Sunrise Realty Trust, Inc. Common Stock 2026 Q2 Earnings Call

Good morning, and thank you all for joining Sunrise Realty Trust's earnings call for the quarter ended June 30th, 2026. I am 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 17th, 2026, press release and is posted on the investor relations portion of our website at sunriserealtytrust.com, along with our second quarter 2026 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, market developments, our investment pipeline, anticipated portfolio yield, financial performance and projections in 2026 and beyond, and the proposed SUNS/SRT merger. These statements are subject to inherent uncertainties in predicting future results.

Please refer to Sunrise Realty Trust most recent periodic filings with the SEC, including our quarterly report on Form 10-Q, 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 second quarter earnings release available on our website for reconciliations of the non-GAAP financial measures with the most directly comparable GAAP measures. The format for today's call is as follows. Len will provide an update on today's proposed merger announcement. Brian will cover our view on the state of the CRE lending markets, discuss our existing portfolio, and provide an outlook for our investment pipeline. Brandon will provide an update on our financial position. After that, we will open lines for Q&A.

With that, I will now turn the call over to our Executive Chairman, Leonard Tannenbaum.

Thank you, Robyn. Good morning, welcome to our second quarter 2026 earnings conference call. Before turning to the proposed merger that we announced earlier today, for the quarter ended June 30, 2026, SUNS generated distributable earnings of $0.29 per basic weighted average share of common stock. For the first six months of 2026, distributable earnings of $0.65 per share exceeded the $0.60 per share of dividends that we declared over the same period. This reflected the continued earnings power of our portfolio. Turning to the proposed merger, earlier today, we announced and filed with the SEC a signed definitive merger agreement under which SUNS will acquire Southern Realty Trust, or SRT, a private mortgage REIT on the TCG real estate platform. We believe the transaction represents an attractive opportunity for our stockholders.

Under the terms of the proposed transaction, SRT, which has $107 million of equity, will merge into the SUNS platform and create a combined company with approximately $290 million of total equity value on a pro forma basis as of June 30, 2026. Upon closing the merger, SRT shareholders will receive newly issued SUNS common stock based on an exchange ratio that applies a 6% premium to SRT's book value per share relative to SUNS book value per share as of the measurement date. Before turning to the strategic rationale, I want to note that this was an arm's-length negotiated process. SUNS and SRT each formed an independent special committee comprised entirely of independent directors. Each of the special committees retained outside legal counsel and independent financial advisors with Oppenheimer & Company representing SUNS and KBW, Keefe, Bruyette & Woods representing SRT.

Each of the SUNS and SRT special committees and both companies' boards unanimously approved the transaction. In connection with the closing, SUNS management agreement will be amended and restated. Among other changes, number one, the incentive fee rate will be reduced from 20% to 17.5%. Number two, the hurdle rate will move from 8% to 7%. Number three, SUNS manager will provide a management fee waiver of $1 million in the aggregate over the four quarters following the closing to the benefit of all SUNS stockholders. Strategically, we believe the combination will benefit SUNS stockholders in several ways. We expect this transaction to immediately increase our equity base by approximately 60%, which should provide benefits to our cost of capital. A larger platform should provide improved and increased trading liquidity, broader index inclusion eligibility, and enhanced access to the unsecured markets.

We believe the increased flow and market cap may attract a wider universe of investors who have a minimum market cap threshold for deployment. Additionally, from an operating standpoint, we anticipate G&A savings on a combined basis, which will potentially increase our margins post-transaction as we begin eliminating duplicative accounting, legal, audit, board, and regulatory compliance costs inherent in maintaining two separate REIT platforms. Because management already oversees both portfolios, which contain pieces of the same underlying loans, we believe there is no material integration risk. We currently expect the transaction to close in the fourth quarter of 2026, subject to approval by SUNS and SRT stockholders and the satisfaction of other customary closing conditions. SUNS expects to file a proxy statement with the SEC containing additional information. Until the proxy statement is effective, we will limit our comments to the Form 8-K.

With that, I'll turn it over to Brian to discuss the market environment and walk through our portfolio in more detail.

Brian? Thank you, Len. Before reviewing the portfolio, I want to discuss how the current lending environment is translating into opportunities for SUNS.

Looking at the broader market, industry estimates put roughly $900 billion of commercial real estate loans maturing in 2026 with a comparable wave in 2027. Much of it originated between 2019 and 2022, when rates were at historic lows. With rates still elevated, many of those loans now face a refinancing gap. What matters is the cause of that gap. In most of the situations we target, the issue is not a shortfall in asset value, it's that leverage size in a lower rate environment no longer fits today's senior debt capacity. That gap between yesterday's leverage and today's debt capacity is exactly the space our structured capital fills.

Last quarter, we noted that several pipeline transactions were paused as sponsors reassessed their cost of capital amid rate volatility. Transaction activity stayed uneven, with borrowers delaying discretionary acquisitions and refinancings. The most durable demand is need-driven. Sponsors facing near-term maturities where the incumbent lender will extend only against a principal paydown or fresh equity rather than a simple extension. Borrowers with real equity to protect are the ones most willing to engage in pricing and the structural protections that appropriately compensate us. Liquidity is available, commercial banks have meaningfully re-entered the market, particularly for stabilized and near-stabilized multifamily, industrial, and data center assets. We view that as confirmation of our positioning. That competition is compressing spreads in conventional first mortgage lending, which are the commodity lanes we deliberately do not compete in.

Banks are the natural low-cost home for that stabilized product. What has stayed scarce in this cycle is not senior debt, it's equity. More bank liquidity does not fill a sponsor's equity gap, and in many cases, a bank's willingness to extend is conditioned on the borrower funding a paydown it cannot cover alone. Our model differs from many commercial mortgage REITs. Many concentrate on stabilized assets and lean on balance sheet leverage to reach a targeted return. We generate return the other way, through the complexity of transitional business plans, asset level and sponsor underwriting, and negotiated structural protections. Because the unlevered return on that work is higher, we can carry it with comparatively modest corporate leverage, which also leaves us less exposed to the mark to market and margin pressure that our more heavily levered model carries. Where competition is concentrated, we step back.

Where capital is scarce, we lean in. Patience is not inactivity. During the quarter, our team reviewed a significant volume of transactions and declined those that did not meet our return or structure requirements. Our liquidity lets us stay selective rather than accept mispriced risks. Importantly, over the last several weeks, our investment team has seen a noticeable pickup in transactions that fit our targeted criteria, which we believe reflects a growing realization among borrowers and their advisors that rates are staying higher for longer and that continued inactivity is no longer a viable option. We continue to see healthy financing request volume, and while conversion still depends on pricing, structure, and sponsor alignment, the opportunity set in front of us has broadened. The Panther National repayment shortly after quarter end is a clean example of the model end to end.