunities in the CRE space. I would also like to take a minute to introduce Brian Sedrish, the CEO of Sunrise Realty Trust. Brian brings over 20 years of leadership experience with real estate, private equity, and credit, having both focused on Internet -- institutional commercial real estate opportunities across a number of prominent firms. Most recently, he served as a portfolio manager and was instrumental in building the credit business at related fund management over the past 10 years. Brian leads a dedicated real estate team of seven professionals within a broader platform of over 35 employees. Brian's deep real estate experience, broad market relationships, and structuring expertise will be invaluable as we continue to build SUNS. With that, I will turn the call over to Brian.

Thanks, Len, and thank you to everyone for joining the call this morning. I look forward to speaking with and meeting many of you in the coming months. Today, I plan to share how we have been constructing our portfolio and discuss some of our future plans. Let me start by providing a quick summary of what's currently in Sunrise Realty Trust portfolio. Our current portfolio is predominantly residential and stands at $119.6 million across five loans. As of today, our portfolio includes a $10 million current commitment to The Allen in Houston, Texas, which is a 35-storey mixed use project featuring luxury residential condominiums and a Thompson hotel. A $28.2 million commitment to Aster & Links in Sarasota, Florida, which is a 424-unit multifamily community with two luxury residential buildings and ground floor retail. A $14.1 million commitment to Jovie Belterra in Austin, Texas, which is 150-unit active adult, multifamily rental development. A $27.3 million commitment to Thompson San Antonio in Texas, which is 162 room hotel, two restaurants, and extensive amenities. And lastly, a $40 million commitment to Panther National in Palm Beach Gardens, Florida, a premier residential and golf community that, when fully built out, will contain 242 residents. What truly sets SUNS apart is our deep expertise and strategic focus on the Southern United States. This region is not just our market, it's our home. Our local presence in West Palm Beach, Florida, combined with our extensive network and intimate knowledge of the southern CRE landscape gives us a distinct advantage. We understand the unique dynamics, growth drivers, and opportunities that this region offers. The Southern US has experienced robust population growth driven by factors such as lower taxes, a business-friendly environment, and a high quality of life. States like Texas, Florida, Georgia, North and South Carolina, and Tennessee are leading this charge, attracting both businesses and residents at an unprecedented rate. This migration trend is creating significant capital demand for residential, commercial, and mixed-use developments and we are well positioned to meet this demand. Our local expertise has allowed us to source and execute high-quality deals with speed and precision. We have built strong relationships with local developers, brokers, and other key stakeholders, enabling us to identify and capitalize on opportunities that others might miss. We remain excited about the opportunity set that we are seeing in the commercial real estate lending space. The significant reduction in available capital from traditional CRE lending sources, especially regional banks, has created a favorable environment for us. Many of our peers are currently focused on managing their existing portfolios, which has slowed new capital deployment. This trend, combined with significant upcoming debt maturities, presents us with the opportunity to construct a portfolio with new vintage assets. Given the factors I just described, we have the ability to invest in deals at lower attachment points and at higher rates than were available even a year ago. We have a strong deal pipeline of around $1 billion with two signed term sheets. We expect those two deals to close in the coming months. These transactions align with our strategy to invest in high quality, CRE assets that offer attractive risk adjust returns. With that, I will now turn the call over to Brandon Hetzel, our CFO.

Thank you, Brian. Since SUNS became public during the third quarter, we will not be discussing the second quarter 2024 results. As of the completion of the spinoff on July 9th, 2024, SUNS held approximately $115 million of cash and loans or approximately $16.69 of book value per share based on 6,889,032 shares outstanding at that time. To give investors clarity on the dividends for the year, the Board of Directors have decided to declare a partial dividend for the third quarter of 2024 and a normal dividend for the fourth quarter of 2024. The Board of Directors have declared a partial dividend of $0.21 per common share for the third quarter of 2024 as we were not public for the full quarter and had cash drag as we invested SUNS capital. This dividend will be paid on October 15th, 2024 to shareholders of record on September 30th, 2024. Given the additional deals we have closed and the visibility into ramping the SUNS portfolio, the Board of Directors has also declared a normal dividend of $0.42 per common share for the fourth quarter of 2024. This dividend will be paid on January 15, 2025, to shareholders of record on December 31, 2024. Our dividend policy is to pay between 85% and 100% of distributable earnings on an annual basis. As Brian mentioned, as of August 5, 2024, our portfolio stands at $119.6 million of commitments spread across five borrowers. Looking ahead, we currently have a signed term sheet in our -- in documentation for a revolving credit facility of up to $100 million in commitments. With that, I will now turn it over to the operator to start the Q&A.

[Operator Instructions] We have a question from the line of Stephen Laws with Raymond James.

Hi, good morning. First off, congratulations on your first call and public listening and speaking with investors. So, congrats on that, Len.

Thank you.

Thanks.

Yeah, Brian, really wanted to touch base to the investment pipeline that you mentioned seems pretty robust. I guess first off, you went ahead and declared the fourth quarter dividend. Can you talk about what's the portfolio size fully deployed that the current capital base can support? And as you think about that in the loan mix, how much leverage do you anticipate putting on the portfolio given you target both senior and subordinate investments?

I think the goal is to have a $100 million line, which we talked about on the call, and we have $115 million of equity. So we can assume that we can go up to about $215 million. Of course, the line's never really fully drawn, so it's difficult. So a little bit less than that probably. But yes, I think one-to-one leverage is our target when we're fully deployed.

And timeline on full deployment, six to nine months, sooner, later, and kind of just the $0.42 Q4 div, does that reflect what you anticipate being the fully deployed number, or is that just based on where you think you'll be by year end?

That's a good question. I'm not sure we're going to go into that little detail to tell you how $0.42, but I would say $0.42 was less than fully deployed, but was a number that, as I think Brian articulated, that there are two deals that we have term sheets on. I think that's really what leads to is those deals being deployed, having a full quarter of the deals that we were deploying early in the quarter. And that sort of allows us to pay that kind of dividend and the Board had to feel comfortable that that normal dividend was sustainable over time. That's why we call it the normal dividend.

Fantastic. And then lastly, as you look at the pipeline and what you're seeing in the marketplace, a lot of competitors are on the sidelines. How much of your deal flow is refinance versus acquisition versus development? We've seen a handful of press releases here in the last couple of weeks on new investments, but just trying to get a little bit more color on what's in that billion dollar pipeline that you mentioned in your opening remarks.

Brian?

Yeah, sure, I'll take that. Hey, Stephen, thanks for the questions. Definitely we've seen a much bigger pickup in the opportunity set from a refinancing perspective, which is obviously in line with a lot of what we've collectively been hearing in the marketplace. I think there's that time now where borrowers are deciding that they need to refinance. While rates are likely coming down, they're not going to solve all problems. And so a lot of our time is definitely being spent on the refinancing side. The acquisition side, there's a couple of those deals we're spending time on. I think there needs to be a little more capitulation before there'll be more of those. And then, sprinkling in developments for sure, there are some interesting ones now where we have the opportunity because existing owners of to-be-built projects are realizing that they need to increase their equity and so it's more attractive to us because of our lower attachment points. So we are able to really pick off and target some really interesting deals. So, in summary, I would say it's a mix but it's definitely more weighted these days towards refinancing as we currently look. Obviously that could change at any time, but right now, that's sort of the mix of what we're seeing, Stephen.

Fantastic. Len, Brian, appreciate the comments and congrats again on your first call. Thank you.

Thank you.

Yeah, thanks a lot.