Business Overview

SUNS was formed on August 28, 2023, as a Maryland corporation that was initially a wholly-owned subsidiary of Advanced Flower Capital Inc. (AFC). In February 2024, SUNS converted from a Delaware limited liability company to a Maryland corporation. The company was spun off from AFC on July 9, 2024, through a distribution of all of SUNS' outstanding shares to AFC's shareholders. The Spin-Off was effected by transferring AFC's commercial real estate portfolio to SUNS, resulting in SUNS becoming an independent, publicly traded company listed on the Nasdaq Capital Market under the symbol SUNS.

In connection with the Spin-Off, SUNS entered into several agreements with AFC to govern the relationship between the two companies, including a Separation and Distribution Agreement and a Tax Matters Agreement. Concurrently, SUNS entered into a new management agreement with its external manager, Sunrise Manager LLC, which became effective upon completion of the Spin-Off.

It's worth noting that prior to the Spin-Off, SUNS did not have any operational history as an independent company. The historical financial statements of SUNS for the periods before the Spin-Off were prepared from AFC's historical accounting records and presented on a standalone basis as if SUNS' operations had been conducted independently from AFC. SUNS made its first investment in January 2024 and did not generate any revenue or income prior to that time.

SUNS is an institutional lender that provides debt capital solutions to the commercial real estate (CRE) market in the Southern United States. The company's primary focus is on originating, underwriting, and managing CRE debt investments, as well as providing capital to high-quality borrowers and sponsors with transitional business plans collateralized by CRE assets that offer opportunities for near-term value creation and recapitalization.

SUNS' investment portfolio is designed to be diversified, targeting investments in senior mortgage loans, mezzanine loans, B-notes, commercial mortgage-backed securities (CMBS), and debt-like preferred equity securities across various CRE asset classes. The company's investment mix includes high-quality residential properties, such as multi-family, condominiums, and single-family residential communities, as well as retail, office, hospitality, industrial, mixed-use, and specialty-use real estate.

The typical loan originated or acquired by SUNS has an investment hold size of approximately $15 million to $100 million, is secured by CRE assets, including transitional or construction projects across diverse property types, has a duration of approximately 2 to 5 years, and features interest rates that are determined periodically based on a floating base lending rate (e.g., SOFR) plus a credit spread. The company targets a loan-to-value (LTV) ratio of no greater than approximately 75% on an individual investment basis and no more than approximately 75% LTV across the portfolio, in each case, at the time of origination or acquisition.

As of December 31, 2024, SUNS' portfolio consisted of 9 loans with an aggregate originated commitment of approximately $190.9 million and an outstanding principal balance of $132.6 million. The company's investments are primarily concentrated in the states of Texas and Florida, which together accounted for approximately 53.4% of the total loan commitments as of the end of 2024. SUNS' loan portfolio is well-positioned from an interest rate perspective, with 85% of the outstanding principal balance in floating-rate loans with a weighted average floor of 4.2%.

Financial Performance

For the fiscal year ended December 31, 2024, SUNS reported GAAP net income of $6.9 million, or $1.01 per basic weighted average common share, and Distributable Earnings of $7.2 million, or $1.07 per basic weighted average common share. The company's net interest income for the year was $10.6 million, with a net interest margin of 10.3%.

For the quarter ended December 31, 2024, the company generated net interest income of $3.4 million and distributable earnings of $2 million or $0.30 per basic weighted average common share. GAAP net income was $1.9 million or $0.27 per basic weighted average common share. The company believes distributable earnings is helpful to shareholders in assessing the overall performance of the 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.

As of December 31, 2024, SUNS had total assets of $317.5 million and total shareholders' equity of $114.1 million, resulting in a book value per share of $16.29. The company's debt-to-equity ratio was 1.74x, with total debt of $198.8 million, primarily consisting of borrowings under its Revolving Credit Facility and an unsecured credit facility.

Liquidity

SUNS' cash and cash equivalents position as of December 31, 2024, was $184.6 million, providing the company with ample liquidity to fund its pipeline of investment opportunities. The company's operating cash flow for the fiscal year 2024 was $1.6 million, while its free cash flow was also $1.6 million.

The company entered into a $50 million senior secured revolving credit facility with East West Bank in November 2024, which can be increased up to $200 million. SUNS also has a $75 million unsecured revolving credit facility with SRT Finance LLC. As of December 31, 2024, the company had $123.8 million and $75.0 million in outstanding borrowings under the secured and unsecured credit facilities, respectively. The secured facility bears interest at a rate of SOFR plus 2.75%, with a SOFR floor of 2.63%, while the unsecured facility carries an 8.00% interest rate.

SUNS' current ratio and quick ratio both stand at 1.56, indicating a strong short-term liquidity position.

Growth and Expansion

Since its public listing in July 2024, SUNS has continued to execute on its growth strategy, leveraging its affiliation with the TCG real estate platform to source and underwrite attractive CRE lending opportunities. In the fourth quarter of 2024, the company committed $75 million to three new transactions, including a $30 million senior loan for a condominium development in Fort Lauderdale, Florida, a $32 million senior loan for a luxury hotel in Austin, Texas, and a $13 million subordinate loan for a multifamily project in Miami, Florida.

Subsequent to the end of 2024, SUNS has remained active, committing an additional $75 million to two transactions originated by the TCG real estate platform, including a $44 million senior loan for the construction of Shell Plaza, a build-to-suit net lease property in New Orleans, Louisiana, and a $31 million commitment on a residential asset in Florida.

In January 2025, SUNS successfully completed a public offering, raising approximately $77 million in gross proceeds, which the company intends to use to fund loans related to unfunded commitments to its existing borrowers and to originate and participate in new CRE lending opportunities in the Southern United States. The company's manager has also agreed to waive at least $1 million in future fees to mitigate any earnings drag as SUNS deploys the new capital.

The company's portfolio is concentrated in the Southern U.S., with 83% of loan commitments in Florida and Texas as of March 1, 2025. SUNS is also pursuing opportunities in other southern states like Georgia, South Carolina, and Tennessee, and recently closed a deal in Louisiana.

Risks and Challenges

As with any commercial real estate lender, SUNS faces a variety of risks, including competition for investment opportunities, potential declines in CRE valuations, and exposure to the economic performance of its target markets. The company's portfolio is also currently concentrated in the Southern U.S., with a significant portion of its loans secured by residential and mixed-use properties, exposing it to any market-specific downturns or changes in supply and demand dynamics.

Additionally, SUNS' reliance on external financing, including its Revolving Credit Facility and unsecured credit facility, subjects the company to interest rate risk and the availability of capital markets. Any disruptions or tightening of credit conditions could impact the company's ability to fund new investments or refinance existing debt.

Outlook and Conclusion

Despite the challenges, SUNS appears well-positioned to continue navigating the CRE lending landscape in the Southern U.S. The company's experienced management team, affiliation with the broader TCG platform, and recent capital raise provide it with the resources and flexibility to capitalize on the current market environment, which is characterized by elevated interest rates, slower market recovery, and a need for transitional capital.

SUNS expects the $0.30 dividend declared by the Board of Directors for the quarter ended March 31, 2025, to be on or close to their first quarter 2025 distributable earnings. The company believes the current market environment will continue to create attractive entry points for them to invest capital over the coming quarters, as elevated interest rates should lead to a slower market recovery and a need for transitional capital.

SUNS expects their portfolio composition to remain similar to the current composition in the near to medium term, with an emphasis on well-located residential and mixed-use assets, backed by experienced and well-capitalized sponsors. While the company does not provide specific guidance on the amount they expect to commit or fund in the next 1-2 quarters, they indicate they have a strong active pipeline of $1.4-1.5 billion.

To support the company's growth and mitigate the earnings drag as they deploy equity and debt capital, SUNS expects their manager to waive all management fees and all incentive fees in the first quarter of 2025.

With a robust pipeline of investment opportunities, a well-structured debt profile, and a focus on high-quality, transitional CRE assets, SUNS appears poised to generate attractive risk-adjusted returns for its shareholders. As the company continues to execute on its growth strategy and further diversify its portfolio, investors should closely monitor SUNS' ability to maintain its disciplined underwriting standards, prudent leverage levels, and strong credit performance.