Executive Summary / Key Takeaways

• Sunrise Realty Trust (NASDAQ: SUNS) is a commercial real estate (CRE) lender focused on originating and managing debt investments in the high-growth Southern United States market, leveraging its Spin-Off from AFC Gamma and affiliation with the TCG Real Estate platform.
• The company is rapidly scaling its portfolio of new vintage, predominantly floating-rate loans, growing commitments to $352.1 million and outstanding principal to $233.4 million across 12 loans by March 31, 2025, driving significant year-over-year revenue and net income growth.
• SUNS is strategically building its capital structure, completing a $71.4 million net proceeds equity raise in January 2025 and expanding its senior secured revolving credit facility to $100 million post-Q1, targeting a 1.0x debt-to-equity ratio to enhance returns.
• Management anticipates potential earnings growth in the second half of 2025 and full year 2026, primarily driven by the acceleration of funding on construction loans already in the portfolio, which feature attractive rates and floors.
• While facing risks common to CRE lending (interest rates, credit, real estate volatility) and potential impacts from tariff policies, SUNS mitigates these through rigorous underwriting, proactive monitoring, structural protections (guarantees, escrows), and a focus on high-quality sponsors and assets.

Setting the Scene: A New Vintage Lender in the Dynamic Southern CRE Market

Sunrise Realty Trust (SUNS) emerged as an independent, publicly traded entity on July 9, 2024, following its spin-off from Advanced Flower Capital Inc. (AFCG). This separation allowed SUNS to focus exclusively on its core mandate: providing debt capital solutions to the commercial real estate market, with a strategic emphasis on the rapidly expanding Southern United States. Formed in August 2023 and converting to a Maryland corporation in February 2024, SUNS made its first investment in January 2024, positioning its entire portfolio as "new vintage" assets, free from legacy issues that may burden other lenders.

SUNS operates as an institutional lender, originating, underwriting, and managing secured CRE loans. Its business model centers on providing capital to high-quality borrowers and sponsors engaged in transitional business plans for CRE assets, such as development, repositioning, or recapitalization. The company intends to diversify its investments across various property types, including residential, retail, office, hospitality, industrial, and mixed-use, primarily through senior mortgage loans, but also opportunistically in mezzanine debt and other CRE-related securities.

A key differentiator for SUNS is its integral role within the Tannenbaum Capital Group (TCG) Real Estate platform. This affiliation provides SUNS with access to a veteran team of CRE investment professionals, a robust relationship network for deal sourcing, and significant back-office support for marketing, reporting, legal, and administrative functions. While the company's information does not detail specific technological platforms, the operational strength derived from the TCG platform's infrastructure, direct origination capabilities, rigorous investment process, deep credit analysis, and proactive portfolio monitoring are highlighted by management as critical advantages in identifying and executing attractive lending opportunities. The recent addition of experienced personnel like Alfred Tribulino further bolsters the team's sourcing and execution capabilities.

Capitalizing on Market Dynamics: Strategy and Execution

SUNS's strategy is deeply intertwined with the current landscape of the CRE lending market. Management consistently points to a favorable environment in the Southern United States, characterized by robust population growth and significant capital demand for real estate projects. Crucially, they note that traditional lenders, particularly regional banks, have significantly pulled back from the market dueades to overall volatility and a focus on managing existing portfolios. This reduction in available capital, coupled with upcoming debt maturities, has created a supply-demand imbalance, presenting alternative lenders like SUNS with opportunities to originate loans at attractive risk-adjusted returns, often at lower attachment points and higher rates than previously available.

The company's investment focus reflects this opportunity. Target investments typically range from $15 million to $100 million, secured by transitional or construction projects across diverse property types, with durations of 2 to 5 years. Loans feature floating interest rates (SOFR plus a credit spread) and target loan-to-value (LTV) ratios no greater than approximately 75% on an individual investment basis and across the portfolio at origination. Origination and/or exit fees are typical components of these loans.

This strategic approach has translated into rapid portfolio growth since the Spin-Off. As of March 31, 2025, just nine months after becoming independent, SUNS's total loan commitments stood at $352.1 million, with $233.4 million in outstanding principal, spread across twelve loans. This represents a substantial increase from $190.9 million in commitments and $132.6 million outstanding across nine loans at the end of 2024. The portfolio remains predominantly floating-rate, with approximately 89% of loans held at carrying value having floating rates as of March 31, 2025, providing a hedge against rising interest rates. The weighted average SOFR floor on these loans was 4.10% based on outstanding principal.

Financial Performance and Portfolio Quality

The expansion of the loan portfolio has been the primary driver of SUNS's financial performance. For the three months ended March 31, 2025, interest income surged to $4.96 million, a 144.7% increase from $2.03 million in the same period of 2024. This growth directly reflects the deployment of capital into a larger number of loans, increasing from two borrowers in Q1 2024 to twelve in Q1 2025. Net interest income followed suit, rising to $4.62 million from $2.03 million.

While expenses also increased as the company scaled operations and incurred costs as an independent entity (general and administrative expenses rose to $753 thousand from $543, stock-based compensation to $244 thousand from zero, and professional fees to $409 thousand from $263 thousand), net income still saw significant growth. Net income for the first quarter of 2025 reached $3.10 million, or $0.27 per basic weighted average common share, compared to $1.76 million, or $0.26 per basic weighted average common share, in the prior year period.

Distributable Earnings, a non-GAAP measure used by management and the Board to evaluate performance and consider dividends, also increased substantially, reaching $3.46 million, or $0.31 per basic weighted average common share, for Q1 2025, up from $1.76 million, or $0.26 per basic weighted average common share, for Q1 2024.

Credit quality remains a critical focus. As of March 31, 2025, the Current Expected Credit Loss (CECL) Reserve for loans held at carrying value was approximately $157.8 thousand, representing a modest 0.07% of the total carrying value. This reserve includes a liability for unfunded commitments. The company employs a continuous evaluation process, assigning risk ratings based on various factors including property type, market dynamics, cash flow, loan structure, LTV, and sponsorship. Encouragingly, as of March 31, 2025, all loans held at carrying value were assigned a risk rating of 2.00 ("Low Risk"), indicating performance consistent with expectations and a full return of principal and interest anticipated.

Capital Structure and Liquidity for Growth

Building a robust capital structure is essential for SUNS's growth trajectory. The company ended Q1 2025 with $1.64 million in cash and cash equivalents, a significant decrease from $184.63 million at the end of 2024. This change primarily reflects the deployment of proceeds from the January 2025 public offering into new loan fundings.

The January 2025 offering was a pivotal event, raising approximately $71.4 million in net proceeds through the sale of 6.4 million shares. This equity infusion provides significant capital to fuel further portfolio expansion.

Complementing its equity base, SUNS has established key debt facilities. The senior secured revolving credit facility with East West Bank (EWBC), initially providing $50 million in commitments, is expandable up to $200 million. As of March 31, 2025, $43.2 million was drawn on this facility, with $6.8 million available. Subsequent to the quarter, this facility was expanded to $90 million with the addition of City National Bank and further to $100 million with EverBank, demonstrating growing lender confidence and increasing borrowing capacity towards the $200 million target. The interest rate on this facility is SOFR + 2.75% with a 2.63% SOFR floor.

Additionally, SUNS has an unsecured revolving credit facility with affiliate SRT Finance LLC, providing a $75 million commitment. As of March 31, 2025, this facility was undrawn, offering significant additional liquidity. The interest rate on this facility is 8.00%.

The company's target near to mid-term capitalization structure is one-third equity, one-third secured debt availability, and one-third unsecured debt, aiming for an expected leverage ratio of 1.0x debt-to-equity. As of March 31, 2025, total liabilities were $49.63 million and total shareholders equity was $184.81 million, indicating a current debt-to-equity ratio significantly below the target, providing substantial room for leveraging the equity base to enhance returns.

Unfunded commitments stood at $118.7 million as of March 31, 2025, representing future funding obligations on existing loans, primarily construction loans. Management believes current cash, available credit, and operating cash flows are sufficient to meet obligations for at least the next twelve months.

Outlook and Growth Drivers

Management is optimistic about the future, particularly the earnings potential in the latter half of 2025 and throughout 2026. This outlook is specifically tied to the acceleration of funding on construction loans already committed within the portfolio. These loans, structured with attractive rates and floors, are expected to draw down over the next six to eighteen months, providing a visible runway for increased interest income and earnings growth.

The company reiterated its guidance that the $0.30 quarterly dividend for Q2 2025 is expected to be on or close to its distributable earnings for the quarter, consistent with the Q1 2025 performance ($0.31 DE per share). This suggests a focus on aligning the dividend with current earnings power during the capital deployment phase. The manager has also agreed to waive a total of $1 million in fees to help mitigate potential earnings drag during this period, with approximately $860 thousand waived in Q1 2025, and the remainder expected to spill into Q2.

The pipeline for new investments remains strong, with the TCG Real Estate platform actively reviewing opportunities. Two signed non-binding term sheets totaling $100 million are currently in documentation, with SUNS expected to be allocated a portion. Management expects the portfolio composition to remain focused on well-located residential and mixed-use assets backed by experienced sponsors in the Southern US. They anticipate the favorable market environment, where borrower demand outstrips available capital due to traditional lenders' conservatism, will continue to create attractive entry points for investing capital.

Looking ahead, SUNS intends to continue expanding its borrowing capacity, specifically aiming to fully utilize the $200 million potential of the East West Bank facility over the coming quarters. Furthermore, the company has signaled its intention to pursue an unsecured debt raise in the fourth quarter of 2025, which would further diversify its funding sources and move towards its target capital structure.

Risks and Mitigation

While the outlook is positive, SUNS faces inherent risks common to CRE lending. Interest rate risk is present, as rising borrowing costs could outpace yields on floating-rate assets, particularly if interest rate caps on assets limit upside while borrowing costs increase without restriction. The floating-rate nature of most of SUNS's loans and the floors in place on both assets and liabilities (loan floors generally higher than credit line floors) provide some mitigation, but mismatches could still occur.

Credit risk is a primary concern. Although all loans were rated Low Risk as of March 31, 2025, unanticipated credit losses could occur, especially given the portfolio concentration (top three borrowers represented 41.9% of outstanding principal). Real estate risk, stemming from volatility in national, regional, and local economic conditions and property values, could impact collateral values and borrower repayment ability.

Management actively mitigates these risks through a rigorous underwriting process, deep credit analysis, and proactive, ongoing monitoring of the portfolio. Loan structures often include structural protections such as personal guarantees, liquidity requirements for guarantors, letters of credit, and reserve accounts, which provide additional cushion and allow for adjustments based on evolving market conditions. The company also tailors insurance coverage to the specific risks of each investment.

A more recent risk factor is the potential impact of changes to U.S. tariff regulations on the commercial real estate market, particularly construction costs and supply chains. While management stated that a review of the existing construction loan portfolio did not reveal anticipated material impacts on project budgets or timelines at this time, they will continue to monitor the situation. They also noted that this uncertainty might limit new construction activity in the near term as sponsors and lenders re-underwrite projects.

Conclusion

Sunrise Realty Trust is executing a clear strategy to build a scaled CRE lending platform focused on the compelling opportunities in the Southern United States. Leveraging its new vintage portfolio, affiliation with the TCG platform, and a favorable market environment where traditional lenders have retreated, SUNS is rapidly deploying capital into a growing portfolio of predominantly floating-rate loans. The recent equity raise and expansion of credit facilities provide the necessary capital and flexibility to continue this growth and move towards a targeted, more leveraged capital structure designed to enhance returns.

While risks inherent in CRE lending persist, including interest rate fluctuations, credit performance, and real estate market volatility, SUNS employs a disciplined underwriting and monitoring approach with structural loan protections to mitigate these exposures. The outlook for earnings growth in the coming quarters, driven by the funding of existing construction commitments, provides a degree of visibility into future performance. For investors seeking exposure to the Southern US CRE debt market through a focused, externally managed entity with a clean balance sheet and a clear growth plan, SUNS presents a compelling narrative centered on capitalizing on current market dislocations and building long-term value through strategic lending and capital management.