SUNS - NASDAQ

Hello and welcome to Sunrise Realty Trust fourth quarter and full year 2024 earnings conference call. At this time, all participants are in 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 would need to press star one one on your telephone. You would 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.

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 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 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 2024 earnings release and investor presentation. Today's conference call includes forward-looking statements and projections that reflect the 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. Then, 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.

Thank you, Gabe. Good morning, and welcome to our fourth quarter and fiscal year 2024 earnings conference. As we finished 2024 and began 2025, we've continued the strong momentum since our public listing in July. For the quarter ended December 31, 2024, SUNS 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 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 $0.30 dividend should be on or close to our first quarter 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 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 31, 2024, the TCG real estate platform originated $538 million of loans, of which SUNS committed $220 million and funded $162 million. As of December 31, 2024, $133 million of principal remained outstanding. As of March 1, 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 US creating opportunities for commercial real estate lenders, our direct origination platform continues to source attractive opportunities. 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, 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 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 Sedrish.

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 supported loan for a Class A multifamily asset in Miami, Florida. From year-end through March 1, 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 US 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 1, 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 US. 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 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 1, 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 sourcing and execution capabilities, I'm pleased to announce the addition of Alfred Tribulino to the TCG real estate platform and the SUNS 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 US real estate finance at CPQ. 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 for 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, 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 SUNS business. Distributable earnings represent 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 1, 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 31, 2024, our CECL reserve is approximately $40,000 or three basis points for our loans at carrying value. As of December 31, 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 31, 2025. The dividend will be paid on April 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&A.

Thank you. Ladies and gentlemen, as a reminder to ask a question, then wait for your name to be announced. To withdraw your question, please press star one one 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.

Hey. Good morning. Thanks. I just had one on just on the debt profile and maybe I think some timing issues or questions really. And so the way we're well, for I guess, the first part of the question was is yeah. 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 hear what that is. It'd be helpful for modeling. And then you know, kinda looking forward, I think that the revolver has been pulled down for $75 million, but the East West line had an outstanding balance and then was subsequently paid down. But I just wanna make sure we're thinking of the pieces of the debt structure correctly with that last part of the question.

Sure. So the reason your interest 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-December. And so we did have the Swiss bank line drawn at year-end, which was partially repaid at year-end. And then fully repaid after the equity raise in January.

Okay. So East West is paid, and then but then the revolver is pulled down for the full seventy-five. I mean, just think of the is it reasonable to think the seventy-five would just kinda stay pulled down and then East West would kinda grow with the origination? Ramp. Is that is that is that the seventy-five million the seventy-five million revolver was repaid right after year-end as well.

Oh, okay.

So then it would be you'd go back to East West first, I guess. Correct. As you seek more correct?

Yes. That's correct.

Okay. Good. Okay. That's super helpful. Thanks. Now, otherwise, the, you know, it was well covered. So that was just our one question. Thank you.

Sure. 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.

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, eighty-five percent senior loans. Can you talk about what the mix looks like in your pipeline of senior versus mezz, kinda 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 investment pace and pipeline of deploying that capital?

Brian, answer the first part. No. Yeah. Sure. Sure. Hey, Steve. Thanks for the questions, Brian. So in terms of the mix between Senior. And subordinate I would say that, you know, the expectation is we're obviously gonna 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 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, you know, I think strategically, opportunistically, as we find interesting sub-debt tranches, that we can that we can participate in, we're gonna 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 I do think in certainly from a go-forward basis, I would expect that our majority substantial majority of our book will be on the senior side.

And second part, Steve, Len Tannenbaum speaking. Let's address your question to pipeline conversion and when are we gonna be fully deployed. And so it's a little bit of nuance answer. Which is why I wanna explain it to everybody. When we determine we're fully deployed, we may not be fully drawn. Many of our loans are construction loans. In fact, we've got some terrific ones that are starting to draw midyear. So, actually, differently than any other company that I've I've I've done with I've been chairman of. This one has a lot of visibility twenty twenty-six. Is very exciting. So when we we would start referral fully deployed, we may not see the full earnings impact from that full deployment till twenty twenty-six. So we're we're very I'm actually very personally excited about twenty twenty-six and what we've already done already have on our books. Twenty twenty-five really depends on that pace of draw. Partially and pace of closings. So it's it's a combination of things, which makes twenty twenty-five a little bit harder to predict. Twenty twenty-six is actually easier to predict for us right now than twenty twenty-five.

That's helpful then. Appreciate the color there. And, 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 four twenty. Know, we're sitting at SOFR of four thirty-three. Your line floor is sub three. You know? So really either way interest rates move, you should get some benefit. 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?

Yes. Correct. You got it right.

Awesome. Well, I appreciate you verifying that. Thank you, sir.

Okay.

Thank you. Please stand by for our next question. 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 set it, you know, conservatively and hopefully know, you said you expect first quarter earnings to be around thirty cents. So that's right, top of the dividend. No. No. Your return targets you know, are a little higher, so is is the idea to gradually know, out earn the dividend and eventually, increase it?

So let's just you have to really I read 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 we'll have to talk to you after we we we can further talk about that after, but it's that that 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 ten k, so please refer to the ten k where that that same statement is probably helpful more heft to it than a than a speech. As for do we expect to ramp it over time? Yeah. I I I think that I'm like as I just said, I'm really excited about twenty twenty-six. I don't know the pace of earnings growth in twenty twenty-five. Right. We know that it gets there. We we just have to see what that pace is. So over the over I think thirty cents 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 we feel very the board felt very comfortable with with the thirty cent dividend. And, yes, it should grow over time. I just don't know what pace it grows.

So what attributes drive the improved visibility in twenty twenty-six over this year?

So the the main one is when we started a year ago, I I 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's a little bit tighter. Already. We're seeing that. So I think we we got peak vintage last year. I think still very good vintage this year. 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 midyear. And fund all the way into twenty twenty-six. Even loans another one that we're even looking at today is it starts a little bit now and then starts in November, and we've I'm excited about that one too. So it's all of these types of generate a great twenty twenty-six twenty into twenty twenty-seven scenario, for fundings. So you're gonna see us very committed and then those draws will happen like, over time. And so we're we're that that's why the disability is is is really delayed a little bit.

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

I mean, I think we've put that we have some signed term sheets that we are we're working on. So it's it's we definitely have deals that we're going to do. Some some of that is even so I'll I can't we're not gonna be we're not gonna forward forecast because that means we're gonna forward forecast every quarter. But let me bring up something that may help. Down the road. Some of our deals some of our deals will go on our senior credit line. And some of our deals will be not that many of our deals. I think we're forecasting twenty to thirty-three percent to be mezz, but some some amount will be actual mezz loans. Sometimes, you'll may see us take down a deal that's hundred let's just it is not the real numbers, but it's twelve hundred million dollars. 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 if we can back lever them appropriately, we get to nice double-digit returns on on on the on the note that we're holding. So that you may see us take down a hundred million dollars. It'll make it show a hundred million our balance sheet. Right, Brandon?

Right. And and

at the same time, right, we've laid off seventy-five million dollars to an to an enote. Or I mean, I'm that I'm not giving you exact numbers. These aren't exact deals. I'm just giving you hypothetical know, things. So you this also makes it very difficult to tell you whether what we originated, how we originated it 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. 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.

Thank you. Good morning. Alright. I wanted to clarify your comments around management and incentive fee. I think in your prepared remarks, you said you don't expect you don't you expect to waive all the management in ten p in one q. Is that right?

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

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

And and so that that one Q waiver, that goes towards the one million dollar waiver talk about

Yes.

Okay. Second question on I I wanted to ask you on your credit line. So the the two hundred million dollar total capacity what sort of, like, criteria that that you guys need to go from, like, fifty to twenty-eight million dollars?

Question? Could you just repeat that question, please?

I think your total capacity on your East Coast line is two hundred million dollars and so I I was just wondering, like, you know, what what what are some of the criteria that you guys need to meet to go from, like, fifty to two hundred million dollars?

Oh, nothing. I mean, we're you'll see us expand that line over the course of the next quarter or two. I mean, we're there's a lot of good interest from the banks. We're excited about that. You'll see I I I believe you're gonna see us expand that line towards the two hundred million dollars. But remember, if if our goal here with a hundred and eighty million dollars ish of equity. Right. Brandon?

Yes. Yes.

Is to be forty percent equity, sixty percent debt. Or if you think about the model that we're we're shooting for, which is had two hundred million of equities, just to make the numbers round, two hundred million of equity, two hundred million of sub-debt, two hundred million of senior, one hundred million drawn, right? We just need the two hundred million. So I'm I don't think senior leverage is gonna be the hold-up. As I've said, I think in the last call, I'll say, you know, on this one, right, I I do want to do an unsecured raise this year. I I'm excited to do that. I like unsecured with no confidence. I did many unsecured raises in my previous business that I sold Oaktree. So we are gonna start working on that you know, after this call and the rest of the year and and hopefully draw on the seventy-five million dollar 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 that's the goal and and the next thing we're working on.

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

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.

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