Sunrise Realty Trust Q3 Earnings Call Highlights

Key Points

• Sunrise reported Q3 distributable earnings of $3.2 million, or $0.24 per share, including about $900,000 in one-time merger costs. All portfolio loans were current and performing at quarter-end and at the time of the call.
• The November 5 merger with Southern Realty Trust created a combined portfolio with about $478.6 million in loan commitments and $393.1 million in principal outstanding. Management expects roughly $1.2 million in annual cost savings beginning in 2027 and plans to start repurchasing shares before the end of 2026 under its $20 million authorization.
• Management said the combined company has capacity to fund more loans but remains selective amid market volatility. Its pipeline includes a proposed $93 million Texas multifamily loan and $169 million of transactions under signed term sheets, all subject to closing conditions.

Sunrise Realty Trust NASDAQ: SUNS reported third-quarter distributable earnings of $3.2 million, or $0.24 per share, and outlined plans to deploy capital and begin share repurchases following its merger with affiliated private mortgage REIT Southern Realty Trust.

The commercial real estate lender completed the merger on November 5, creating a combined portfolio with approximately $478.6 million in loan commitments and $393.1 million in outstanding principal on an unaudited pro forma basis as of September 30. Executive Chairman Len Tannenbaum said the larger company could benefit from broader financing options, greater trading liquidity and reduced duplicative costs.

Management also said it is pursuing new loans but remains selective amid higher interest rates and market volatility. All loans in Sunrise’s portfolio were current and performing at quarter-end and remained so at the time of the call, Chief Executive Officer Brian Sedrish said.

Quarterly results and dividends

Sunrise generated $5.8 million in net interest income for the quarter ended September 30. GAAP net income was $2.9 million, or $0.21 per basic weighted average common share. The results included approximately $900,000, or $0.06 per share, in one-time merger-related costs, Chief Financial Officer Brandon Hetzel said.

For the first nine months of 2026, distributable earnings totaled $11.8 million, or $0.89 per share, compared with $0.90 per share in dividends declared over that period. Nine-month GAAP net income was $10.2 million, or $0.75 per share.

The company paid a $0.30-per-share third-quarter dividend on October 15. It also paid a prorated $0.09-per-share dividend on November 5 for the period from October 1 through November 4, ahead of the merger’s completion. Hetzel said the board is expected to declare a dividend for the remainder of the fourth quarter, with the amount and record date to be announced later.

Tannenbaum said the intention for the year is to pay out close to the company’s income. The board will consider pro forma results when determining dividends for next year, he said.

Merger savings and capital plans

Sunrise issued approximately 8.5 million shares in the merger at a ratio of 1.45 Sunrise shares for each Southern Realty Trust share. The combined company has approximately 22 million shares outstanding, with former Southern Realty Trust shareholders holding roughly 38.5%, Tannenbaum said.

The companies’ portfolios had 100% overlap in the same loans, and Tannenbaum said he did not anticipate integration risk. Hetzel estimated annual general and administrative savings of approximately $1.2 million, largely from eliminating duplicate costs, with the savings expected to emerge in 2027.

Under the amended management agreement, the incentive fee fell to 17.5% from 20%, while the annual hurdle rate declined to 7% from 8%. Base management fees will also be reduced by $250,000 per quarter in 2027, for a total of $1 million.

The board authorized a $20 million share repurchase program in October that runs through December 31, 2027. Tannenbaum said the company would start repurchases before the end of 2026, but did not expect necessarily to complete the entire program by then. He said repurchases could be an attractive use of capital given the stock’s discount to net asset value.

Hetzel said the company had not disclosed a pro forma book value or combined balance sheet because purchase price accounting was still being completed. On a standalone basis, Sunrise reported September 30 book value of $13.39 per share and a debt-to-equity ratio of approximately 0.5 times.

Loan pipeline and portfolio

Sunrise funded $17.1 million of new and existing loans during the third quarter and received $58.9 million in repayments, primarily from the July repayment of the Panther National senior term loan and construction revolver. At September 30, its standalone portfolio had $313.9 million in commitments and $256.9 million in principal outstanding across 12 loans, with an estimated weighted average yield to maturity of approximately 12%.

After quarter-end, Sunrise closed an approximately $3 million senior secured loan for two buildings at the Sommet Blanc luxury residential project in Park City, Utah. Following the merger, its commitments across three buildings at the project totaled approximately $17 million, Sedrish said.

The TCG Real Estate platform is also advancing a proposed $93 million senior construction loan for a Texas multifamily development. The structure includes a $62 million A note with a third-party partner and a $31 million B note expected to be held by Sunrise. Sedrish said the transaction was expected to close shortly, subject to diligence, documentation and customary closing conditions.

Other transactions under signed term sheets total $169 million. Sedrish said they involve residential projects, including luxury destination homes, condominiums and single-family homes. Those transactions also remain subject to closing conditions.

Sunrise completed the $41 million sale of the Thompson San Antonio through its joint venture on October 9. The transaction consisted of $9 million in purchaser cash and $32 million in senior secured financing, which Sunrise holds entirely following the merger. Sedrish said the sale closed in line with the investment’s carrying value before closing costs and transaction expenses, and Sunrise no longer owns any real estate.

Leverage and financing outlook

Tannenbaum said the combined company is under-leveraged and has capacity to fund additional deals. He described a target debt-to-equity ratio of at least 1-to-1 and said approximately $200 million in additional funded loans, rather than commitments alone, would be needed to improve returns on equity. He did not provide a specific return target.

Asked about unsecured financing, Tannenbaum said current market pricing was too expensive. Sunrise’s existing unsecured financing carries an 8% fixed rate and a 1% annual fee, Hetzel said. Tannenbaum said he would want a new unsecured market transaction to have an all-in cost below 9%.

Sedrish said the merger was not responsible for slower transaction volume during the quarter. Instead, he pointed to the company’s patience in selecting deals and the time required to execute more complex transactions.

About Sunrise Realty Trust (NASDAQ:SUNS)

Sunrise Realty Trust, Inc. is a real estate investment trust focused on commercial real estate finance. The company invests in and originates commercial real estate debt, seeking to generate income from loans and other investments secured by properties in the United States. Its investment activities are centered primarily on mortgage loans and other credit investments backed by commercial real estate. These investments may support the acquisition, refinancing, development, redevelopment or repositioning of properties, with the portfolio generally targeting opportunities in the middle-market commercial real estate sector.

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